PLR 1322005: IRS approves refined-coal credit treatment for an emissions-reduction process

Plain-English summary

The IRS ruled on a taxpayer's proposed use of chemical additives to produce refined coal for a power plant. The ruling approved treating the resulting fuel as refined coal under section 45, subject to the required coal characteristics and emissions reductions. It also approved specified methods for testing emissions, treating qualifying coal from the same source regions and rank as feedstock, and satisfying recurring redetermination requirements. The IRS further ruled that relocating a qualifying facility or replacing part of it would not create a new placed-in-service date if the original property continued to represent more than 20 percent of the facility's value. The ruling did not address whether the taxpayer was the producer for credit purposes or when the facility was placed in service.

Ruling snapshot

• Question: Would the taxpayer's additive-based fuel, testing methods, and facility changes qualify for the requested section 45 refined-coal credit treatment?
• Outcome: Approved
• Key authorities: IRC §§ 45 and 613; Notice 2010-54; Treas. Reg. § 1.46-3(d); IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201322005 Third Party Communication: None
Release Date: 5/31/2013 Date of Communication: Not Applicable
Index Number: 45.00-00
Person To Contact:
----------------------------- ------------------------, ID No. --------------
---------------------------------- Telephone Number:
---------------------------------------- ----------------------
-------------------------------------------- Refer Reply To:
CC:PSI:B6
PLR-116792-12
Date:
February 25, 2013

LEGEND:
Taxpayer = ----------------------------------------

Company A = ----------------------------------
Company B = -----------------------------------
Company C = ----------------------------------------
Company D = --------------------------------
Company E = ----------------------------------
Company F = ------------------------------------------------------------------
Company G = -----------------------
Company H = ------------------------------------
Location a = ----------------------------
Location b = ------------------
State A = --------------
Additive 1 = ----------------------
Additive 2 = --------------------------------------
Date 1 = ----------------------
Date 2 = ---------------------------
Date 3 = ---------------------------
Dates 4 = ------------------------------------------------
a = -----
b = ---------------
Research Center = --------------------------------------------------------------------------------

Energy Center = --------------------------------------
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Test Report = --------------------------------------------------------------------------------
---------------------------------------------------------------------------------
---------------------

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:

BACKGROUND

   Taxpayer is a State A limited liability company that is a disregarded entity for

federal tax purposes. Taxpayer is a calendar year taxpayer and employs the accrual
method of accounting for both book and tax purposes. The sole member of Taxpayer is
Company A, a State A limited liability company.

   Company A is a wholly-owned subsidiary of Company B and has elected to be

taxable as a corporation for federal tax purposes, effective Date 1. Company B is
wholly owned by Company C, which is wholly owned by Company D. Company B is
engaged in the business of developing and managing various energy-related projects
throughout the United States, including backup power generation projects, power-house
operations, cogeneration facilities, coke batteries, and similar energy-related projects.
Company D is the holding company for a number of operating companies engaged in
energy-related businesses. Company D is also the parent company of Company E, a
regulated public electric utility. Other subsidiaries of Company D sell coal and coal
transportation services throughout the United States. Company D and its affiliates are
calendar-year taxpayers and employ the accrual method of accounting for book and tax
purposes.

The Facilities

    Taxpayer constructed a facility consisting of two parallel, independent production

lines (each individually, a Facility and collectively, the Facilities) that are designed to
produce refined coal (Product). The Facilities are located at Energy Center. Company
F owns and operates Energy Center. Energy Center is composed of one coal-fired
generating unit with an electric generating capacity of approximately a megawatts.
Energy Center consumes approximately b tons of coal a year. All of the Product is used
as a fuel at Energy Center to produce steam for the generation of electricity.

