t c memo united_states tax_court jesse s frederick petitioner v commissioner of internal revenue respondent docket no filed date jesse s frederick pro_se g michelle ferreira for respondent memorandum opinion gale judge respondent determined the following deficiencies in and additions to petitioner’s federal income taxes additions to tax_year deficiency sec_6651 a sec_6654 dollar_figure dollar_figure sec_808 big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number unless otherwise noted all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure we must decide whether petitioner is liable for federal income taxes and additions to tax we hold that he is to the extent set out below some of the facts have been stipulated and are so found we incorporate by this reference the stipulation of facts supplemental stipulation of facts second supplemental stipulation of facts and attached exhibits at the time of filing the petition petitioner resided in soquel california the facts are not in dispute petitioner failed to report any income during the years in issue respondent’s determinations in the notice_of_deficiency were based on petitioner’s unreported income comprising the following dividends and interest wages self-employment compensation and capital_gain at trial respondent presented substantial evidence in support of the determinations petitioner has admitted to receiving the ordinary_income with respect to the capital_gain petitioner had not provided evidence of basis to respondent before the issuance of the notice_of_deficiency and thus respondent’s determinations accounted for gross_proceeds from sales of capital assets before the record in this case was closed petitioner presented evidence from which the parties were able to stipulate petitioner’s cost_basis in and where relevant costs of sale of almost all of the capital assets the parties likewise stipulated that petitioner received capital_gains in various amounts during the years in issue we find that petitioner had income and loss in the following amounts during the years in issue based on the fact that petitioner has stipulated admitted or failed to dispute respondent’s evidence with respect to those amounts ordinary_income dividends interest wages nonemployee compensation capital_gain short-term_capital_gain from sales of stock_options short-term_capital_loss from sales of stock_options long-term_capital_gain from sales of stock_options long-term_capital_loss from sales of stock_options short-term_capital_gain from sales of real_property long-term_capital_loss from sales of real_property big_number big_number big_number big_number big_number big_number big_number big_number big_number dollar_figure big_number ' the parties were unable to agree on petitioner’s costs of sale because there is no evidence in the record as for this property to petitioner’s costs of sale petitioner’s capital_gain is computed as the difference between the sale price and basis petitioner failed to file federal_income_tax returns and failed to make payments of estimated_tax for all the years in issue rather than disputing the facts in the case petitioner presents various legal arguments seeking to establish that he is not liable for federal income taxes and additions to tax petitioner concedes that congress has the power to levy taxes and that the internal_revenue_service generally has the authority to enforce the internal_revenue_code however petitioner argues that the secretary has not complied with the laws of congress in attempting to enforce the code in his case we address each argument in turn petitioner first argues that respondent did not comply with the laws of congress in issuing the notice_of_deficiency in the instant case petitioner is incorrect the secretary or_his_delegate is authorized to issue a notice_of_deficiency see sec_6212 sec_7701 b and a i the secretary’s authority to issue a notice_of_deficiency was properly delegated to the district_director who issued the notice_of_deficiency in this case see 88_tc_167 sec_301_7701-9 proced admin regs see also 95_tc_624 affd without published opinion 956_f2d_1168 9th cir petitioner next argues that respondent acted in a quasi- judicial manner in determining deficiencies and additions to tax against him and that respondent did not comply with all laws before issuing the notice_of_deficiency this argument must also fail in general we do not look behind the notice_of_deficiency see 62_tc_324 and there is no reason to do so here petitioner makes a vague claim that the notice_of_deficiency was arbitrary or erroneous but the notice was not arbitrary or erroneous since petitioner does not dispute the facts upon which the determinations were based see eg 596_f2d_358 9th cir revg 67_tc_672 moreover it is well established that the commissioner need not give a taxpayer the opportunity to appeal at the administrative level before issuing a notice_of_deficiency see estate of barrett v commissioner tcmemo_1994_535 affd without published opinion 87_f3d_1318 9th cir next petitioner argues that any treasury regulation that does not cite the statute under which the regulation was issued is invalid petitioner bases this argument on a provision from the code_of_federal_regulations which states rach section in a document subject_to codification must include or be covered by a complete citation of the authority under which the sec_1s issued c f_r sec dollar_figure a document for this purpose includes a regulation c f_r sec_1 petitioner points out that the regulations under title of the code_of_federal_regulations containing regulations pertaining to the bureau of alcohol_tobacco_and_firearms comply with this provision but the regulations under title_26 of the code_of_federal_regulations containing regulations pertaining to the internal_revenue_service and the internal_revenue_code do not however the code_of_federal_regulations specifically provides that the rules governing citations of authority and similar matters of form are not intended to affect the validity of regulations filed and published under law see c f_r sec_5 thus the treasury regulations are valid irrespective of any failure to include citations of authority moreover c f_r sec dollar_figure provides that each section of a document must include or be covered by a complete citation of authority emphasis added the regulations under which respondent issued the notice_of_deficiency generally cross-- reference a treasury_decision which itself cites the statutory authority upon which the regulation is based next petitioner argues that form_1040 is invalid this argument has no merit see mcdougall v commissioner tcmemo_1992_683 citing 947_f2d_1356 9th cir moreover in general the numbering of the regulations makes it obvious under which statute each is issued affd without published opinion 15_f3d_1087 9th cir see also aldrich v commissioner tcmemo_1993_290 n finally petitioner argues that the court does not have jurisdiction over additions to tax petitioner is incorrect our jurisdiction in this case is based on the valid notice_of_deficiency issued by respondent and the timely filed petition see rule a c 90_tc_142 sec_6214 gives the court jurisdiction to redetermine the correct amount of the deficiency and to determine whether any additional_amount or any addition to the tax should be assessed further sec_6665 provides that in general additions to tax are to be paid assessed and collected in the same manner as taxes there is an exception to sec_6665 in sec_6665 but the exception does not apply in the two situations present in the instant case namely the portion of the addition_to_tax under sec_6651 that is attributable to the deficiency and the entire addition_to_tax under sec_6654 where no return is filed see sec_6665 b and 78_tc_19 reese v commissioner tcmemo_1997_346 petitioner has the burden_of_proof see rule a 290_us_111 as noted petitioner does not dispute the facts in this case thus we find that petitioner is liable for the deficiencies resulting from unreported ordinary_income as determined by respondent and from unreported capital_gain in accordance with our findings in addition we find that petitioner is liable for self-employment taxes as determined by respondent and for additions to tax for failure_to_file and failure to pay estimated_tax in accordance with our findings to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number ------------------------- ---------------- ------------------------- ----------------------- --------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- id no ------------- telephone number --------------------- refer reply to cc psi b6 plr-121416-09 date date legend taxpayer ------------------- --------------------------------- year x ------- ----------------------------------------- dear ---------------- this letter responds to your letters dated ------------------- --------------------------and ----------------------- requesting consent to revoke taxpayer’s election under sec_59 of the internal_revenue_code for year the facts are represented by taxpayer to be as follows taxpayer develops and manufactures technologies primarily for x as a result of environment damage resulting from the manufacture of these products taxpayer has incurred and continues to incur environmental remediation expenditures plr-121416-09 under revrul_94_38 1994_1_cb_35 expenses_incurred to remediate