internal_revenue_service number release date index number 468a ---------------------------- ---------------------------------------------------- -------------------------- ---------------------------------- -------------- ----------------------- ----------------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------------- id no ------------- ----------------------------------------------------- telephone number --------------------- refer reply to cc psi b06 plr-114597-08 date september re schedule of deductions ------------------------------------------------------- legend -------------------------- ein ---------------- taxpayer ------------------------------------------- ein ---------------- company a ---------------------------------------------- ein ---------------- company b ------------------------------------------------------- plant -------------------------------------------------------------- location independent study --------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- method fund director -------------- ------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- dear ------------ this letter responds to your request dated --------------------- for an initial schedule of deduction amounts pursuant to sec_1_468a-8t c of the income_tax regulations and a mandatory request for a revised schedule of ruling amounts pursuant to sec_468a of the internal_revenue_code and regulations sec_1 468a- 3t f iii for the fund taxpayer was previously granted schedules of ruling amounts most recently on ----------------------- taxpayer submitted supplemental information by letter on --------------------and ---------------------- information was submitted pursuant to sec_1_468a-3t e plr-114597-08 taxpayer represents the facts and information relating to its requests as follows taxpayer a corporation is a holding_company and the sole member of company a a single member limited_liability_company that is disregarded for federal_income_tax purposes company b the legal owner of the plant is a single-member limited_liability_company that is disregarded for federal_income_tax purposes and is wholly-owned by company a taxpayer files a consolidated federal_income_tax return with its affiliated companies taxpayer is the sole owner of the plant through company a and company b the plant is situated at location the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method based upon the assumptions derived from the independent study it is estimated that fund assets will earn an after-tax rate of return of ---- percent the total cost of decommissioning plant is estimated to be dollar_figure------------------ in ------- dollars this base cost of decommissioning plant is escalated at a ------ percent yearly rate resulting in a total future cost to taxpayer of decommissioning plant of dollar_figure------------------- in ------- through ------- dollars under ratemaking assumptions used during the first proceeding before commission a the plant would no longer be included in rate base in ------- in the prior schedule of ruling amounts issued under sec_468a of the code as in effect prior to the estimated_useful_life of the plant is --- years --------------- and the estimated period for which the fund is to be in effect is --- years --------------- thus the percentage of the total estimated costs qualifying for deduction in the schedule of ruling amounts under prior_law was -------- percent sec_468a as amended by the energy tax incentives act of the act publaw_109_58 119_stat_594 allows an electing taxpayer to deduct payments made to a nuclear decommissioning reserve fund sec_468a limits the amount that may be paid into the nuclear decommissioning fund in any year to the ruling_amount applicable to that year prior to the changes made by the act 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 generally as a result only regulated utilities could take advantage of sec_468a the act amendment of sec_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 plr-114597-08 sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund the total nuclear decommissioning cost of that nuclear power plant over the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate prior to the changes made by the act deductible contributions were limited to the amount necessary for an electing taxpayer 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 provided that the taxpayer elected to establish a fund in prior_law also did not allow a taxpayer electing to establish a fund later than to contribute to that fund any amount in excess of that amount necessary to fund the ratable portion of the plant’s nuclear decommissioning costs beginning in the year the fund is established sec_468a now allows a taxpayer to contribute to a nuclear decommissioning fund the entire cost of decommissioning the plant including both the pre-1984 amount that was denied under the law prior to the act as well as any amount attributable to any year after in which a taxpayer had not established a fund under sec_468a sec_468a provides that the deduction for the contribution of the previously-excluded amount is allowed ratably over the remaining useful_life of the nuclear plant sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within 2½ months after the close of the tax_year this section applies to payments made pursuant to either a schedule of ruling amounts or a schedule of deduction amounts sec_1_468a-1t a provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1t b of the regulations is a taxpayer that has a qualifying interest in any portion of a nuclear power plant a qualifying interest is among other things a direct ownership_interest sec_1_468a-2t b provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the ruling_amount applicable to the nuclear decommissioning fund for such taxable_year the limitation on the amount of cash payments for purposes of sec_1 468a- 2t b does not apply to any special transfer permitted under sec_1_468a-8t plr-114597-08 sec_1_468a-3t a provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax 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 more than the amount of decommissioning costs allocable to the fund sec_1_468a-3t a provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on reasonable assumptions concerning the after-tax rate of return to be earned by the amounts collected for decommissioning the total estimated cost of decommissioning the nuclear plant and the frequency of contributions to a nuclear decommissioning fund for a taxable_year under sec_1_468a-3t a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3t a provides that the taxpayer bears the burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the regulations and that it is based on reasonable assumptions that section also provides additional guidance regarding how the service will determine whether a proposed schedule of ruling amounts is based on reasonable assumptions for example 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 described by the temporary regulations as an alternative means of demonstrating that the taxpayer has calculated its proposed schedule of ruling amounts on a reasonable basis sec_1_468a-3t a further provides that consistency with financial_accounting statements is not sufficient in the absence of other supporting evidence to meet the taxpayer’s burden_of_proof sec_1_468a-3t b provides that in general the ruling_amount for any_tax year in the funding_period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3t c the funding_period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and plr-114597-08 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 fund relates sec_1_468a-3t c provides rules for determining the estimated_useful_life of a nuclear plant for purposes of sec_468a in general under sec_1_468a-3t c i a if the plant was included in rate base for ratemaking purposes for a period prior to date the date used in the first such ratemaking proceeding as the estimated date on which the nuclear plant will no longer be included in the taxpayer’s rate base is the end of the estimated_useful_life of the nuclear plant sec_1_468a-3t c i b provides that if the nuclear plant is not described in sec_1_468a-3t c i a the last day of the estimated_useful_life of the nuclear plant is determined as of the date the plant is placed_in_service under sec_1_468a-3t c i c any reasonable method may be used in determining the estimated_useful_life of a nuclear power plant that is not described in sec_1_468a-3t c i a sec_1_468a-3t d provides that 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 sec_1_468a-3t d provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant sec_1_468a-3t e enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3t f provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of sec_1_468a-3t e the internal_revenue_service shall not provide a revised schedule of ruling amounts 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 sec_1_468a-8t a provides that under the provisions of sec_468a as described above a taxpayer may make a special transfer of cash or property to the nuclear decommissioning fund this special transfer is not subject_to the sec_468a limitation the amount of the special transfer is the present_value of the pre-2005 nonqualifying percentage of the estimated future costs of decommissioning the nuclear plant that was disallowed under sec_468a prior to the act sec_1_468a-8t a defines the pre-2005 nonqualifying percentage as equal to percent reduced by the sum of the qualifying percentage used in determining the taxpayer’s last schedule of ruling amounts for the fund under sec_468a as it existed prior to the act and the percentage transferred in any previous special transfer plr-114597-08 sec_1_468a-8t a provides that the taxpayer is not required to transfer the entire amount eligible for the special transfer in one year but must take any prior special transfers into account in calculating the pre-2005 qualifying percentage further pursuant to sec_1_468a-8t c a taxpayer making a special transfer in more than one year must request a new schedule of deduction amounts in connection with each special transfer sec_1_468a-8t b provides that the deduction for the special transfer is allowed ratably over the remaining useful_life of the nuclear plant under sec_1 468a- 8t b iii the deduction for property contributed in a special transfer is limited to the lesser_of the fair_market_value of the property or the taxpayer’s basis in the property under sec_1_468a-8t b the taxpayer recognizes no gain_or_loss on the special transfer of property the taxpayer’s