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-157319-04 date date internal_revenue_service number release date index number 468a ---------------------------- --------------------------------- ---------------------- ---------------------------------------- - legend seller buyer ----------------------------------------- ------------------------ ---------------------------- ------------------------ plant location state seller's parent intermediate buyer's parent agency commission a commission b trustee system operator new rule order one order two ---------------------------------------------- ------------------------- -------- ---------------------------------------------------- ------------------------------------- --------------------------------- ---------------------------------------------- ---------------------------------------------- ----------------------------------------------------- ------------------------ ----------------------------------------------- --------------------------------------- --------------------------------- --------------------------------- a b c d e f g h ------ ------ ------ --- --- ------ -------------------------- ------------------ ------ ---------------------- ------------------------ i j k plr-157319-04 dear ------------- this letter responds to a letter dated date requesting a private_letter_ruling concerning the tax consequences of the sale of an interest in a nuclear power plant and associated assets and liabilities including nuclear decommissioning liability between seller and buyer specifically you have requested rulings regarding the tax consequences under sec_468a of the internal_revenue_code to seller's nuclear decommissioning funds and buyer's nuclear decommissioning funds as well as rulings regarding the proper realization and recognition of gain and loss on the sale of seller's interest in the nuclear power plant and associated assets seller and buyer in a jointly-filed ruling_request have represented the following facts and information relating to the ruling_request plant is located in location in state and consists of two units and associated assets located together on a single property seller a regulated_public_utility company is a wholly-owned subsidiary of seller's parent a public_utility holding_company that directly or indirectly owns several regulated and unregulated energy companies seller is a member of seller's parent's affiliated_group and joins in filing a consolidated_return on a calendar_year basis using the accrual_method of accounting seller and seller's parent are under the audit jurisdiction of the ---------------------------------------------------------------immediately prior to the transfer of the plant to buyer seller owns a a percent undivided ownership_interest in the plant simultaneous with execution of the transaction discussed in this ruling letter taxpayer will transfer a b percent interest in the plant to agency a party unrelated to both seller and buyer this letter_ruling therefore relates only to the transfer of seller's remaining c percent interest in plant prior to the transfer of the plant to buyer seller's wholesale electric power sales are subject_to the jurisdiction of commissions a and b pursuant to a_trust agreement with trustee seller has established with respect to the decommissioning of its interest in plant a nuclear decommissioning fund qualifying under sec_468a and a nuclear decommissioning fund that does not meet the requirements of sec_468a for each unit of plant the level of funding in the nuclear decommissioning funds is based on estimates of the future costs that the owner of the plant will incur upon the decommissioning of the plant buyer a limited_partnership is wholly-owned by two entities that are in turn wholly-owned by intermediate a corporation the taxpayers represent that buyer and plr-157319-04 these intervening entities are disregarded entities for federal tax purposes and that as a consequence buyer is treated as a division of intermediate buyer's parent a publicly- owned holding_company with energy-related subsidiaries holds d percent of the common_stock of intermediate through a disregarded_entity the remaining e percent of the common_stock of buyer is publicly-traded buyer's parent and its subsidiaries including buyer file a consolidated_return on a calendar_year basis using the accrual_method of accounting buyer and buyer's parent are under the audit jurisdiction of the - ---------------------------------------------------------------- buyer currently owns a f percent undivided_interest as a tenant in common in the plant buyer's operations are subject_to the protocols of system operator the independent system operator for the applicable power region under substantive rules promulgated by commission a pursuant to a_trust agreement with trustee buyer has established with respect to the decommissioning of its existing f percent interest in plant a nuclear decommissioning fund qualifying under sec_468a and a nuclear decommissioning fund that does not meet the requirements of sec_468a for each unit of plant on g buyer and agency entered into the purchase and sale agreement psa with seller under the psa seller is obligated to transfer to buyer at the closing of the transaction seller's undivided c percent interest in plant including a proportionate amount of the assets constituting or necessary to operate the plant and a proportionate amount of the assets of the qualified and nonqualified nuclear decommissioning funds maintained by seller with respect to its interest in the plant in exchange for buyer's payment of an initial price of dollar_figureh in cash subject_to various adjustments and buyer's assumption of certain liabilities and obligations of seller including a proportionate amount of seller's liability and obligation to decommission the plant the transferred assets of seller’s qualified and nonqualified decommissioning funds will be held by trustee in qualified and nonqualified decommissioning funds established by buyer for each unit of plant the commission a orders establishing rates to be charged to ratepayers with respect to buyer's c percent interest in plant will be separate from the commission a orders establishing the rates charged to ratepayers with respect to buyer's f percent interest in plant the corpus and income of buyer’s qualified and nonqualified decommissioning funds will be held for decommissioning each respective unit of the plant once decommissioning begins expenses will be paid directly by the qualified and nonqualified decommissioning funds for each unit of plant the psa requires buyer to complete at its expense the complete retirement and removal from service of the acquired interest in the plant including any necessary site restoration following the transfer of seller's c percent interest the plant to buyer buyer will own in total a i percent interest in the plant after the sales to buyer and agency seller will no longer be engaged in the trade_or_business of nuclear generation at the plant or any other nuclear facility plr-157319-04 seller and buyer represent that they will treat the transaction as an asset purchase for tax purposes subject_to sec_1060 of the code and will agree to an allocation of the purchase_price among the purchased assets excluding the assets comprising the qualified nuclear decommissioning funds for each unit of plant that is consistent with the allocation methodology provided by sec_1060 and sec_338 and the regulations thereunder buyer has established and will maintain qualified and nonqualified nuclear decommissioning funds for each unit of plant to satisfy buyer's liability to decommission the c percent interest in the plant acquired from seller buyer interprets commission a's new rule as requiring buyer to maintain these trusts separate and apart from the nuclear decommissioning funds it maintains for its existing interest in the plant the new rule also provides that these nuclear decommissioning funds will be subject_to regulation by commission a with respect to each unit of the plant buyer intends to treat the existing qualified nuclear decommissioning fund for that unit and the qualified nuclear decommissioning fund for the acquired c percent interest in that unit of the plant as a single qualified nuclear decommissioning fund for purposes of sec_468a even though the funds are maintained by separate trusts on j in order one commission a authorized seller to continue collecting nuclear decommissioning costs in a nonbypassable charge to retail customers the decommissioning collections seller has collected and continues to collect decommissioning costs through such a nonbypassable charge from its retail electric customers after the sale seller will continue to collect the decommissioning collections on behalf of and for the benefit of buyer in accordance with the new rule and pursuant to a decommissioning funds collection agreement to be entered into by the parties the agreement will provide rules applicable to the period after the closing pertaining to buyer's administration of the nuclear decommissioning funds for each unit of plant the collection of decommissioning revenues from seller's retail electric customers by seller as an agent for buyer and the weekly remittance by seller of the collected revenues to the nuclear decommissioning funds maintained by buyer in order two dated k commission a clarified that the decommissioning collections charged to seller's retail electric customers is collected for the benefit of the owner of the interest in the plant ie buyer and that such owner is required to contribute the collections to its nuclear decommissioning funds state enacted the new rule to ensure that adequate funds will be available to decommission nuclear power plant that have been transferred out of state-jurisdictional rate base the new rule provides that following the transfer of a state-jurisdictional nuclear power plant and the associated nuclear decommissioning funds any remaining costs associated with nuclear decommissioning obligations will remain subject_to cost of service regulation based upon a periodic review of the costs under the new rule seller and taxpayer are required to enter into a decommissioning funds collection plr-157319-04 agreement that governs the transfer of responsibility for the administration of the nuclear decommissioning funds the collection of decommissioning revenues from utility customers and the remittance of the funds to the nuclear decommissioning funds the new rule requires that the parties submit the decommissioning funds collection agreement and any subsequent amendments to commission a for approval the new rule also requires that taxpayer periodically perform a study of the cost of decommissioning plant and to submit the study along with an updated analysis of decommissioning costs to commission a taxpayer is required to demonstrate to commission a that the funds are being invested prudently and in compliance with the new rule and that taxpayer is making efforts to achieve optimum tax efficiency with respect to the nuclear decommissioning funds commission a or any affected person may initiate a proceeding to review the balance of the funds compliance with the new rule or the annual funding amount taxpayer must