    Taxpayer contracted with a contractor to design, engineer and construct the

Facilities, certain material handling equipment, and a building to enclose the Facilities
and equipment. Mechanical Completion of the Facilities was achieved on Date 2.
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Taxpayer assumed care, custody and control of the Facilities from the contractor on that
same day. Mechanical Completion included the completion of all mechanical and
electrical equipment necessary to the operation of the Facilities for the production of
refined coal. After a brief start-up and testing period, the Facilities began production of
the Product on Date 3.
.
Process and Feedstock

    The process for production of refined coal currently employed at the Facilities

involves the mixing of proprietary chemicals (additives) with feedstock coal prior to
combustion (the Process). The patent for the Process is owned by Company G and is
licensed to Taxpayer. Test results described herein have shown that when mixed with
coal, the proprietary additives result in reduced NOX, SO2 and mercury emissions during
combustion. Different chemicals are targeted at specific pollutants. Based on the
characteristics of the feedstock coal burned at the DCEC, Taxpayer has chosen a
combination of additives that target the reduction of NOX and mercury. In the case of
NOX, Taxpayer understands that Additive 1 is believed to cause 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 mercury, Taxpayer understands that Additive 2 is believed to react with the
elemental mercury in the feedstock coal so that it is converted into a chemical species
of mercury (mercury oxide) that can be effectively captured by particulate control
devices.

Emissions Reduction Testing

     Company C engaged Research Center to conduct tests on behalf of Taxpayer at

its pilot-scale combustion furnace (CTF) to determine the emission reductions
associated with burning the Product compared to the feedstock coal.

   Company C has been working with Research Center for several years in order to

investigate and understand the ability of the additives to reduce emissions. The
Research Center report described below states:

   For purposes of qualifying the Product produced at the Facilities, Research

Center conducted several pilot-scale combustion tests at its CTF. Specifically,
Research Center conducted tests on four blends of feedstock coals of the type typically
burned at the Energy Center (90% Location a/10% Location b; 85% Location a/15%
Location b; 75% Location a/25% Location b; and 65% Location a/35% Location b).
Because the Facilities were not yet operational at the time of that test, Research Center
reports that it mixed the coal and additives in a manner consistent with the mixing that
would occur at the Facilities.

   The Test Report states that each of the four test results indicate that the refined

coal samples achieved the required reductions in both NOX and total mercury emissions
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(both determined on a lb/Btu basis) to satisfy the requirements of at least 20% NOX
reduction and at least 40% mercury reduction. Test Report states that it is “expected
that qualifying emissions reductions reported would be achieved at full scale when
utilizing [the additive levels tested] to produce the refined coal for all Location a-Location
b blends containing at least 65% Location a subbituminous coal.”

Tested Coal

   Energy Center currently burns a blend of subbituminous coal from a number of

mines in the Location a and bituminous coal from Location b. Energy Center uses a
blend of Location a and Location b coals to generate electricity and Taxpayer intends to
produce the Product using a blend of Location a and Location b coals. Variations in the
coal blend result from the supply and availability of the Location a and Location b coals
and the needs of Energy Center.

   Company C requested that Research Center test blends of Location a and

Location b coal that represent the range of Location a and Location b coal blends to be
used by Taxpayer to produce Product that will be burned to produce steam at Energy
Center. The coal blend contains at least 65% Location a and no more than 35%
Location b coal. Accordingly, Research Center tested a 90% Location a coal/10%
Location b coal blend, a 85% Location a coal/15% Location b coal blend, a 75%
Location a coal/25% Location b coal blend and a 65% Location a coal/35% Location b
coal blend. In each case, Research Center states that the refined coal produce with
each coal blend met the required emission reduction requirements when compared to
the feedstock coal. The Test Report states that it is “expected that qualifying emissions
reductions reported would be achieved at full scale when utilizing [the additive levels
tested] to produce the refined coal for all Location a and Location b blends containing at
least 65% Location a subbituminous coal.” Accordingly, for purposes of this ruling
request, the term “Tested Coal” refers to a blend of coals containing at least 65%
Location a and no more than 35% Location b coal.

