PLR 1022014: Nuclear decommissioning fund preserved through a corporate restructuring and spin-off

Plain-English summary

The IRS ruled that a qualified nuclear decommissioning fund would remain qualified after a series of corporate restructuring steps, a contribution of a subsidiary, and a spin-off. The ruling covered the fund’s continued qualification under IRC § 468A, nonrecognition of gain or loss for the fund and specified corporations, and preservation of the fund assets’ basis. The IRS also ruled that the fund would not be treated as making or receiving a taxable distribution or contribution merely because of the qualifying transfers. The conclusions depended on the taxpayer’s stated facts and representations, and the IRS expressed no opinion on other tax consequences.

Ruling snapshot

• Question: Would the proposed restructuring, contribution, and spin-off disqualify the qualified nuclear decommissioning fund or change the tax treatment of its assets?
• Outcome: Approved
• Key authorities: IRC § 468A; Treas. Reg. § 1.468A-6T

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201022014
Release Date: 6/4/2010
Index Number: 468A.04-02 Person To Contact:
----------------------- ID No. -----------------
Telephone Number:

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

------------------------------------------------------------- Refer Reply To:
--------------------------- CC:PSI:B06 – PLR-143472-09
-------------------------- Date:
-------------------------------- February 19, 2010

Legend:

Parent = -------------------------------
------------------------

Company A = --------------------------------------------------
------------------------

Company B = ----------------------------------------------------------------------
------------------------

Company C = -----------------------------------------------

Taxpayer = -----------------------------------------

State A = -------------

Plant = ----------------------------------

Location = ------------------------------------

Commission A = -------------------------------------------

Commission B = -----------------------------------------------------

a = ------
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Director = ---------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------

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

   This letter responds to your request for private letter ruling dated

September 28, 2009. You requested that we rule on certain tax consequences, under
section 468A of the Internal Revenue Code, of the restructuring discussed below.

Facts:

    Taxpayer has represented the following facts and information relating to the

ruling request:

   Parent, a corporation organized in State A, is the parent of an affiliated group of

subsidiary corporations. Taxpayer, also organized in State A, is wholly-owned by
Parent and is a member of the affiliated group. Company A, a corporation formed in
State A, is wholly-owned by Parent and is also a member of the affiliated group.
Company B, a limited liability company (LLC) organized under the laws of State A and
wholly-owned by Company A, has elected to be treated as a corporation for federal
income tax purposes. Company C, an LLC disregarded for federal income tax
purposes, is wholly-owned by Company B.

   Company B, through the disregarded Company C, is the owner of Plant. Plant is

a nuclear power plant located at Location. Company B (through and including the
disregarded Company C) is subject to the jurisdiction of Commission A with regard to
the operation and maintenance of Plant, and to the jurisdiction of Commission B with
regard to the rates charged to wholesale customers for electricity produced by Plant.
Company B (through and including the disregarded Company C) maintains a nuclear
decommissioning trust that is qualified under § 468A (QDT) with respect to Plant.

    Parent will undertake a series of transactions which it labels as the restructuring

steps, the contribution, and the spin-off. For the restructuring steps, Company B will
elect to be treated as a disregarded entitly, which Taxpayer represents will be treated as
a complete liquidation of Company B into its parent, Company A, pursuant to § 332.
Subsequently, Company A will convert, under the laws of State A, into an LLC and will
change its name to Company A, LLC. Company A, LLC will elect to be disregarded for
federal tax purposes and will be wholly-owned by Parent. Taxpayer represents that the
conversion of Company A will be treated as a complete liquidation of Company A into
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PLR-143472-09

Parent pursuant to § 332. As a result of these transactions, Plant, as well as its QDT
will be owned, for federal tax purposes, by Parent.

   Following the restructuring steps described above, Parent will contribute

Company A, LLC, to Taxpayer in exchange solely for common stock and securities of
Taxpayer in a transaction represented by Taxpayer to be under §§ 361 and
368(a)(1)(D). As a result of this contribution, Plant, as well as its QDT will be owned, for
federal tax purposes, by Taxpayer.

    Immediately following the transactions described above, Parent will commence a

spin-off. The form of the spin-off will be a declaration of a dividend by Parent to its
shareholders. A pro-rata distribution of at least a% of the stock of Taxpayer will be
made to shareholders of Parent. The remaining shares of Taxpayer will be distributed
to a trust, the trustee of which is obligated to distribute these shares to shareholders of
Parent as set forth in the trust instruments.

   Taxpayer has requested the following rulings:

   Requested Ruling #1: The QDT will not be disqualified by reason of the
   restructuring transfers described above.

   Requested Ruling #2: The QDT will continue to be treated as satisfying the
   requirements of § 468A and § 1.468A-6T of the temporary Income Tax
   Regulations after the restructuring transfers described above.