file an annual report of the status of the funds with commission a the new rule requires that if a taxpayer has an existing trust for the same generating unit in which an interest is being transferred that is funded by a set of ratepayers entirely distinct from the transferor's ratepayers a separate trust or subaccount shall be maintained that will segregate the decommissioning funds received from the transferor and the earnings thereon from the nuclear decommissioning trust funds received from other sources the taxpayers represent that buyer will be a named recipient of and will be bound by the terms of all orders issued by commission establishing the cost of decommissioning buyer's interest in plant and establishing the amount to be collected from ratepayers with respect to that cost commission a intends to issue a separate order to buyer specifying the fixed annual funding amount approved by commission a as buyer's cost of service for decommissioning its c percent interest in the plant commission a will periodically review this amount and when necessary issue orders to buyer adjusting such amount buyer may also initiate proceedings for commission a review and adjustment of this amount requested ruling the transfer of a proportionate amount of the assets from seller's qualified nuclear decommissioning funds to buyer's qualified nuclear decommissioning funds is a disposition that satisfies the requirements of sec_1_468a-6 and accordingly each of buyer's qualified nuclear decommissioning funds which will hold a proportionate amount of the assets in seller's qualified nuclear decommissioning funds will be treated as a qualified nuclear decommissioning fund that satisfies the requirements of sec_468a and the regulations thereunder sec_468a of the code provides that a taxpayer may elect to deduct payments made to a qualified nuclear decommissioning reserve fund sec_468a limits the annual deduction of the electing taxpayer to the lesser_of the ruling_amount or plr-157319-04 the amount of decommissioning costs included in the electing taxpayer s cost of service for ratemaking purposes for the taxable_year sec_468a provides in pertinent part that the assets in a qualified_fund shall be used exclusively for satisfying the liability of any taxpayer contributing to the qualified_fund sec_1_468a-5 of the federal_income_tax regulations sets out the qualification requirements for nuclear decommissioning funds it provides in part that a qualified_fund must be established and maintained pursuant to an arrangement that qualifies as a_trust under state law an electing taxpayer can establish and maintain only one qualified_fund for each nuclear power plant sec_1_468a-5 provides that if at any time during the taxable_year a nuclear decommissioning fund does not satisfy the requirements of sec_1_468a-5 the service may disqualify all or a portion of the fund as of the date that the fund does not satisfy the requirements sec_1_468a-5 provides that if a qualified_fund is disqualified the fair_market_value with certain adjustments of the assets in the fund is deemed to be distributed to the electing taxpayer and included in that taxpayer s gross_income for the taxable_year sec_1_468a-6 generally provides rules for the transfer of an interest in a nuclear power plant and transfer of the qualified_fund where after the transfer the transferee is an eligible_taxpayer under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a under the specific facts herein the service will exercise its discretion to treat this transaction under sec_1_468a-6 as a disposition qualifying under the general provisions of sec_1_468a-6 this exercise of discretion however applies to the provisions of sec_1_468a-6 except those outlined in sec_1_468a-6 with respect to the calculation of a schedule of ruling amounts subsequent to a sale thus under sec_1_468a-6 seller's qualified nuclear decommissioning funds for each unit of plant will not be disqualified upon the transfer of the assets of those funds to buyer's qualified nuclear decommissioning funds for each unit of plant and buyer's qualified nuclear decommissioning funds will be treated as qualified nuclear decommissioning funds as defined in sec_468a requested ruling neither buyer nor buyer's qualified nuclear decommissioning funds will recognize any gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of a proportionate amount of the assets of seller's qualified nuclear decommissioning funds to buyer's qualified nuclear decommissioning funds and buyer's qualified nuclear decommissioning funds will have a carryover_basis in the assets received from seller's qualified nuclear decommissioning funds sec_1_468a-6 provides that neither a transferee nor its fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from a transferor s qualified_fund to a transferee s plr-157319-04 qualified_fund thus neither buyer nor buyer's qualified nuclear decommissioning funds will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets of seller's qualified nuclear decommissioning funds to buyer's qualified nuclear decommissioning funds sec_1_468a-6 provides that transfers of assets of a qualified nuclear decommissioning fund to which sec_1_468a-6 applies do not affect basis thus buyer's qualified nuclear decommissioning funds will have a basis in the assets received from seller's qualified nuclear decommissioning funds that is the same as the basis of those assets in seller's funds immediately before the date of transfer requested ruling neither seller nor seller's qualified nuclear decommissioning funds will recognize any gain_or_loss or otherwise take any income_or_deduction into account upon the transfer of a proportionate amount of the assets of seller's qualified nuclear decommissioning funds to buyer's qualified nuclear decommissioning funds sec_1_468a-6 provides that neither a transferor nor its fund will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the assets from a transferor s qualified_fund to a transferee s qualified_fund thus neither seller nor the qualified nuclear decommissioning funds maintained by seller for plant will recognize gain_or_loss or otherwise take any income_or_deduction into account by reason of the transfer of the qualified nuclear decommissioning fund assets to buyer's qualified nuclear decommissioning funds requested ruling with respect to each unit of the plant the qualified nuclear decommissioning fund maintained under buyer's new decommissioning trust agreement and the qualified nuclear decommissioning fund maintained under buyer's existing decommissioning trust agreement will be treated as a single qualified nuclear decommissioning fund for purposes of sec_468a accordingly the maintenance of the separate funds will not disqualify buyer's qualified nuclear decommissioning funds sec_1_468a-5 provides that an electing taxpayer can establish and maintain only one qualified_fund for each nuclear power plant if a nuclear plant is subject_to the ratemaking jurisdiction of two or more public_utility commissions and any such public_utility commission requires a separate fund to be maintained for the benefit of ratepayers whose rates are established or approved by the public_utility commission the separate fund maintained for such plant whether or not established and maintained pursuant to a single trust agreement shall be considered a single nuclear decommissioning fund for purposes of sec_468a and sections 1-468a-1 through 468a-5 468a-7 and 468a-8 of the regulations under sec_1_468a-6 the service may treat any disposition of an interest in a nuclear power plant occurring after date as satisfying the requirements of the regulations if the service determines that such treatment is necessary or appropriate to carry out the purposes of sec_468a plr-157319-04 taxpayer does not meet the literal requirements of sec_1_468a-5 because it maintains more than one qualified nuclear decommissioning fund for each unit of the plant one fund for the existing interest in each unit and one fund for the interest in each unit acquired from seller established pursuant to separate trust documents under the jurisdiction of one public_utility commission rather than multiple public_utility commissions however the facts submitted by seller and buyer state that commission a requires that the assets of the qualified nuclear decommissioning fund maintained for each unit of the plant under buyer's new decommissioning trust agreement not be commingled with the assets of the qualified nuclear decommissioning fund maintained for that unit under buyer's existing decommissioning trust agreement in addition commission a issues two separate rate orders to buyer one for the qualified nuclear decommissioning funds maintained under the new decommissioning trust agreement and the other for the qualified nuclear decommissioning funds maintained under the existing decommissioning trust agreement in order to permit buyer to comply with new rule and commission a's order we are exercising our discretion under sec_1_468a-6 to approve the disposition of plant and the associated nuclear decommissioning funds we will treat the two separate rate orders issued by commission a approving decommissioning costs for buyer's two separate interests in plant as having been issued by two separate commissions for purposes of sec_1_468a-5 accordingly we conclude that buyer may maintain separate qualified nuclear decommissioning funds for these interests in plant and the maintenance of the separate funds will not disqualify buyer's qualified nuclear decommissioning funds this exercise of discretion is valid only so long as the new rule is in effect and only so long as commission a requires separate qualified nuclear decommissioning funds to be maintained requested ruling seller's gain_or_loss on the sale of a proportionate amount of the purchased assets excluding seller's qualified nuclear decommissioning funds to buyer will equal the difference between a proportionate amount of seller's tax basis in each asset and the amount_realized with respect to that asset taking into account the allocation of consideration pursuant to sec_1060 and the regulations thereunder seller's amount_realized from the sale of a proportionate amount of the purchased assets excluding seller's qualified nuclear decommissioning funds will include the cash received from buyer and a proportionate amount of the liability to decommission the plant reduced by the amount of the decommissioning liability to be funded by the qualified nuclear decommissioning funds to the extent such liabilities and obligations are taken into account as liabilities for federal_income_tax purposes sec_1001 provides that gain from the sale of property shall be the excess of the amount_realized over the adjusted_basis provided in sec_1011 for determining gain and that loss from the sale of property shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 provides that a seller’s amount_realized from the sale of property is the sum of sec_1_1001-2 of the income_tax regulations provides that a seller’s plr-157319-04 any money received plus the fair_market_value of the property other than money received amount_realized from the sale of property includes the amount of liabilities from which the seller is discharged as a result of the sale