basis in the fund is not increased by reason of the special transfer of property and the fund’s basis in the property transferred in the special transfer is the same as the transferee’s basis in that property immediately prior to the special transfer sec_1_468a-8t c provides that taxpayer may not make a special transfer to a qualified nuclear decommissioning fund unless the taxpayer requests from the irs a schedule of deduction amounts in connection with such transfer a request for a schedule of deduction amounts may be made in connection with a request for a schedule of ruling amounts but in such case the calculations for both the schedule of ruling amounts and the schedule of deduction amounts must be separately_stated as stated above prior to the changes made by the act deductible contributions were limited to the lesser_of the amount necessary to fund the plant’s post-1983 nuclear decommissioning costs or the amount necessary to fund the plant’s decommissioning costs for that portion of the plant’s estimated_useful_life for which a fund had been established under that prior_law taxpayer was allowed to contribute --- -------- percent of the amounts necessary to fully decommission its share of the plant sec_468a allows a taxpayer to contribute to the nuclear decommissioning fund the pre-1984 amount that was denied under the law prior to the act taxpayer is able to contribute the additional -------- percent of the amounts necessary to decommission its ownership share of plant this special transfer occurred in ------- we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we conclude that because the useful_life of the plant as defined by sec_1_468a-3t c ended in ---------- taxpayer may make a special transfer of dollar_figure--------------- in ------- and may deduct the amount contributed in ------- as set forth below schedule of deduction amounts plr-114597-08 year ------- deduction amount dollar_figure---------------- the special transfer amount stated above is the maximum amount permitted to be transferred to the fund under sec_468a if taxpayer transfers a lesser amount to the fund the taxpayer may deduct that lesser amount ratably over the period of years described above further in the event that taxpayer transfers a lesser amount for ----- ------- in order to make an additional special transfer in a later year including a special transfer of the difference between the special transfer amount stated above and the lesser amount transferred in ------- taxpayer must request a new schedule of deduction amounts and in that request must take the ------- transfer into account and recalculate the pre-2005 qualifying percentage in such request we note that if taxpayer elects to make a special transfer of property for all or a portion of this special transfer the amount of the deduction is the lesser_of the fair_market_value of the property transferred or the basis of the property in the hands of the taxpayer immediately prior to the transfer in either event the deduction of the taxpayer with respect to the property is limited to the taxpayer’s basis in the property we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in sec_468a and the regulations thereunder based solely upon these representations of the facts we reach the following conclusions pursuant to sec_1_468a-3t a taxpayer has met its burden of demonstrating that the proposed schedule of ruling amounts is consistent with the principles of the code and regulations and is based on reasonable assumptions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1t b of the regulations taxpayer as owner of the plant has calculated its share of the total decommissioning costs under sec_1_468a-3t d of the regulations the proposed schedule of ruling amounts was derived by following the assumptions contained in an independent commissioning study that taxpayer has represented is a standard type study used in the industry based on that representation taxpayer has demonstrated pursuant to sec_1_468a-3t a that the proposed schedule of ruling amounts is based on reasonable assumptions and is consistent with the principles of sec_468a and the regulations thereunder plr-114597-08 the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the ruling_amount applicable to the fund as set forth under sec_1_468a-2t b of the regulations based solely on the determinations above we conclude that the taxpayer’s proposed schedule of ruling amounts satisfies the requirements of sec_468a of the code we have approved the following revised schedule of ruling amounts the mandatory review date for this matter remains the same approved schedule of ruling amounts year ------- deduction amount dollar_figure-- if any of the events described in sec_1_468a-3t f occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above specifically no determination is made whether the independent commissioning study conforms to industry standards and practices this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives we are also sending a copy of this letter_ruling to the director pursuant to sec_1_468a-7t a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch passthroughs special industries


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c january cc ita b01 genin-127579-10 number release date uil -------------- -------------------------------------------------------- ------------- --------------------------- dear ------------- this letter responds to your request for information dated date you ask whether a particular cost is deductible for federal_income_tax purposes as a medical_care expense you also ask for citations relating to any litigation pertaining to the deductibility of costs related to a particular charitable_organization you name you have requested a general information_letter which calls attention to a well- established interpretation or principle of tax law without applying it to a specific set of facts see sec dollar_figure of revproc_2010_1 2010_1_irb_7 date a taxpayer may request a letter_ruling which interprets the tax laws and applies them to the taxpayer’s specific set of facts see sec dollar_figure of revproc_2010_1 i r b pincite however we ordinarily do not issue letter rulings regarding the tax consequences of a transaction for taxpayers who are not directly involved in the request see sec dollar_figure of revproc_2010_1 i r b pincite under sec_213 of the internal_revenue_code a deduction is allowable subject_to limitations for certain medical_care expenses the income_tax regulations provide in part that expenditures_for medical_care are confined to expenses_incurred primarily for the prevention or alleviation of a physical or mental defect or illness we are enclosing a copy of publication medical and dental expenses which discusses what expenses are included in calculating the deduction genin-127579-10 this letter has called your attention to certain general principles of the law it is intended for informational purposes only and does not constitute a ruling see sec dollar_figure of revproc_2010_1 if you have any additional questions please contact our office at ----------- ------------- sincerely karin goldsmith gross senior technical reviewer branch income_tax accounting enclosure publication


tax exempt ando government entities division release number release date date date uil code department of the treasury internal_revenue_service washington d c contact person identification_number contact number employer_identification_number form required to be filed tax years dear this is our final_determination that you do not qualify for exemption from federal_income_tax as an organization described in internal_revenue_code sec_501 recently we sent you a letter in response to your application that proposed an adverse determination the letter explained the facts law and rationale and gave you days to file a protest since we did not receive a protest within the requisite days the proposed adverse determination is now final because you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file instructions and do not send them to this office failure_to_file the returns timely may result in a penalty file the returns in accordance with their we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice f you agree with our deletions you do not need to take any further action if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service at if you have any questions about your or the irs customer service number for businesses the irs customer service number for people with hearing impairments is sincerely karen schiller acting director exempt_organizations rulings and agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division date date contact person identification_number contact number fax number employer_identification_number uil date director director director x dear we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under sec_501 the basis for our conclusion is set forth below facts you incorporated as a nonprofit corporation under state law on date you filed form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code on date your articles of incorporation provide that your purpose is charitable educational and scientific under sec_501 of the internal_revenue_code more specifically you are organized exclusively for charitable educational and scientific purposes under sec_501 of the internal_revenue_code or corresponding section of any future federal tax code additionally your articles provide that no substantial part of your activities shall be the carrying on of propaganda or otherwise attempting to influence legislation’ e e e e you shall not participate in or intervene in including the publishing or distribution of statements any political campaign on behalf of or in opposition to any candidate for pukiic office you shall not carry on any other activities not permitted to be carried on a by a corporation exempt from federal_income_tax under sec_501 of the internal_revenue_code or the corresponding section of any future federal tax code and upon dissolution your assets shall be distributed for one or more exempt purposes within the meaning of sec_501 of the internal_revenue_code or the corresponding section of any future federal tax code your articles do not include a provision prohibiting your net_earnings from inuring to the benefit of your members trustees officers or other private persons activities you state that you are not currently operating pending recognition of your tax-exempt status however you state that your only activity will be participating in the purchase of single family homes and ehabilitation sic them then