   Requested Ruling #3: The QDT will not recognize any gain or loss or otherwise
   take any income or deduction into account by reason of the restructuring
   transfers.

   Requested Ruling #4: Neither Parent, Company A, nor Company B will be
   required to recognize gain or loss or take any income or deduction into account
   as a result of the transfers of the QDT as a result of the restructuring.

   Requested Ruling #5: Pursuant to § 1.468A-6T(c), the basis of the QDT assets
   will be unchanged by the transfers resulting from the restructuring.

   Requested Ruling #6: The QDT will not be disqualified by reason of the transfers
   resulting from the contribution to Taxpayer and the spin-off described above.

   Requested Ruling #7: The QDT will continue to be treated as a QDT that
   satisfies the requirements of § 468A and § 1.468A-6T of the temporary Income

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PLR-143472-09

  Tax Regulations after the transfers resulting from the contribution to Taxpayer
  and the spin-off described above.

  Requested Ruling #8: The QDT will not recognize any gain or loss or otherwise
  take any income or deduction into account by reason of the transfers resulting
  from the contribution to Taxpayer and the spin-off described above.

  Requested Ruling #9: Neither Parent nor Taxpayer will be required to recognize
  any gain or loss or take any income or deduction into account as a result of the

  transfers of the QDT as a result of the contribution to Taxpayer or the spin-off
  described above.

  Requested Ruling #10: Pursuant to § 1.468A-6T(c), the basis of the QDT’s
  assets will be unchanged as a result of the transfers resulting from the
  contribution to Taxpayer and the spin-off described above.

Law and Analysis:

    Section 468A(a) of the Code provides that a taxpayer may elect to deduct

payments made to a nuclear decommissioning reserve fund that meets the
requirements of section 468A (i.e. a fund that is a "qualified nuclear decommissioning
fund").

  Section 468A(c)(1) provides that any amount distributed from a qualified nuclear

decommissioning fund during any taxable year is includible in the taxable income of the
taxpayer for that year.

    Section 468A(c)(2) provides that, in addition to contributions to a qualified

nuclear decommissioning fund that are deductible under § 468A(a), there is allowable
as a deduction the amount of “nuclear decommissioning costs” with respect to which
economic performance occurs (within the meaning of § 461(h)(2)) during the taxable
year. Nuclear decommissioning costs are defined in § 1.468A-1T(b)(6) as all otherwise
deductible expenses to be incurred in connection with the entombment,
decontamination, dismantlement, removal, and disposal of the structures, systems, and
components of a nuclear power plant that has permanently ceased the production of
electric energy. This term includes all otherwise deductible expenses to be incurred in
connection with the preparation for decommissioning, such as engineering and other
planning expenses, and all otherwise deductible expenses. Such term does not include
otherwise deductible expenses to be incurred in connection with the disposal of spent
nuclear fuel under the Nuclear Waste Policy Act of 1982 (Public Law 97-425). An
expense is considered “otherwise deductible” for purposes of § 1.468A-1T(b)(6) if it
would be deductible under Chapter 1 of the Code without regard to § 280B.
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PLR-143472-09

  Section 468A(e)(5) provides that, for purposes of section 4951, a qualified

nuclear decommissioning fund is treated as a trust described in section 501(c)(21).

   Section 1.468A-1T(b)(4) provides that a "qualified nuclear decommissioning

fund" is a fund that satisfies the requirements of section 1.468A-5T.

   Section 1.468A-5T(a) sets out the qualification requirements for nuclear

decommissioning funds. It provides, in part, that a qualified nuclear decommissioning
fund must be established and maintained pursuant to an arrangement that qualifies as a
trust under state law.

  Section 1.468A-5T(a)(1)(iii) provides that an electing taxpayer can establish and

maintain only one qualified nuclear decommissioning fund for each nuclear power plant.

   Section 1.468A-6T provides rules applicable to the transfer of an interest in a

nuclear power plant (and transfer of the qualified nuclear decommissioning fund) where
certain requirements are met. For purposes of § 1.468A-6T, a nuclear power plant
includes a plant that previously qualified as a nuclear power plant and that has
permanently ceased to produce electricity.

  Section 1.468A-6T(b) provides that section 1.468A-6T applies if--

  (1) Immediately before the disposition, the transferor maintained a qualified

nuclear decommissioning fund with respect to the interest disposed of; and

  (2) Immediately after the disposition--

         (i) The transferee maintains a qualified nuclear decommissioning fund with
         respect to the interest acquired;

         (ii) The interest acquired is a qualifying interest of the transferee in the
         nuclear power plant;

  (3) In connection with the disposition, either—

         (i) The transferee acquires part or all of the transferor’s qualifying interest
         in the plant and a proportionate amount of the assets of the transferor’s
         fund is transferred to a fund of the transferee; or

         (ii) The transferee acquires the transferor’s entire qualifying interest in the
         plant and the transferor’s entire fund is transferred to the transferee; and

PLR-143472-09 6

   (4) The transferee continues to satisfy the requirements of § 1.468A-5T(a)(1)(iii),
   which permits an electing taxpayer to maintain only one qualified nuclear
   decommissioning fund for each plant.