they may include debt and non-debt liabilities 84_tc_1319 l985 assumption of lessee’s repair liability was part of amount_realized on sale of leasehold the decommissioning liability from which seller will be relieved is fixed and determinable as an owner and operator of the plant seller is required_by_law to provide for eventual decommissioning sec_1060 provides that in the case of an applicable_asset_acquisition the consideration received for such assets shall be allocated among the acquired assets in the same manner as amounts are allocated to assets under sec_338 sec_1_1060-1 provides that in the case of an applicable_asset_acquisition sellers and purchasers must allocate the consideration under the residual_method as described in sec_1_338-6 and sec_1_338-7 in order to determine respectively the amount_realized from and the basis in each of the transferred assets sec_1060 defines the term applicable_asset_acquisition as the transfer of assets constituting a trade_or_business if the acquirer’s basis is determined wholly by reference to the consideration paid for such assets sec_1_1060-1 defines a seller’s consideration as the amount in the aggregate realized from selling the assets in the applicable_asset_acquisition under sec_1001 sec_1060 provides no independent basis for determining the amount a taxpayer realizes on the sale of assets or the time such amount may be taken into account the amount_realized and the time such amount is taken into account are determined solely under generally applicable tax_accounting principles see sec_1001 and sec_461 sec_1_1060-1 defines a purchaser’s consideration as the amount in the aggregate of its cost of purchasing the assets in the applicable_asset_acquisition that is properly taken into account in basis sec_1060 provides no independent basis for determining a taxpayer’s cost of acquired assets cost is determined solely under generally applicable rules of tax_accounting the residual_method is based on a division of assets into seven classes class i generally consisting of cash and general deposit accounts held in banks savings and loan associations and other depository institutions class ii generally consisting of actively_traded personal_property such as u s government securities and publicly traded stock but also including certificates of deposit and foreign_currency even if they are not actively_traded personal_property class iii accounts_receivable mortgages and credit card receivables from customers which arise in the ordinary course of business class iv stock_in_trade of the taxpayer or other_property of a kind which would properly be included in the inventory of taxpayer if on hand at the close of the plr-157319-04 taxable_year or property held by the taxpayer primarily_for_sale_to_customers in the ordinary course of its trade_or_business class v all assets other than class i ii iii iv vi and vii assets for a special election to classify the assets in nonqualifying decommissioning funds under class v rather than under classes i and ii see sec_1_338-6t applicable for applicable asset acquisitions on or after date class vi all ' intangibles as defined in sec_197 except goodwill and going_concern_value and class vii goodwill and going_concern_value whether or not they qualify as sec_197 intangibles consideration is first reduced by the amount of class_i_assets transferred by the seller the remaining consideration is then allocated among the class_ii_assets pro_rata to the extent of their fair_market_value then among the class_iii_assets pro_rata to the extent of their fair_market_value then among the class_iv_assets pro_rata to the extent of their fair_market_value then among the class_v_assets pro_rata to the extent of their fair_market_value then among the class_vi_assets pro_rata to the extent of their fair_market_value and finally any remaining consideration is allocated among the class_vii_assets pro_rata according to their fair_market_value sections c b and b if under general tax principles there is a subsequent adjustment to the consideration eg if it is later determined that the actual amount of the liability assumed differs from the value that the parties assigned to such liability on the date of the applicable_asset_acquisition that amount is allocated in a manner that produces the same allocation that would have been made at the time of the acquisition had such amount been paid_or_incurred on the acquisition_date sections a c and the plant together with its related equipment operating_assets and nonqualified nuclear decommissioning fund assets constitute a trade_or_business in its seller’s hands and the gain_or_loss recognized by seller with respect to those assets will be determined wholly by reference to the seller’s amount_realized thus the seller’s transfer of its c percent undivided ownership_interest in the plant its equipment operating_assets and nonqualified_fund assets to buyer in exchange for cash and the assumption of the decommissioning liability except to the extent funded by the qualified funds is an applicable_asset_acquisition as defined in sec_1060 and the regulations thereunder as such the federal tax treatment of the facility’s acquisition is determined under sec_1060 and the regulations thereunder accordingly we conclude that seller’s gain_or_loss on the sale of a proportionate amount of the purchased assets excluding seller’s qualified nuclear decommissioning funds to buyer will equal the difference between a proportionate amount of seller’s tax basis of each asset and the amount_realized with respect to that asset taking into account the allocation of consideration pursuant to code sec_1060 and the regulations promulgated there under we conclude further that seller’s amount_realized from the sale of the purchased assets excluding seller’s qualified nuclear plr-157319-04 decommissioning funds will include the cash received from buyer and a proportionate amount of the liabilities and obligations assumed by buyer including a proportionate amount of the liability to decommission the plant reduced by the amount of the decommissioning liability to be funded by the qualified nuclear decommissioning funds to the extent such liabilities and obligations are taken into account as liabilities for federal_income_tax purposes requested ruling pursuant to sec_1_461-4 for the taxable_year that includes the date of the closing seller shall be entitled to a current deduction in an amount equal to the total of any amounts treated as realized by the seller as a result of buyer's assumption of a proportionate amount of seller's liability for decommissioning the plant sec_461 states that generally any deduction or credit allowed by subtitle a of the code shall be taken for the taxable_year which is the proper taxable_year under the method_of_accounting used in computing taxable_income sec_1_446-1 provides that under an accrual_method of accounting a liability is incurred and generally taken into account for federal_income_tax purposes in the year in which all events have occurred that establish the fact of the liability the amount of the liability can be determined with reasonable accuracy and economic_performance has occurred with respect to the liability having been met any earlier than the taxable_year in which economic_performance has occurred with respect to a liability see also sec_1_461-4 taxpayer to provide services economic_performance occurs as the taxpayer provides the services sec_1_461-4 provides that economic_performance occurs with respect to such service liabilities as the taxpayer incurs costs in connection with the satisfaction of a liability performance rule for services where the taxpayer sells a trade_or_business where the purchaser expressly assumes a liability arising out of the taxpayer’s trade_or_business that the taxpayer but for the economic_performance requirement would have been entitled to incur as of the date of the sale economic_performance with respect to the liability occurs as the amount of the liability is properly included in the amount_realized on the sale by the taxpayer established at the time of the deduction this prong of the all_events_test is satisfied in the instant case here the seller clearly has the obligation to decommission the plant the fact of this obligation arose many years ago at the time the seller obtained its sec_461 makes clear that generally the all_events_test is not treated as sec_461 provides that in the case of a liability that requires the the first prong of the all_events_test requires that the fact of the liability be sec_1_461-4 provides an exception to the general economic plr-157319-04 license to operate the plant see c f_r dollar_figure and sec_72 requiring the operator of a nuclear power plant to decommission it moreover congress recognized the existence of the decommissioning liability when in it enacted sec_461 and sec_468a noting that g enerally under federal and state laws utilities that operate nuclear power plants are obligated to decommission the plants at the end of their useful lives h_r conf_rep no see also s prt no vol 98th cong 2d sess the second prong of the all_events_test requires that the amount of the liability be reasonably determinable sec_1_461-1 this prong is also satisfied in the instant case the amount of the seller’s decommissioning liability has been determined by experts in the nuclear decommissioning liability their calculations have been reviewed and accepted by commission a in addition there is support in the code for finding that the amount of the decommissioning liability is reasonably determinable at the time of the sale sec_468a generally permits a current deduction for a ruling_amount based on the estimated future decommissioning expenses to the extent the decommissioning costs are sufficiently determinable to entitle the utility to a deduction under sec_468a it is reasonably determinable to conclude that the costs also must be sufficiently determinable to satisfy the second prong of the all_events_test performance with respect to the decommissioning liability occurs as of the date of the sale to the extent the liability is included in seller’s amount_realized accordingly for the taxable_year that includes the date of the closing the seller will be entitled to a current deduction for the amount of its otherwise deductible decommissioning liability to the extent treated as included in the amount_realized by seller as a result of the buyer’s express assumption of the seller’s decommissioning liability requested ruling buyer will have a tax basis in the assets purchased excluding buyer's qualified nuclear decommissioning funds equal to the sum of the purchase_price and a proportionate amount of the assumed_liabilities that will be taken into account as liabilities for federal_income_tax purposes as of the closing date property in cases similar to the instant case taxpayers have argued that the cost of acquiring the seller’s interests in a nuclear power plant and the related assets including the decommissioning funds includes the amount of the assumed decommissioning liability in those cases taxpayers have cited 331_us_1 and 194_f2d_190 as support for the proposition that for the purpose of determining basis the cost of property generally includes assumed_liabilities to which