PLR 1326003: Refined coal process qualifies for the section 45 credit rules

Plain-English summary

The IRS ruled that the described additive process could produce refined coal eligible for the section 45 credit, subject to the statutory emissions-reduction requirements. The ruling also addressed how feedstock coal from the same source region and of the same rank would be treated during determination periods, approved pilot-scale testing at the research center or similar facilities, and allowed laboratory analysis as an alternative for recurring redeterminations. The conclusions depended on the taxpayer using the process and feedstock as represented and satisfying the applicable requirements of Notice 2010-54. The IRS did not rule on whether the taxpayer had sufficient risks and rewards to be treated as the producer or when the facility was placed in service.

Ruling snapshot

• Question: Did the described additive process, feedstock treatment, and testing methods satisfy the requirements for the refined coal credit under section 45?
• Outcome: Approved
• Key authorities: IRC §§ 45 and 613(c); Notice 2010-54, sections 3.01, 3.03, 3.04, and 6.01 through 6.05

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201326003 Third Party Communication: None
Release Date: 6/28/2013 Date of Communication: Not Applicable
Index Number: 45.00-00
Person To Contact:
--------------------------- -----------------------, ID No. -------------
------------------------------ Telephone Number:
------------------------------------- ---------------------
----------------------------------------------- Refer Reply To:
CC:PSI:B6
PLR-121803-12
Date:
June 17, 2013

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

Company A = ---------------------------------
Company B = ----------------------------------------------------
Company C = -------------------
Company D = ----------------------
Developer = ---------------------------------------------
Mine a = --------------------------------------------
State A = -------------
State B = -------------
State C = --------
City A = ----------------------
Country A -------
Additive 1 = ---------------------
Additive 2 = -------------------------------------
Date 1 = ---------------------- --
Date 2 = ---------------------------
Year 1 = -------
Year 2 = -------
a = ------
b = ------
c = ------
Research Center = --------------------------------------------------------------------------------

Power Plant = -----------------------------------------------
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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 B limited liability company formed by Company A as its a%

member and manager, and by Company B its b% member. Taxpayer is a partnership
for federal income tax purposes. Company A, a State A limited liability company, was
formed in Year 1 to own, manage and operate a number of refined coal ventures (such
as Taxpayer) in cooperation with strategic partners (such as Company B) who host the
refined coal projects. Currently, Company A manages and owns interests in four
refined coal facilities.

   Taxpayer acquired all rights and title to a facility (Refined Coal Facility) at

Company B’s mineral recovery and processing plant in City A. Taxpayer operates the
Refined Coal Facility to produce and sell refined coal to the Company B’s steam power
plant at the site (Power Plant).

 Company B is a wholly-owned affiliate of Company C based in Country A that

produces consumer products.

   Developer is the c% owner of Company A. Developer is a State C limited liability

company treated as a partnership for federal income tax purposes. Developer is a
licensee of a technology (Technology), developed by Company D, which is a process
proven to reduce emissions from coal (primarily NOx, mercury, and metals).

   Technology

   Developer designed the Refined Coal Facility for Taxpayer to utilize Technology

for production of Refined Coal with reduced air emissions. Technology is a patented
process for injection of two chemical sorbents to modify utility-grade coal. The two
chemical additives Additive 1 and Additive 2. These additives reduce emissions of
nitrogen oxide (NOx), mercury (Hg), and other heavy metals when mixed with the coal
at the proper ratios prior to combustion in a boiler furnace.

  Technology provides the chemical structure to create a “ceramic matrix” using

chemical bonds to capture emissions of regulated pollutants. The matrix has a certain
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structure of chemicals in certain positions. At the interior corners of the matrix, the
structure will pick up and hold pollutants such as mercury, arsenic, or lead. The
structure also picks up and includes elements such as oxygen, chlorides and fluorides,
which are freely available in a boiler's gas stream when they have been released from
the coal during combustion but become locked up in the ceramic matrix. As the gas
stream starts to cool, the chemical bonds form into a very strong matrix. Because the
matrix was created under extremely high temperatures, it can only be broken at similar
temperatures.

   When coal is burned, mercury and many other heavy metals, are vaporized in

the combustion process and are emitted into the atmosphere with the flue gas. The
Technology captures mercury and other metals in the coal ash, thereby eliminating
them from the flue gas before the flue gas exits the boiler stack. The mercury and other
metals instead remain entrapped into the ash in a non-leachable form for safe disposal.

    Also, coal combustion produces nitrogen oxide as the fuel is burned under

oxidizing conditions. The levels of NOx produced are a function of many factors
including excess air, fuel nitrogen content, flame temperature, burner configuration, and
combustion air staging. Nitrogen oxides can also be affected by ambient air
temperatures. The Technology provides NOx reductions via several mechanisms,
which include a slight reduction of flame temperature, adsorption of NOx species, and
chemical capturing of NOx species. The primary mechanism appears to involve
adsorption and capture of NOx species within the altered fly ash. This results in a
significant reduction in the NOx species that are released into the air.

   Refined Coal Facility.