sell them to low and moderate income persons specifically you intend to buy properties either at auction or directly from the seller rehabilitate the propert to comply with local building and occupancy standards and or code and sell to low-income or moderate-income persons at market rates you did not provide any information regarding how you intend to choose properties for rehabilitation additionally you provide no information about your anticipated rehabilitation costs other than that you do not intend to use volunteer labor to perform rehabilitations furthermore you do not state whether you will profit on the sale of your rehabilitated properties you state that you will use the u s department of housing and urban development hud definitions of low-income and very low-income for determine eligibility for your housing additionally you make the following certifications with respect to each housing project a at least of the units will be occupied by residents that qualify as low- income as defined by hud be at least of the units will be occupied by residents that qualify as very low- income as defined by hud or of the units will be occupied by residents that do not exceed of the area's very low-income limit n w the housing project s will actually be occupied by the poor and or distressed residents the housing project s will be affordable to the charitable beneficiaries if the housing project s consist of multiple buildings each building will meet the requirements described above in and you state that purchasers will fund the purchase through a lender of their choice you will not provide any down payment assistance you do not participate in any government housing programs designed to provide affordable housing or homeownership programs designed to provide homeownership opportunities for families that cannot otherwise afford to purchase safe and decent housing additionally you do not intend to partner with any existing sec_501 organizations that participate in these programs furthermore you do not state whether you will limit morigage payments in order to ensure that its rehabilitated properties are affordable to low- income residents or whether you will impose any affordability covenants or restrictions that will run with the land you intend to conduct this activity in state state and state with no focus on any particular é area of these states you do not intend to charge a fee for your services you state that you will spend of your time and money conducting this activity you will devote the remaining of your time to enjoying life ie golfing hiking biking sailing governance your board_of directors may have between three and fifteen directors the bylaws provide that three directors-director director and director 3-compose your first board_of directors these individuals also serve as your officers director is president director is treasurer and director is secretary all three directors are related by blood director is director and director 2’s father you failed to provide resumes for these individuals when requested the directors terms are indefinite but directors may be removed for cause by a vote of two- thirds of the full board_of directors furthermore the bylaws state that the directors shall receive a salary or compensation_for their services emphasis added you anticipate paying directors dollar_figurex for its first three operational years when asked how you determined that this amount was reasonable you stated that since this is a start_up business with limited activity we determined that x would be appropriate you have adopted a conflict of interest policy the purpose of your policy is to protect your interests when you contemplate entering into a transaction or arrangement that might benefit the private interests of an officer or director your policy defines interested person as any director principal officer or member of a committee with governing board delegated powers who has a direct or indirect financial interest a person has a financial interest if the person has directly or indirectly through business investment or family aj b c ari ownership or investment_interest in any entity with which applicant has a transaction or arrangement a compensation arrangement with applicant or with any entity or individual with which applicant has a transaction or arrangement or a potential ownership or investment_interest in or compensation arrangement with any entity or individual with which applicant is negotiating a transaction or arrangement when asked to provide copies of the directors’ annual conflict of interest disclosures you refused stating that the directors had not completed disclosure forms because you are newly form sic income expenses your orily source of expected income is the sale of real_estate you specifically state that you will not receive any gifts grants or contributions additionally you state that your initial source of funding wiltberlines of credit and or savings however you failed to provide a balance_sheet showing your assets and liabilities accordingly the source of savings is unknown your orily xpenses are officer and director compensation and occupancy you do not indicate any program expenses or other expenses related to the accomplishment of your exempt purposes law r c sec_501 provides that an organization described in sec_501 shall be exempt from taxation under this subtitle unless such exemption is denied under sec_502 or sec_503 sec_501 describes corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific or educational_purposes no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substaiitial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office sec_1_501_c_3_-1 provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in that section if an organization fails to meet either the organizational or operational_test it is not exempt sec_1_501_c_3_-1 provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose it engages primarily in activities which sec_1_501_c_3_-1 provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_c_3_-1 provides that an organization is not organized or operated exclusively for one or more of exempt purposes unless it serves a public rather than a private interest thus to meet the requirement of this subdivision it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as _designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectiy by such private interests sec_1_501_c_3_-1 provides that the term charitable is used in sec_501 in its generally accepted legal sense and includes among other things lessening the burdens of government relief of the poor and distressed or of the underprivileged advancement of education or science erection or maintenance of public buildings monuments or works and promotion of social welfare by organizations designed to accomplish any of the above purposes or to defend human and civil rights secured_by law revrul_68_17 1968_1_cb_247 held that an organization formed to conduct a model demonstratidfi housing program for low-income families and disseminate information about the results of the program qualified for recognition under sec_501 the organization's membership consisted of other nonprofit institutions neighborhood groups and individuals the object of the demonstration program was to test the feasibility cost procedural and financial aspect of providing housing for low-income families through the acquisition rehabilitation and resale or lease of residential structures in a deteriorating neighborhood local_government officials and departments cooperated in the program by preparing renewal plans and transferring properties taken through tax foreclosure to the organization at cost the organization sold or leased homes rehabilitated by the organization in the model demonstration program to low-income or displaced families on a nonprofit basis the organization did no new_construction a grant from the department of housing and urban development hud provided part of the financing for the organization’s project the organization obtained supplemental financing frorm public contributions and the sale of interest-bearing obligations the ruling held that the organization performed charitable activities because its demonstration program combated community deterioration revrul_70_585 1970_2_cb_115 held generally that an organization formed for charitable purposes and accomplishing those purposes through a program of providing housing for low and in certain circumstances moderate income families qualifies for recognition under sec_501 it builds new homes for sale to low income families who qualify for loans under a situation involved an organization formed to provide new home construction and the renovation of existing homes for sale to low income families on long-term low-payment plans purchases homes for renovation and lots for building new homes throughout the city in which it is located federal housing program and who cannot obtain financing through conventional channels it also aids financially those families eligible for the loans that do not have the necessary down payment rehabilitated homes are made available to families who cannot qualify for any kind of mortgage loan the cost of these homes is recovered if possible through very small periodic_payments - fhe organization derives its operating funds through federal loans and contributions from the general_public where possible renovations are made with volunteer help the organization performed charitable activities because it relieved the poor and distressed by providing homes for low income families who otherwise could not afford them it situation involved an organization formed to ameliorate the housing needs of minority groups by building housing units for sale to persons of low and moderate income on an open occupancy basis housing units were sold at or below cost to low_or_moderate_income families or rented with options to purchase to families who could not afford to purchase preference was given to families previously located in ghetto areas the organization was financed by contributions from the general_public and by funds obtained under federal and state housing programs the ruling held that the organization engaged in charitable activities because its activities were designed to eliminate prejudice and discrimination and to lessen neighborhood tensions situation evolved an organization formed to formulate plans for the renewal and rehabilitation of a‘particular area in a city as a residential community studies of the area showed that the median income level in the area were lower than in other sections of the city and the housing located in the area is generally old and badly deteriorated the organization’s membership was composed of the residents businesses and community organizations in the area the organization cooperated with the local redevelopment authority in providing residents of the area with decent safe and sanitary housing without relocating them outside the area the organization is supported by federal funds membership fees and contributions the ruling held that the organization engaged in charitable activities because its activities combated community deterioration by assisting in the rehabilitation of an old and run-down residential area situation involved an organization formed to build new housing facilities for the purpose of helping families to secure decent safe and sanitary housing at prices they can afford its membership is composed of community organizations that are concerned with the growing housing shertage in the community a study of the area shows that because of the high cost of land increased interest rates and the growing population there is a shortage of housing for moderate income families in the community the organization planed to erect housing that would be rented at cost to moderate income families the organization is financed by mortgage money obtained under federal and state programs and by contributions from the general_public the ruling held that the organization did not perform charitable activities because the organization’s program was not designed to provide relief to the poor or to carry out any other charitable purpose revproc_96_32 1996_1_cb_717 sets forth a safe_harbor under which organizations that provide low-income_housing will be considered charitable under sec_501 for relieving the poor and distressed and describes the facts_and_circumstances_test that will apply to determine whether organizations that fall outside the safe_harbor relieve the poor and distressed it also clarifies that housing organizations may rely on other charitable purposes to qualify for recognition of exemption the safe_harbor requires that the housing be affordable to the charitable beneficiaries in the case of rental housing this requirement will ordinarily be satisfied by the adoption of a rental policy that complies with government-imposed rental restrictions er otherwise provides for the limitation of the tenant’s portion of the rent charged to ensure thatthe housing is affordable to low-income and very low-income residents in the case of homeownership programs this requirement will ordinarily be satisfied by the adoption of a mortgage policy that complies with government-imposed mortgage limitations or otherwise makes the initial and continuing costs of purchasing a home affordable to low and very low- income residents facts and circumstances that demonstrate relief of the poor may include but are not limited to the following a substantially greater percentage of residents than required by the safe_harbor with incomes up to percent of the area’s very low-income limit limited degree of deviation from the safe_harbor percentages limitation of a resident's portion of rent or mortgage payment to ensure that the ‘housing is affordable to low-income and very low-income residents participation in a government housing program designed to provide affordable housing operation through a community-based board_of directors particularly if the selection process demonstrates that community groups have input into the organization's operations the provision of additional social services affordable to the poor residents relationship with an existing sec_501 organization active in low-income_housing for at least five years if the existing organization demonstrates control acceptance of residents who when considered individually have unusual burdens such as extremely high medical costs which cause them to be in a condition similar to persons within the qualifying_income limits in spite of their higher incomes participation in a homeownership program designed to provide homeownership opportunities for families that cannot otherwise afford to purchase safe and decent housing existence of affordability covenants or restrictions running with the property in 326_us_279 the supreme court held that the presence of private benefit if substantial in nature will destroy an organization’s tax-exempt status regardless of the organization’s other charitable purposes or activities rationale an organization seeking tax-exempt status under sec_501 must be organized and operated exclusively or charitable or other exempt purposes with no part of its net_earnings inuring to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 the presence of a single non-exempt purpose if substantial in nature will destroy exemption under 1l r c sec_501 regardless of the number or importance of any other exempt purposes 326_us_279 see sec_1_501_c_3_-1 based on the information and supporting documentation you do not qualify for recognition under sec_501 because you operate for one or more substantial nonexempt purpose operational_test an organization seeking recognition under sec_501 must operate exclusively for one or more exempt purposes sec_1_501_c_3_-1 an organization operates exclusively for one or more exempt purposes if it engages primarily in activities that accomplish one or more of such exempt purposes sec_1_501_c_3_-1 therefore in order to be recognized under sec_501 you must engage primarily in activities that accomplish one or more exempt purposes in certain circumstances this activity may be a charitable activity within the your only activity is buying and rehabilitating houses for resale to low- and moderate-income individuals meaning of sec_501 see sec_1_501_c_3_-1 for example revrul_68_17 describes an organization that rehabilitated properties in a deteriorating neighborhood and sold or leased those properties to low-income or displaced families on a nonprofit basis the ruling determined that the organization's activities were charitable because those activities combated- community deterioration see also revrul_70_585 situation revrul_70_585 describes four situations in which providing housing to low- and in some cases moderate-income families may qualify for recognition under sec_501 specifically situation describes an organization that renovated existing homes and then sold those homes to low-income families that could not qualify for any kind of mortgage loan the organization recovered the cost of the homes if possible through very small periodic_payments wherever possible the organization made renovations with volunteer help the ruling determined that the organization performed a charitable activity because it relieved the poor and distressed situation describes an organization that ameliorated the housing needs of minority groups by building housing units for sale to persons of low and moderate income on an open occupancy basis the organization constructed housing units available to members of minority groups with low and moderate incomes who were unable to obtain adequate housing because of local discrimination the organization sold the housing units at or below cost to these families or rented with options to purchase to families who could not afford to purchase the ruling determined that the organization performed a charitable activity because it eliminated prejudice and discrimination and lessened neighborhood tensions unlike the organizations described in revrul_68_17 and revrul_70_585 your housing rehabilitation program fails to combat community deterioration eliminate prejudice and discrimination lessen neighborhood tensions or provide relief to the poor and distressed or underprivileged first you do not target any specific areas in state state or state for rehabilitation including areas with actual or potential deterioration or in which prejudice and discrimination exist second you do not intend to use volunteers to rehabilitate your properties third you - end to sell your properties at market rates market rates may be at or below cost but you provide no information about your anticipated purchase prices or rehabilitation costs whether'you wilt profit from the sale your rehabilitated properties is unknown fourth you do not intend to provide down payment assistance rather you expect your purchasers to obtain conventional financing to purchase your properties finally your only source_of_income will be from the sale of properties you state that you will not receive public contributions or apply for federal state_or_local_government grants you certify that you will meet the requirements of the safe_harbor provided by revproc_96_32 but fail to provide sufficient information about your intended operations to determine whether you will actually satisfy those requirements furthermore the facts and circumstances do not establish that your activities relieve the poor and distressed first beyond your certification you do not indicate how you will choose purchasers for your rehabilitated properties second you do not indicate whether the purchasers’ mortgage payments will be limited in order to ensure that the housing is affordable to low-income residents or whether you will impose any affordability covenants or restrictions that will run with the land third you do not participate in any government housing programs designed to provide affordable housing or homeownership programs designed to provide homeownership opportunities for families that cannot otherwise afford to purchase safe and decent housing fourth you do not operate through a community- based board_of directors rather all of your directors are related by blood finally you do not indicate whether you have any relationships with existing sec_501 organizations active in low-income_housing for at least five years for these reasons your housing rehabilitation activity is not a charitable activity within the meaning of sec_501 you spend of your time and money conducting this activity accordingly you are not operated exclusively for one or more exempt_purpose private benefit and inurement additionally an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals or if it serves a public rather than private interest sec_1_501_c_3_-1 sec_1 c - d ii the organization seeking recognition bears the burden of establishing that it is not operated for the benefit of private interests such as designated individuals the creator or his family snareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 you failed to establish that you are not operated for the benefit of your creator or his family first your articles do not prohibit your net_earnings from inuring to the benefit of your members trustees officers or other private persons second you have three board members all related by blood the directors serve indefinite terms and may only be removed for cause with a vote of two-thirds of the remaining directors all of whom are related third your bylaws require board members to be compensated for their services but when asked how you will ensure that your directors’ salaries are reasonable you provided no explanation furthermore officer director or trustee compensation is one of your two anticipated expenses you do not anticipate any program service or other expenses related to the accomplishment of your exempt purposes finally you have adopted a conflict of interest policy to protect your interests when you contemplate entering into transactions or arrangements that might benefit the private interests of an officer or director however your policy is nearly meaningless because all of your direciurs are related by blood the policy provides that if one family_member has a direct financial interest in a transaction arrangement or compensation agreement all other family members trave an indirect financial interest accordingly no disinterested directors exist to vote on any such transaction arrangement or compensation agreement therefore you have failed to establish both that your net_earnings will not inure to the benefit of private shareholders or individuals or that you will serve public rather than public interests conclusion based on the above we have determined that you fail to meet the requirements necessary to be recognized as a tax-exempt_organization under sec_501 you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination your protest statement should be accompanied by the following declaration under penalties of perjury declare that have examined this protest statement including accompanying documents and to the best of my knowledge and belief the statement contains all the relevant facts and such facts are true correct and complete this declaration must be signed by an elected officer a member of the board_of directors or a trustee rather than an attorney or accountant you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you if you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters please send your protest statement form_2848 and any supporting documents to this address internal_revenue_service te_ge se t eo ra t3 constitution ave n w washington dc you may also fax your statement using the fax number shown in the heading of this letter you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely karen schiller acting director exempt_organizations rulings and agreements


internal_revenue_service number release date index number ----------------------------- ------------------------------------ ----------------------- ----------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b6 plr-108440-10 date date legend taxpayer corp a corp b corp c corp d corp e ------------------------------------------------------------------- ------------------------ ------------------------------- ----------------------------- ---------------------------------------- ---------------------------------------------------- -------------------------------------------------------- ------------------------------------- ----------------------- corp f ----------------------------------------- corp g corp h state year year xdollar_figureydollar_figurestation technology -------------------------- authority --------------- -------------------------- ------------- ------- ------- ---------------- --------------- ------------------ ---------------------------------------------------- plr-108440-10 dear ------------------------ this is in response to your request for rulings submitted by your authorized representative concerning the federal_income_tax consequences of the transaction described below facts taxpayer is a limited_liability_company organized under the laws of state taxpayer has not and will not elect to be classified as an association_taxable_as_a_corporation and accordingly taxpayer is classified as a partnership for federal_income_tax purposes taxpayer’s annual_accounting_period ends on december of each year and its overall_method_of_accounting is the accrual_method taxpayer owns the refined_coal facility ies the facilities and each a facility located adjacent to the station owned by authority the taxpayer is owned by i corp a a state limited_liability_company as a member holding --- of the outstanding membership interests ii corp b a state corporation as a member holding --- of the outstanding membership interests and ii corp c as a member holding --- of the outstanding membership interests the only material asset of corp a is its interest in taxpayer and other similar operating companies corp a is owned by i corp b as a member holding of the outstanding membership interests and ii corp d a state limited_liability_company as a member holding --- of the outstanding membership interests corp e a state corporation owns ----- of the stock of corp b corp e is a publicly traded corporation corp e is one of the world's ------------------------------------------ ----------------------------------------- firms corp b has extensive experience in developing technologies and making investments in the clean and alternative_fuel sectors and beginning in year partnered in numerous projects that generated tax_credits under sec_29 of the internal_revenue_code code nearly all of these projects are continuing to operate today some supplying energy to industries such as hospitals mines and factories while others use generators to supply electricity to the grid corp e met and partnered with technology developers as a consequence of its investment and development of sec_29 fuel projects it has invested in various clean energy technology companies that are developing coal gasification retrofits for older utility boilers and chemical scrubbing systems for co2 emissions one of the technology companies that corp e invested in was a company called corp g initially corp e funded the preliminary research that was performed to show the potential of the technology the technology once the technology was proven in the lab however it plr-108440-10 needed to be taken to the field corp e was instrumental in introducing negotiating with and financing the full-scale testing that resulted from the lab tests eventually corp e became the managing member of corp g and has brought its experience in working with the utilities to assist in the commercialization of the technology ------------------------- ---------------------------------------------------------------------------------------- corp b has also negotiated and closed five licenses on behalf of corp g for use of the technology in full-scale applications corp d is owned by corp f a state limited_liability_company corp d is treated as a disregarded_entity for federal_income_tax purposes and as a division of corp f corp f is the holding_company for a ------------------------firm better known as corp h which is one of the world’s largest -----------------firms corp f and a related company have collectively invested in several energy projects initially in year as a passive investor in projects that generated income_tax credits under sec_29 of the code and later as an active operator of numerous oil_and_gas projects with a net_worth of approximately xdollar_figure corp d is a special purpose entity created for the purpose of entering into the transactions described herein corp d’s sole asset is the corp a membership interest purchased from corp b pursuant to a membership interest purchase agreement mipa between corp b and corp d corp b sold to corp d a --------------- percent ----- --- membership interest in corp a in exchange for a purchase_price closely approximating corp d’s proportionate share of the total cost of constructing and installing the facilities corp a and each other member of the taxpayer is obligated under the llc operating_agreement to contribute to taxpayer as the operating company its proportionate share of the operating costs including the sub-license royalties defined below each member of corp a is obligated to contribute to corp a amounts sufficient to enable corp a to make these contributions to taxpayer and corp d explicitly assumes the obligation to make its share of these contributions in the mipa in connection with the mipa corp e and corp f will guarantee certain of the obligations of corp b and corp d executed transaction documents for the facilities taxpayer as operating company has constructed and installed the facilities and has commercially deployed the technology described below at the station taxpayer has entered into a site lease the lease with authority that allows taxpayer to construct and locate the facilities at the station pursuant to the terms of the lease taxpayer has rights of ingress and egress as appropriate plr-108440-10 taxpayer owns the facilities at the station each facility generally consists of the following ----------------------------- -------------------------- ---------------------- ---- ----------------------------- ------------------ -------------------------------- ------------------- --------------------------------------------- and --------------------- the total capital costs of constructing and installing the facilities at the station was approximately ydollar_figure with respect to each facility taxpayer has entered into a coal supply agreement whereby it will purchase coal feedstock from authority at the station the coal supply agreement does not prohibit the taxpayer from purchasing feedstock coal from third parties and does not prohibit taxpayer from purchasing more feedstock coal than authority would expect to buy from the taxpayer in the form of refined_coal the feedstock coal purchased by taxpayer from authority will be coal that authority itself purchased from third party vendors consistent with its coal procurement specifications the coal specs authority typically issues an offer to purchase coal that satisfies its composition specifications ie the coal specs pursuant to this procurement methodology authority regularly purchases coal meeting the coal specs at the least expensive price from one or more of approximately ------------------- mines as relates to the station the authority coal specs generally specify a maximum sulfur percentage content for the feedstock coal of ---- to ---- and a maximum moisture content of --- at each facility taxpayer or a subcontractor will buy feedstock coal from authority and apply