contamination caused by manufacturing activities represent ordinary and necessary business_expenses deductible under sec_162 sec_172 allows the portion of a net_operating_loss nol that is a specified_liability_loss to be carried back to each of the ten preceding years a specified_liability_loss is the portion of the nol that is comprised of certain deductions including any amount allowable as a deduction that is in satisfaction of a liability under a federal or state law requiring the remediation of environmental contamination if the act or failure to act giving rise to the liability occurs at least years before the beginning of the taxable_year and the taxpayer used an accrual_method of accounting during the period the act or failure to act occurred revrul_2004_18 2004_1_cb_509 concludes that under sec_1_263a-1 of the income_tax regulations environmental remediation costs incurred to clean up land contaminated during the ordinary business operations of manufacturing inventory are properly allocable to the inventory that the taxpayer produces and therefore are recovered through cost_of_goods_sold following the issuance of revrul_2004_18 taxpayer concluded that because its environmental remediation costs had to be included as part of cost_of_goods_sold such costs were not allowable as a deduction and therefore could not qualify for the 10-year carryback as part of a specified_liability_loss under sec_172 consequently taxpayer made a sec_59 election on its year return to limit its nol for year to an amount equal to its specified_liability_loss not required to be included as part of cost_of_goods_sold subsequently the internal_revenue_service the service modified its view and concluded that environmental remediation costs that are allocated to production activities under sec_263a and recovered through cost_of_goods_sold constitute specified liability losses to the extent that they are taken into account in computing an nol for the taxable_year taxpayer now requests consent to revoke its sec_59 election for year law and analysis sec_59 provides an optional write-off of certain tax_preferences over an applicable_period sec_59 defines the term qualified_expenditure to include any amount that but for an election under sec_59 would have been allowable as a deduction in the year paid_or_incurred under sec_174 relating to research_and_experimental_expenditures sec_59 provides that an election under sec_59 may be made with respect to any portion of any qualified_expenditure sec_59 provides that an election under sec_59 may be revoked only with the consent of the secretary plr-121416-09 sec_1_59-1 provides that an election under sec_59 may be revoked only with the consent of the commissioner such consent will be granted only in rare and unusual circumstances the revocation if granted will be effective in the first taxable_year in which the sec_59 election was applicable however if the period of limitations for the taxable_year the sec_59 election was applicable has expired the revocation if granted will be effective in the earliest taxable_year for which the period of limitations has not expired sec_1_59-1 provides that a taxpayer requesting the commissioner’s consent to revoke a sec_59 election must submit the request prior to the end of the taxable_year the applicable amortization period described in sec_59 ends the application_for consent to revoke the election must be submitted to the service in the form of a letter_ruling request sec_1_59-1 provides that a request to revoke a sec_59 election must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation sec_1_59-1 provides that the unamortized balance of the qualified_expenditures subject_to the revoked sec_59 election as of the first day of the taxable_year the revocation is effective is deductible in the year the revocation is effective subject_to the requirements of any other provision under the code regulations or any other published guidance and the taxpayer will be required to amend any federal income returns affected by the revocation in the instant case taxpayer made a sec_59 election on its year tax_return based on its interpretation of revrul_2004_18 it was reasonable for taxpayer to conclude that because under revrul_2004_18 environmental remediation costs are recovered through cost_of_goods_sold they do not qualify for the 10-year carryback as part of deductions included in specified liability losses under sec_172 when taxpayer made the sec_59 election taxpayer could not reasonably have anticipated that the service would modify its view and conclude that environmental remediation costs that are recovered through cost_of_goods_sold may constitute a specified_liability_loss therefore the facts of this case constitute rare and unusual circumstances for purposes of sec_1_59-1 based solely on the information submitted and the representations made we conclude that the requirements of sec_1_59-1 have been satisfied therefore taxpayer may revoke its sec_59 election for year the revocation is effective in the earliest year for which the period of limitations has not expired except as expressly provided herein we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced plr-121416-09 in this letter in particular we express no opinion regarding whether the revocation of taxpayer’s year sec_59 election effective in the earliest year for which the period of limitations has not expired will result in taxpayer having an nol or a specified_liability_loss in such year this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file in this office a copy of this letter will be sent to your authorized representatives sincerely yours brenda m stewart brenda m stewart senior counsel branch office of associate chief_counsel passthroughs special industries 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 intl b06 plr-124976-14 date date legend ty ------ -------------------------------------- taxpayer accounting firm ---------------------------------------------- ------------------------------------------------ law firm company --------------------------------------------------------- -------------------- individual a ------------------- individual b year ------ --------------------- date dear ---------------- this responds to a letter dated date submitted by taxpayer requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the rulings contained in this letter are based upon information and representations submitted by taxpayer and accompanied by penalty of perjury statements executed by appropriate parties this office has not verified any of the materials submitted in support of the request for rulings it is subject_to verification on examination facts and representations taxpayer is a domestic_corporation wholly owned and managed by individuals a and b taxpayer was formed to serve as an interest charge domestic international sales plr-124976-14 corporation ic-disc and has established a commission arrangement with company individuals a and b also own all of the outstanding_stock of company in year individuals a and b consulted with accounting firm and law firm and decided to establish an ic-disc and engaged law firm to complete the necessary organizational documents taxpayer was incorporated on date and began operating as an ic-disc individuals a and b signed a completed form 4876-a and believed that accounting firm would file the election in a timely manner to qualify taxpayer as an ic-disc for its first taxable_year however after taxpayer filed its federal_income_tax return for its first taxable_year the service informed the taxpayer that there was no record that the election was actually filed and taxpayer determined that it had no record of the filing either taxpayer represents that the extension does not prejudice the government’s interests and that taxpayer is not placed in a better position by making the election at this time than it would have been in had the election been timely made law and analysis sec_992 provides that an election by a corporation to be treated as a disc1 shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temp sec_1_921-1t provides in part that a corporation electing ic- disc status must file form 4876-a and that a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion 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 under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue as used in this letter the terms ic-disc and disc have the same meaning plr-124976-14 ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax 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 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 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 that the grant of relief will not prejudice the interests of the government based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 taxpayer should attach a copy of this ruling letter to its federal_income_tax return for the taxable years to which this letter applies this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _____________________________________ christopher j bello chief branch office of associate chief_counsel international cc