  On Date 2, Taxpayer placed in service the Refined Coal Facility to employ

Technology to modify utility-grade coal at the Power Plant site used to generate steam
and power. Taxpayer’s Refined Coal Facility receives utility-grade coal and thoroughly
blends it with Technology. The basic design of the Refined Coal Facility is as follows:

(1) Coal and Technology additives are fed into a blend chamber at the end of a coal belt
conveyor where there is sufficient elevation to allow the coal mixture (feedstock coal
plus chemicals) to enter the top of the blend chamber.

(2) Technology additives are metered onto the coal while the coal is in a suspended
state as it enters the chamber. At this point, the coal is in a thin layer which assists
in assuring uniform blending of the separate components. The momentum of the
falling thin layer of coal, now containing the additives, propels the mixture into an
impact plate in the blend chamber, creating a violent action that instantaneously
comingles the chemicals and coal. The impact of the comingled mixture changes
the direction of the flow and directs the mixture down further into the chamber.
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(3) At this point the mixture is then struck by paddles or hammers (generally rectangular
pieces of hardened steel) attached to a drum which rotates continually inside the
chamber to provide further blending.

(4) The drum rotation channels the mixture to the bottom opening of the chamber
through a metal grid, resulting in a Refined Coal blended and sized to specifications
which is then deposited onto a conveyor for delivery to bunkers that feed the Power
Plant steam boilers.

  Emissions Reduction Testing.

  In Year 1 and Year 2, the feedstock coal used in Taxpayer’s Refined Coal Facility

(Tested Coal) was tested at Research Center. The Research Center is widely
recognized as a leader in developing cleaner, more efficient energy and environmental
technologies for preservation of natural resources such as air, soil, and water. The
Research Center is a high-tech, nonprofit branch of a prominent university.

  The Tested Coal was utility-grade bituminous coal with a specified caloric value.

The Tested Coal was supplied from Mine a, which is the source of the feedstock coal
processed by the Refined Coal Facility at the Power Plant site, and was consistent with
the Power Plant’s coal specifications. Currently, Taxpayer intends to continue
processing coal from Mine a, but Taxpayer may also utilize other coal from mines or
other suppliers. Some of these other coals may be from the same region as Mine a,
and therefore may be of the same source or rank as the Tested Coal even though the
coal may come from a different mine.

   The Research Center conducted a series of pilot-scale tests of the Tested Coal in

it’s combustion test facility (CTF). The Center’s CTF has been extensively used to
research and investigate SOx and NOx emissions, and the transformation of toxic trace
metals (Hg, As, Pb) during the combustion of coal and other fuels. The CTF is capable
of producing gas and particulate samples representative of those produced in industrial
and full-scale pulverized coal-fired boilers, and for testing purposes the facility firing rate
may be set based on a target furnace exit gas temperature simulating the operating
parameters of a specific boiler.

  Test Report, drafted by Research Center, explains that combustion gas analysis

is provided by continuous emissions monitors (CEMs) at two locations: the furnace exit,
which is used to monitor and maintain a specified excess air level for all test periods,
and the outlet of the particulate control device, which is used to assess any air in-
leakage that may have occurred so that emissions of interest sampled at the back end
of the system can be corrected for the dilution caused by the in-leakage. Flue gas
analyses were obtained from the duct at the outlet of the electrostatic precipitator (ESP).
Flue gas mercury measurements were obtained separately by a continuous mercury
monitor located at the flue gas ducting at the exit of the particulate control device. The
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Research Center conducted a series of tests on the Tested Coal feedstock and refined
coal blends, measuring the emissions with these devices.

  Research Center burned the Tested Coal in the CTF under combustion conditions

designed by it to replicate the combustion and other operating conditions of the boilers
at the Power Plant. Research Center tested the emissions of the Tested Coal before
and after treatment with the Technology. The combustion of the Tested Coal after
treatment with the Technology (i.e., Refined Coal) resulted in the following reductions in
NOx and mercury (Hg) emissions:

        Nitrogen Oxides (NOx) Reduction:          26.45%
           Mercury (Hg) Reduction:                 68.63%

   Taxpayer desires to rely on pilot-scale testing, such as the CTF, because

Taxpayer believes it is an accurate methodology of scientifically comparing the
emissions from untreated feedstock coal with the emissions from Refined Coal treated
with Technology under consistent baseline operating conditions. Taxpayer perceives
the pilot-scale test to be more reliable than monitoring systems employed at the Power
Plant because of uncontrolled variables at the Power Plant and the inability to insure
that consistent baseline conditions are established for both the burning of untreated
feedstock coal and Refined Coal.