the acquired property is subject_to the extent such liabilities can be accurately valued and are not contingent at the time of purchase since buyer will pay cash and assume the liabilities and obligations of the seller which includes the decommissioning liabilities in connection with the acquisition of the plant sec_1012 provides in part that the basis_of_property shall be the cost of such given that the two prongs of the all_events_test are satisfied economic however the assumed decommissioning liability cannot be treated as incurred accordingly we conclude that at the time of closing buyer will have a tax basis plr-157319-04 its total cost of the purchased assets excluding the qualified nuclear decommissioning funds will equal the cash paid plus the assumed_liabilities and obligations for any federal_income_tax purpose - including basis - until economic_performance occurs with respect to that liability sec_1_446-1 thus critical to determining whether buyer is entitled to treat the future decommissioning liability as a component of its cost_basis in the purchased assets at the time of the closing is deciding whether the liability will be incurred for tax purposes as of the closing it will not economic_performance does not occur with respect to a service liability such as the decommissioning obligation until and to the extent that costs are incurred in satisfaction of that liability sec_1_461-4 because buyer will not have performed any services relating to the decommissioning liability at the time of its purchase of the plant economic_performance will not have occurred and the liability will not have been incurred at that time for any purpose under the code including the cost_basis provision of sec_1012 in the assets purchased excluding the buyer’s qualified nuclear decommissioning funds equal to the sum of the purchase_price and the assumed_liabilities that will be taken into account as liabilities for federal_income_tax purposes as of the closing date the purchased assets and the liabilities incurred do not include the assets in the qualified nuclear decommissioning funds or the liability attributable to the qualified nuclear decommissioning funds because the tax effect of the qualified nuclear decommissioning funds is determined under sec_468a buyer will not be entitled to treat as a component of its cost_basis at the time of the closing any amount attributable to the future decommissioning liability requested ruling following the closing and for all periods after the closing when buyer and seller are parties to and subject_to the terms of the decommissioning funds collection agreement seller will not realize income upon its receipt of the decommissioning collections including compensation_for services such as fees commissions and similar items however the mere receipt and possession of money does not by itself constitute gross_income one such instance where the receipt of money does not result in gross_income is the receipt of money by a person acting as an agent under the control of and receiving the payment for the benefit of another for example a rental agent does not have income upon receipt of a rental payment from a tenant because the agent is a mere conduit for the payment from the tenant to the owner this concept has been applied in a variety of situations involving agents and other conduits see for example maryland casualty co v united_states 381_us_342 and 780_f2d_1005 fed cir sec_61 defines gross_income as all income from whatever source derived in the present case under the decommissioning funds collection agreement the position that the principal and not the agent is taxed on amounts received plr-157319-04 by the agent on the principal’s behalf is embodied in numerous revenue rulings for example revrul_74_581 1974_2_cb_25 involved fees received by a law school's faculty members for their court-appointed representation of indigent defendants while participating in the university's clinical program each faculty_member must agree as a condition of participation in the program that since the time spent in supervising work of students on these cases and in the representation of the client is part of the faculty member's teaching duties for which the faculty_member is compensated by a total annual salary all amounts received for such representation are to be endorsed over to the law school the attorney-faculty members involved are working solely as agents of the law school while supervising the law students within the scope of the clinical programs and realize no personal gain from payments for their services in representing the indigent defendants the revenue_ruling thus holds that the payments received by the faculty members for their representation of clients while participating in the clinical program are not required to be included in their gross_income see also revrul_69_274 1974_1_cb_36 revrul_65_282 1965_1_cb_21 and revrul_58_220 1958_1_cb_26 mandated by commission a the seller is required to continue to charge rates from seller’s regulated ratepayers for the purpose of collecting decommissioning monies to be remitted to buyer’s nuclear decommissioning trust funds the purpose of the decommissioning funds collection agreement is to ensure that buyer will have adequate funds to decommission the generation facility the decommissioning funds collection agreement specifically provides that in collecting and remitting the decommissioning revenue seller shall act as buyer’s collection agent moreover seller receives no benefit from the decommissioning collections rather buyer is the intended recipient of and the only party benefiting from the collections in the present case under the decommissioning funds collection agreement seller is authorized to retain a portion of the decommissioning collections it receives to the extent that the decommissioning collections include a recovery_of administrative or other costs incurred by seller accordingly based on the facts represented by buyer and seller we conclude that except as provided below seller will not realize income upon seller’s receipt of decommissioning collections after the closing of the sale if in accordance with the decommissioning funds collection agreement or for some other reason seller retains a portion of the decommissioning collections and does not remit all of such collections to buyer seller must include the amount retained in its gross_income requested ruling following the closing and for all periods after the closing when buyer and seller are parties to and subject_to the terms of the decommissioning funds collection agreement buyer will recognize income upon seller's receipt of the decommissioning collections in accordance with sec_88 and the regulations thereunder the taxpayers have represented that buyer will be a named recipient of and will plr-157319-04 in requested ruling we determined that seller acts as buyer's agent when collecting amounts for the decommissioning of plant from its retail customers that are required to be remitted to buyer under the principles of agency buyer is deemed to be in receipt of these amounts at the time they are collected by seller sec_88 provides that in the case of any taxpayer who is required to include the amount of any nuclear decommissioning costs in the taxpayer’s cost of service for ratemaking purposes there shall be includible in the gross_income of such taxpayer the amount so included for any taxable_year be bound by the terms of all orders issued by commission a establishing the cost of decommissioning buyer's interest in the plant and establishing the amount to be collected from ratepayers with respect to that cost consequently and based upon the continued validity of that representation we conclude that following the closing and for all periods after the closing when buyer and seller are parties to and subject_to the terms of the decommissioning funds collection agreement the income that buyer recognizes upon seller's receipt of the decommissioning collections shall be deemed to be income described in sec_88 and the regulations thereunder requested ruling following the closing and for all periods after the closing when buyer and seller are parties to and subject_to the terms of the decommissioning funds collection agreement buyer will satisfy the cost of service requirement with respect to its qualified nuclear decommissioning funds within the meaning of sec_468a and the regulations thereunder and therefore buyer will be permitted to make deductible contributions to its qualified nuclear decommissioning funds for the decommissioning collections collected by the seller through a nonbypassable charge and remitted directly or indirectly to buyer's nuclear decommissioning funds in accordance with the rules of commission a and the decommissioning funds collection agreement be bound by the terms of all orders issued by commission a establishing the cost of decommissioning buyer's interest in the plant and establishing the amount to be collected from ratepayers with respect to that cost consequently and based upon the continued validity of that representation we conclude that following the closing and for all periods after the closing when buyer and seller are parties to and subject_to the terms of the decommissioning funds collection agreement buyer will be deemed to have satisfied the cost of service requirement with respect to its qualified nuclear decommissioning funds within the meaning of sec_468a and the regulations thereunder and therefore buyer will be permitted to make deductible contributions to its qualified nuclear decommissioning funds for the decommissioning collections collected by the seller through a nonbypassable charge and remitted directly or the taxpayers have represented that buyer will be a named recipient of and will a taxpayer generally does not realize gross_income upon its purchase of a plr-157319-04 indirectly to buyer's nuclear decommissioning funds in accordance with the rules of commission a and the decommissioning funds collection agreement requested ruling in the taxable_year of the closing buyer will not recognize any gain_or_loss or otherwise take any income into account by reason of the transfer of all or a portion of the assets of seller's nonqualified decommissioning funds to buyer's nonqualified nuclear decommissioning funds business’s assets even where those assets include cash or marketable_securities and in connection with the purchase the taxpayer assumes liabilities of the seller 194_f2d_190 2nd cir revrul_55_675 1955_2_cb_567 in this case buyer cannot acquire the plant without assuming the decommissioning liability which is inextricably associated with ownership and operation of the plant and there is no indication that the transaction is other than a bona_fide purchase of the business and its associated assets and liabilities while an exception to the general_rule that a taxpayer does not realize gross_income upon its purchase of the assets of a business is set forth in revrul_71_450 1971_2_cb_78 such ruling does not apply to the present case in revrul_71_450 unlike the present situation the purchaser agreed to assume a prepaid subscription liability in return for a separate cash payment and the liability was not reflected in the sales_price of the business we assume