department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ----------- telephone number -------------------- refer reply to cc psi b6 plr-100455-14 date june internal_revenue_service number release date index number ------------------------------ --------------------------- ----------------------------- ----------------------------------- legend taxpayer --------------------------- ---------------------- ------------------ company a -------------------------- company b ------------------------------------- seller a seller b ------------------------------------- operating company a -------------------------------- operating company b ------------------------------- operating company c ---------------------------------------------- state a state b state c state d licensor utility a utility b power plant power plant power plant center --------- ------------ -------- --------- --------------------- -------------------------------------------- ------------------------------- ----------------------------------------------------------------- -------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ --------- -------------------------------------------- ctf year a year b ------ ------ plr-100455-14 date a date b date c date d additive a additive b a ------ b ------ test rep test rep test rep -------------------------- --------------------------- -------------------------- --------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ ----------------------------------- ------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ -------- ------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ -------- ------ weight x coal source region a -------------------------- dear ------------------- this is in response to your request for rulings submitted by your authorized representative concerning the federal_income_tax consequences of the transaction described below taxpayer has represented the facts as follows background taxpayer a state a corporation owns a diverse group of companies engaged in trading operations and investment in a number of industries taxpayer is the common parent of an affiliated_group that joins in the filing of a consolidated federal_income_tax return on a calendar_year basis using the accrual_method of accounting company a is a state b limited_liability_company and is a disregarded_entity for federal_income_tax purposes company a is wholly owned by taxpayer through a plr-100455-14 series of other single member limited_liability companies that are treated as disregarded entities for federal_income_tax purposes on date a company a acquired from seller a and seller b all of the interests in company b a state b limited_liability_company which owned all of the interests in operating company a operating company b and operating company c following this acquisition company b and each operating company were disregarded entities for federal_income_tax purposes the facilities facility a is owned by operating company a and is located at a site adjacent to power plant power plant is owned by utility a facility b is owned by operating company b and is located at a site adjacent to power plant power plant is owned by utility b facility c is owned by operating company c and is located at a site adjacent to power plant power plant is owned by utility b thus for federal_income_tax purposes taxpayer owns through company a and the operating companies facility a facility b and facility c the facilities each of facility a facility b and facility c was placed_in_service during year a prior to the taxpayer’s acquisition of interests in the operating companies facility a was originally located and operated at a different site in state d but was relocated to its present location at a site adjacent to power plant prior to taxpayer’s acquisition the technology the facilities utilize proprietary technology sublicensed from the licensor to produce refined_coal the technology the technology involves two chemical additives additive a and additive b that are mixed with the feedstock coal as it is transported through the facilities on conveyor belts additive a and additive b are applied at rates determined to be necessary to achieve the required emissions reductions in nox and mercury when the resulting mixture is burned to produce steam test results have shown that when mixed with coal these additives result in reduced nox and mercury emissions during combustion and may also have the benefit of increasing fuel efficiency and reducing boiler maintenance in the case of additive a information provided by licensor indicates that the additive causes a portion of the nox to adhere to or react with the additive so that it can be captured and is not emitted in the case of additive b information provided by licensor indicates that the additive reacts with the elemental mercury in the feedstock coal so that it is converted into a chemical species of mercury that can be effectively captured by particulate control devices at present operating company a expects that all refined_coal at facility a will be made from subbituminous coal sourced from mines in coal source region a similarly operating company c expects that all refined_coal at facility c will be made from subbituminous coal sourced from mines in coal source region a operating company plr-100455-14 b expects that all refined_coal at facility b will be made from a blend consisting of approximately a subbituminous coal sourced from mines in coal source region a and approximately b state c lignite sourced from a mine nearby to facility b operating company b also expects to maintain this coal blend through at least all of year b however during periods of unusually significant rain the lignite coal cannot be delivered from the mine and accordingly there may be brief periods during which only subbituminous coal sourced from mines in coal source region a can be delivered accordingly while there may be brief periods during which only subbituminous coal sourced from mines in coal source region a can be delivered to facility b on average it is expected that the blend will be approximately b state c lignite and a subbituminous coal sourced from mines in coal source region a each operating company has entered into long-term_contracts to sell all of its production from facility a to utility a all of its production from facility b to utility b and all of its production from facility c to utility b testing for purposes of determining emissions reductions under sec_45 each operating company will arrange with the research center of a prominent university the center to conduct tests at its pilot scale combustion test furnace ctf the test reports issued by the center and described below state the ctf has been extensively used to research and investigate sox and nox emissions and the transformation of toxic trace metals hg as and pb during the combustion of coal and other fuels or waste materials the ctf is capable of producing gas and particulate samples that are representative of those produced in industrial and full- scale pulverized coal-fired boilers for purposes of qualifying the refined_coal produced at the facilities the center most recently conducted pilot-scale combustion tests at its ctf on date b for facility a on coal feedstock sourced from mines in coal source region a on date c for facility b on a blend of feedstock consisting of a feedstock coal blend of a coal sourced from mines in coal source region a and b state c lignite which blend represented the anticipated blend to be used at facility b and on date d for facility c on coal feedstock sourced from mines in coal source region a each of test report test report and test report explain that combustion gas analysis is provided by continuous emission monitors cems at two locations the furnace exhaust which is used to monitor and maintain a specified excess air level for all test periods and the outlet of the particulate control device which is used to assess any air inleakage that may have occurred so that emissions of interest sampled at the back end of the system can be corrected for dilution caused by the inleakage power plant sec_1 and utilize wet scrubbers for pollution control but power plant does not plr-100455-14 have a wet scrubber accordingly for the most recent tests for operating company a and operating company b flue gas analyses were obtained downstream from the wet scrubber which was operated at the same approximate efficiency level as the wet scrubbers at power plant sec_1 and for the most recent test for operating company c flue gas analyses were obtained from the duct at the outlet of the bag house separate measurements were taken of oxygen carbon dioxide carbon monoxide sulfur dioxide and nox flue gas mercury measurements were obtained separately by a continuous mercury monitor the reports issued by the center state that the test results indicate that in each case the blend of coal and additives achieved at least the required percent nox reduction and at least the required percent mercury reduction although the center adjusts its ctf to attempt to replicate the conditions anticipated at the applicable power plant due to the numerous variables that can impact combustion effects in a commercial power station it is not possible to exactly replicate what will be observed in the commercial setting nonetheless the test reports conclude that the center expects that similar emissions reductions would be achieved at full scale using the additive levels specified in the test reports the reports issued by the center are certified under penalties of perjury confirming a the name address and telephone number of the lead scientist conducting the tests b that such scientist is a qualified_individual as described in section c of notice_2010_54 and c the amount of emission reductions were determined in accordance with sections dollar_figure and dollar_figure of notice_2010_54 each operating company intends to arrange for periodic testing at the center or another similar center qualified to perform testing using a pilot-scale combustion furnace at least once every six months measured from the date of the tests regardless of when the report is issued this periodic testing will be performed on composite samples of the coals typically used to produce refined_coal at the applicable power plant and under conditions chosen by the center to replicate those at such power plant the process of collecting feedstock samples will vary among the facilities none of the facilities currently have automatic sampling machinery that can be used for these purposes so all feedstock samples are expected to be taken manually at facility c samples will be collected at a variety of locations around the coal feedstock stockpiles with these samples aggregated to obtain the sample size that is requested by the center currently about weight x pounds at facility a for operational and safety reasons it is preferred to divert some of the feedstock being reclaimed from the stockpile rather than engaging in sample collection over the whole stockpile area at present this is expected to be accomplished by diverting a portion of the feedstock from the reclaim conveyors into a separate stockpile area each day for several days with samples taken from the separated stockpile area being aggregated and sampled to obtain the sample size requested by the center at facility b where feedstock from two separate coal source areas is blended and there are different feedstock stockpiles plr-100455-14 for each source samples of the blend are collected by a stop belt method in which the conveyor belt feeding blended feedstock into the facility is temporarily stopped and cuts are taken across the belt operating protocols provide general rules for sealing and labeling of samples chain of custody procedures sample preparation and the like taxpayer anticipates that it will revisit these methods from time to time based on advice of industry sampling consultants at the center each sample will be subdivided into two representative samples one of which will be burned untreated to establish a baseline and the other of which will be mixed with the liquid and powder compounds used in the technology and then burned to measure the emission reductions based on the results of those test burns the center will advise each operating company of the application rates to be used for the liquid and powder compounds during the operation of its facility in order to achieve at least a percent reduction in mercury emissions and at least a percent reduction in nox emissions the center will retain a portion of the sample until it issues its final report for each test rulings requested based on the foregoing you have requested that we rule as follows the material produced using the technology as described herein constitutes refined_coal within the meaning of sec_45 provided that such refined_coal is produced from feedstock coal that is of the same source or rank as the coal described below and provided further that the refined_coal satisfies the qualified_emission_reduction test stated in sec_45 provided the feedstock coals used to produce refined_coal during any determination_period are from the same coal source regions and of the same rank as the feedstock tested coal all feedstock coal that satisfies that criteria shall be treated as feedstock coal of the same source and rank for purposes of section dollar_figure of notice_2010_54 regardless of the mine from which such feedstock coal is purchased for this purpose if the feedstock used is a blend of coal from two or more coal source regions or ranks so long as the average percentage of each such coal source region or rank in the blends used to produce refined_coal over a period of up to six months since the most recent determination or redetermination test does not vary by more than percentage points up or down for a total of percentage points from the percentage of such specified coal source region or rank in the coal tested all feedstock coal blends used in that period will be treated as feedstock coal of the same source and rank as the tested blend for purposes of establishing a qualified_emission_reduction a test or redetermination test may be relied upon after the date of testing even if the report is not received until up to days after the six-month period specified in plr-100455-14 section i of notice_2010_54 or if the testing was conducted prior to the taxpayer’s acquisition of the facility producing the refined_coal for such purposes the redetermination requirement of section dollar_figure of notice_2010_54 may be satisfied by laboratory analysis of samples taken and analyzed as described below establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal on average do not vary by more than below the bottom nor by more than above the top of the range of sulfur content and the range of mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of section dollar_figure of notice_2010_54 for such purposes it is not a change in process requiring new testing under section dollar_figure of notice_2010_54 to increase the application rate of chemical additives used in producing the refined_coal to a higher level than the rate shown to have produced a qualified_emission_reduction in a determination or redetermination test or to later resume application at the rate used in such a test if a facility was placed_in_service before date within the meaning of sec_45 a subsequent modification or relocation of the facility will not result in a new placed-in-service date for the facility for purposes of sec_45 provided the fair_market_value of the original used_property of the modified or relocated facility is more than percent of the facility’s total value the cost of the new property plus the value of the used_property testing by the center for qualified emission reductions as set forth in its test reports satisfies the requirements of notice_2010_54 taxpayer may rely on the pilot scale testing conducted at the center to satisfy the qualified_emission_reduction test of sec_45 of the code a change in ownership of the facilities subsequent to their placed-in-service dates will not affect the placed-in-service dates of the facilities for purposes of sec_45 law and rationale sec_45 of the code generally provides a credit against federal_income_tax for_the_use_of renewable or alternative resources to produce electricity or fuel for the generation of steam sec_45 of the code provides that in the case of a producer of refined_coal the credit available under sec_45 of the code for any taxable_year shall be increased by an amount equal to dollar_figure5 per ton of qualified refined_coal i produced_by_the_taxpayer at a refined_coal_production_facility during the 10-year period beginning on the date that the facility was originally placed_in_service and which plr-100455-14 is ii sold by the taxpayer to an unrelated_person during such 10-year period and such taxable_year for purposes of sec_45 of the code section dollar_figure of notice_2010_54 provides that the term refined_coal means a fuel which i is a liquid gaseous or solid fuel including feedstock coal mixed with an additive or additives produced from coal including lignite or high carbon fly ash including such fuel used as a feedstock ii is sold by the taxpayer with the reasonable expectation that it will be used for the purpose of producing steam and iii is certified by the taxpayer as resulting when used in the production of steam in a qualified_emission_reduction section dollar_figure of the notice provides that the term qualified_emission_reduction means in the case of refined_coal produced at a facility placed_in_service after date a reduction of at least twenty percent of the emissions of nitrogen oxide and at least forty percent of the emissions of either sulfur dioxide or mercury released when burning the refined_coal excluding any dilution caused by materials combined or added during the production process as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of date section dollar_figure of notice_2010_54 generally provides that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining as defined in sec_613 a c or i of the code if performed by the mine owner or operator accordingly in determining whether a qualified_emission_reduction has been achieved the emissions released when burning the refined_coal must be compared to the emissions that would be released when burning the feedstock coal feedstock coal is the product resulting from processes that are treated as mining including any such processes that are actually applied by a taxpayer in any part of the taxpayer’s process of producing refined_coal from coal sec_613 of the code describes treatment processes that are not considered as mining unless they are provided for in sec_613 or are necessary or incidental to a process provided for in sec_613 any cleaning process such as a process that uses ash separation dewatering scrubbing through a centrifugal pump spiral concentration gravity