  In addition, Taxpayer has the ability to measure the mercury (Hg) and sulfur (S)

content of the feedstock coal through laboratory testing. The feedstock coal is shipped
via rail to the Power Plant site. The specifications of the train shipments are tested,
including mercury and sulfur content. Each shipment of coal delivered to the Power
Plant site is sampled and tested to determine its sulfur and mercury content to ensure
that such coal satisfies the specifications of the Power Plant. The delivered coal is then
added to a coal stock pile at the site. Thus, each coal pile is comprised of coal that
meets the specifications required by the Power Plant. Thereafter, Taxpayer purchases
coal from the coal pile, processes this feedstock coal into Refined Coal, and sells the
Refined Coal to Company B. Taxpayer also receives reports of the mercury and sulfur
content of the chemical additives that are applied to the feedstock coal. Therefore,
Taxpayer may elect to implement procedures for laboratory testing to determine the
mercury and sulfur content of the Refined Coal. This procedure could involve
extrapolation from the mercury and sulfur content of each constituent component of the
Refined Coal or Taxpayer and testing the Refined Coal in a lab separately to reliably
determine the mercury and sulfur content of the Refined Coal. If Taxpayer elects to
employ such procedures, it would then average the results of the sulfur and mercury
laboratory analysis testing over a six month period to reliably assess the average
content of mercury and sulfur in the feedstock coal and Refined Coal over that period.

  Taxpayer will continue to conduct pilot-scale tests at Reserach Center or similar

reputable testing centers within every six month period of Refined Coal Facility
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operations unless Taxpayer determines that the analysis of the feedstock coal and
Refined Coal used for a given six month period indicates that the mercury and sulfur
content of both the feedstock coal and the Refined Coal have not changed on average
by more than 10% (plus or minus) from the Tested Coal in the most recent pilot-scale
test. Further, while Taxpayer intends to schedule pilot-scale tests in compliance with
the foregoing, Reserach Center may not always deliver a written report of its CTF test
before the expiration of each six month date, due to Research Center’s internal
procedures for review and processing of its reports. In such cases, Research Center
has agreed that it will provide confirmation (generally via email) verifying the results of
its CTF testing and will thereafter deliver the detailed written report upon its completion.
Despite the fact that the final report may be received after a given six month period,
Taxpayer intends to have the actual pilot-scale tests completed and obtain the results of
tests within each applicable six month period which will be properly certified by a
qualified professional engineer at the Center.

   Rulings Requested

(1) The Refined Coal produced by the Refined Coal Facility constitutes “refined coal”
within the meaning of §45(c)(7) of the Code and may qualify for credit under
§45(e)(8) of the Code upon its sale to “unrelated persons” as defined in §45(e)(4) of
the Code, provided the Refined Coal is produced from feedstock coal that is the
same source or rank as the “Tested Coal” and provided further that the refined coal
satisfies the qualified emission reduction test stated in §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 region and are of the same rank
as the Tested Coal, all feedstock coals that satisfy that criteria shall be treated as
feedstock coal of the same source and rank for purposes of section 6.04 of Notice
2010-54, even though the coals may be from different mines in the region.

(3) Testing by Research Center for qualified emissions reduction as set forth in its test
report satisfies the requirements of Notice 2010-54. Taxpayer may rely on the pilot-
scale testing conducted at the Center to satisfy the qualified emission reduction test
of §45(c)(7)(B) of the Code.

(4) As an alternative to pilot-scale testing every six months, Taxpayer is permitted to
implement testing procedures to satisfy the redetermination requirement of section
6.04 of Notice 2010-54 by laboratory analysis establishing that the sulfur and
mercury content of the feedstock coal and Refined Coal, on average, do not vary by
more than 10% from the sulfur dioxide and mercury content of the feedstock coal
and the Refined Coal used in the most recent determination, in accordance with
section 6.04(2)(b) of the Notice.
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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.

  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
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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
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
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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.”

   With respect to the first issue, the process involves the application of two 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, 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
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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 Refined Coal produced by the Refined Coal Facility constitutes “refined coal”
within the meaning of §45(c)(7) of the Code and may qualify for credit under §45(e)(8)
of the Code upon its sale to “unrelated persons” as defined in §45(e)(4) of the Code,
provided the Refined Coal is produced from feedstock coal that is the same source or
rank as the “Tested Coal” and provided further that the refined coal satisfies the
qualified emission reduction test stated in § 45(c)(7)(B) of the Code.

   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, Taxpayer currently purchases all of its coal from a
single supplier who supplied the Test Coal for the CTF testing. However, it is
anticipated that Taxpayer may also purchase coal from other suppliers within the same
region. Accordingly, we conclude that provided that the feedstock coals used to produce
Refined Coal during any determination period are from the same coal source region and
are of the same rank as the Tested Coal, all feedstock coals that satisfy that criteria
shall be treated as feedstock coal of the same source and rank for purposes of section
6.04 of Notice 2010-54, regardless of the mine from which such feedstock coal is
purchased.
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  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, Taxpayer engaged Research Center to conduct tests at its

CTF to determine the emission reductions associated with burning the refined coal
product compared to the feedstock, which is a permissible method under section 6.04 of
the notice. For purposes of qualifying the refined coal produced at the Refined coal
Facility, Research Center conducted pilot-scale combustion tests at its CTF in its Test
Report on feedstock coal burned at Power Plant. Research Center mixed the coal and
additives in a manner consistent with the mixing that would occur at the Refined Coal
Facility. In Test Report, Research Center conducted tests on feedstock and refined
coal product samples collected from and produced by the Refined Coal Facility.

     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 CTF 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
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the most recent determination that meets the requirements of section 6.03 of Notice
2010-54.

   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.

   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)

cc: