PLR 1035011: IRS approved use of nuclear decommissioning funds for removing replaced components

Plain-English summary

The IRS considered a partnership that owned an interest in a nuclear power plant and had replaced certain plant components while the plant continued operating. The partnership asked whether its nuclear decommissioning funds could pay the costs of removing those components. The IRS ruled that the costs qualified as nuclear decommissioning costs because the components were separate assets, had been permanently removed, and were committed to the decommissioning process. The IRS did not decide whether the costs were currently deductible under § 165 or any other Code section.

Ruling snapshot

• Question: May nuclear decommissioning funds pay the costs of removing replaced components while the plant continues operating?
• Outcome: Approved
• Key authorities: IRC §§ 165, 461, 468A, and 6110; Treas. Reg. §§ 1.468A-1T and 1.468A-7T

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201035011 Third Party Communication: None
Release Date: 9/3/2010 Date of Communication: Not Applicable
Index Number: 468A.01-00 Person To Contact:
------------------------ -------------------------, ID No. ------------
------------------------------------ Telephone Number:
----------------------------- --------------------
---------------------------- Refer Reply To:
---------------------------------- CC:PSI:B6
PLR-151927-09
Date:
May 20, 2010

LEGEND:
Taxpayer = ----------------------------- (EIN: ----------------)
Parent = ----------------------- (EIN: ----------------)
Plant = ------------------------------------------------------------------------------------------

State = --------
x = ---
Location = ---------------------
Funds = --------------------------------------------

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

This letter is in response to your request for a ruling dated --------------------------, under
section 468A of the Code and the regulations thereunder confirming that the nuclear
decommissioning funds that the Taxpayer established for Plant may be used for the
removal of ----------------------- and ---------------------------------------- that have been
replaced while the Plant continues to operate.

Taxpayer represents the facts and information relating to its request for rulings as
follows:

Taxpayer, a partnership indirectly owned entirely by Parent, is engaged in the business
of generating and selling electric power in State. Parent files a consolidated federal
income tax return with its affiliated entities including Taxpayer.

Taxpayer owns an undivided x percent interest in each unit of Plant. Plant is situated at
Location. Taxpayer has incurred costs to remove ----------------------- and --------------------
------------------------------ (collectively components) that previously have been replaced at
Plant. Taxpayer is not in the process of final decommissioning of Plant and the
replacement of the components is meant to extend the life of Plant not to conclude that
life.

PLR-151927-09 2

Each unit at Plant consists of ----------------------- and ---------------------. The ------------------
-------- contains the fuel assemblies that heat and pressurize the water used as the
primary coolant. This water then passes through the ------------------------------, where it
converts a bath of secondary water into --------, which is used to push the -------------------
---------. As the ------------------------------------------------------------------------------------------------
---------------------------. Accordingly, the ----------------------- perform a separate, but
integrated function within each nuclear unit in the production of electricity. Further,
Taxpayer treats the ----------------------- as separate assets for regulatory and financial
accounting purposes.

The ---------------------------- serve a different function from the ------------------------------------
---------------. The ------------------- plays a passive role as the ----------------------- within
which the -----------------------------------------------------------------------. The ------------------------
-------, on the other hand, is a ----------------------------------------------------------------------------

------------------------. Further, the ---------------------------- have a shorter useful life than the
--------------------, as evidenced by the fact that they needed to be replaced while the ------
-------------------- were still in operation. Accordingly, the --------------------------- perform a
separate, but integrated function within each nuclear unit in the production of electricity.
Taxpayer treats the --------------------------- as separate assets for regulatory and financial
accounting purposes.

Law and Analysis:

Section 468A(a) allows owners/operators of nuclear power plants to currently deduct
the future costs of decommissioning a nuclear power plant by making contributions to a
Fund prior to when economic performance occurs.

Section 468A(c)(1) generally requires the owner/operator to include in gross income
amounts that are distributed from a Fund. In addition to any deduction under § 468A(a)
for contributions to a Fund, § 468A(c)(2) recognizes that an owner/operator may deduct
otherwise deductible nuclear decommissioning costs, (such as under § 162), for which
economic performance (within the meaning of § 461(h)) occurs during a taxable year.

Section 1.468A-1T(b)(6) of the temporary Income Tax Regulations provides that the
term “nuclear decommissioning costs” or “decommissioning costs” means all otherwise
deductible expenses 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.
That section further provides that the term nuclear decommissioning costs is defined
broadly to include expenses incurred before, during, and after the actual
decommissioning process of the nuclear power plant that has ceased operations.

PLR-151927-09 3

The costs incurred to remove the components are incurred in connection with the
entombment, decontamination, dismantlement, removal, and disposal of the structures,
systems, and components of a nuclear power plant. The components taken from Plant
are not being reused and are, therefore, irrevocably committed to the process of
decommissioning.

Taxpayer represents that the costs incurred to remove the components are otherwise
currently deductible under § 165(a) because the components are separate assets that
have been permanently removed from Taxpayer’s trade or business. Based upon this
representation and our conclusion that the costs incurred to remove the components
are incurred in connection with the entombment, decontamination, dismantlement,
removal and disposal of the structures, systems and components of a nuclear power
plant, we find that these costs are decommissioning costs within the meaning of
§ 1.468A-1(b)(6). Consequently, Taxpayer may use amounts in its Funds to pay for the
costs incurred to remove the components at Plant.

Except as specifically determined above, no opinion is expressed or implied concerning
the Federal income tax consequences of the transaction described above. Specifically,
no determination is made whether the costs incurred to remove the components are
currently deductible under § 165(a) or any other section of the Code.

This ruling is directed only to the Taxpayer who requested it. Section 6110(k)(3) of the
Code provides 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. We are also sending a copy of this letter ruling to the Director.
Pursuant to § 1.468A-7T(a), a copy of this letter must be attached (with the required
Election Statement) to Taxpayer's federal income tax return for each tax year in which
Taxpayer claims a deduction for payments made to the Fund.

                                   Sincerely,




                                   Peter C. Friedman
                                   Senior Technician Reviewer, Branch 6
                                   (Passthroughs & Special Industries)