concentration flotation application of liquid hydrocarbons or alcohol to the surface of the fuel particles or to the feed slurry provided such cleaning does not change the physical or chemical structure of the coal and drying to remove free water provided such drying does not change the physical or chemical identity of the coal will be considered as mining section of the notice provides in part that emissions reduction may be determined using continuous emission monitoring system cems field testing section a provides in part that cems field testing is testing that meets all the following requirements i the boiler used to conduct the test is coal-fired and steam-producing plr-100455-14 and is of a size and type commonly used in commercial operations ii emissions are measured using a cems iii if epa has promulgated a performance standard that applies at the time of the test to the pollutant emission being measured the cems must conform to that standard iv emissions for both the feedstock coal and the refined_coal are measured at the same operating conditions and over a period of at least hours during which the boiler is operating at a steady state at least percent of full load and v a qualified_individual verifies the test results in a manner that satisfies the requirement of section b section of the notice provides that methods other than cems field testing may be used to determine the emission reduction the permissible methods include a testing using a demonstration pilot-scale combustion furnace if it establishes that the method accurately measures the emission reduction that would be achieved in a boiler described in section a i and a qualified_individual verifies the test results in a manner that satisfies the requirements of section c i ii v and vi of the notice and b a laboratory analysis of the feedstock coal and the refined_coal that complies with a currently applicable epa or astm standard and is permitted under section b i or ii of the notice section of the notice provides that a taxpayer may establish that a qualified_emission_reduction determined under section dollar_figure applies to production from a facility by a determination or redetermination that is valid at the time the production occurs a determination or redetermination is valid for the period beginning on the date of the determination or redetermination and ending with the occurrence of the earliest of the following events i the lapse of six months from the date of such determination or redetermination ii a change in the source or rank of the feedstock coal that occurs after the date of such determination or redetermination or iii a change in the process of producing refined_coal from the feedstock coal that occurs after the date of such determination or redetermination section of the notice provides that in the case of a redetermination required because of a change in the process of producing refined_coal from the feedstock coal the redetermination required under section dollar_figure must use a method that meets the requirements of section in any other case the redetermination requirement may be satisfied by laboratory analysis establishing that a the sulfur or mercury content of the amount of refined_coal necessary to produce an amount of useful energy has been reduced by at least percent percent in the case of facilities placed_in_service after date in comparison to the sulfur or mercury content of the amount of feedstock coal necessary to produce the same amount of useful energy excluding any dilution caused by materials combined or added during the production process or b the sulfur or mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the sulfur and mercury content of the feedstock coal and refined_coal used in the most recent determination that meets the requirements of the notice plr-100455-14 section dollar_figure of the notice provides that the certification requirement of sec_3 c of the notice is satisfied with respect to fuel for which the refined_coal credit is claimed only if the taxpayer attaches to its tax_return on which the credit is claimed a certification that contains the following a statement that the fuel will result in a qualified emissions reduction when used in the production of steam a statement indicating whether cems field testing was used to determine the emissions reduction if cems field testing was not used to determine the emissions reduction a description of the method used a statement that the emissions reduction was determined or redetermined within the six months preceding the production of the fuel and that there have been no changes in the source or rank of the feedstock coal used in the process of producing refined_coal from feedstock coal since the emissions reduction was most recently determined or redetermined and a declaration signed by the taxpayer in the following form under penalties of perjury i declare that i have examined this certification and to the best of my knowledge and belief it is true correct and complete finally sec_45 provides that a refined_coal_production_facility must be placed_in_service within certain timeframes for purposes of the refined_coal credit allowable with respect to refined_coal other than steel_industry_fuel the facility must be placed_in_service after date and before date section dollar_figure of the notice provides that the year in which property is placed_in_service is determined under the principles of sec_1_46-3 of the regulations ie when the property is placed in a condition or state of readiness and availability for a specifically assigned function section dollar_figure of the notice provides that a refined_coal_production_facility will not be treated as placed_in_service after date if more than twenty percent of the facility’s total value the cost of the new property plus the value of the used_property is attributable to property placed_in_service on or before date the notice also states that the irs will not issue private letter rulings relating to when a refined_coal_production_facility has been placed_in_service with respect to the first and fifth ruling requests the technology starts with two chemical additives being added to the feedstock coal as it is transported through the facilities on conveyor belts section dollar_figure of the notice provides generally that a qualified emissions reduction does not include any reduction attributable to mining processes or processes that would be treated as mining if performed by the mine owner or operator in the instant case the process used at the facilities is not a mining process further section dollar_figure of the notice clarifies sec_45 of the code and specifically provides that refined_coal includes feedstock coal mixed with additives thus additive processes that mix certain chemicals or other additives with the coal in order to achieve emissions reductions may qualify for the refined_coal production_tax_credit additionally section dollar_figure defines comparable coal as coal that is of the same rank as the feedstock coal and that has an emissions profile comparable to the emissions profile of the feedstock coal accordingly we conclude that a the refined_coal produced by using the technology constitutes a refined_coal within the meaning plr-100455-14 of sec_45 of the code provided that the refined_coal i is produced from feedstock coal that is the same source or rank as the tested coal and ii satisfies the qualified_emission_reduction test stated in sec_45 of the code and b increasing the amounts of chemical additives to the feedstock coal will not be construed as a change in process requiring additional testing for qualified emissions reductions under section dollar_figure of notice_2010_54 nor will it be construed as a change in process to later resume application at the rate used in the original test with respect to the second ruling_request taxpayer anticipates that it will conduct a single redetermination test every six months using refined_coal produced from the blends described above for each of facility a facility b and facility c taxpayer will treat the blended coals as comparable coal and not a change in the source or rank of feedstock coal so long as the percentages by weight of each component in the average mix over the period is within percentage points up or down of the percentage of that component in the feedstock coal tested ie within a range of percentage points taxpayer anticipates that the average blends of the components of the feedstock coal used at each facility over a redetermination period will be within percentage points up or down of the percentage by weight of each component in the mix of the specific component in the tested coal ie within a range of percentage points thus provided that the average percentage of each component of coal in the blend used to produce refined_coal at a facility over a period of up to six months since the most recent determination or redetermination test does not vary by more than percentage points above or below the percentage of that component in the feedstock coal tested in the most recent determination test or redetermination test taxpayer should not be required to conduct redetermination testing based on a change in the source or rank of the feedstock coal accordingly we conclude that all feedstock coals of facility a facility b or facility c that are of the same blends as