   Section 1.468A-6T(c) provides that a disposition that satisfies the requirements

of section 1.468A-6T(b) will have the following tax consequences at the time it occurs:

    (1) Neither the transferor nor the transferor’s qualified nuclear decommissioning

fund will recognize gain or loss or otherwise take any income into account by reason of
the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear
decommissioning fund to the transferee’s qualified nuclear decommissioning fund (or by
reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund
to the transferee). For purposes of the regulations under section 468A, this transfer (or
the transfer of the transferor’s qualified nuclear decommissioning fund) will not be
considered a distribution of assets by the transferor’s qualified nuclear decommissioning
fund.

    (2) Neither the transferee nor the transferee’s qualified nuclear decommissioning

fund will recognize gain or loss or otherwise take any income into account by reason of
the transfer of a proportionate amount of the assets of the transferor’s qualified nuclear
decommissioning fund to the transferee’s qualified nuclear decommissioning fund (or by
reason of the transfer of the transferor’s entire qualified nuclear decommissioning fund
to the transferee). For purposes of the regulations under section 468A, this transfer (or
the transfer of the transferor’s qualified nuclear decommissioning fund) will not
constitute a payment or a contribution of assets by the transferee to its qualified nuclear
decommissioning fund.

    (3) Transfers of assets of a qualified nuclear decommissioning fund to which this

section applies do not affect basis. Thus, the transferee’s qualified nuclear
decommissioning fund will have a basis in the assets received from the transferor’s
qualified nuclear decommissioning fund that is the same as the basis of those assets in
the transferor’s qualified nuclear decommissioning fund immediately before the
distribution.

   Under section 1.468A-6T(f), the Service may treat any disposition of an interest

in a nuclear power plant as satisfying the requirements of the regulations if the Service
determines that such treatment is necessary or appropriate to carry out the purposes of
section 468A.

Conclusions:

  Based on the information submitted by Taxpayer, we reach the following

conclusions:
PLR-143472-09 7

   Ruling #1: The QDT will not be disqualified by reason of the restructuring
   transfers described above.

   Ruling #2: The QDT will continue to be treated as satisfying the requirements of
   § 468A and § 1.468A-6T of the temporary Income Tax Regulations after the
   restructuring transfers described above.

   Ruling #3: The QDT will not recognize any gain or loss or otherwise take any
   income or deduction into account by reason of the restructuring transfers.

   Ruling #4: Neither Parent, Company A, nor Company B will be required to
   recognize gain or loss or take any income or deduction into account as a result of
   the transfers of the QDT as a result of the restructuring.

   Ruling #5: Pursuant to § 1.468A-6T(c), the basis of the QDT assets will be
   unchanged by the transfers resulting from the restructuring.

   Ruling #6: The QDT will not be disqualified by reason of the transfers resulting
   from the contribution to Taxpayer and the spin-off described above.

   Ruling #7: The QDT will continue to be treated as a QDT that satisfies the
   requirements of § 468A and § 1.468A-6T of the temporary Income Tax
   Regulations after the transfers resulting from the contribution to Taxpayer and
   the spin-off described above.

   Ruling #8: The QDT will not recognize any gain or loss or otherwise take any
   income or deduction into account by reason of the transfers resulting from the
   contribution to Taxpayer and the spin-off described above.

   Ruling #9: Neither Parent nor Taxpayer will be required to recognize any gain or
   loss or take any income or deduction into account as a result of the transfers of
   the QDT as a result of the contribution to Taxpayer or the spin-off described
   above.

   Ruling #10: Pursuant to § 1.468A-6T(c), the basis of the QDT’s assets will be
   unchanged as a result of the transfers resulting from the contribution to Taxpayer
   and the spin-off described above.

    While it owns a qualified interest in Plant, Taxpayer is eligible to maintain the

qualified nuclear decommissioning fund.

    Except as specifically determined above, no opinion is expressed or implied

concerning the Federal income tax consequences of the transaction described above.
In particular, we express no opinion on the tax results of either the restructuring,
PLR-143472-09 8

contribution, or spinoff described above under any section of the Code other than §
468A.

  This letter ruling is directed only to the taxpayer that requested it. Section

6110(k)(3) provides that this ruling may not be used or cited as precedent.

  In accordance with the power of attorney on file with this office, we are sending a

copy of this letter to Taxpayer’s authorized representatives. We are also sending a
copy of this letter ruling to Director.

                                      Sincerely,


                                      PETER C. FRIEDMAN
                                      Senior Technician Reviewer, Branch 6
                                      Office of Associate Chief Counsel
                                      Passthroughs and Special Industries

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