   Taxpayer expects to continue to operate with the blends and additive levels

discussed in the Test Report, which would be consistent with long-term patterns for coal
consumed by the Energy Center. If so, samples will be taken for redetermination
testing within six months after the last emissions test satisfying the qualified emission
reduction requirement. Thereafter, within six months after such date, another set of
samples will be taken for redetermination testing. In each case, samples of feedstock
and samples of refined coal will be obtained from the Facilities using automatic
samplers. Initially, Taxpayer will collect and test samples from each Facility and test
each set of samples separately. If the testing results from both samples demonstrate
satisfaction of the qualified emission reduction requirement and substantially similar
results, Taxpayer plans to collect samples for redetermination testing alternating
between the two Facilities. This sampling and testing procedure is intended to satisfy
the six-month redetermination requirement set forth in section 6.04 of Notice 2010-54.
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   Although Taxpayer does not currently anticipate making changes to its coal

feedstock or additive levels, additional testing will be conducted prior to (i) adding coal
from any other coal rank to the Facilities’ coal feedstock mix, (ii) changing the
percentages of the coal feedstock blend (i.e., using less than 65% Location a coal or
more than 35% Location b coal in the Location a/Location b coal blend), or (iii) changing
the minimum levels of additives. Such testing will include testing of samples at the
endpoints of the new coal feedstock blend and at intermediate blends between the
endpoints, as the qualified expert advises is necessary to conclude that a qualified
emissions reduction would be expected for any combination within the limits of the
blend. In the case of a change in additive levels, tests will also be run at the new
minimum levels of additive as the qualified expert advises is necessary to conclude that
a qualified emissions reduction will be expected for the new levels of additive.

  In addition, in the future, Taxpayer may collect and test composite samples of

feedstock and Product to determine the sulfur and mercury content of the samples. If
such samples are collected, a rolling six-month average of the laboratory analyses
would be computed to determine whether there has been a change of the sulfur or
mercury content by more than ten percent.

Agreements

  Under the Company G license agreement, Company G granted a license to

Taxpayer to use the Process. The term of the Company G license agreement is
through the date that the Section 45 tax credit is no longer available for the Facilities’
production unless earlier terminated for cause as set forth in the Company G license
agreement.

    Taxpayer has entered into various agreements with Company F with respect to

the installation and operation of the Facilities at a portion of the Energy Center site
(Site).
Taxpayer has the right to place the Facilities on the Site pursuant to a license
and services agreement. That agreement provides Taxpayer with the rights necessary
to place the Facilities at the Site as well as support services, such as utility connections,
necessary to operate the Facilities. In addition, the agreement allows taxpayer to
operate the Facilities under certain permits and approvals issued to Company F.

   Taxpayer has entered into a coal handling and consulting agreement with

Company F under which Company F provides certain coal preparation and handling
services. In addition, because of Company F’s expertise in the coal markets, Company
F assists and advises Taxpayer in procuring coal and transportation services under the
coal handling and consulting agreement.
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  Taxpayer has entered into a refined coal supply agreement with Company F

under which Company F purchases all of its requirements for coal and coal-based fuel
from Taxpayer.

     Taxpayer has entered into an operation and maintenance agreement with an

affiliate of Company D to operate and maintain the Facilities. In addition, such affiliate
has entered into another operation and maintenance agreement with Company H to
provide the labor necessary for the operation and maintenance of the Facilities.

  Taxpayer entered into a coal feedstock purchase agreement with company F

under which Taxpayer will purchase the coal feedstock for the Facilities from Company
F.

Rulings Requested

1. The refined coal produced by using the Process constitutes “refined coal” within the
   meaning of section 45(c)(7) of the Code, provided that such refined coal is from
   feedstock coal that is the same rank as the “Tested Coal” and provided further that the
   refined coal satisfies the qualified emission reduction test stated in section 45(c)(7)(B) of
   the Code.

2. Provided that 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 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 6.04 of Notice
   2010-54, 2010-40 I.R.B. 403, regardless of the mine from which such feedstock coal is
   purchased.