set forth herein will be treated as coal of the same source or rank of feedstock coal during such six month period so long as the average percentages by weight of each component in the mix is within percentage points up or down of the percentage of that component in the feedstock coal tested ie within a range of percentage points with respect to the third ruling_request it is expected that the taxpayer will engage in testing or redetermination testing every six months or more frequently however the taxpayer may not always receive the written report required by section a of notice_2010_54 within the six month period thus although the test or redetermination test is completed within the six month period the report may be received after the six month period nonetheless the taxpayer expects to be informed of the results of the test on the day of the tests so that it will be able to take in account the results of the test or redetermination test within the six month period nevertheless the delay in issuing and receiving the report cannot be indefinite further allowing the taxpayer to rely on testing and reports conducted before its acquisition of the facilities on behalf of the seller is consistent with the rationale behind notice_2010_54 which plr-100455-14 concludes that once a qualified emissions reduction is established further testing is not required for six months or until there is a change in feedstock or process accordingly we conclude that i the results set forth in a redetermination report for production may be relied upon after the date of testing even if the report is not received until after the six-month period specified in section i of notice_2010_54 so long as the taxpayer receives the written report within days from the date of testing and ii the taxpayer can rely on testing and reports conducted before its acquisition of the facilities however the redetermination of qualified emissions reduction must occur during the earliest of the events described in section dollar_figure of notice_2010_54 regardless of the time of the actual receipt of center’s test report with respect to the fourth ruling_request section of notice_2010_54 provides that where a redetermination is required because of a change in the process of producing refined_coal the redetermination must use one of the general methods for satisfying the emissions reduction requirements listed in section dollar_figure of the notice however in any other case section of the notice provides that the redetermination requirement may be satisfied by laboratory analysis establishing that the sulfur and mercury content of both the feedstock coal and the refined_coal do not vary by more than percent from the sulfur and mercury content of the feedstock coal and the refined_coal used in the most recent determination which may be the original cems test that meets the requirements of notice_2010_54 accordingly we conclude that pursuant to section of notice_2010_54 the redetermination requirement of section dollar_figure of notice_2010_54 may be satisfied by laboratory analysis establishing that the average sulfur and mercury contents of both the feedstock coal and the refined_coal do not vary by more than percent from the range of sulfur and mercury content of the feedstock coal and the refined_coal used in the most recent determination that meets the requirements of section dollar_figure of notice_2010_54 with respect to the sixth ruling_request section dollar_figure of notice_2010_54 provides that a refined_coal_production_facility will not be considered to have been placed_in_service after date if more than percent of the total fair_market_value of the facility the cost of the new property plus the value of the used_property is attributable to property that was placed_in_service on or before date this rule provides a test for determining whether modifications to a facility will result in a new placed_in_service_date accordingly we conclude that if a facility is placed-in-service prior to date within the meaning of sec_45 of the code a subsequent modification or relocation of such facility will not result in a new placed-in-service date for such facility for purposes of sec_45 provided that the fair_market_value of the original used_property of such facility is more than percent of such facility’s total value the cost of the new property plus the value of the used_property at that time as noted above facility a was in fact relocated from its original location in state d to its present location at a site adjacent to power plant with respect to the seventh issue section of the notice provides that any permissible testing method provided for in the notice can be used in emission testing for plr-100455-14 any pollutant that is a taxpayer can use different testing methods for each of nitrogen oxide sulfur dioxide or mercury provided the method used for any pollutant is a permissible method section provides that an emission test establishing a qualified_emission_reduction qualifies the refined_coal for a six-month period provided there is no change in the process for producing the refined_coal or in the source or rank of the feedstock coal therefore a taxpayer must redetermine the emission reductions to qualify for the succeeding six-month period using one or more approved methods in the instant case pilot-scale combustion testing will be arranged for and the operating companies at do not currently expect to rely on any continuous emissions monitoring system or other field testing which is permitted under section dollar_figure of the notice specifically the center will conduct testing including redetermination testing at its ctf to determine the emissions reductions associated with burning the refined_coal product compared to the feedstock for purposes of qualifying the refined_coal produced at the facilities the center has conducted pilot-scale combustion tests at its ctf as documented in test rep test rep and test rep in conducting such tests the center conducted tests on the feedstock and then mixed a separate sample of the feedstock with the additives so that it could conduct tests on the refined_coal product in each of its reports the center reported that the test results indicated that the blend of coal and additives achieved the required emissions reductions based on the foregoing we conclude that testing by the center for qualified emissions reductions as set forth in its test reports including interim reports satisfies the requirements of notice_2010_54 qualified emissions reduction through testing by the center at its combustion research facility or similar pilot-scale combustion testing facilities under notice_2010_54 may be relied upon with respect to the eighth ruling_request sec_45 provides that a refined_coal facility must be placed_in_service within certain timeframes section dollar_figure of notice_2010_54 provides that the year in which property is placed_in_service is determined under the principles of sec_1_46-3 ie when the property is placed in a condition or state of readiness and availability for a specifically assigned function the placed-in-service language in sec_45 focuses on the facility and does not by its terms require the facility to have been placed_in_service by the entity that owns and operates the facility and claims the credit for such production at a later date the change in ownership of the facilities subsequent to their placed-in-service dates will not affect the placed-in-service date of the facilities for purposes of sec_45 plr-100455-14 this ruling expresses no opinion about any issue not specifically addressed in this ruling letter including whether any person has sold refined_coal to an unrelated_person or when the facilities were placed_in_service in particular we express or imply no opinion that the taxpayer has sufficient risks and rewards of the production activity to qualify as the producer of the refined_coal the service may challenge an attempt to transfer the credit to a taxpayer who does not qualify as a producer including transfers structured as partnerships sales or leases that do not also transfer sufficient risks and rewards of the production activity in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to your authorized representatives a copy of this ruling must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent we are sending a copy of this letter_ruling to the industry director sincerely peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs special industries 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-140904-12 date date legend x ------------------------------------------------------------ --------------------------------- state ------------- dear ---------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting a ruling under sec_7704 of the internal_revenue_code facts you have represented that the facts are as follows x is a limited_partnership organized under the laws of state and is classified as a partnership for federal tax purposes further x represents that it is a publicly_traded_partnership within the plr-140904-12 meaning of sec_7704 x earns income by terminalling storing and transporting crude_oil refined petroleum products and liquefied petroleum gas lpg on behalf of its customers who include refineries chemical and petrochemical companies common carriers and other pipeline transporters x’s terminalling