that buyer’s basis attributable to the decommissioning liability is governed by sec_461 and that the consideration furnished by buyer will be allocated pursuant to the residual_method under sec_1060 and the regulations thereunder recognize any gain_or_loss or otherwise take any income into account by reason of the transfer of all or a portion of the assets of seller’s nonqualified nuclear decommissioning funds to buyer’s nonqualified nuclear decommissioning funds except to the extent that under the rules of sec_1060 the amount of cash and other cla sec_1 assets received by buyer exceeds the amount of consideration provided by buyer and taken into account in the year of the acquisition requested ruling buyer's nonqualified nuclear decommissioning funds are grantor trusts under sec_671 and buyer will be treated as the grantor of each trust the grantor or another person shall be treated as the owner of any portion of a_trust there shall be included in computing the taxable_income and credits of that person those items of income deduction and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account in computing taxable_income or credits against the tax of an individual of the internal_revenue_code a grantor includes any person to the extent such sec_1_671-2 provides that for purposes of part i of subchapter_j chapter sec_671 provides that where it is specified in sec_673 through that accordingly we conclude that in the taxable_year of the closing buyer will not sec_1_671-2 provides that for purposes of sec_1_671-2 a sec_1_671-2 provides that a gratuitous transfer is any transfer other plr-157319-04 person either creates a_trust or directly or indirectly makes a gratuitous transfer within the meaning of sec_1_671-2 of property to a_trust for purposes of sec_1_671-2 the term property includes cash than a transfer for fair_market_value transfer is for fair_market_value only to the extent of the value of property received from the trust services rendered by the trust or the right to use property of the trust sec_677 provides that the grantor shall be treated as the owner of any portion of a_trust whether or not he is treated as such under sec_674 whose income without the approval or consent of any adverse_party is or in the discretion of the grantor or a nonadverse_party or both may be distributed to the grantor or held or accumulated for future distribution to the grantor sec_1_677_a_-1 provides that under sec_677 a grantor is in general treated as the owner of a portion of a_trust whose income is or in the discretion of the grantor or a nonadverse_party or both may be applied in discharge of a legal_obligation of the grantor nuclear decommissioning funds for federal_income_tax purposes buyer is treated as contributing those assets as grantor to buyer’s respective nonqualified nuclear decommissioning funds under the terms of the trust agreement all income as well as principal of the buyer’s nonqualified nuclear decommissioning funds is held to satisfy buyer’s legal_obligation to decommission each unit of the plant accordingly buyer’s nonqualified nuclear decommissioning funds are grantor trusts and buyer is treated as the grantor and the owner of buyer’s nonqualified nuclear decommissioning funds under sec_677 and sec_1_677_a_-1 buyer shall include in computing its taxable_income and credits all items of income deduction and credits against tax of the buyer’s nonqualified nuclear decommissioning funds to the extent that such items would be taken into account in computing taxable_income or credits against the tax of buyer 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 rulings it is subject_to verification on examination concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter because buyer is treated as purchasing the assets of seller’s nonqualified except as expressly provided herein no opinion is expressed or implied the rulings contained in this letter are based upon information and this ruling is directed only to the taxpayer requesting it sec_6110 of plr-157319-04 the code provides that it may not be used or cited as precedent letter is being sent to the taxpayer a copy of this letter must be attached to any income_tax return to which it is relevant in accordance with the power_of_attorney on file with this office a copy of this sincerely peter c friedman senior technician reviewer branch passthroughs special industries cc


t c no united_states tax_court interlake corporation successor_in_interest to interlake inc and consolidated subsidiaries petitioner v commissioner of internal revenue respondent docket no filed date p as the result of a restructuring transaction became the successor common parent of a consolidated_group of corporations the group a the former common parent of the group became a wholly owned subsidiary of p p then distributed pro_rata to its shareholders all of the issued and outstanding common shares of a which became as a result of the spinoff a separate publicly traded corporation subsegquent to the restructuring transaction p and the group incurred a consolidated_net_operating_loss cnol p filed an application under sec_6411 i r c for a tentative refund of income_tax attributable to the carryback of the postrestructuring transaction cnol to a prespinoff year during which a controlled the group a and its new group also incurred a postrestructuring transaction cnol for which a filed an application under sec_6411 i r c fora tentative refund of income_tax attributable to the carryback of its postrestructuring transaction cnol to and prespinoff years during which a controlled the group after review by the internal_revenue_service the requested tentative refunds were issued to p and a respectively the tentative refunds issued to a were treated as rebate refunds with respect to p and the group for purposes of computing the group's deficiencies for and p contends that the tentative refunds in issue were paid to the wrong taxpayer and therefore the tentative refunds do not constitute rebate refunds r concedes that a refund issued to the wrong taxpayer or to an unauthorized representative of the taxpayer is a nonrebate refund that may not be taken into account in determining the taxpayer's deficiency however r contends that payment to a was proper because a was an authorized representative of the group for purposes of the issuance of the tentative refunds held the tentative refunds constitute nonrebate refunds with respect to p and the group because a's authority to act for the group at least with respect to the issuance and receipt of the tentative refunds terminated when a's affiliation with the group terminated accordingly a was not an authorized recipient of the tentative refunds and respondent cannot seek recovery_of the tentative refunds from p through the deficiency procedures 101_tc_130 distinguished john m newman jr and kenneth ef updegraft jr for petitioner lawrence c letkewicz for respondent opinion wells judge this matter is before the court on the parties' cross-motions for summary_judgment pursuant to rule a unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in the federal_income_tax of the interlake corp and its consolidated subsidiaries as follows year deficiency sec_78 big_number big_number big_number big_number big_number after concessions by petitioner only the deficiencies with respect to and remain in issue we must decide whether certain tentative refund allowances that were paid to acme steel co formerly interlake inc with respect to taxable years and constitute rebates to petitioner interlake corp successor_in_interest to interlake inc and its consolidated subsidiaries for purposes of computing petitioner's deficiency if any for taxable years and summary_judgment may be granted if the pleadings and other materials demonstrate that no genuine issue exists as to any of the material facts and that a decision may be entered as a matter of law see rule b 98_tc_518 affd 17_f3d_965 7th cir the parties agree and the record shows that there is no genuine issue as to any material fact accordingly we may render judgment on the issue in this case as a matter of law see rule b background some of the facts and certain exhibits have been stipulated by the parties for purposes of the instant motion the stipulation of facts is incorporated in this opinion by reference when petitioner filed its petition in the instant case its principal_place_of_business was located in lisle tllinois as a result of a date restructuring transaction restructuring transaction petitioner became the successor common parent of a consolidated_group of corporations that had previously been headed by interlake inc references to the group are to the group of consolidated corporations controlled by interlake inc before the restructuring transaction and then by petitioner after the restructuring transaction the restructuring prior to the restructuring transaction interlake inc was the common parent of the group the group consisted of various subsidiaries including the alabama metalurgical corp amc interlake inc was a publicly owned corporation and its shares of common_stock were listed and traded on the new york stock exchange nyse petitioner was organized on date in anticipation of the planned restructuring transaction from its incorporation until the restructuring transaction on date petitioner was a wholly owned subsidiary of interlake inc and a member of the group as a result of the restructuring transaction interlake inc became a wholly owned subsidiary of petitioner and amc became a wholly owned subsidiary of interlake inc ’ immediately following the restructuring transaction interlake inc changed its name to acme steel co acme which continued to use interlake inc 's federal identification_number after the restructuring transaction as a result of the restructuring transaction petitioner became the successor common parent of the continuing group petitioner is a publicly owned corporation and its shares of common_stock are listed and traded on the nyse the spinoff on date petitioner distributed pro_rata to its shareholders all of the issued and outstanding common shares of acme spinoff as a result of the spinoff acme became a separate publicly traded corporation the shares of which are listed and traded on the national association of securities dealers automated quotation system the date spinoff severed acme's tie to the group petitioner and acme ceased to be members of the same consolidated_group and since the spinoff they are not under common_control all of the outstanding common shares of interlake inc were converted into common shares of petitioner additionally neither petitioner nor acme owns any shares of stock in the other or any of the other's affiliates the parties do not stipulate as to the tax character of the restructuring transaction or the spinoff the tentative refund allowances petitioner on their consolidated federal_income_tax return filed on or about date petitioner and the group reported a consolidated_net_operating_loss cnol in the amount of dollar_figure and excess consolidated general business credits in the amount of dollar_figure the return was prepared on the basis that petitioner is the successor common parent of the group and it included the taxable_income or loss of petitioner and each member of