Nuclear facility sale qualifies as an applicable asset acquisition

Plain-English summary

A seller proposed transferring a shut-down nuclear facility, related assets, and a decommissioning trust to a purchaser that would assume the nuclear decommissioning liability. The purchaser would become the regulatory licensee and carry out decommissioning, while trust disbursements would require certifications tied to federal regulatory requirements. The IRS ruled that the transaction is an applicable asset acquisition under section 1060, so the residual allocation rules apply to the acquired assets. The seller's amount realized includes the liabilities assumed by the purchaser, including the decommissioning liability. To the extent that liability is included in the seller's amount realized, the seller may treat it as satisfying economic performance under the cited section 461 regulation.

Ruling snapshot

• Question: How do the applicable-asset-acquisition, amount-realized, and economic-performance rules apply to the nuclear facility sale and assumed decommissioning liability?
• Outcome: Approved, the transaction and liability receive the requested federal tax treatment
• Key authorities: IRC §§ 461, 1060; Treas. Reg. §§ 1.338-6, 1.461-4(d)(5), 1.1060-1

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202449013 Third Party Communication: None
Release Date: 12/6/2024 Date of Communication: Not Applicable
Index Number: 1060.03-00, 461.00-00
Person To Contact:
-------------------------- -----------------------, ID No. -----------------
---------------------------------------------- Telephone Number:
----------------------------------------- -------------------
------------------------------------ Refer Reply To:
------------------------------- CC:CORP:B01
PLR-119074-23
Date:
September 05, 2024

            TY:----------

                                             LEGEND

Seller = --------------------------------------------------------------------------------------
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Purchaser = --------------------------------------------------------------------------------------
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Parent = --------------------------------------------------------------------------------------
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DRE 1 = --------------------------------------------------------------------------------------
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DRE 2 = --------------------------------------------------------------------------------------
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Center = ----------------------------------
Unit 1 = ----------------------------
Unit 2 = -------------------------------------------
Unit 3 = --------------------------------------------------------------------
Unit 4 = ---------------------------------------
Facility = -------------------------------
Entity 1 = ----------------------------
State A = -------------
State B = -------------
State B = ---------------------------------------------------
Commission
State C = -------------
PLR-119074-23 2

Business = --------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
-------------------------------------------------------
Date 1 = --------------------------
Date 2 = ----------------
a = ---
b = ---
c =
d = -----------------
Year 1 = -------
Year 2 = -------
Year 3 = -------
Method = -------------------------------------------
Trustee = ----------------------------------------

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

This letter is in response to your joint letter dated September 26, 2023, and
supplemented by additional letters requesting rulings on certain federal income tax
consequences of a proposed transaction described below. The information submitted in
that request and in later correspondence is summarized below.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayers and accompanied by a penalty of perjury statement
executed by appropriate parties. While this office has not verified any of the materials
submitted in support of the request for rulings, it is subject to verification on
examination.

                                                FACTS

Parent, a State A corporation, indirectly owns a% of the ownership interest in Seller.
Entity 1, a State C limited company owns the remaining b% ownership interest in Seller.

Seller is a State A limited liability company taxed as a partnership for federal income tax
purposes and files its federal income tax return using the accrual method of accounting.
DRE 1, a State A limited liability company, is a wholly owned direct subsidiary of Seller
that is disregarded as an entity separate from Seller for federal income tax purposes (a
“disregarded entity”).

Purchaser, a State A corporation, is a diversified company that is in the nuclear reactor
decommissioning business. Purchaser owns DRE 2, a State A limited liability company
that is disregarded entity of Purchaser.
PLR-119074-23 3

Seller, through DRE 1, owns and operates the Center, which includes Unit 1, Unit 2,
Unit 3, and Unit 4 (collectively, the “Units”), as well as an associated Facility for the
handling and storing of radioactive materials. With respect to the Units, Seller is subject
to the jurisdiction of the Nuclear Regulatory Commission (“NRC”) and the State B
Commission. Unit 2 was shut down in Year 1; Unit 3 was shut down in Year 2, and Unit
4 was shut down in Year 3. In connection with the Transaction, as defined below, Unit 1
was shut down on Date 1. Since being shut down, Unit 2, Unit 3 and Unit 4 have been
maintained in Method, as allowed by the NRC, and Unit 1 has been maintained in a
condition substantially the same as Method while awaiting official designation.

Until Date 1, Seller, through DRE 1, utilized Unit 1 and the Facility in the operation of
Business. Prior to being shut down, Unit, 2, Unit 3, and Unit 4 were also used in the
operation of the Business.

