PLR 200707120: Government biomass project denied bond allocation after funding cap is reached

Plain-English summary

An applicant sought authority to issue Clean Renewable Energy Bonds for an open-loop biomass facility owned by a governmental borrower. IRC § 54 limited the overall allocations to $800 million, with no more than $500 million for governmental borrowers. The allocation procedure prioritized projects seeking the smallest dollar amounts. The IRS denied this application because the governmental cap had already been allocated to applications requesting smaller amounts.

Ruling snapshot

• Question: Could the governmental biomass project receive a CREB allocation after smaller requests exhausted the governmental limit?
• Outcome: Denied because the $500 million governmental allocation limit had been reached.
• Key authorities: IRC § 54(f)(1) and (2); Notice 2005-98, § 6.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200707120
Third Party Communication: None
Release Date: 2/16/2007
Date of Communication: Not Applicable
Index Number: 54.00-00
Person To Contact:

- -----------------------, ID No. -------------

                                                       Telephone Number:

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                                                       Refer Reply To:

                                                       CC:TEGE:EOEG:TEB
                                                       PRESP-149274-06
                                                       Date:
     -
                                                       November 13, 2006

Dear ------------:

This letter is in response to your application for an allocation of authority to issue $-------
----------------in Clean Renewable Energy Bonds (CREBs) under section 54 of the Internal Revenue Code (the “Code”).

Section 54(f)(1) of the Code imposes a Limitation of $800,000,000 on the amount of CREBs which may be issued to finance qualified projects (the “Limitation”). Section 54(f)(2) provides that the Limitation is to be allocated by the Secretary of Treasury in such manner as the Secretary deems appropriate except that no more than
$500,000,000 of the Limitation may be allocated to finance qualified projects of qualified borrowers which are governmental bodies.

Section 6 of Notice 2005-98, 2005-52 I.R.B. 1211, provides that the Limitation will be allocated among qualified projects for which a share of such Limitation has been requested beginning with the project(s) requesting the smallest share (in dollar amount) and continuing with the project(s) requesting the next-smallest share until the total Limitation has been exhausted. However, in the event that $500,000,000 has been allocated to qualified projects of qualified borrowers that are governmental bodies, the remaining shares of the Limitation will be allocated, under the methodology described in the previous sentence, only to qualified projects of qualified borrowers that are not governmental bodies. For purposes of allocating the Limitation among projects, all qualified projects located at the same site and owned by the same qualified borrower are treated as a single project and each project is treated as requesting a single allocation.

An allocation of shares of the Limitation cannot be made with respect to the project owned by the borrower listed in Appendix A because such borrower is a governmental body and $500,000,000 has already been allocated to applications requesting a smaller
PRESP-149274-06
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share of the Limitation to finance qualified projects owned by qualified borrowers that are governmental bodies.

We appreciate your submission of the application for our consideration and encourage you to continue to pursue your plans for constructing a clean renewable energy project.

Sincerely,
Assistant Chief Counsel, (Exempt
Organizations/Employment Tax/Government
Entities)
(Tax Exempt & Government Entities)

By: Timothy L. Jones
Senior Counsel
Tax-Exempt Bonds Branch
PRESP-149274-06
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APPENDIX A

Borrower Name                     Project Type               Project Location   Amount

Requested
1 ------------------------------- Open-loop -------------- $--------------
---------------------
biomass
facility

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