Internal Revenue Bulletin: 2008-10 |
March 10, 2008 |
Table of Contents
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
This document contains final and temporary regulations under section 468A of the Internal Revenue Code relating to deductions for contributions to trusts maintained for decommissioning nuclear power plants. The temporary regulations affect most taxpayers that own an interest in a nuclear power plant and reflect recent statutory changes. The text of these temporary regulations also serves as the text of the proposed regulations (REG-147290-05) set forth in the notice of proposed rulemaking on this subject in this issue of the Bulletin.
Effective Date: These regulations are effective on December 31, 2007.
Applicability Dates: For dates of applicability, see §1.468A-9T.
These temporary regulations are being issued without prior notice and public procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). For this reason, the collections of information contained in these regulations have been approved by the Office of Management and Budget on a temporary basis under control number 1545-2091 and pending receipt and review of comments, may be approved for a period of three years. Responses to these collections of information are required to obtain a tax benefit.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.
For further information concerning this collection of information, and where to submit comments on the collection of information and the accuracy of the estimated burden, and suggestions for reducing this burden, please refer to the preamble of the cross-referencing notice of proposed rulemaking published in this issue of the Bulletin.
Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
This document contains amendments to 26 CFR part 1 providing temporary regulations under section 468A of the Internal Revenue Code of 1986 (Code). Section 468A was amended by section 1310 of the Energy Policy Act of 2005 (the Energy Policy Act), Public Law 109-58 (119 Stat. 594).
Section 468A provides a deduction for amounts contributed to a qualified nuclear decommissioning reserve fund. Under prior law, the deduction was limited to the lesser of the amount included in the utility’s cost of service for ratemaking purposes or the ruling amount. As a result, only regulated utilities could take advantage of section 468A. The Energy Policy Act amendment of section 468A eliminated the cost-of-service limitation. Accordingly, decommissioning costs of an unregulated nuclear power plant may now be funded by deductible contributions to a qualified nuclear decommissioning fund.
Under prior law, deductible contributions were also limited to the amount necessary to fund the plant’s post-1983 nuclear decommissioning costs (determined as if decommissioning costs accrued ratably over the estimated useful life of the plant). The Energy Policy Act amendment of section 468A also eliminated this limitation. Accordingly, taxpayers may now fund the entire cost of decommissioning a plant through a qualified nuclear decommissioning fund.
A plant’s pre-1984 nuclear decommissioning costs can be funded by increasing the annual deductible contributions over the remaining useful life of the plant. In addition, however, the Energy Policy Act amendments to section 468A permit more rapid funding of the pre-1984 costs. A taxpayer may contribute, in a single taxable year, all or any portion of the amount needed to fund pre-1984 nuclear decommissioning costs that have not been previously funded (a “special transfer”). A special transfer is not deductible in full in the year the contribution is made. Instead, the deduction is allowed ratably over the remaining useful life of the nuclear plant. Gain or loss is not recognized on any special transfer, and the transferred assets have a carryover basis.
Section 468A allows a deduction only if the Internal Revenue Service has given the taxpayer a schedule of ruling amounts (that is, a schedule specifying the maximum deductible contribution that can be made in each taxable year). The Energy Policy Act amendments provide that the taxpayer must obtain a new schedule of ruling amounts when the Nuclear Regulatory Commission (NRC) extends the operating license of the plant.
The schedule of ruling amounts may not provide for more rapid than level funding over the estimated useful life of the nuclear power plant. Also, as noted above, deductions for special transfers are allowed ratably over the plant’s remaining useful life. Under the current regulations, the useful life of the plant begins on the first day of the taxable year that includes the date that the nuclear power plant begins commercial operations, and ends on the last day of the taxable year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes. The proposed and temporary regulations retain this general framework for plants that were regulated by a public utility commission (PUC) before January 1, 2006, and permit the use of any reasonable method to determine the end of the estimated useful life for all other plants. The current regulations require adjustments to the estimated useful life to reflect changes in PUC assumptions regarding useful life. The proposed and temporary regulations eliminate this requirement. Taxpayers will, however, be permitted to establish that a change in the plant’s useful life is appropriate and may use the assumptions used in the most recent ratemaking proceeding as support for such a change.
Section 468A(f) provides that the amount of the special transfer with respect to a nuclear power plant may not exceed “the present value of the portion of the total nuclear decommissioning costs with respect to such nuclear power plant previously excluded for such nuclear power plant under section 468A(d)(2)(A) as in effect immediately before the date of the enactment of [the Energy Policy Act].” The legislative history (footnote 15 of H. Rep. 109-45) provides the following explanation of this rule:
For example, if $100 is the present value of the total decommissioning costs of a nuclear powerplant, and if under present law the qualified fund is only permitted to accumulate $75 of decommissioning costs over such plant’s estimated life (because the qualified fund was not in existence during 25 percent of the useful life of the nuclear powerplant), a taxpayer could contribute $25 to the qualified fund under this component of the provision.
The proposed and temporary regulations permit taxpayers to compute the maximum special transfer amount by (i) calculating the present value of the future decommissioning liability and (ii) reducing that present value by the amount of decommissioning costs that, under the law in effect before the enactment of the Energy Policy Act, could have been funded through a qualified fund. For this purpose, the amount of decommissioning costs that could have been funded through a qualified fund is determined by multiplying the present value of the future decommissioning liability by the qualifying percentage that, under the law in effect before the enactment of the Energy Policy Act, was used to determine the amount of decommissioning costs that could be funded through a qualified fund.
Taxpayers may make special transfers of property other than cash. The legislative history (footnote 16 of H. Rep. 109-45) includes the following discussion relating to such transfers:
A taxpayer recognizes no gain or loss on the contribution of property to a qualified fund under this special rule. The qualified fund will take a transferred (carryover) basis in such property. Correspondingly, a taxpayer’s deduction (over the estimated life of the powerplant) is to be based on the adjusted tax basis of the property contributed rather than the fair market value of such property.