the group for either the entire week year beginning on date and ending on date or the portion of that taxable_year during which each such corporation was a member of the group on or about date petitioner and the group filed with the internal_revenue_service center kansas city missouri service_center form_1139 corporation application_for tentative refund on the application petitioner and the group requested a tentative refund of income_tax in the amount of dollar_figure attributable to the carryback of the cnol and excess consolidated business credits to the group's taxable_year petitioner attached to the application_for tentative refund allowance a statement detailing the restructuring transaction in which petitioner became the successor common parent of the group on or about date the service_center after processing petitioner's application made a tentative refund allowance to petitioner in the amount of dollar_figure the service_center charged the tentative refund allowance to the federal_income_tax account of the group for ie to the tax account of acme acme acme and its wholly owned domestic subsidiary amc had a short taxable_year for which short taxable_year began on june and ended on december on their consolidated federal_income_tax return for the 27-week short taxable_year ended on date acme and its consolidated subsidiary amc reported a cnol in the amount of dollar_figure the entire amount of which was attributable to acme the return was prepared on the basis that after the spinoff acme and its consolidated subsidiary amc constituted a new consolidated_group which was unrelated to petitioner and the group on or about date acme and its consolidated subsidiary filed with the service_center two forms corporation application_for tentative refund on the first form_1139 acme and its consolidated subsidiary requested a tentative refund of income_tax in the amount of dollar_figure attributable to the carryback of the acme short-year cnol to acme's e the group's and tax years included in the application package was a copy of petitioner's form 1120x amended u s_corporation income_tax return for the taxable_year that form 1120x indicates that petitioner is the successor_in_interest to interlake inc e acme and consolidated subsidiaries on the second form_1139 acme and its consolidated subsidiary reguested a tentative refund of income_tax in the amount of dollar_figure attributable to the carryback of dollar_figure of investment tax_credits and certain credits for increasing research activity from acme's e the group's tax_year to acme's ie the group's tax_year after reviewing the two forms filed by acme and its consolidated subsidiary the service_center advised acme that it could not process the first form_1139 relating to and as filed because it did not take into account the tentative refund allowance previously made to petitioner and the group with respect to acme's ie the group's tax_year acme then filed on or about date a revised form_1139 for tax petitioner filed the form 1120x on or about date subseguent to the restructuring transaction and spinoff to eliminate dollar_figure of investment_tax_credit itc carryovers from and as a result of an internal_revenue_service audit the group's tax_liability for and was sufficiently increased to absorb the and itc's as carrybacks acme also filed form_8302 application_for electronic funds transfer of tax_refund of dollar_figure million or more in which it requested that the tentative refunds for and be wired to an account maintained by acme at the first natl bank of chicago years and which took into account the earlier tentative refund allowance paid to petitioner on the revised form_1139 acme and its consolidated subsidiary requested tentative refunds of income_tax for and in the amounts of dollar_figure and dollar_figure respectively on or about date the service_center after processing acme's revised form_1139 relating to and and the original form_1139 relating to made tentative refund allowances tentative refunds to acme as follows amount of tentative refund taxable_year allowance ended dollar_figure big_number big_number the service_center charged the tentative refund allowances that it paid to acme to the federal_income_tax account of the group for 1ie to the tax account of acme neither petitioner nor the group received directly or indirectly any portion of the tentative refunds paid to acme examination of acme's tax_return a subsequent examination of acme's short-year federal_income_tax return resulted in a determination by the internal_revenue_service service that acme and its consolidated subsidiary did not sustain a cnol in the amount of dollar_figure as claimed on their consolidated federal_income_tax return instead the service determined that acme and its consolidated subsidiary have a cnol in the amount of dollar_figure for the short-year and that the entire cnol is attributable to acme in accordance with sec_1_1502-79 income_tax regs several consequences arise from the service's determination the first consequence is that no portion of the dollar_figure cnol sustained by acme for its short taxable_year is allowable as a carryback to acme's 1ie the group's taxable_year secondly the entire dollar_figure cnol is allowable as a carryback to acme's e the group's taxable_year the final consequence is that there are no excess investment tax_credits and or credits for increasing research activity arising during acme's e the group's taxable_year that can be carried back to acme's ie the group's taxable_year computation of petitioner's deficiency for and respondent treated the tentative refunds paid to acme as rebates to petitioner and the group in the computation of the group's deficiencies for and the parties stipulated that if the tentative refunds constitute rebates to petitioner and the group then without taking into account certain unapplied payments made by petitioner ’ petitioner and the group are liable for deficiencies for and in the amounts of dollar_figure and dollar_figure ‘ acme has agreed to extend the statutory period for assessment applicable to it and its consolidated subsidiary's week short taxable_year ended date unapplied payments were made by petitioner on date in the amounts of dollar_figure dollar_figure and dollar_figure for taxable years and respectively respectively if however the tentative refunds do not constitute rebates to petitioner and the group then petitioner and the group are liable for a deficiency in the amount of dollar_figure for and there is no deficiency in the income_tax of petitioner and the group for instead for petitioner and the group are entitled to recover an overpayment of the income_tax of the group in the amount of dollar_figure discussion the issue we must decide is whether the tentative refunds paid to acme with respect to and constitute rebates to petitioner and the group for purposes of computing the group's deficiencies for and if any pursuant to sec_6211 sec_6211 defines the term deficiency as the amount by which the tax actually imposed exceeds--- the sum of a the amount shown as the tax by the taxpayer upon his return if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon plus b the amounts previously assessed or collected without assessment as a deficiency over--- the amount of rebates as defined in sec_6211 made ' emphasis added reduced to mathematical terms the statutory definition of the term deficiency may be stated as follows deficiency correct_tax -- tax on return prior assessments - rebates correct_tax -- tax on return - prior assessments rebates continued sec_6211 defines a rebate as an abatement credit refund or other repayment made on the ground that the tax imposed was less than the amount shown on the return and the amounts previously assessed or collected without assessment see also 69_tc_309 accordingly not all refunds are rebates see 49_f3d_340 7th cir groetzinger v commissioner supra pincite generally a rebate refund is issued on the basis of a substantive recalculation of the tax owed see o'bryant v united_states supra pincite a nonrebate refund however is issued not because of a determination by the commissioner that the tax paid is not owing but for some other reason such as a mistake made by the commissioner id the rebate versus nonrebate distinction arises from the definition of the term deficiency contained in sec_6211 rebate refunds can be included in deficiency computations while nonrebate refunds cannot id petitioner contends that because the tentative refunds were delivered to the wrong taxpayer those tentative refund allowances constitute for purposes of determining whether the group has deficiencies for and nonrebate refunds with respect to petitioner and the group petitioner contends that continued see 73_tc_902 17_tc_1542 sec_1_1502-78 income_tax regs required delivery of the tentative refunds to petitioner as the successor common parent for the group accordingly petitioner argues the tentative refunds are not rebate refunds with respect to petitioner and the group and cannot be included in the computation of the group's deficiencies for the years in issue respondent concedes that a refund issued to the wrong taxpayer or to an unauthorized representative of the taxpayer is a nonrebate refund which may not be taken into account in computing the taxpayer's deficiency respondent however argues that the tentative refunds were not issued to the wrong taxpayer respondent contends that payment to acme was proper because pursuant to sec_1_1502-78 income_tax regs and 101_tc_130 both acme and petitioner were authorized recipients of the tentative refunds accordingly respondent argues because the tentative refunds were paid to an authorized recipient such refunds constitute rebate refunds with respect to the group for purposes of computing its deficiencies for and sec_6411 authorizes a corporation that has sustained a net_operating_loss nol to apply for a tentative_carryback_adjustment of the tax for the prior taxable_year to which the nol is carried the application of sec_6411 however is subject_to such conditions limitations and exceptions as prescribed by regulation when the applicant made or was required to make a consolidated_return either for the year in which the nol arose or for the prior taxable_year to which the nol is carried see sec_6411 sec_1_6411-4 income_tax regs cross-references sec_1_1502-78 income_tax regs for rules applicable to consolidated groups sec_1_1502-78 income_tax regs provides in part as follows a general_rule --if a group has a consolidated_net_operating_loss a consolidated net_capital_loss or a consolidated unused investment_credit for any taxable_year then any application under sec_6411 for a tentative_carryback_adjustment of the taxes for a consolidated_return_year or years preceding such year shall be made by the common parent_corporation to the extent such loss or unused investment_credit is not apportioned to a corporation for a separate_return_year pursuant to sec_1_1502-79 b or c in the case of the portion of a consolidated_net_operating_loss or consolidated net_capital_loss or consolidated unused investment_credit to which the preceding sentence does not apply and in the case of a net capital or net_operating_loss or unused investment_credit arising in a separate_return_year which may be carried back to a consolidated_return_year the corporation or corporations to which any such loss or credit is attributable shall make any application under sec_6411 b special rules -- payment of refund any refund allowable under an application referred to in paragraph a of this section shall be made directly to and in the name of the corporation filing the application except that in all cases where a _ loss is deducted from the consolidated_taxable_income or a credit is allowed in computing the consolidated_tax_liability for a consolidated_return_year any refund shall be made directly to and in the name of the common parent_corporation the payment of any such refund shall discharge any liability of the government with respect to such refund emphasis added the dispute in the instant case centers around the application of sec_1_1502-78 income_tax regs with respect to payment of the tentative refunds ’ the second clause of sec_1_1502-78 income_tax regs as emphasized above is applicable to the facts of the instant case because the nol in issue was carried back and deducted from the group's consolidated_taxable_income for the consolidated_return years and petitioner contends that pursuant to sec_1_1502-78 b income_tax regs the service_center was required to direct payment of the tentative refunds to petitioner the successor common parent of the group respondent argues that the term common parent_corporation in sec_1_1502-78 b income_tax regs refers to either the common parent of the group for the consolidated taxable_year for which the tentative refund is made 1ie acme at least where such common parent remains in existence or the group's successor common parent e petitioner if the common parent is the same in the loss_year and in the carryback_year there is no question to which corporation sec_1_1502-78 b income_tax regs directs payment where however the common parent for the group in the loss_year is different from the common parent for the group in the carryback_year as in the instant case the regulations are unclear as to where payment of the tentative refund must or may be directed sec_1_1502-78 income_tax regs does not indicate the parties agree that acme properly relied on sec_1 a income_tax regs in filing its applications for tentative refund allowance of the tax paid_by the group for the taxable years and whether the authorized recipient common parent_corporation is the common parent for the year in which the nol arose or for the prior consolidated taxable_year to which the nol is carried accordingly we must decide which common parent petitioner or acme is authorized under sec_1_1502-78 income_tax regs to receive the tentative refunds absent clear direction from sec_1_1502-78 income_tax regs we look elsewhere in the consolidated_return_regulations for guidance to identify the entity that is the authorized recipient of the tentative refunds a central feature of the consolidated_return_regulations is the role of the common parent as the exclusive agent for the consolidated_group with respect to all procedural matters see 84_tc_395 sec_1_1502-77 income_tax regs in delineating the scope of the common parent's agency the regulations specifically provide that the common parent shall act as agent for all the affiliates for such purposes as receiving deficiency notices executing waivers filing refund claims and receiving refunds southern pac co v commissioner supra sec_1_1502-77 income_tax regs additionally we note that the examples set forth in sec_1_1502-78 income_tax regs provide no instruction as to where payment should be directed when the common parent in the loss_year is different than the common parent in the carryback_year the common parent in sec_1_1502-78 examples to income_tax regs is the same in both the loss_year and in the carryback_year consequently there is no question in the examples as to where payment should be directed sec_1 c example income_tax regs is inapposite because it involves a consolidated_net_operating_loss carryback to a separate_return_year rather than to a consolidated_return_year sec_1_1502-77 income_tax regs provides in part as follows the common parent for all purposes other than the making of the consent required by paragraph a of dollar_figure02-75 the making of an election under sec_936 the making of an election to be treated as a disc under sec_1_992-2 and a change_of the annual_accounting_period pursuant to paragraph b of dollar_figure1-1 shall be the sole agent for each subsidiary of the group duly authorized to act in itss own name in all matters relating to the tax_liability for the consolidated_return_year by its terms the above-quoted regulation contemplates that the common parent's authority to act as agent for the consolidated_group arises on a year-by-year basis with respect to the group's consolidated income_tax_liability southern pac co v commissioner supra pincite accordingly for any given year in which a consolidated_return is filed the entity that is the common parent for that particular year continues as the sole agent with respect to any procedural matters that may arise in connection with the group's tax_liability for that year id of course if the common parent ceases to exist its authority to act for the group terminates id in southern pac co we held that if the old common parent in a reverse_acquisition as specified in sec_1_1502-75 income_tax regs does not continue to exist after the reorganization the new common parent succeeds the old common parent as the agent of the group for purposes of the issuance of notices of deficiency for years both before and after the reorganization southern pac co v commissioner supra pincite respondent contends that under the authority of 101_tc_130 acme is an authorized recipient of the tentative refunds in union oil co we held that if the old common parent in a reverse_acquisition as specified in sec_1_1502-75 income_tax regs continues to exist after the reorganization both the old common parent and the new common parent are agents for the affiliated_group for purposes of the issuance of notices of deficiency for years before the reverse_acquisition union oil co v commissioner supra pincite union oil co is distinguishable from the instant case because the old common parent remained affiliated with the group after the reorganization we did not have occasion in union oil co to consider whether a former common parent that is no longer affiliated with the group is an authorized representative of the group for purposes of receiving tentative refunds relating to years during which it controlled the group where the group has a new common parent accordingly union oil co is not dispositive of the issue involved in the instant case after considering southern pac co v commissioner supra and union oil co v commissioner supra and considering the arguments of the parties and the facts of the instant case we conclude that acme's authority to act for the group at least with respect to the issuance and receipt of tentative refunds terminated when its affiliation with the group terminated with respect to the group it is as though acme ceased to exist cf southern pac co v commissioner supra accordingly acme was not an authorized recipient of the tentative refunds we believe that the result we reach today is consistent with and a logical extension of the rationale underlying our earlier decisions in southern pac co v commissioner supra and union oil co v commissioner supra consequently we hold that the tentative refunds are nonrebate refunds with respect to petitioner and the group for purposes of computing the group's deficiencies for and therefore respondent cannot seek recovery_of the tentative refunds from petitioner through the deficiency procedures we have considered the parties’ remaining arguments and find them to be either without merit or unnecessary to reach to reflect the foregoing an appropriate order will be issued


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 date cc psi b06 conex-132458-11 number release date uil 179d the honorable roy blunt united_states senate washington dc dear senator blunt this letter responds to your letter dated august to the commissioner of the irs you inquired about the consequences to owners of government-owned buildings of making an allocation of the sec_179d deduction to a designer of an energy_efficient_commercial_building_property project specifically you asked for clarification that public sector building owners do not incur any responsibilities liabilities or costs by signing the allocation document although the owner of a government-owned building may incur responsibilities liabilities and costs as result of any agreement that it enters into with a designer of a project for which the sec_179d deduction is allocated this letter only addresses the federal_income_tax consequences of making the allocation to a designer generally a taxpayer who owns or leases a commercial building in the united_states can claim a deduction for part or all of the cost of energy_efficient_commercial_building_property placed_in_service after date and before date to claim the deduction the taxpayer must demonstrate that installing this property results in improved energy savings meeting the requirements of sec_179d of the code sec_179d creates a special rule for projects involving government-owned buildings for which the deduction is available allocation of deduction for public property --in the case of energy_efficient_commercial_building_property installed on or in property owned by a federal state_or_local_government or a political_subdivision thereof the secretary shall promulgate a regulation to allow the allocation of the deduction to the person primarily responsible for designing the property in lieu of the owner of such property such person shall be treated as the taxpayer for purposes of this section conex-132458-11 the allocation of the sec_179d deduction from the owner of a government-owned building to the designer of a project is available only for government-owned buildings the allocation of this deduction is not available to the designer for commercial buildings that a tax-exempt non-profit or any other type of entity owns designers claiming the sec_179d deduction must obtain a certification and a written allocation of the deduction from the owner of the government-owned building prior to claiming the deduction generally the designer seeking to claim the deduction pays for this certification see notice_2006_52 2006_1_cb_1175 the maximum amount of the sec_179d deduction that an owner can allocate to the designer is the amount of the costs the owner of the government-owned building incurred to place the energy_efficient_commercial_building_property in service the designer does not include any amount in income and has no requirement to reduce future deductions as a result of the allocated sec_179d deduction see notice_2008_40 the notice 2008_14_irb_725 the owner of a government-owned building must include certain information in the written allocation provided to a designer see section dollar_figure of the notice the name address and telephone number of an authorized representative of the owner of the government-owned building the name address and telephone number of an authorized representative of the designer receiving the allocation of the sec_179d deduction the address of the government-owned building on or in which the property is installed the cost of the property the date the property is placed_in_service the amount of the sec_179d deduction allocated to the designer the signatures of the authorized representatives of both the owner of the government-owned building and the designer or the designer’s authorized representative a declaration applicable to the allocation and any accompanying documents signed by the authorized representative of the owner of the government- owned building in the following form under penalties of perjury i declare that i have examined this allocation including accompanying documents and to the best of my knowledge and belief the facts presented in support of this allocation are true correct and complete conex-132458-11 under sec_7206 of the code the irs may impose a penalty on any person who provides a fraudulent or false statement the owner of the public building has no requirement to include any amount in income on account of the sec_179d deduction allocated to the designer the owner of the public building however must reduce its basis in the energy_efficient_commercial_building_property by the amount of the allocated sec_179d deduction see section dollar_figure of the notice i hope this information is helpful we would be happy to discuss the allocation requirements for this deduction with you or your staff please call ----------------------------- -------------- at ---------------------- if you would like to schedule a meeting passthroughs special industries sincerely curt g wilson associate chief_counsel