storage and transportation assets include storage tanks marine docks and pipelines x represents that x’s terminalling storage and transportation services are integral to the transportation of the crude_oil refined petroleum products and lpg at their terminals x’s facilities serve as hubs connecting multiple modes of transportation such as pipelines trucks barges tankers and railcars involved in transporting crude_oil refined petroleum products and lpg from producing regions to refineries and the resulting refined products from the refineries to their ultimate markets storage capacity is required at such interconnection hubs to facilitate efficient transportation and accommodate supply and demand imbalances within the production transportation and refining systems for example storage tanks are necessary to accept the high volumes and flow rates of products entering x’s facilities via marine vessels and or pipelines and hold the products until they can be fed into other modes of transportation in volumes and flow rates appropriate for such modes of transportation and the customer's demands if no transportation pipeline exists between x’s current terminalling storage and transportation assets and a potential customer's facilities the location from which the customer needs access to x’s terminals or it is otherwise necessary to expand x’s terminalling storage or transportation assets to facilitate a customer's terminalling storage and transportation requests x and the customer may enter into a separate contract under which terminalling storage and transportation facility improvements will be constructed an expansion agreement the terminalling storage and transportation facility improvements may include pipeline interconnects dock expansions or the construction of additional tankage and related manifolds and piping to facilitate additional volumes of crude_oil refined petroleum products and lpg the expansion agreements take several forms but all provide that the customer will ultimately bear some or all of the construction costs in some cases the customer is responsible for constructing the facility improvements and subsequently transfers ownership of the completed improvements to x in other cases the customer will provide x with reimbursement payments to cover x’s construction costs in still other cases the customer will neither construct the improvements nor explicitly pay x for the construction of the improvements but will instead agree to pay a premium for x’s terminalling storage and transportation services through payment of these premiums the customer will eventually reimburse x for some or all of its construction costs in all cases x will ultimately own the terminalling storage and transportation facility improvements constructed pursuant to the expansion agreements x represents that the expansion agreements are integral to x’s terminalling storage and transportation of crude_oil refined petroleum products and lpg plr-140904-12 specifically x represents that each terminalling storage and transportation facility improvement constructed pursuant to an expansion agreement is necessary to facilitate a service relationship and that each customer bears the costs of the terminalling storage and transportation facility improvement in order to induce x to provide it with terminalling storage and transportation services x also represents that the sole purpose of the expansion agreement is to facilitate the terminalling storage and or transportation agreement furthermore x represents that it will only enter into an expansion agreement if it is also entering into a transportation storage and or terminalling agreement with the same customer x seeks a ruling that the amounts it receives from terminalling storage and transportation customers for construction of terminalling storage and transportation facility improvements or receipt of such improvements from customers under the expansion agreements for the terminalling storage and transportation of crude_oil refined petroleum products and lpg will constitute qualifying_income under sec_7704 law and analysis sec_7704 provides that a publicly_traded_partnership shall be treated as a corporation sec_7704 provides that the term publicly_traded_partnership means any partnership if interests in that partnership are traded on an established_securities_market or interests in that partnership are readily_tradable on a secondary market or the substantial equivalent thereof sec_7704 provides that sec_7701 shall not apply to any publicly_traded_partnership for any taxable_year if such partnership met the gross_income requirements of sec_7704 for such taxable_year and each preceding_taxable_year beginning after date during which the partnership or any predecessor was in existence sec_7704 explains that a partnership meets the gross_income requirements of sec_7704 for any taxable_year if percent or more of the gross_income of such partnership for such taxable_year is qualifying_income sec_7704 provides that the term qualifying_income includes income and gains derived from the exploration development mining or production processing refining transportation including pipelines transporting gas oil or products thereof or the marketing of any mineral_or_natural_resource including fertilizer geothermal_energy or timber h_r rep no 100th cong 1st sess 1987_3_cb_193 in discussing passive-type income states as follows plr-140904-12 income of certain partnerships whose exclusive activities are transportation and marketing activities is not treated as passive-type income for example the income of a partnership whose exclusive activity is transporting refined petroleum products by pipeline is intended to be treated as passive-type income but the income of a partnership whose exclusive activities are transporting refined petroleum products by truck or retail marketing with respect to refined petroleum products eg gas station operations is not intended to be treated as passive-type income the scope of passive-type income was later clarified in h_r rep no 100th cong 2d sess ii-17 to ii-18 1988_3_cb_473 which states as follows in the case of transportation activities with respect to oil_and_gas and products thereof the conferees intend that in general income from transportation of oil_and_gas and products thereof to a bulk distribution center such as a terminal or a refinery whether by pipeline truck barge or rail be treated as qualifying_income income from any transportation of oil or gas or products thereof by pipeline is treated as qualifying_income except in the case of pipeline transport however transportation of oil or gas or products thereof to a place from which it is dispensed or sold to retail customers is generally not intended to be treated as qualifying_income solely for this purpose a retail customer does not include a person who acquires the oil or gas for refining or processing or partially refined or processed products thereof for further refining or processing nor does a retail customer include a utility providing power to customers for example income from transporting refined petroleum products by truck to retail customers is not qualifying_income footnote omitted conclusion based solely on the facts submitted and representations made we conclude that the expansion agreements are integral to the transportation of petroleum and related products therefore the amounts x receives from terminalling storage and transportation customers for construction of terminalling storage and transportation facility improvements or receipt of such terminalling storage and transportation facility improvements from customers for the terminalling storage and transportation of petroleum and related products under the expansion agreements constitute qualifying_income within the meaning of sec_7704 except as specifically provided no opinion is expressed or implied as to the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed as to whether x meets the percent gross_income requirement of sec_7704 whether x is a publicly traded plr-140904-12 partnership within the meaning of sec_7704 or whether any other type of income not addressed in this ruling is qualifying_income under sec_7704 this ruling is directed only to the taxpayer requesting it however in the event of a technical_termination of x under sec_708 the resulting_partnership may continue to rely on this ruling in determining its qualifying_income under sec_7704 sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely joy c spies joy c spies senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service national_office technical_advice_memorandum date number release date third party contact none index no control no tam-129267-01 cc psi b8 director area small_business self-employed operating division taxpayer name taxpayer address taxpayer identification no quarters involved date of conference legend taxpayer issue whether amounts attributable to the compaction equipment and top doors of refuse collection vehicles are includable in the tax_base for purposes of determining the tax imposed by sec_4051 of the internal_revenue_code on taxpayer’s sales of the vehicles conclusion the amounts attributable to the compaction equipment and top doors of refuse collection vehicles are includable in determining the tax_base of taxpayer’s vehicles for purposes of the tax imposed by sec_4051 