On Date 2, Seller and Purchaser, through DRE 1 and DRE 2 respectively, and the
predecessor of Parent executed an Asset Purchase and Sale Agreement (“Purchase
Agreement”) providing for the acquisition by Purchaser (through DRE 2) of the Center
and associated assets, including the Units and the assets comprising the NDT (as
described below) (“Transaction”). The Purchase Agreement provides that, on the
closing date of the Transaction, Seller will sell, assign, convey, transfer, and deliver to
Purchaser the Center and associated assets in consideration for $c and the assumption
by Purchaser of the associated nuclear decommissioning liability associated with the
Units and the Facility (“NDL”). The Purchase Agreement further required the parties to
treat the Transaction as an asset purchase for U.S. federal income tax purposes.

Purchaser, through DRE 2, (i) intends to become the licensee of the Units as granted by
the NRC and the State B Commission and (ii) expects to perform the decommissioning
of the Units.

Prior to the closing date of the Transaction, Parent will establish a trust fund under the
laws of State C for the exclusive purpose of funding the decommissioning of the Units
and other related uses permitted under NRC and State B Commission regulations
(“NDT”). Parent will transfer approximately $d (the “NDT Amount”) to the NDT. The
NDT Amount has been calculated by Seller and Purchaser (experts in the nuclear
industry and nuclear decommissioning industry respectively) based on the combination
of the most recent decommissioning cost studies for the Units and Facility as well as
funds required to provide spent nuclear fuel management. Furthermore, the NDT
Amount has been accepted by the NRC and State B Commission, which are charged
with ensuring sufficient funds are available to decommission the Units. In order to
receive a disbursement from the NDT, Purchaser must provide to Trustee a certificate
that includes, among other requirements, a description of the nature of the
decommissioning costs to be paid and a statement of compliance with 10 CFR §
50.82(a)(8).
PLR-119074-23 4

The NDT is not a nuclear decommissioning reserve fund as described in section 468A
of the Code. Furthermore, the NDT is not a nonqualified nuclear decommissioning fund
as described in Treas. Reg. § 1.338-6(c)(5)(ii).

                             REPRESENTATIONS

Seller has made the following representations with respect to the Transaction:

1. The NDT is a grantor trust under Section 671 and Seller is the grantor of the
   trust.
2. Seller uses the accrual method of accounting for purposes of Sections 446 and
   461.
3. Tax avoidance is not one of Seller’s principal purposes for the Transaction.
4. The NDT has at all times been maintained in the United States.
5. DRE 1 is an entity disregarded as separate from Seller for U.S. federal income
   tax purposes.

Purchaser has made the following representations with respect to the Transaction:

1. Following the closing of the Transaction, the NDT will be a grantor trust under
   Section 671 and Purchaser will be the grantor of the trust.
2. Following the closing of the Transaction, the NDT will at all times be maintained
   in the United States.
3. The NDT will be utilized solely in a manner consistent with 10 CFR §§
   50.75(h)(1) and 50.82(a)(8).
4. DRE 2 is an entity disregarded as separate from Purchaser for U.S. federal
   income tax purposes.

Seller and Purchaser have jointly made the following representations with respect to the
Transaction:

1. The Center and its associated assets acquired by Purchaser, including the Units,
   are of a character such that goodwill or going concern value could under certain
   circumstances attach to such assets.
2. All assets of the NDT constitute property other than (i) cash and (ii) other Class I
   assets as defined by Treas. Reg. § 1.338-6(b)(1).

                                  RULINGS
   

Based solely on the information submitted and the representations set forth above, we
rule as follows regarding the Transaction:

1. The Transaction is an “applicable asset acquisition” as defined in Treas. Reg. §
   1.1060-1(b) and for purposes of Section 1060 of the Code, and the allocation
   PLR-119074-23 5

    rules provided in Treas. Reg. § 1.1060-1(c) and Section 1.338-6(b) will apply with
    respect to the assets acquired in the Transaction.
   

   2. Seller’s amount realized in connection with the Transaction will include the
      liabilities assumed by Purchaser, including the NDL associated with the Units
      and the Facility.
   3. To the extent that it is included in Seller’s amount realized from the Transaction,
      Seller will be entitled to treat the NDL as satisfying economic performance under
      Treas. Reg. § 1.461-4(d)(5).

                                   CAVEATS
      

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax treatment of the Transaction under any provision of the Code and regulations, or the
tax treatment of any conditions existing at the time of, or effects resulting from, the
Transaction that is not specifically covered by the above rulings.

                           PROCEDURAL STATEMENTS

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that 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 representatives.

A copy of this letter 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 (PLR-
119074-23) of this letter ruling.

                                    Sincerely,


                                    Mark J. Weiss
                                    Mark J. Weiss
                                    Chief, Branch 2
                                    Office of Associate Chief Counsel (Corporate)

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