Although the deduction for contributed property is limited to the adjusted basis of the property, the regulations provide that the limitation on the amount of the special transfer is applied using the fair market value of the contributed property rather than its basis. This rule is necessary to prevent overfunding of the qualified fund.
Although deductions for special transfers are generally allowed ratably over the plant’s remaining useful life, a special rule applies if the fund is transferred before the end of the remaining useful life. In that case, the entire remaining deduction for the special transfer is allowed in the year the fund is transferred. This acceleration allows the taxpayer to close its books on the asset. We have been asked to provide guidance on whether this acceleration would apply in the case of a transaction that qualifies for nonrecognition treatment (for example, under section 351). The IRS and Treasury believe that the acceleration applies but provides an inappropriate benefit to a taxpayer that directly or indirectly retains an interest in the plant. Consequently, in the case of a transfer of a qualified nuclear decommissioning fund to a related person, the regulations provide that the transferee’s ruling amounts will be adjusted to the extent necessary to offset the inappropriate benefit provided by the acceleration of deductions.
It may be necessary (for example, if assets are held in funds with penalties for early withdrawal) for taxpayers to spread the special transfer across more than one taxable year. The regulations provide that contributions in multiple years are permissible and include an example describing a special transfer spread across multiple years.
Under prior law, only regulated utilities could take advantage of section 468A and the IRS could rely upon the PUC with regulatory jurisdiction over the taxpayer to ensure that accurate and reasonable assumptions were used in calculating decommissioning cost of service for purposes of rate orders. Accordingly, the existing regulations require the taxpayer to use the PUC’s assumptions in calculating the taxpayer’s schedule of ruling amounts and to submit as part of the request for a schedule of ruling amounts “a description of the assumptions, estimates, and other factors that were used” by “each public utility commission that has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes.”
Under current law, any taxpayer with an interest in a nuclear power plant may maintain a qualified nuclear decommissioning fund with respect to that interest, without regard to whether the taxpayer is, or ever has been, regulated by a PUC. The temporary and proposed regulations provide that, in the case of a plant that is currently subject to PUC regulation, the assumptions used by the PUC in determining decommissioning costs for the plant must be provided in the submission of the proposed schedule of ruling amounts. The taxpayer submitting the proposed schedule is not required to use the PUC’s assumptions in calculating the proposed schedule, but is required to base the schedule upon reasonable assumptions.
Under the temporary and proposed regulations, the electing taxpayer bears the burden of demonstrating that the requested schedule is based upon reasonable assumptions and is consistent with the principles and provisions of the applicable regulatory provisions. A taxpayer that remains subject to the ratemaking jurisdiction of a PUC and that calculates its schedule of ruling amounts using the assumptions described by the PUC in its most recent rate order will generally satisfy this burden of proof. In addition, a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a PUC that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts, with the understanding that the PUC assumptions may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer. The use of other industry standards, such as the assumptions underlying the taxpayer’s most recent financial assurance filing with the NRC, is an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis. On the other hand, consistency with financial accounting statements is not sufficient, in the absence of other supporting evidence, to meet the taxpayer’s burden of proof.
The regulations follow the statute in requiring taxpayers to request a new schedule of ruling amounts in any taxable year that the NRC extends the operating license for the plant. In addition, the regulations provide that a separate schedule of ruling amounts (a “schedule of deduction amounts”) must be obtained from the Secretary before deductions may be claimed with respect to a special transfer.
Finally, many conforming amendments have been made to the existing regulations reflecting the elimination of the cost-of-service limitation and the post-1983 decommissioning cost limitation, and to eliminate obsolete provisions.
The temporary regulations are applicable on December 31, 2007, and apply with respect to taxable years ending on or after such date. During the period between January 1, 2006, and December 31, 2007, a taxpayer may use any reasonable method consistent with the principles and provisions of section 468A to determine the schedule of ruling amounts or the schedule of deduction amounts. A taxpayer may apply the provisions of §§1.468A-1T through 1.468A-8T to taxable years ending on or after January 1, 2006, and before December 31, 2007, provided that the taxpayer applies all provisions in §§1.468A-1T through 1.468A-8T to the taxable year.
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) and (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. For applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to the Special Analyses section of the preamble to the cross-reference notice of proposed rulemaking published in this issue of the Bulletin. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.468A-5T also issued under 26 U.S.C. 468A(e)(5). * * *
§§1.468A-0 through 1.468A-8 [Removed]
Par. 2. Sections 1.468A-0 through 1.468A-8 are removed.
Par. 3. Sections 1.468A-0T through 1.468A-9T are added to read as follows:
This section lists the paragraphs contained in §§1.468A-1T through 1.468A-9T.
(a) Introduction.
(b) Definitions.
(c) Special rules applicable to certain experimental nuclear facilities.
(a) In general.
(b) Limitation on payments to a nuclear decommissioning fund.
(1) In general.
(2) Excess contributions not deductible.
(c) Deemed payment rules.
(d) Treatment of distributions.
(1) In general.
(2) Exceptions to inclusion in gross income.
(i) Payment of administrative costs and incidental expenses.
(ii) Withdrawals of excess contributions.
(iii) Actual distributions of amounts included in gross income as deemed distributions.
(e) Deduction when economic performance occurs.
(a) In general.
(b) Level funding limitation.
(c) Funding period.
(d) Decommissioning costs allocable to a fund.
(1) General rule.
(2) Total estimated cost of decommissioning.
(3) Taxpayer’s share.
(e) Manner of requesting schedule of ruling amounts.
(1) In general.
(2) Information required.
(3) Administrative procedures.
(f) Review and revision of schedule of ruling amounts.
(1) Mandatory review.
(2) Elective review.
(3) Determination of revised schedule of ruling amounts.
(g) Special rule permitting payments to a nuclear decommissioning fund before receipt of an initial or revised ruling amount applicable to a taxable year.
(a) In general.
(b) Modified gross income.
(c) Special rules.
(1) Period for computation of modified gross income.
(2) Gain or loss upon distribution of property by a fund.
(3) Denial of credits against tax.
(4) Other corporate taxes inapplicable.
(d) Treatment as corporation for purposes of subtitle F.
(a) Qualification requirements.
(1) In general.
(2) Limitation on contributions.
(3) Limitation on use of fund.
(i) In general.
(ii) Definition of administrative costs and expenses.
(4) Trust provisions.
(b) Prohibitions against self-dealing.
(1) In general.
(2) Self-dealing defined.
(3) Disqualified person defined.
(c) Disqualification of nuclear decommissioning fund.
(1) In general.
(2) Exception to disqualification.
(i) In general.
(ii) Excess contribution defined.
(iii) Taxation of income attributable to an excess contribution.
(3) Effect of disqualification.
(4) Further effects of disqualification.
(d) Termination of nuclear decommissioning fund upon substantial completion of decommissioning.
(1) In general.
(2) Additional rules.
(3) Substantial completion of decommissioning defined.
(a) In general.
(b) Requirements.
(c) Tax consequences.
(1) The transferor and its Fund.
(2) The transferee and its Fund.
(3) Basis.
(d) Determination of proportionate amount.
(e) Calculation of schedule of ruling amounts and schedule of deduction amounts for dispositions described in this section.
(1) Transferor.
(i) Taxable year of disposition.
(ii) Taxable years after the disposition.
(2) Transferee.
(i) Taxable year of disposition.
(ii) Taxable years after the disposition.
(3) Example.
(f) Anti-abuse provision.
(a) In general.
(b) Required information.
(a) General rule.
(1) In general.
(2) Previously excluded amount.
(3) Transfers in multiple years.
(4) Contributions of property.
(b) Deduction for amounts transferred.
(1) In general.
(2) Denial of deduction for previously deducted amounts.
(3) Transfers of qualified nuclear decommissioning funds.
(4) Special rules.
(i) Gain or loss not recognized on transfers to fund.
(ii) Transfers of appreciated property to fund.
(c) New ruling amount required.
(1) In general.
(2) Transfers in multiple taxable years.
(d) Manner of requesting schedule of deduction amounts.
(1) In general.
(2) Information required.
(3) Statement required.
(4) Administrative procedures.
(a) Effective date.
(b) Transitional rules.
(1) Schedules of ruling amounts based on prior regulations.
(2) Nuclear decommissioning fund qualification requirements.
(3) Use of formula method.
(a) Introduction. Section 468A provides an elective method for taking into account nuclear decommissioning costs for Federal income tax purposes. In general, an eligible taxpayer that elects the application of section 468A pursuant to the rules contained in §1.468A-7T is allowed a deduction (as determined under §1.468A-2T) for the taxable year in which the taxpayer makes a cash payment to a nuclear decommissioning fund. Taxpayers using an accrual method of accounting that do not elect the application of section 468A are not allowed a deduction for nuclear decommissioning costs prior to the taxable year in which economic performance occurs with respect to such costs (see section 461(h)).
(b) Definitions. The following terms are defined for purposes of section 468A and the regulations:
(1) The term eligible taxpayer means any taxpayer that possesses a qualifying interest in a nuclear power plant (including a nuclear power plant that is under construction).
(2) The term qualifying interest means—
(i) A direct ownership interest; and
(ii) A leasehold interest in any portion of a nuclear power plant if—
(A) The holder of the leasehold interest is primarily liable under Federal or State law for decommissioning such portion of the nuclear power plant; and
(B) No other person establishes a nuclear decommissioning fund with respect to such portion of the nuclear power plant.
(3) A direct ownership interest includes an interest held as a tenant in common or joint tenant, but does not include stock in a corporation that owns a nuclear power plant or an interest in a partnership that owns a nuclear power plant. Thus, in the case of a partnership that owns a nuclear power plant, the election under section 468A must be made by the partnership and not by the partners. In the case of an unincorporated organization described in §1.761-2(a)(3) that elects under section 761(a) to be excluded from the application of subchapter K, each taxpayer that is a co-owner of the nuclear power plant is eligible to make a separate election under section 468A.
(4) The terms nuclear decommissioning fund and qualified nuclear decommissioning fund mean a fund that satisfies the requirements of §1.468A-5T. The term nonqualified fund means a fund that does not satisfy those requirements.
(5) The term nuclear power plant means any nuclear power reactor that is used predominantly in the trade or business of the furnishing or sale of electric energy. Each unit (that is, nuclear reactor) located on a multi-unit site is a separate nuclear power plant. The term nuclear power plant also includes the portion of the common facilities of a multi-unit site allocable to a unit on that site.
(6) The term nuclear decommissioning costs or decommissioning costs means all otherwise deductible expenses to be incurred in connection with the entombment, decontamination, dismantlement, removal and disposal of the structures, systems and components of a nuclear power plant that has permanently ceased the production of electric energy. Such term includes all otherwise deductible expenses to be incurred in connection with the preparation for decommissioning, such as engineering and other planning expenses, and all otherwise deductible expenses to be incurred with respect to the plant after the actual decommissioning occurs, such as physical security and radiation monitoring expenses. Such term does not include otherwise deductible expenses to be incurred in connection with the disposal of spent nuclear fuel under the Nuclear Waste Policy Act of 1982 (Public Law 97-425). An expense is otherwise deductible for purposes of this paragraph (b)(6) if it would be deductible under chapter 1 of the Internal Revenue Code without regard to section 280B.
(7) The term public utility commission means any State or political subdivision thereof, any agency, instrumentality or judicial body of the United States, or any judicial body, commission or other similar body of the District of Columbia or of any State or any political subdivision thereof that establishes or approves rates for the furnishing or sale of electric energy.
(8) The term ratemaking proceeding means any proceeding before a public utility commission in which rates for the furnishing or sale of electric energy are established or approved. Such term includes a generic proceeding that applies to two or more taxpayers that are subject to the jurisdiction of a single public utility commission.
(9) The term special transfer means any transfer of funds to a qualified nuclear decommissioning fund pursuant to §1.468A-8T.
(c) Special rules applicable to certain experimental nuclear facilities. (1) The owner of a qualifying interest in an experimental nuclear facility possesses a qualifying interest in a nuclear power plant for purposes of paragraph (b) of this section if such person is engaged in the trade or business of the furnishing or sale of electric energy.
(2) An owner of stock in a corporation that owns an experimental nuclear facility possesses a qualifying interest in a nuclear power plant for purposes of paragraph (b)(1) of this section if—
(i) Such stockholder satisfies the conditions of paragraph (c)(1) of this section; and
(ii) The corporation that directly owns the facility is not engaged in the trade or business of the furnishing or sale of electric energy.
(3) For purposes of this paragraph (c), an experimental nuclear facility is a nuclear power reactor that is used predominantly for the purpose of conducting experimentation and research.
(a) In general. An eligible taxpayer that elects the application of section 468A pursuant to the rules contained in §1.468A-7T (an electing taxpayer) is allowed a deduction for the taxable year in which the taxpayer makes a cash payment (or is deemed to make a cash payment as provided in paragraph (c) of this section) to a nuclear decommissioning fund and for any taxable year in which a deduction is allowed for a special transfer described in §1.468A-8T. The amount of the deduction for any taxable year equals the total amount of cash payments made (or deemed made) by the electing taxpayer to a nuclear decommissioning fund (or nuclear decommissioning funds) during such taxable year under this section, plus any amount allowable as a deduction in that taxable year for a special transfer described in §1.468A-8T. The amount of a special transfer permitted under §1.468A-8T is not treated as a cash payment for purposes of this paragraph (a), and a taxpayer making a special transfer is allowed a ratable deduction in each taxable year during the remaining useful life of the nuclear power plant for the special transfer. A payment may not be made (or deemed made) to a nuclear decommissioning fund before the first taxable year in which all of the following conditions are satisfied:
(1) The construction of the nuclear power plant to which the nuclear decommissioning fund relates has commenced.
(2) A ruling amount is applicable to the nuclear decommissioning fund (see §1.468A-3T).
(b) Limitation on payments to a nuclear decommissioning fund—(1) In general. For purposes of paragraph (a) of this section, the maximum amount of cash payments made (or deemed made) to a nuclear decommissioning fund under paragraph (a) of this section during any taxable year shall not exceed the ruling amount applicable to the nuclear decommissioning fund for such taxable year (as determined under §1.468A-3T).
(2) Excess contributions not deductible. If the amount of cash payments made (or deemed made) to a nuclear decommissioning fund during any taxable year exceeds the limitation of paragraph (b)(1) of this section, the excess is not deductible by the electing taxpayer. In addition, see §1.468A-5T(c) for rules which provide that the Internal Revenue Service may disqualify a nuclear decommissioning fund if the amount of cash payments made (or deemed made) to a nuclear decommissioning fund during any taxable year exceeds the limitation of paragraph (b)(1) of this section.
(3) Special transfer disregarded. The amount of a special transfer permitted under §1.468A-8T is not treated as a cash payment for purposes of this paragraph (b).
(c) Deemed payment rules. (1) The amount of any cash payment made by an electing taxpayer to a nuclear decommissioning fund on or before the 15th day of the third calendar month after the close of any taxable year (the deemed payment deadline date) shall be deemed made during such taxable year if the electing taxpayer irrevocably designates the amount as relating to such taxable year on its timely filed Federal income tax return for such taxable year (see §1.468A-7T(b)(4)(iv) for rules relating to such designation).
(2) The amount of any cash payment made by a customer of an electing taxpayer to a nuclear decommissioning fund of such electing taxpayer shall be deemed made by the electing taxpayer if the amount is included in the gross income of the electing taxpayer in the manner prescribed by section 88 and §1.88-1.
(d) Treatment of distributions—(1) In general. Except as otherwise provided in paragraph (d)(2) of this section, the amount of any actual or deemed distribution from a nuclear decommissioning fund shall be included in the gross income of the electing taxpayer for the taxable year in which the distribution occurs. The amount of any distribution of property equals the fair market value of the property on the date of the distribution. See §1.468A-5T(c) and (d) for rules relating to the deemed distribution of the assets of a nuclear decommissioning fund in the case of a disqualification or termination of the fund. A distribution from a nuclear decommissioning fund shall include an expenditure from the fund or the use of the fund’s assets—
(i) To satisfy, in whole or in part, the liability of the electing taxpayer for decommissioning costs of the nuclear power plant to which the fund relates; and
(ii) To pay administrative costs and other incidental expenses of the fund.
(2) Exceptions to inclusion in gross income—(i) Payment of administrative costs and incidental expenses. The amount of any payment by a nuclear decommissioning fund for administrative costs or other incidental expenses of such fund (as defined in §1.468A-5T(a)(3)(ii)) shall not be included in the gross income of the electing taxpayer unless such amount is paid to the electing taxpayer (in which case the amount of the payment is included in the gross income of the electing taxpayer under section 61).
(ii) Withdrawals of excess contributions. The amount of a withdrawal of an excess contribution (as defined in §1.468A-5T(c)(2)(ii)) by an electing taxpayer pursuant to the rules of §1.468A-5T(c)(2) shall not be included in the gross income of the electing taxpayer. See paragraph (b)(2) of this section, which provides that the payment of such amount to the nuclear decommissioning fund is not deductible by the electing taxpayer.
(iii) Actual distributions of amounts included in gross income as deemed distributions. If the amount of a deemed distribution is included in the gross income of the electing taxpayer for the taxable year in which the deemed distribution occurs, no further amount is required to be included in gross income when the amount of the deemed distribution is actually distributed by the nuclear decommissioning fund. The amount of a deemed distribution is actually distributed by a nuclear decommissioning fund as the first actual distributions are made by the nuclear decommissioning fund on or after the date of the deemed distribution.
(e) Deduction when economic performance occurs. An electing taxpayer using an accrual method of accounting is allowed a deduction for nuclear decommissioning costs no earlier than the taxable year in which economic performance occurs with respect to such costs (see section 461(h)(2)). The amount of nuclear decommissioning costs that is deductible under this paragraph (e) is determined without regard to section 280B (see §1.468A-1T(b)(6)). A deduction is allowed under this paragraph (e) whether or not a deduction was allowed with respect to such costs under section 468A(a) and paragraph (a) of this section for an earlier taxable year.
(a) In general. (1) Except as otherwise provided in paragraph (g) of this section or in §1.468A-8T (relating to deductions for special transfers into a nuclear decommissioning fund), an electing taxpayer is allowed a deduction under section 468A(a) for the taxable year in which the taxpayer makes a cash payment (or is deemed to make a cash payment) to a nuclear decommissioning fund only if the taxpayer has received a schedule of ruling amounts for the nuclear decommissioning fund that includes a ruling amount for such taxable year. Except as provided in paragraph (a)(4) or (5) of this section, a schedule of ruling amounts for a nuclear decommissioning fund (schedule of ruling amounts) is a ruling (within the meaning of §601.201(a)(2) of this chapter) specifying the annual payments (ruling amounts) that, over the taxable years remaining in the funding period as of the date the schedule first applies, will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding period equal to (and in no event greater than) the amount of decommissioning costs allocable to the fund. The projected balance of a nuclear decommissioning fund as of the last day of the funding period shall be calculated by taking into account the fair market value of the assets of the fund as of the first day of the first taxable year to which the schedule of ruling amounts applies and the estimated rate of return to be earned by the assets of the fund after payment of the estimated administrative costs and incidental expenses to be incurred by the fund (as defined in §1.468A-5T(a)(3)(ii)), including all Federal, State and local income taxes to be incurred by the fund (the after-tax rate of return). See paragraph (c) of this section for a definition of funding period and paragraph (d) of this section for guidance with respect to the amount of decommissioning costs allocable to a fund.
(2) Each schedule of ruling amounts must be consistent with the principles and provisions of this section and must be based on reasonable assumptions concerning—
(i) The after-tax rate of return to be earned by the amounts collected for decommissioning;
(ii) The total estimated cost of decommissioning the nuclear power plant (see paragraph (d)(2) of this section); and
(iii) The frequency of contributions to a nuclear decommissioning fund for a taxable year (for example, monthly, quarterly, semi-annual or annual contributions).
(3) The Internal Revenue Service (IRS) shall provide a schedule of ruling amounts that is identical to the schedule of ruling amounts proposed by the taxpayer in connection with the taxpayer’s request for a schedule of ruling amounts (see paragraph (e)(2)(viii) of this section), but no schedule of ruling amounts shall be provided unless the taxpayer’s proposed schedule of ruling amounts is consistent with the principles and provisions of this section and is based on reasonable assumptions. If a proposed schedule of ruling amounts is not consistent with the principles and provisions of this section or is not based on reasonable assumptions, the taxpayer may propose an amended schedule of ruling amounts that is consistent with such principles and provisions and is based on reasonable assumptions.
(4) The taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles and provisions of this section and is based on reasonable assumptions. If a public utility commission established or approved the currently applicable rates for the furnishing or sale by the taxpayer of electricity from the plant, the taxpayer can generally satisfy this burden of proof by demonstrating that the schedule of ruling amounts is calculated using the assumptions used by the public utility commission in its most recent order. In addition, a taxpayer that owns an interest in a deregulated nuclear plant may submit assumptions used by a public utility commission that formerly had regulatory jurisdiction over the plant as support for the assumptions used in calculating the taxpayer’s proposed schedule of ruling amounts, with the understanding that the assumptions used by the public utility commission may be given less weight if they are out of date or were developed in a proceeding for a different taxpayer. The use of other industry standards, such as the assumptions underlying the taxpayer’s most recent financial assurance filing with the NRC, are an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis. Consistency with financial accounting statements is not sufficient, in the absence of other supporting evidence, to meet the taxpayer’s burden of proof under this paragraph (a)(4).
(5) The IRS will approve, at the request of the taxpayer, a formula or method for determining a schedule of ruling amounts (rather than providing a schedule specifying a dollar amount for each taxable year) if the formula or method is consistent with the principles and provisions of this section and is based on reasonable assumptions. See paragraph (f)(1)(ii) of this section for a special rule relating to the mandatory review of ruling amounts that are determined pursuant to a formula or method.
(6) The IRS may, in its discretion, provide a schedule of ruling amounts that is determined on a basis other than the rules of paragraphs (a) through (d) of this section if—
(i) In connection with its request for a schedule of ruling amounts, the taxpayer explains the need for special treatment and sets forth an alternative basis for determining the schedule of ruling amounts; and
(ii) The IRS determines that special treatment is consistent with the purpose of section 468A.
(b) Level funding limitation. (1) Except as otherwise provided in paragraph (b)(3) of this section, the ruling amount specified in a schedule of ruling amounts for any taxable year in the funding period (as defined in paragraph (c) of this section) shall not be less than the ruling amount specified in such schedule for any earlier taxable year.
(2) The ruling amount specified in a schedule of ruling amounts for a taxable year after the end of the funding period may be less than the ruling amount specified in such schedule for an earlier taxable year.
(3) The ruling amount specified in a schedule of ruling amounts for the last taxable year in the funding period may be less than the ruling amount specified in such schedule for an earlier taxable year if, when annualized, the amount specified for the last taxable year is not less than the amount specified for such earlier taxable year. The amount specified for the last taxable year is annualized by—
(i) Determining the number of days between the beginning of the taxable year and the end of the plant’s estimated useful life;
(ii) Dividing the amount specified for the last taxable year by such number of days; and
(iii) Multiplying the result by the number of days in the last taxable year (generally 365).
(c) Funding period—(1) In general. For purposes of this section, the funding period for a nuclear decommissioning fund is the period that—
(i) Begins on the first day of the first taxable year for which a deductible payment is made (or deemed made) to such nuclear decommissioning fund (see §1.468A-2T(a) for rules relating to the first taxable year for which a payment may be made (or deemed made) to a nuclear decommissioning fund); and
(ii) Ends on the last day of the taxable year that includes the last day of the estimated useful life of the nuclear power plant to which the nuclear decommissioning fund relates.
(2) Estimated useful life. The last day of the estimated useful life of a nuclear power plant is determined under the following rules:
(i) Except as provided in paragraph (c)(2)(ii) of this section—
(A) The last day of the estimated useful life of a nuclear power plant that has been included in rate base for ratemaking purposes in any ratemaking proceeding that established rates for a period before January 1, 2006, is the date used in the first such ratemaking proceeding as the estimated date on which the nuclear power plant will no longer be included in the taxpayer’s rate base for ratemaking purposes;
(B) The last day of the estimated useful life of a nuclear power plant that is not described in paragraph (c)(2)(i)(A) of this section is the last day of the estimated useful life of the plant determined as of the date it is placed in service;
(C) A taxpayer with an interest in the plant that is not described in paragraph (c)(2)(i)(A) of this section may use any reasonable method for determining the last day of such estimated useful life; and
(D) A reasonable method for purposes of paragraph (c)(2)(i)(C) of this section may include use of the period for which a public utility commission has included a comparable nuclear power plant in rate base for ratemaking purposes.
(ii) If it can be established that the estimated useful life of the nuclear power plant will end on a date other than the date determined under paragraph (c)(2)(i) of this section, the taxpayer may use such other date as the last day of the estimated useful life but is not required to do so. If the last day of the estimated useful life was determined under paragraph (c)(2)(i)(A) of this section and the most recent ratemaking proceeding used an alternative date as the estimated date on which the nuclear power plant will no longer be included rate base, the most recent ratemaking proceeding will generally be treated as establishing such alternative date as the last day of the estimated useful life.
(d) Decommissioning costs allocable to a fund. The amount of decommissioning costs allocable to a nuclear decommissioning fund is determined for purposes of this section by applying the following rules and definitions:
(1) General rule. The amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer’s share of the total estimated cost of decommissioning the nuclear power plant to which the fund relates.
(2) Total estimated cost of decommissioning. Under paragraph (a)(2) of this section, the taxpayer must demonstrate the reasonableness of the assumptions concerning the total estimated cost of decommissioning the nuclear power plant.
(3) Taxpayer’s share. The taxpayer’s share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such nuclear power plant multiplied by the percentage of such nuclear power plant that the qualifying interest of the taxpayer represents (see §1.468A-1T(b)(2) for circumstances in which a taxpayer possesses a qualifying interest in a nuclear power plant).
(e) Manner of requesting schedule of ruling amounts—(1) In general. (i) In order to receive a ruling amount for any taxable year, a taxpayer must file a request for a schedule of ruling amounts that complies with the requirements of this paragraph (e), the applicable procedural rules set forth in §601.201(e) of this chapter (Statement of Procedural Rules) and the requirements of any applicable revenue procedure that is in effect on the date the request is filed.
(ii) A separate request for a schedule of ruling amounts is required for each nuclear decommissioning fund established by a taxpayer (see paragraph (a) of §1.468A-5T for rules relating to the number of nuclear decommissioning funds that a taxpayer can establish).
(iii) Except as provided by §§1.468A-5T(a)(1)(iv) (relating to certain unincorporated organizations that may be taxable as corporations) and 1.468A-8T (relating to a special transfer under section 468A(f)(1)), a request for a schedule of ruling amounts must not contain a request for a ruling on any other issue, whether the issue involves section 468A or another section of the Internal Revenue Code.
(iv) In the case of an affiliated group of corporations that join in the filing of a consolidated return, the common parent of the group may request a schedule of ruling amounts for each member of the group that possesses a qualifying interest in the same nuclear power plant by filing a single submission with the IRS.
(v) The IRS shall not provide or revise a ruling amount applicable to a taxable year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date (as defined in §1.468A-2T(c)(1)) for such taxable year. In determining the date when a request is filed, the principles of sections 7502 and 7503 shall apply.
(vi) Except as provided in paragraph (e)(1)(vii) of this section, a request for a schedule of ruling amounts shall be considered filed only if such request complies substantially with the requirements of this paragraph (e).
(vii) If a request does not comply substantially with the requirements of this paragraph (e), the IRS will notify the taxpayer of that fact. If the information or materials necessary to comply substantially with the requirements of this paragraph (e) are provided to the IRS within 30 days after this notification, the request will be considered filed on the date of the original submission. In addition, the request will be considered filed on the date of the original submission in a case in which the information and materials are provided more than 30 days after the notification if the IRS determines that the electing taxpayer made a good faith effort to provide the applicable information or materials within 30 days after notification and also determines that treating the request as filed on the date of the original submission is consistent with the purposes of section 468A. In any other case in which the information or materials necessary to comply substantially with the requirements of this paragraph (e) are not provided within 30 days after the notification, the request will be considered filed on the date that all information or materials necessary to comply with the requirements of this paragraph (e) are provided.
(2) Information required. A request for a schedule of ruling amounts must contain the following information:
(i) The taxpayer’s name, address, and taxpayer identification number.
(ii) Whether the request is for an initial schedule of ruling amounts, a mandatory review of the schedule of ruling amounts (see paragraph (f)(1) of this section), or an elective review of the schedule of ruling amounts (see paragraph (f)(2) of this section).
(iii) The name and location of the nuclear power plant with respect to which a schedule of ruling amounts is requested.