technology to the coal feedstock in this regard an operating and maintenance contract o m contract has been entered into with a third party operator to operate the facilities on behalf of taxpayer the operator is not related to authority corp a taxpayer or the members of corp a or taxpayer thereafter the taxpayer will sell the resulting refined_coal to authority pursuant to a refined_coal sale agreement pursuant to this agreement authority will purchase from taxpayer an amount of refined_coal estimated to be produced by the facilities to the extent that the actual production of refined_coal exceeds this estimated amount authority has the right to purchase the excess production if authority declines to purchase the excess production then taxpayer has the right to sell the excess production portion of refined_coal produced to one or more third parties each ton of refined_coal sold to authority pursuant to the refined_coal sale agreement will be sold for a price that is -----------------------------------per ton less than the price paid_by taxpayer for the feedstock coal pursuant to the coal supply agreement this subsidy in the price is designed to compensate authority for the risk to its boilers and its generation process in general from the use of refined_coal rather than its traditional feedstock coal and to induce it to use the output from the facilities plr-108440-10 description of the technology and licensing sublicensing corp b owns certain licensing rights to a proprietary coal-refining process referred to as the technology when the technology process is applied as part of an electric and steam generating facility by adding chemicals to coal prior to burning the coal in a furnace it has the effect of reducing emissions of certain pollutants from the burning of the resulting refined_coal increasing fuel efficiency and reducing boiler maintenance the by-product of this process is a valuable fly ash which can be used in a diverse array of applications in the steel mining and cement industries the technology is a dual-injection sorbent system in which separate sorbents for mercury and nox control are added to and mixed with input coal technology’s patent- pending process starts with several chemical additives being added to coal prior to its combustion in a furnace the additives provide the chemical structure to create a ceramic matrix using chemical bonds to capture emissions of regulated pollutants the matrix has a certain structure of chemicals in certain positions at the interior corners of the matrix the structure will pick up and hold pollutants such as mercury arsenic or lead the structure also picks up and includes elements such as oxygen chlorides and fluorides which are freely available in a boiler's gas stream when they have been released from the coal during combustion but become locked up in the ceramic matrix as the gas stream starts to cool the chemical bonds form into a very strong matrix because the matrix was created under extremely high temperatures it can only be broken at similar temperatures in conventional combustion mercury and many other heavy metals are vaporized in the combustion process and are emitted into the atmosphere with the flue gas in the technology process mercury and many other heavy metals are removed as part of the fly ash the mercury and other heavy metals are entrapped in the fly ash as described above in a non leachable form for safe disposal further in conventional combustion nitrogen oxides are produced as the fuel is burned under oxidizing conditions the levels produced are a function of many factors including excess air fuel nitrogen content flame temperature burner configuration and combustion air staging among others it can even be affected by ambient air temperatures technology’s sorbent technology provides nox reductions via several mechanisms lowering flame temperature adsorption of nox species and chemical capture of nox species the primary mechanism appears to involve adsorption and capture of nox species within the altered fly ash this results in a significant reduction in the nox species that are released into the air corp b has entered into an agreement sub-license agreement to sub- license the technology to taxpayer as taxpayer utilizes the technology to produce refined_coal taxpayer will make royalty payments to corp b the sub-license royalties the sub-license royalties will be payable in amounts equal to --------------- ---------------- per dollar of refined_coal credit arising from the operations of taxpayer plr-108440-10 reduced by any other operating costs incurred by taxpayer from this amount corp b must pay to corp g ---------------per ton of refined_coal for the first three years of production and thereafter the greater of ----- cents per ton or ---- of the sec_45 tax_credits available per ton corp b retains the balance pilot scale testing of the technology with respect to the station during the calendar_year the technology was tested the pilot scale testing periodically at a world renown testing center testing center the testing center is recognized as one of the world's leading developers of cleaner more efficient energy and environmental technologies to protect and clean air water and soil in connection with this testing an emissions monitoring system was used to measure the effect of the technology on nox co and o2 emissions in addition the mercury weight content of the fly ash was tested to measure mercury capture by the technology during the pilot scale testing coal was burned in one of the boilers at the testing center's boiler house the boiler and the combustion conditions were designed to replicate the combustion and other operating conditions for the station moreover the feedstock coal used for testing the tested coal was of the same type source or rank as the coal that is currently burned at the station in particular the tested coal tested during the pilot scale testing was consistent with authority’s coal specs the combustion of the tested input coal after applying the technology ie refined_coal resulted in a nitrous oxide emissions reduction in excess of ------------------- ------------------------------------------------------------- similarly the combustion of the tested input coal after applying the technology ie refined_coal resulted in a mercury emissions reduction in excess of ------------------------------------------------------------------------- ----------- rulings requested based on the foregoing taxpayer has requested that we rule as follows the refined_coal produced by using the technology constitutes a refined_coal within the meaning of sec_45 of the code provided that the refined_coal satisfies the qualified_emission_reduction test stated in sec_45 of the code pursuant to b of notice_2010_54 the notice taxpayer may satisfy the redetermination requirement of dollar_figure of the notice by laboratory analysis establishing that the s and hg content of both the feedstock coal and the refined_coal on average do not vary by more than ten percent from the s and hg content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of dollar_figure of the notice plr-108440-10 the taxpayer may rely upon pilot scale testing and subsequent permitted laboratory testing as required for a redetermination to satisfy the qualified_emission_reduction test of sec_45 of the code regardless of subsequent normal fluctuations in operating conditions for the station law and rationale sec_45 of the code generally provides a credit against federal_income_tax for_the_use_of renewable or alternative resources to produce electricity or fuel for the generation of steam sec_45 of the code provides that in the case of a producer of refined_coal the credit available under sec_45 of the code for any taxable_year shall be increased by an amount equal to dollar_figure5 per ton of qualified refined_coal i produced_by_the_taxpayer at a refined_coal_production_facility during the 10-year period beginning on the date that the facility was originally placed_in_service and which is ii sold by the taxpayer to an unrelated_person during such 10-year period and such taxable_year for purposes of sec_45 of the code section dollar_figure of notice_2010_54 irb date provides that the term refined_coal means a fuel which -- i is a liquid gaseous or solid fuel including feedstock coal mixed with an additive or additives produced from coal including lignite or high carbon fly ash including such fuel used as a feedstock ii is sold by the taxpayer with the reasonable expectation that it will be used for purpose of producing steam and iii is certified by the taxpayer as resulting when used in the production of steam in a qualified_emission_reduction section dollar_figure of the notice provides that the term qualified_emission_reduction means in the case of refined_coal produced at a facility placed_in_service after date a reduction of at least twenty percent of the emissions of nitrogen oxide and at least of the emissions of either sulfur dioxide or mercury released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date in the case of production at a facility placed_in_service before date a reduction of at least percent of the emissions of nox and at least percent of the emissions of either so2 or hg released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date sec_45 of the code generally provides that the term refined_coal_production_facility means a facility which is placed_in_service after date and before date section dollar_figure of the notice generally provides that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as defined in sec_613 a c or i if performed plr-108440-10 by the mine owner or operator accordingly in determining whether a qualified_emission_reduction has been achieved the emissions released when burning the refined_coal must be compared to the emissions that would be released when burning the feedstock coal feedstock coal is the product resulting from processes that are treated as mining and are actually applied by a taxpayer in any part of the taxpayer's process of producing refined_coal from coal sec_613 of the code describes treatment processes that are not considered as mining unless they are provided for in sec_613 of the code or any necessary or incidental to a process provided for in sec_613 any cleaning process such as a process that uses ash separation dewatering scrubbing though a centrifugal pump spiral concentration gravity concentration flotation application of liquid hydrocarbons or alcohol to the surface of the fuel particles or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal and drying to removed free water provided such drying does not change the physical or chemical identity of the coal will be considered as mining section of the notice provides in part that emissions reduction may be determined using continuous emission monitoring system cems field testing section a provides in part that cems field testing is testing that meets all the following requirements i the boiler used to conduct the test is coal-fired and steam-producing and is of a size and type commonly used in commercial operations ii emissions are measured using a cems iii if epa has promulgated a performance standard that applies at the time of the test to the pollutant emission being measured the cems must conform to that standard iv emissions for both the feedstock coal and the refined_coal are measured at the same operating conditions and over a period of at least hours during which the boiler is operating at a steady state at least percent of full load v a qualified_individual verifies the test results in a manner that satisfies the requirement of section b of the notice section of the notice provides that methods other than cems field testing may be used to determine the emissions reduction if a method other than cems field testing is used the service may require the taxpayer to provide additional proof that the emission reduction has been achieved the permissible methods include a testing using a demonstration pilot-scale combustion furnace if it established that the method accurately measures the emission reduction that would be achieved in a boiler described in section a a i of the notice and a qualified_individual verifies the test results in a manner that satisfies the requirements of section c i ii v and vi of the notice b a laboratory analysis of the feedstock coal and the refined_coal that complies with a currently applicable epa or astm standard and is permitted under section b i or ii of the notice section of the notice provides that a taxpayer may establish that a qualified_emission_reduction determined under section dollar_figure of the notice applies to plr-108440-10 production from a facility by a determination or redetermination that is valid at the time the production occurs a determination or redetermination is valid for the period beginning on the date of the determination or redetermination and ending with the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of feedstock coal that occurs after the date of such determination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination section of the notice provides that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure of the notice must use a method that meets the requirements of section dollar_figure of the notice in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that - a the sulfur s or hg content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least percent percent in the case of facilities placed_in_service after date in comparison to the s or hg content of the amount of feedstock coal necessary to produce the same amount of useful energy excluding any dilution caused by materials combined or added during the production process b the s or hg content of both the feedstock coal and the refined_coal do not vary by more than percent from the s and hg content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the notice finally section dollar_figure of the notice provides that the certification requirement of sec_3 c of the notice is satisfied with respect to fuel for which the refined_coal credit is claimed only if the taxpayer attached to its tax_return on which the credit is claimed a certification that contains the following a a statement that the fuel will result in a qualified emissions reduction when used in the production of steam b a statement indicating whether cems field testing was used to determine the emissions reduction if cems field testing was not used to determine the emissions reduction a description of the method used a statement that the emissions reduction was determined or redetermined within the six months preceding the production of the fuel and that there have been no changes in the source or rank of feedstock coal used or in the process of producing refined_coal from the feedstock coal since the emissions reduction was determined or was most recently determined and a declaration signed by the taxpayer in the following form under penalties of perjury i declare that i have examined this certification and to the best of my knowledge and belief it is true correct and complete with respect to the first issue the technology starts with several chemical additives added to the feedstock coal prior to its combustion in a furnace the additives provide the chemical structure to create a ceramic matrix using chemical bonds to capture pollutants section dollar_figure of the notice provides generally that a qualified plr-108440-10 emission reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as further defined in the code if performed by the mine owner or operator sec_613 of the code describes certain treatment processes that are not considered as mining unless they are provided for in sec_613 of the code or are necessary or incidental to a process provide for in sec_613 of the code for example of the notice provides in part that any cleaning process such as the application of liquid hydrocarbons or alcohol to the surface of the fuel particle or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal will be considered mining in the instant case the technology is not a mining process further section dollar_figure of notice_2010_54 clarifies sec_45 of the code and specifically provides that refined_coal includes feedstock coal mixed with an additive or additives thus additive processes which mix certain chemicals or other additives with the coal in order to achieve emission reductions may qualify for the production_tax_credit for refined_coal accordingly we conclude that the refined_coal produced by using the technology constitutes a refined_coal within the meaning of sec_45 of the code provided that the refined_coal satisfies the qualified_emission_reduction test stated in sec_45 of the code with respect to the second issue of the notice provides that any permissible testing method provided for in the notice can be used in emission testing for any pollutant that is a taxpayer can use different testing methods for each of nox so2 or hg provided the method used for any pollutant is a permissible method section of the notice provides that an emission test establishing a qualified_emission_reduction qualifies the refined_coal for a six-month period provided there is no change in the process for producing the refined_coal or in the source or rank of the feedstock coal therefore a taxpayer must redetermine the emission reductions to qualify for the succeeding six-month period using one or more approved methods section of the notice provides that in the context of redetermination that the redetermination requirement may be satisfied by laboratory analysis establishing either that i the s or hg content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least in the case of facilities placed_in_service after date in comparison to the s or hg content of the amount of useful thermal energy excluding any dilution caused by materials combined or added during the production process or ii the s or hg content of both the feedstock coal and the refined_coal do not vary by more than from the s or hg content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the testing methods for emissions reductions in dollar_figure of the notice in the instant case as each train of coal purchased by authority arrives at station authority takes a sample of such coal from each train load and tests its sulfur content to ensure that such coal satisfies the authority coal specs the delivered coal is then added to a coal pile owned and maintained by authority thus each coal pile is comprised of coal that meets the authority coal specs and may have been purchased by authority from a number of different mines thereafter taxpayer purchases coal from authority coal pile processes this feedstock plr-108440-10 coal into refined_coal and sells the refined_coal to authority after purchasing the refined_coal authority takes samples of it each day and analyzes the sulfur content of a composite of such refined_coal samples each week moreover at the direction of taxpayer pilot scale testing will be performed on this feedstock coal from authority coal pile and the refined_coal produced from such feedstock coal to initially confirm that the qualified_emission_reduction testing is satisfied as a part of the testing samples of the feedstock coal and refined_coal are analyzed and s and hg content are noted subsequently based upon the redetermination requirements set forth in the notice either authority or taxpayer will test the s and hg content of samples from i each train load of feedstock coal or a weekly composite of such samples and ii a weekly composite sample of refined_coal thus taxpayer will average the results of the s and hg laboratory analysis testing over a six month period to determine whether a combustion redetermination is required in the event the s or hg content of the feedstock coal or the refined_coal on average were to change by more than this ten percent permissible variation additional combustion testing instead of laboratory analysis will be performed as required for a redetermination pursuant to the notice accordingly we conclude that pursuant to b of the notice taxpayer may satisfy the redetermination requirement of dollar_figure of the notice by laboratory analysis establishing that the s and hg content of both the feedstock coal and the refined_coal on average do not vary by more than ten percent from the s and hg content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of dollar_figure of the notice with respect to the third issue the discussion relating to the second issue is also applicable in particular of the notice requires that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination under dollar_figure of the notice must meet the requirements of dollar_figure of the notice while a redetermination required because of the earlier of i the lapse of six months from the date of such determination or redetermination and ii a change in the source or rank of feedstock coal that occurs after the date of the determination or redetermination may be satisfied by laboratory analysis described in a or b based on our understanding of taxpayer’s practice we do not believe that normal fluctuations