Determination 200708030: Reduced hydropower bond allocation proposed pending issuer response

Plain-English summary

An issuer sought Clean Renewable Energy Bond authority for a hydropower facility owned by a governmental borrower. The IRS found the project qualified under IRC § 54 but proposed a smaller allocation because the proposed amount and smaller requests would exhaust the governmental borrower limit. The proposal was not a final allocation. The issuer had to accept it in writing or request an amended amount no larger than the proposal by January 2, 2007; without a response, the application would be treated as withdrawn. After a timely response, the IRS would review the application and notify the issuer of a final allocation. Bonds under a final allocation had to be designated for the project and issued by December 31, 2007, while satisfying the other bond rules.

Ruling snapshot

• Question: Could the governmental hydropower project receive its full requested Clean Renewable Energy Bond allocation?
• Outcome: Mixed: full request unavailable; a reduced, nonfinal allocation proposed subject to a timely response.
• Key authorities: IRC § 54(f); Notices 2005-98 and 2006-7.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200708030
Third Party Communication: None
Release Date: 2/23/2007
Date of Communication: Not Applicable
Index Number: 54.00-00
Person To Contact:

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

                                                Telephone Number:

------------------------------------------------- ---------------------

                                                Refer Reply To:

                                                CC:TEGE:EOEG:TEB
                                                PRESP-143375-06
                                                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.

Pursuant to section 54(f)(2) of the Internal Revenue Code (the Code) and Notice 2005- 98, 2005-52 I.R.B. 1211, and after review of your application submitted on April 19, 2006, including supplements thereto, we have determined that the project described in Appendix A attached hereto is qualified for purposes of section 54 and will be owned by
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one or more qualified borrowers. We propose to allocate authority to ------------------------
------------(the Issuer), a qualified issuer under section 54, to issue up to $ ----------- of Clean Renewable Energy Bonds (CREBs) for the project described in Appendix A. An allocation of shares of the Limitation for the entire amount requested for the project cannot be made because the qualified borrower is a governmental body and the proposed allocation combined with other allocations of smaller shares will exhaust the Limitation for governmental bodies. This is not a final allocation and your response to this letter is required to receive authority to issue CREBs. Please respond in writing by January 2, 2007, to inform us whether you accept the proposed allocation.

If you do not accept the proposed allocation, you may submit a written request by January 2, 2007, for a different amount in the form of a request to amend your application. Your request for a different allocation must meet the requirements of Notice 2005-98. Your amended allocation request may not exceed the allocation amount proposed in this letter. If we do not receive a written response by January 2, 2007, we will consider your application to be withdrawn. If we receive a timely response from you, we will review the information provided in your application, including supplements thereto, and notify you of your final allocation.

Bonds issued pursuant to a final allocation must be designated by the Issuer as bonds for purposes of section 54 for the project described in Appendix A up to the amount allocated for such project. Bonds so designated must be issued on or before December 31, 2007. Please be aware that in order for bonds to be CREBs, the applicable requirements of the Code, including without limitation section 54, Notice 2005-98, and Notice 2006-7, 2006-10 I.R.B. 559, must be met. Please note that CREB proceeds may be used to reimburse capital expenditures paid by qualified borrowers for qualified projects only if the provisions of section 54(d)(2)(C) are met.

For purposes of the renewable electricity production credit under section 45 of the Code, no inference may be drawn from this allocation that any project listed in Appendix A is a qualified facility or that electricity to be produced at such project(s) is electricity from a qualified energy resource at a qualified facility within the meaning of section 45.

This determination is directed only to the applicant named above. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any Form 8038-G, Information Return for Tax- Exempt Governmental Obligations, filed for bonds issued pursuant to this allocation.

The allocation contained in this letter is based upon information and representations submitted by the applicant for the CREB allocation 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 application for an allocation, it is subject to verification on examination.
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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.

If you have any questions with respect to this letter, please contact ---------------------------
-------- or ---------------------------- of the Office of Division Counsel/Associate Chief Counsel Tax-Exempt and Government Entities on --------------------- (not a toll-free call).

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

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

Borrower Project Project Location Amount Proposed
Name Type Requested Allocation 1 ----------------- Hydropower ------------------------ $------------- $-----------
----------------- facility --------------- -
-----------