(iv) A description of the taxpayer’s qualifying interest in the nuclear power plant and the percentage of such nuclear power plant that the qualifying interest of the taxpayer represents.
(v) Where applicable, an identification of each public utility commission that establishes or approves rates for the furnishing or sale by the taxpayer of electric energy generated by the nuclear power plant, and, for each public utility commission identified—
(A) Whether the public utility commission has determined the amount of decommissioning costs to be included in the taxpayer’s cost of service for ratemaking purposes;
(B) The amount of decommissioning costs that are to be included in the taxpayer’s cost of service for each taxable year under the current determination and amounts that otherwise are required to be included in the taxpayer’s income under section 88 and the regulations;
(C) A description of the assumptions, estimates and other factors used by the public utility commission to determine the amount of decommissioning costs;
(D) A copy of such portions of any order or opinion of the public utility commission as pertain to the public utility commission’s most recent determination of the amount of decommissioning costs to be included in cost of service; and
(E) A copy of each engineering or cost study that was relied on or used by the public utility commission in determining the amount of decommissioning costs to be included in the taxpayer’s cost of service under the current determination.
(vi) A description of the assumptions, estimates and other factors that were used by the taxpayer to determine the amount of decommissioning costs, including each of the following if applicable:
(A) A description of the proposed method of decommissioning the nuclear power plant (for example, prompt removal/dismantlement, safe storage entombment with delayed dismantlement, or safe storage mothballing with delayed dismantlement).
(B) The estimated year in which substantial decommissioning costs will first be incurred.
(C) The estimated year in which the decommissioning of the nuclear power plant will be substantially complete (see §1.468A-5T(d)(3) for a definition of substantial completion of decommissioning).
(D) The total estimated cost of decommissioning expressed in current dollars (that is, based on price levels in effect at the time of the current determination).
(E) The total estimated cost of decommissioning expressed in future dollars (that is, based on anticipated price levels when expenses are expected to be paid).
(F) For each taxable year in the period that begins with the year specified in paragraph (e)(2)(vi)(B) of this section (the estimated year in which substantial decommissioning costs will first be incurred) and ends with the year specified in paragraph (e)(2)(vi)(C) of this section (the estimated year in which the estimated year in which the decommissioning of the nuclear power plant will be substantially complete), the estimated cost of decommissioning expressed in future dollars.
(G) A description of the methodology used in converting the estimated cost of decommissioning expressed in current dollars to the estimated cost of decommissioning expressed in future dollars.
(H) The assumed after-tax rate of return to be earned by the amounts collected for decommissioning.
(I) A copy of each engineering or cost study that was relied on or used by the taxpayer in determining the amount of decommissioning costs.
(vii) A proposed schedule of ruling amounts for each taxable year remaining in the funding period as of the date the schedule of ruling amounts will first apply.
(viii) A description of the assumptions, estimates and other factors that were used in determining the proposed schedule of ruling amounts, including each of the following if applicable—
(A) The funding period (as such term is defined in paragraph (c) of this section);
(B) The assumed after-tax rate of return to be earned by the assets of the nuclear decommissioning fund;
(C) The fair market value of the assets (if any) of the nuclear decommissioning fund as of the first day of the first taxable year to which the schedule of ruling amounts will apply;
(D) The amount expected to be earned by the assets of the nuclear decommissioning fund (based on the after-tax rate of return applicable to the fund) over the period that begins on the first day of the first taxable year to which the schedule of ruling amounts will apply and ends on the last day of the funding period;
(E) The amount of decommissioning costs allocable to the nuclear decommissioning fund (as determined under paragraph (d) of this section);
(F) The total estimated cost of decommissioning (as determined under paragraph (d)(2) of this section); and
(G) The taxpayer’s share of the total estimated cost of decommissioning (as such term is defined in paragraph (d)(3) of this section).
(ix) If the request is for a revised schedule of ruling amounts, the after-tax rate of return earned by the assets of the nuclear decommissioning fund for each taxable year in the period that begins with the date of the initial contribution to the fund and ends with the first day of the first taxable year to which the revised schedule of ruling amounts applies.
(x) If applicable, an explanation of the need for a schedule of ruling amounts determined on a basis other than the rules of paragraphs (a) through (d) of this section and a description of an alternative basis for determining a schedule of ruling amounts (see paragraph (a)(5) of this section).
(xi) A chart or table, based upon the assumed after-tax rate of return to be earned by the assets of the nuclear decommissioning fund, setting forth the years the fund will be in existence, the annual contribution to the fund, the estimated annual earnings of the fund and the cumulative total balance in the fund.
(xii) If the request is for a revised schedule of ruling amounts, a copy of the schedule of ruling amounts that the revised schedule would replace.
(xiii) If the request for a schedule of ruling amounts contains a request, pursuant to §1.468A-5T(a)(1)(iv), that the IRS rule whether an unincorporated organization through which the assets of the fund are invested is an association taxable as a corporation for Federal tax purposes, a copy of the legal documents establishing or otherwise governing the organization.
(xiv) Any other information required by the IRS that may be necessary or useful in determining the schedule of ruling amounts.
(3) Administrative procedures. The IRS may prescribe administrative procedures that supplement the provisions of paragraph (e)(1) and (2) of this section. In addition, the IRS may, in its discretion, waive the requirements of paragraph (e)(1) and (2) of this section under appropriate circumstances.
(f) Review and revision of schedule of ruling amounts—(1) Mandatory review. (i) Any taxpayer that has obtained a schedule of ruling amounts pursuant to paragraph (e) of this section must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline date for the 10th taxable year that begins after the taxable year in which the most recent schedule of ruling amounts was received. If the taxpayer calculated its most recent schedule of ruling amounts on any basis other than an order issued by a public utility commission, the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline date for the 5th taxable year that begins after the taxable year in which the most recent schedule of ruling amounts was received.
(ii)(A) Any taxpayer that has obtained a formula or method for determining a schedule of ruling amounts for any taxable year under paragraph (a)(4) of this section must file a request for a revised schedule on or before the earlier of the deemed payment deadline for the 5th taxable year that begins after its taxable year in which the most recent formula or method was approved or the deemed payment deadline for the first taxable year that begins after a taxable year in which there is a substantial variation in the ruling amount determined under the most recent formula or method. There is a substantial variation in the ruling amount determined under the formula or method in effect for a taxable year if the ruling amount for the year and the ruling amount for any earlier year since the most recent formula or method was approved differ by more than 50 percent of the smaller amount.
(B) Any taxpayer that has determined its ruling amount for any taxable year under a formula prescribed by §1.468A-6T (which prescribes ruling amounts for the taxable year in which there is a disposition of a qualifying interest in a nuclear power plant) must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline for its first taxable year that begins after the disposition.
(iii) A taxpayer requesting a schedule of deduction amounts for a nuclear decommissioning fund under §1.468A-8T must also request a revised schedule of ruling amounts for the fund. The revised schedule of ruling amounts must apply beginning with the first taxable year for which a deduction is allowed under the schedule of deduction amounts.
(iv) If the operating license of the nuclear power plant to which a nuclear decommissioning fund relates is renewed, the taxpayer maintaining the fund must request a revised schedule of ruling amounts. The request for the revised schedule must be submitted on or before the deemed payment deadline for the taxable year that includes the date on which the operating license is renewed.
(v) A request for a schedule of ruling amounts required by this paragraph (f)(1) must be made in accordance with the rules of paragraph (e) of this section. If a taxpayer does not properly file a request for a revised schedule of ruling amounts by the date provided in paragraph (f)(1) (i), (ii) or (iv) of this section (whichever is applicable), the taxpayer’s ruling amount for the first taxable year to which the revised schedule of ruling amounts would have applied and for all succeeding taxable years until a new schedule is obtained shall be zero dollars, unless, in its discretion, the IRS provides otherwise in such new schedule of ruling amounts. Thus, if a taxpayer is required to request a revised schedule of ruling amounts under any provision of this section, and each ruling amount in the revised schedule would equal zero dollars, the taxpayer may, instead of requesting a new schedule of ruling amounts, begin treating the ruling amounts under its most recent schedule as equal to zero dollars.
(2) Elective review. Any taxpayer that has obtained a schedule of ruling amounts pursuant to paragraph (e) of this section can request a revised schedule of ruling amounts. Such a request must be made in accordance with the rules of paragraph (e) of this section; thus, the IRS will not provide a revised ruling amount applicable to a taxable year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable year (see paragraph (e)(1)(vi) of this section).
(3) Determination of revised schedule of ruling amounts. A revised schedule of ruling amounts for a nuclear decommissioning fund shall be determined under this section without regard to any schedule of ruling amounts for such nuclear decommissioning fund that was issued prior to such revised schedule. Thus, a ruling amount specified in a revised schedule of ruling amounts for any taxable year in the funding period can be less than one or more ruling amounts specified in a prior schedule of ruling amounts for a prior taxable year.
(g) Special rule permitting payments to a nuclear decommissioning fund before receipt of an initial or revised ruling amount applicable to a taxable year. (1) If an electing taxpayer has filed a timely request for an initial or revised ruling amount for a taxable year beginning on or after January 1, 2006, and does not receive the ruling amount on or before the deemed payment deadline date for such taxable year, the taxpayer may make a payment to a nuclear decommissioning fund on the basis of the ruling amount proposed in the taxpayer’s request. Thus, under the preceding sentence, an electing taxpayer may make a payment to a nuclear decommissioning fund for such taxable year that does not exceed the ruling amount proposed by the taxpayer for such taxable year in a timely filed request for a schedule of ruling amounts.
(2) If an electing taxpayer makes a payment to a nuclear decommissioning fund for any taxable year pursuant to paragraph (g)(1) of this section and the ruling amount that is provided by the IRS is greater than the ruling amount proposed by the taxpayer for such taxable year, the taxpayer is not allowed to make an additional payment to the fund for such taxable year after the deemed payment deadline date for such taxable year.
(3) If the payment that an electing taxpayer makes to a nuclear decommissioning fund for any taxable year pursuant to paragraph (g)(1) of this section exceeds the ruling amount that is provided by the IRS for such taxable year, the following rules apply:
(i) The amount of the excess is an excess contribution (as defined in §1.468A-5T(c)(2)(ii)) for such taxable year.
(ii) The amount of the excess contribution is not deductible (see §1.468A-2T(b)(2)) and must be withdrawn by the taxpayer pursuant to the rules of §1.468A-5T(c)(2)(i).
(iii) The taxpayer must withdraw the after-tax earnings on the excess contribution.
(iv) If the taxpayer claimed a deduction for the excess contribution, the taxpayer should file an amended return for the taxable year.
(a) In general. A nuclear decommissioning fund is subject to tax on all of its modified gross income (as defined in paragraph (b) of this section). The rate of tax is 20 percent for taxable years beginning after December 31, 1995. This tax is in lieu of any other tax that may be imposed under subtitle A of the Internal Revenue Code (Code) on the income earned by the assets of the nuclear decommissioning fund.
(b) Modified gross income. For purposes of this section, the term modified gross income means gross income as defined under section 61 computed with the following modifications:
(1) The amount of any payment or special transfer to the nuclear decommissioning fund with respect to which a deduction is allowed under section 468A(a) or section 468A(f) is excluded from gross income.
(2) A deduction is allowed for the amount of administrative costs and other incidental expenses of the nuclear decommissioning fund (including taxes, legal expenses, accounting expenses, actuarial expenses and trustee expenses, but not including decommissioning costs) that are otherwise deductible and that are paid by the nuclear decommissioning fund to any person other than the electing taxpayer. An expense is otherwise deductible for purposes of this paragraph (b)(2) if it would be deductible under chapter 1 of the