in the operating conditions occurring at the station should be construed as resulting in a change in the process of producing refined_coal from feedstock coal accordingly we conclude that taxpayer may rely upon pilot scale testing and subsequent permitted laboratory testing as required for a redetermination described in a or b of the notice to satisfy the qualified_emission_reduction test of sec_45 of the code regardless of subsequent normal fluctuations in operating conditions for the station based on the foregoing we conclude as follows plr-108440-10 the refined_coal produced by using the technology constitutes a refined_coal within the meaning of sec_45 of the code provided that the refined_coal satisfies the qualified_emission_reduction test stated in sec_45 of the code pursuant to b of the notice taxpayer may satisfy the redetermination requirement of dollar_figure of the notice by laboratory analysis establishing that the s and hg content of both the feedstock coal and the refined_coal on average do not vary by more than ten percent from the s and hg content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of dollar_figure of the notice taxpayer may rely upon pilot scale testing and subsequent permitted laboratory testing as required for a redetermination described in a or b of the notice to satisfy the qualified_emission_reduction test of sec_45 of the code regardless of subsequent normal fluctuations in operating conditions for the station no opinion is expressed regarding any other issue not specifically addressed in this ruling letter in particular no opinion is expressed with respect to whether taxpayer is the owner of the facility for federal_income_tax purposes further no opinion is expressed whether the transaction meets the requirements of sec_7701 of the code relating to economic_substance finally no opinion is expressed whether any particular facility has been placed_in_service prior to date in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives a copy of this ruling must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent we are sending a copy of this letter_ruling to the industry director sincerely peter c friedman peter c friedman senior technician reviewer branch 6office of associate chief_counsel passthroughs special industries


internal_revenue_service number release date index number ------------------------ --------------------------- ---------------------------- in re ------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------------- telephone number --------------------- refer reply to cc tege eb ec plr-147287-05 date date this letter responds to a request for a letter_ruling submitted on behalf of on date taxpayer’s compensation committee unanimously approved ------------------------- ---------------------------------------------------- --------------------------- --------------------------- legend legend taxpayer bonus plan date date dear -------------- taxpayer on date requesting a ruling under sec_162 of the internal_revenue_code adoption of the bonus plan and directed that it be submitted for shareholder approval at taxpayer’s annual shareholder meeting the bonus plan is intended to be a qualified_performance-based_compensation plan under sec_162 of the code and sec_1_162-27 of the income_tax regulations as stated in taxpayer’s proxy statement of date if the bonus plan is not approved by stockholders no payments relating to those targets will be made by taxpayer taxpayer’s proxy statement also states that taxpayer reserves the right to pay discretionary bonuses or other types of compensation outside of the bonus plan the proxy statement further states that no employee has a guaranteed right to any discretionary bonus as a substitute for a performance bonus in the event that performance targets are not met or that shareholders fail to approve the material terms of the bonus plan taxpayer requests a ruling that taxpayer’s reserving the right in its proxy statement to pay discretionary bonuses outside of the bonus plan as well as the subsequent payment of any discretionary bonuses does not prevent the bonus plan plr-147287-05 from qualifying as a qualified_performance-based_compensation plan under sec_162 of the code and sec_1_162-27 of the regulations sec_162 of the code allows a deduction for all of the ordinary and necessary business_expenses paid_or_incurred during the taxably year in carrying on any trade_or_business including a reasonable allowance for salaries or other compensation_for_personal_services actually rendered sec_162 provides that for any publicly_held_corporation no deduction shall be allowed for applicable_employee_remuneration with respect to any covered_employee to the extent that the amount of such remuneration for the taxable_year exceeds dollar_figure sec_162 excepts from that limit performance-based compensation that in relevant part is payable solely on account of attaining one or more performance goals determined by a compensation committee of the board_of directors which is comprised solely of two or more outside directors if the material terms under which the remuneration is to be paid are approved by a majority of the shareholders sec_1_162-27 of the regulations provides that qualified performance- based compensation must be paid solely on account of the attainment of one or more preestablished objective goals a performance_goal is considered preestablished if it is established in writing by the compensation committee not later than days after the commencement of the period_of_service to which the performance_goal relates provided that the outcome is substantially uncertain at the time the compensation committee establishes the goal however in no event will a performance_goal be considered to be preestablished if it is established after percent of the period_of_service as scheduled in good_faith at the time the goal is established has elapsed under sec_1_162-27 of the regulations the terms of an objective formula or standard must preclude discretion to increase the amount of compensation payable that would other be due on attainment of a goal under sec_1_162-27 of the regulations the determination of whether compensation is considered performance-based generally shall be made on a grant-by- grant basis under sec_1_162-27 of the regulations compensation is not considered performance-based if the facts and circumstances indicate that the employee would receive all or part of the compensation regardless of whether the performance_goal is attained thus if the payment of compensation under an award is only nominally or partially contingent on attaining a performance_goal none of the compensation payable under the award will be considered performance-based plr-147287-05 sec_1_162-27 provides that once the material terms of a performance_goal are disclosed to and approved by shareholders no additional disclosure or approval is required unless the compensation committee changes the material terms of the performance_goal if however the compensation committee has authority to change targets under a performance_goal after shareholder approval of the goal material terms of the performance_goal must be disclosed and reapproved by shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which shareholders previously approved the performance_goal based on the forgoing we rule that taxpayer’s reservation of the right to pay discretionary bonuses outside of the bonus plan will not prevent the bonus plan from qualifying as a qualified_performance-based_compensation plan under sec_162 of the code and sec_1_162-27 of the income_tax regulations the question of whether in operation the payment of discretionary bonuses causes the performance based compensation to be paid other than solely on account of the attainment of one or more pre-established objective performance goals is a question of fact questions of fact are best resolved in this area upon examination of several or more field income_tax returns thus no opinion is expressed concerning whether the payments of discretionary bonuses will prevent the bonus plan from qualifying as qualified_performance-based_compensation the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative a copy of this letter must be attached to any income_tax return to which it is relevant sincerely william c schmidt senior counsel executive compensation branch office of the division counsel associate chief_counsel tax exempt government entities


internal_revenue_service number release date index number ------------------------------------ ------------------------------------------- ---------------------- ----------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-148188-06 date date --------------------------------------------- legend x ---------------------------------- d1 ------------------------ a dear ------------- ------------------------ this responds to the letter dated date and subsequent the information submitted states that x was incorporated on d1 a the sole correspondence submitted on behalf of x requesting relief under ' b of the internal_revenue_code facts shareholder of x represents that he intended that x elect to be an s_corporation effective d1 however x inadvertently failed to timely file a form_2553 election by a small_business_corporation accordingly x requests a ruling that it will be treated as an s_corporation effective d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first plr-148188-06 two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under ' b however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no ' a election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and ' b shall not apply x did not timely file an election to be treated as an s_corporation under ' a x has however established reasonable_cause for not making a timely s election and is entitled to relief under ' b conclusion based solely on the facts and representations submitted we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation effective d1 accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 effective d1 along with a copy of this letter with the appropriate service_center within days from the date of this letter then such election will be treated as timely made for d1 except as specifically set forth above no opinion is expressed or implied as to this ruling is directed only to the taxpayer requesting it sec_6110 the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes provides that it may not be used or cited as precedent enclosures audrey ellis senior counsel branch office of associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes sincerely