internal_revenue_service number release date index numbers ---------------------------- ----------------------------- ---------------------------------------- --------------------- 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 b03 plr-100920-10 date date company ------------------------------------------------------------------------------------------------- ------------------------- date -------------------------- country ----------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of company by company’s authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be classified as a disregarded_entity for federal tax purposes facts company was formed under country law on date company represents that it is a foreign_entity eligible to elect to be classified as a disregarded_entity for federal tax purposes company intended that it be classified as a disregarded_entity effective date however due to inadvertence a valid form_8832 entity classification election to treat company as a disregarded_entity effective date was not timely filed law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 an eligible plr-100920-10 entity with at least two members can elect to be classified as either an association and thus a corporation under sec_301_7701-2 or a partnership sec_301_7701-3 provides that unless the entity elects otherwise a foreign eligible_entity is a a partnership if it has two or more members and at least one member does not have limited_liability b an association if all members have limited_liability or c disregarded as an entity separate from its owner if it has a single owner that does not have limited_liability sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 provides the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion based solely on the information submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied as a result company is granted an extension of time of days from the date of this letter to file a form_8832 with the appropriate service_center and elect to be treated as a disregarded plr-100920-10 entity for federal tax purposes effective date a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose this ruling is contingent on the owner of company filing within days of this letter all required returns and amended income_tax returns consistent with the requested relief being effective date to the extent appropriate these returns must include but are not limited to the following forms i forms information_return of u s persons with respect to certain foreign_corporations ii forms return of u s persons with respect to certain foreign_partnerships and iii forms information_return of u s persons with respect to disregarded entities such that these forms reflect the consequences of the relief granted in this letter except as specifically set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 of the internal_revenue_code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to company’s authorized representative sincerely associate chief_counsel passthroughs special industries by s ________________________________ james a quinn senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


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-140079-05 date date ----------------------------- ---------------- legend x --------------------------------------------------- y ---------------------------------------------------- country date date dear ------------- ------------------------ ---------- --------------------------- this is in response to a letter dated date requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to treat y as an entity disregarded as separate from its owner for federal tax purposes under sec_301_7701-3 facts according to the information submitted and representations made within the request x is the ultimate owner of an affiliated_group of entities among this affiliated_group is y which is an entity that was formed under the laws of country on date x acquired y x timely made a sec_338 election relating to its acquisition of y due to inadvertence a form_8832 entity classification election to treat y as an entity disregarded as separate from its owner effective date was not filed plr-140079-05 law and analysis sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally unless the entity makes an election to be treated otherwise a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability if a foreign eligible_entity has only one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 further provides that an entity classification election must be filed on form_8832 entity classification election and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed sec_301_7701-3 provides that an election made under sec_301_7701-3 will be effective on the date specified by the entity on form_8832 or on the date filed if no date is specified on the election form the effective date specified on form_8832 cannot be more than days prior to the date on which the election is filed and cannot be more than months after the date on which the election is filed if a purchasing_corporation makes an election under sec_338 regarding an acquired subsidiary an election under sec_301_7701-3 for the acquired subsidiary can be effective no earlier than the day after the acquisition_date within the meaning of sec_338 under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election with a deadline prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 plr-140079-05 conclusion based solely upon the information submitted we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result an extension of days from the date of this letter is granted to elect to treat y as disregarded as an entity separate from its owner for federal tax purposes effective date the entity classification election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter except as expressly provided herein no opinion is expressed or implied this ruling is directed only to the taxpayer s requesting it sec_6110 of the internal_revenue_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 sincerely letter will be sent to your authorized representative enclosures copy of this letter copy for sec_6110 purposes william p o’shea associate chief_counsel passthroughs and special industries


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 ita b04 plr-133048-16 date date internal_revenue_service number release date index number ---------------------------- -------------- --------------------------------------- ---------------------- -------------------------- tin ----------------- year ------- date ------------------------ dear ------ --------------- this letter refers to a form_1128 application to adopt change or retain a tax_year by the taxpayer a partnership filed on date requesting to adopt for federal_income_tax purposes a taxable_year ending april effective april year under the authority contained in of the procedure and administration regulations taxpayer requests that the service consider its form_1128 timely filed section of revproc_2002_39 2002_1_cb_1046 provides that a taxpayer must file a form_1128 no earlier than the day following the end of the first effective year and no later than the due_date not including extensions of the federal_income_tax return for the first effective tax_year taxpayer did not file its form_1128 by the due_date of the return for the short_period not including extensions required to effect such change however taxpayer requested an extension of time to file its form_1128 under sec_301_9100-3 soon after becoming aware that it was required to file a form_1128 to adopt its requested tax_year end sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions such as the instant case must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government plr-133048-16 based on the facts and information submitted and the representations made we conclude that taxpayer acted reasonably and in good_faith and that the granting of relief will not prejudice the interests of the government accordingly taxpayer has satisfied the requirements of the regulations for the granting of relief and the service considers taxpayer's late filed form_1128 requesting permission to change to april effective april year timely filed this office has not verified any of the material submitted in support of the request for a ruling however as part of an examination process the service may verify the factual information representations and other data submitted before processing taxpayer’s form_1128 we will request in a separate correspondence the additional user_fee required by appendix a of revproc_2016_1 2016_1_irb_1 after receiving the user_fee we will begin processing the taxpayer's application this ruling addresses the granting of sec_301_9100-3 relief only we express no opinion regarding the tax treatment of the this transaction under the provisions of any other sections of the code or regulations that may be applicable thereto or regarding the tax treatment of any conditions existing at the time of or effects resulting from the instant transaction specifically we express no opinion as to whether the code and applicable regulations or revproc_2002_39 permit the taxpayer to change to the tax_year requested in the subject form_1128 this ruling is directed only to the taxpayer requesting it section k provides that it may not be used or cited as precedent under the provisions of a power_of_attorney currently on file we are sending a copy of this ruling letter to the taxpayer’s authorized representative sincerely donna welsh senior technician reviewer office of associate chief_counsel income_tax and accounting enclosures