3. Testing by Research Center for qualified emissions reduction as set forth in its test
   reports satisfies the requirements of Notice 2010-54. Pilot scale testing conducted at
   Research Center or a similar pilot-scale combustion testing facility under Notice 2010-
   54 (and subsequent permitted laboratory testing as required for a redetermination
   described in section 6.04(2)(a) or (b) of Notice 2010-54) to satisfy the qualified emission
   reduction test of section 45(c)(7)(B) of the Code may be relied.

4. Pursuant to section 6.04(2)(b) of Notice 2010-54, the redetermination requirement of
   section 6.04 of Notice 2010-54 may be satisfied by laboratory analysis establishing that
   the sulfur and mercury content of both the feedstock coal and the refined coal, on
   average, do not vary by more than ten percent from the sulfur and mercury content of
   the feedstock coal and the refined coal used in the most recent determination that
   meets the requirements of section 6.03 of Notice 2010-54.
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5. Provided a Facility was “placed-in-service” prior to January 1, 2012 within the
   meaning of section 45(d)(8), relocation of a Facility to a different location or replacement
   of a part of a Facility will not result in a new placed-in-service date for purposes of
   section 45 provided that the fair market value of the original property is more than 20
   percent of the Facility’s total fair market value at the time of relocation.

LAW AND RATIONALE

Process and testing of refined coal

     Section 45(a) 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. Section 45(e)(8) of the Code provides that, in the case of a
producer of “refined coal”, the credit available under § 45(a) of the Code for any taxable
year shall be increased by an amount equal to $4.375 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
is (ii) sold by the taxpayer to an unrelated person during such 10-year period and such
taxable year.

    For purposes of § 45 of the Code, section 3.01 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 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 3.04 of the Notice
provides that the term “qualified emission reduction” means (1) in the case of refined
coal produced at a facility placed in service after December 31, 2008, a reduction of at
least twenty percent (20%) of the emissions of nitrogen oxide and at least 40% 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 January 1, 2003; in
the case of production at a facility placed in service before January 1, 2009, a reduction
of at least 20 percent of the emissions of NOx and at least 20 percent of the emissions
of either SO2 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 January 1, 2003.

  Section 45(d)(8) of the Code generally provides that the term “refined coal

production facility” means a facility which is placed in service after October 22, 2004
and before January 1, 2010.
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    Section 6.01 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 § 613(c)(2), (3), (4)(A), (4)(C), or (4)(I)) 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 and are actually applied by a taxpayer in any part of the
taxpayer’s process of producing refined coal from coal.

    Section 613(c)(5) of the Code describes treatment processes that are not

considered as mining unless they are provided for in § 613(c)(4) or any necessary or
incidental to a process provided for in § 613(c)(4). Any cleaning process, such as a
process that uses ash separation, dewatering, scrubbing though 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 removed
free water, provided such drying does not change the physical or chemical identity of
the coal, will be considered as mining.

    Section 6.03(1) of the Notice provides, in part, that emissions reduction may be

determined using continuous emission monitoring system (CEMS) field testing. Section
6.03(1)(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
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 3 hours
during which the boiler is operating at a steady state at least 90 percent of full load. (v) a
qualified individual verifies the test results in a manner that satisfies the requirement of
section 6.03(1)(b).

    Section 6.03(2) of the Notice provides that methods other than CEMS field

testing may be used to determine the emissions reduction. If a method other than
CEMS field testing is used, the Service may require the taxpayer to provide additional
proof that the emission reduction has been achieved. The permissible methods include
(a) testing using a demonstration pilot-scale combustion furnace if it established that the
method accurately measures the emission reduction that would be achieved in a boiler
described in section 6.03(a)(a)(i) and a qualified individual verifies the test results in a
manner that satisfies the requirements of section 6.03(1)(c)(i), (ii), (v), and (vi) of the
Notice; (b) a laboratory analysis of the feedstock coal and the refined coal that complies
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with a currently applicable EPA or ASTM standard and is permitted under section
6.03(2)(b)(i) or (ii).

     Section 6.04(1) of the Notice provides that a taxpayer may establish that a

qualified emission reduction determined under section 6.03 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 feedstock coal that occurs after
the date of such determination 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 6.04(2) 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 6.04 must use a method that
meets the requirements of section 6.03. In any other case, the redetermination
requirement may be satisfied by laboratory analysis establishing that – (a) the sulfur (S)
or mercury content of the amount of refined coal necessary to produce an amount of
useful energy has been reduced by at least 20 percent (40 percent, in the case of
facilities placed in service after December 31, 2008) in comparison to the S 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; (b) the S or mercury content of both the feedstock coal and the
refined coal do not vary by more than 10 percent from the S and mercury content of the
feedstock coal and refined coal used in the most recent determination that meets the
requirements of the Notice.

    Finally, section 6.05 of the Notice provides that the certification requirement of

section 3.01(1)(c) of the Notice is satisfied with respect to fuel for which the refined coal
credit is claimed only if the taxpayer attached to its tax return on which the credit is
claimed a certification that contains the following: (a) a statement that the fuel will result
in a qualified emissions reduction when used in the production of steam; (b) a statement
indicating whether CEMS field testing was used to determine the emissions reduction;
(3) if CEMS field testing was not used to determine the emissions reduction, a
description of the method used; (4) 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 feedstock coal used or in
the process of producing refined coal from the feedstock coal since the emissions
reduction was determined or was most recently determined; and (5) 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.”
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Addition or improvement to an existing facility

     Section 45(d)(8) of the Code 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 steel industry fuel, the facility (or any modification to the
facility) must be placed in service before January 1, 2012. 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 October 22, 2004, and before January 1, 2012.
Section 3.07 of the Notice provides that the year in which property is placed in service is
determined under the principles of § 1.46-3(d) of the regulations; i.e., when the property
is placed in a condition or state of readiness and availability for a specifically assigned
function. Section 5.02 of the Notice provides that a refined coal production facility will
not be treated as placed in service after October 22, 2004, if more than 20 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 October 22, 2004. 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 issue, the Process starts with several chemical additives

added to the feedstock coal prior to its combustion in a furnace. The additives provide
the chemical structure that result in the reduction of emissions from NOx, SO2 and
mercury during combustion. Section 6.01 of the Notice provides generally that a
qualified emission reduction does not include any reduction attributable to mining
processes or processes that would be treated as mining, as further defined in the Code,
if performed by the mine owner or operator. Section 613(c)(5) describes certain
treatment processes that are not considered as mining unless they are provided for in
§ 613(c)(4) or are necessary or incidental to a process provide for in § 613(c)(4) of the
Code. For example, § 6.01(2) of the Notice provides, in part, that any cleaning process
such as the application of liquid hydrocarbons or alcohol to the surface of the fuel
particle or to the feed slurry, provided such cleaning does not change the physical or
chemical structure of the coal, will be considered mining. In the instant case, the
Process is not a mining process. Further, section 3.01 of the Notice clarifies § 45(c)(7)
of the Code and specifically provides that refined coal includes feedstock coal mixed
with an additive or additives. Thus, additive processes which mix certain chemicals or
other additives with the coal in order to achieve emission reductions may qualify for the
production tax credit for refined coal. Additionally, section 3.03 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 the coal produced by using the Process constitutes “refined coal” within the
meaning of § 45(c)(7) 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 § 45(c)(7)(B) of the Code .
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    With respect to the second issue, the emissions profile of the refined coal product

is compared to the emissions profile of either the feedstock coal or a comparable coal
predominantly available in the market place as of January 1, 2003. Section 3.03 of the
Notice provides that a “comparable coal” is defined 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. Section 6.04 provides that a determination or redetermination of a
qualified emissions reduction is valid until the occurrence of the earliest of the following
events: (1) six months have passed since the date of such determination or
redetermination; (2) a change in the source or rank of feedstock coal that occurs after
the date of such determination or redetermination; or (3) a change in the process of
producing refined coal that occurs after the date of such determination or
redetermination. In the instant case, Research Center has tested various blends of
Location A and Location B coals (ranging from 100% location A to 65 Location
A/35%Location B coals). Accordingly, we conclude that provided that the feedstock
coals during any determination period are from the same coal source regions and of the
same rank as Tested Coal, all feedstock coal that satisfies that criteria shall be treated
as feedstock coal of the same source or rank for purposes of section 6.04 of Notice
2010-54, regardless of the mine from which such feedstock coal is purchased.