facts taxpayer sold refuse collection vehicles vehicles during the relevant period that included the compaction equipment and top doors at issue a compaction blade assembly is used to compact solid_waste within the vehicle’s body to allow room for additional solid_waste to be loaded the top door functions primarily as a cover over the solid_waste the vehicles were subject_to federal excise_tax at the time of the sale taxpayer filed a claim_for_refund of the portion of the tax attributable to four items including the top door assembly of front door vehicles and the compaction equipment of front side and rear door vehicles the claim was denied by the internal_revenue_service irs law and analysis sec_4051 imposes on the first_retail_sale of certain enumerated articles including in each case the parts or accessories sold on or in connection therewith a tax equal to percent of the article’s sale price included among those articles are truck chassis and bodies the tax does not apply to truck chassis and bodies suitable for use with vehicles having a gross vehicle weight of big_number pounds or less prior to its repeal sec_4061 imposed a percent tax upon a manufacturer's sale of automobile truck chassis and bodies including in each case parts and accessories therefor sold on or in connection therewith or with the sale thereof under the highway revenue act of p l the manufacturers tax was replaced effective date by a percent retail tax imposed by sec_4051 on the first_retail_sale of an automobile truck chassis and body including in each case parts or accessories sold on or in connection therewith or with the sale thereof although the imposition of tax changed from manufacturers to retailers the underlying concepts and interpretations concerning amounts charged for machinery or equipment that is installed on a taxable chassis or body did not change in fact sec_145_4052-1 of the temporary excise_tax regulations under the highway revenue act of provides that for purposes of the tax on heavy trucks and trailers at retail rules similar to those found in sec_48_4061_a_-1 and of the manufacturers and retailers excise_tax regulations shall apply sec_48_4061_a_-1 provides that equipment or machinery installed on a taxable chassis or body is considered to be an integral part of the taxable chassis or body if the machinery or equipment contributes toward the highway transportation function of the chassis or body therefore the amount of the sale price of a taxable chassis or body that is attributable to the machinery or equipment must be included in the tax_base when computing the tax due on a manufacturer's or importer's sale or use of a taxable chassis or body examples of the type of machinery or equipment that contribute to the highway transportation function of a chassis or body are the following loading and unloading equipment towing winches and all other machinery or equipment contributing to either the maintenance or safety of the vehicle the preservation of cargo other than refrigeration units or the comfort or convenience of the driver of passengers sec_48_4061_a_-1 provides that amounts charged for machinery or equipment that is installed on a taxable chassis or body are not part of the taxable sale price of the chassis or body if a the machinery or equipment does not contribute toward the highway transportation function of the chassis or body and b the reasonableness of the charge for the machinery or equipment is supportable by adequate_records examples of such machinery or equipment are the following equipment designed to spread materials on the highway machinery or equipment used solely in the operation of mobile amusement rides television equipment mounted in a mobile television studio machine shop equipment mounted in a mobile machine shop and car crushing equipment mounted on the chassis of a mobile car crusher revrul_68_380 1968_2_cb_490 holds that collection tanks of certain refuse trucks are truck bodies subject_to the manufacturers excise_tax imposed by sec_4061 the hydraulic compactors and the hydraulic drum-dumps attached thereto contribute to the loading function of the bodies thus adding to their utility they are therefore parts or accessories for the bodies and are includable in the tax_base of the bodies revrul_74_47 1974_1_cb_307 provides generally that power take-off systems and their components that are designed to be attached to or used in connection with taxable highway vehicles which add to the utility of the vehicles are taxable parts or accessories under sec_4061 under former sec_4061 tax was imposed on parts or accessories other than tires and inner tubes for any article enumerated in former sec_4061 the ruling states that a power take-off system adds to the utility of a vehicle if it is designed to perform a function relating to the transportation of persons or property over the highway including a function relating to the loading and unloading of the vehicle revrul_78_311 1978_2_cb_260 holds that certain components used in the cleaning operations of certain mobile washing vehicles do not contribute toward the transportation function of the vehicles these include the water heater cleaning and degreasing hose assemblies pressure pump and motor and miscellaneous fittings piping etc that are used only in the cleaning operations because those items do not contribute toward the highway transportation function of the chassis or body the amounts charged for those items are not part of the taxable sales_price of the vehicles provided the reasonableness of the charge for the equipment is supported by adequate_records revrul_79_192 1979_1_cb_340 concerns whether certain street sweeping vehicles and street sweeping mechanisms are subject_to the manufacturers excise_tax on truck chassis and bodies and truck parts or accessories under former sec_4061 an article contributes to the highway transportation or load-carrying function of a vehicle only if it contributes as much or more to the highway transportation function than to the nontransportation function in other words an item that contributes primarily to the nonhighway transportation function of the vehicle is not taxable the ruling holds that items of equipment that lift the sweepings into the vehicle once they have been gathered from the street by brooms are taxable as loading equipment for purposes of sec_4061 and sec_4061 because they do not contribute primarily to the nonhighway transportation function of the vehicle the vacuum equipment water hoses and certain other components of street sweeper vehicles are items that primarily perform the nontransportation function of street cleaning and are excludable from the tax_base revrul_95_40 1995_1_cb_195 holds that the sale of the truck chassis and bodies of vacuum loaders and sewer cleaners and the components of the vehicles that contribute to their highway transportation function are subject_to the retailers excise_tax under sec_4051 the sales of components of the vehicles that do not contribute to their highway transportation function are not subject_to the retailers excise_tax under sec_4051 the director contends that the amounts attributable to the compaction equipment and the top doors are includable in the tax_base because they contribute to the transportation function of the vehicles the irs primarily cites revrul_68_380 and revrul_74_47 in support of this position taxpayer argues that the compaction equipment and the top doors should be excluded from the tax_base because they are merely equipment on the vehicles that do not contribute to the transportation function of the taxable vehicles taxpayer cites various revenue rulings which provide generally that certain equipment can be excluded from the tax_base taxpayer also refers specifically to the example of the car crushing equipment mounted on the chassis of a mobile car crusher mentioned in sec_48_4061_a_-1 above and argues that revrul_68_380 is not controlling the distinction between articles that aid or augment the transportation function and are taxable and those items that are part of the load itself and are not taxable is set forth in sec_48_4061_a_-1 equipment or machinery installed on a taxable chassis or body is considered to be an integral part of the taxable chassis or body if the machinery or equipment contributes toward the highway transportation function of the vehicles the compaction equipment at issue is used to load the vehicle bodies a transportation function it also enables the vehicle to carry more than it would be able to carry without the compaction therefore it adds to the utility of the vehicle in transporting a load over the highways equipment or machinery that contributes to the preservation of cargo also contributes to the highway transportation function of a chassis or body a top door clearly contributes to the preservation of cargo the mobile car crusher referenced in sec_48_4061_a_-1 is not a cargo transporter it is mobile_machinery and the car crusher is the load that is being carried on the vehicle chassis in contrast the compactor equipment at issue contributes to the load carrying function of the taxable vehicle but is not itself the load being carried caveats a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it shall not be used or cited as precedent in accordance with sec_6110 names addresses and other identifying numbers have been deleted