   With respect to the third and fourth issues, section 6.03(3) of the Notice provides

that any permissible testing method provided for in the Notice can be used in emission
testing for any pollutant. That is, a taxpayer can use different testing methods for each
of NOx, SO2 or mercury, provided the method used for any pollutant is a permissible
method. Section 6.04(1) 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.
Section 6.04(2) provides that in the context of “redetermination” that the redetermination
requirement may be satisfied by laboratory analysis establishing either that (i) 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 20% (40%, in the case of facilities placed in
service after December 31, 2008) in comparison to the sulfur or mercury content of the
amount of useful thermal energy, excluding any dilution used by materials combined or
added during the production process; or (ii) the sulfur or mercury content of both the
feedstock coal and the refined coal do not vary by more than 10% from the sulfur or
mercury content of the feedstock coal and refined coal used in the most recent
determination that meets the requirements of the testing methods for emissions
reductions in section 6.03 of the Notice.

  In the instant case, Company C engaged Research Center to conduct test at its

CTF to determine the emission reductions associated with burning the refined coal
product compared to the feedstock. For purposes of qualifying the refined coal
produced at the Facilities, Research Center conducted pilot-scale combustion tests at
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its CTF in its Test Report on the blend of feedstock coals burned at Energy Center.
Because the Facilities were not yet in service, Research Center mixed the coal and
additives in a manner consistent with the mixing that would occur at the Facilities. In
Test Report, Research Center conducted tests on feedstock and refined coal product
samples collected from and produced by the Facilities.

   In Test Report, the Research Center reported that the test results indicated that

the blend of coal and additives achieved the required emissions reductions. The test
results in Test Report indicated that the refined coal samples achieved the required
emissions reductions. Based on the foregoing we conclude that (i) testing by Research
Center for qualified emission reductions as set forth in its Test Report satisfies the
requirements of Notice 2010-54. Taxpayer may establish a qualified emission reduction
through testing by Research Center at its combustion research facility or similar pilot-
scale combustion testing facilities under Notice 2010-54, and (ii) pursuant to section
6.04(2) of Notice 2010-54, the redetermination requirement of section 6.04 of Notice
2010-54 may be satisfied by laboratory analysis establishing that the sulfur and mercury
content of both the feedstock coal and the refined coal, on average, do not vary by more
than ten percent from the sulfur and mercury content of the feedstock coal and the
refined coal used in the most recent determination that meets the requirements of
section 6.03 of Notice 2010-54.

    With respect to the fifth issue, we understand that a Facility may be relocated to

another location in the future. In that case, all of the essential components of the
Facility will be relocated and retained. Similarly, during the life of Facility it may be
necessary to replace certain major components. In the event of relocation of a Facility
or replacement of a component, there should be no change in the placed in service date
of a Facility so long as the test described in § 5.02 of the Notice has been met. Based
on the foregoing, we conclude that provided a Facility was “placed in service” prior to
January 1, 2012, within the meaning of § 45(d)(8), relocation of a Facility to a different
location after December 31, 2011, or replacement of part of a Facility after that date, will
not result in a new placed in service date for a Facility for purposes of § 45 provided the
fair market value of the original property is more that 20 percent of Facility’s total fair
market value at the time of relocation.

    This ruling expresses no opinion about any issue not specifically addressed in

this ruling letter, including (1) whether any person has sold refined coal to an unrelated
person, or (2) when the facility was "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.
 13
PLR-116792-12

    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. Section 6110(k)(3)

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 6
                                  Office of Associate Chief Counsel (Passthroughs
                                  & Special Industries)