[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)]
[Proposed Rules]
[Pages 95929-95932]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31205]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-112800-16]
RIN 1545-BN42


Nuclear Decommissioning Funds

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document provides proposed changes to the regulations 
under section 468A of the Internal Revenue Code of 1986 (Code) relating 
to deductions for contributions to trusts maintained for 
decommissioning nuclear power plants and the use of the amounts in 
those trusts to decommission nuclear plants. The proposed regulations 
revise certain provisions to: Address issues that have arisen as more 
nuclear plants have begun the decommissioning process; and clarify 
provisions in the current regulations regarding self-dealing and the 
definition of substantial completion of decommissioning.

DATES: Written or electronic comments and requests for a public hearing 
must be received by March 29, 2017.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-112800-16), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
112800-16), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically, via the Federal 
eRulemaking Portal at http://www.regulations.gov/ (IRS REG-112800-16).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Jennifer 
C. Bernardini, (202) 317-6853; concerning submissions and to request a 
hearing, Regina Johnson, (202) 317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    There is no new collection of information contained in this notice 
of proposed rulemaking. The collection of information contained in the 
regulations under section 468A has been reviewed and approved by the 
Office of Management and Budget in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-
2091. Responses to these collections of information are required to 
obtain a tax benefit.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by section 6103 of 
the Code.

Background

    This proposed rulemaking consists of several amendments to the 
existing regulations under section 468A. Section 468A was originally 
enacted by section

[[Page 95930]]

91(c)(1) of the Deficit Reduction Act of 1984, Public Law 98-369, (98 
Stat 604) and has been amended, most recently by section 1310 of the 
Energy Policy Act of 2005, Public Law 109-58 (119 Stat 594). Temporary 
regulations (TD 9374) under section 468A were published in the Federal 
Register for December 31, 2007 (72 FR 74175). Regulations finalizing 
and removing the temporary regulations (TD 9512) were published in the 
Federal Register on December 23, 2010 (75 FR 80697).

Explanation of Provisions

1. Definition of Nuclear Decommissioning Costs

A. Inclusion of Amounts Related to the Storage of Spent Fuel Within 
Definition of Nuclear Decommissioning Costs

    Section 468A is intended to allow taxpayers to currently deduct 
amounts set aside in a qualified fund (Fund) for the purpose of 
decommissioning a nuclear power plant. The taxpayer must include the 
amount of any actual or deemed distribution from the Fund in gross 
income in the year of the distribution, as provided in Sec.  1.468A-
2(d)(1). Taxpayers may then claim an offsetting deduction for amounts 
spent on decommissioning costs as determined under section 461(h) and 
other sections. See Sec.  1.468A-2(e).
    Taxpayers that operate nuclear power plants, whether such plants 
are currently operating or have ceased operations, must safely store 
spent fuel. Nuclear fuel assemblies are removed from the reactor and 
those assemblies are stored in a spent fuel pool for cooling. 
Subsequently, the spent fuel may be inserted into storage casks and the 
casks transferred to an on-site Independent Spent Fuel Storage 
Installation (ISFSI). An ISFSI consists of a concrete storage pad on 
which the storage casks are placed. Although the Nuclear Waste Policy 
Act of 1982, 42 U.S.C. 10101, et seq, requires the Department of Energy 
(DOE) to take and dispose of spent nuclear fuel in a permanent geologic 
repository, no such repository has been established and the government 
has not yet begun accepting spent fuel. Thus, operators of nuclear 
power plants must safely store spent fuel in an on-site ISFSI.
    Existing Sec.  1.468A-1(b)(6) defines nuclear decommissioning costs 
as including ``all otherwise deductible expenses to be incurred in 
connection with'' the disposal of certain nuclear assets. Section 
1.468A-1(b)(6) continues that ``such term also includes costs incurred 
in connection with the construction, operation, and ultimate 
decommissioning of a facility used solely to store, pending acceptance 
by the government for permanent storage or disposal, spent nuclear fuel 
generated by the nuclear power plant or plants located on the same site 
as the storage facility.'' The Treasury Department and the IRS have 
become aware that there are questions regarding whether ISFSI-related 
costs for the construction or purchase of assets that would not 
necessarily qualify as ``otherwise deductible'' expenses under the 
current regulation are included as nuclear decommissioning costs. The 
proposed regulations clarify the definition of nuclear decommissioning 
costs to specifically provide for ISFSI-related costs.

B. Inclusion of Amounts for Purchase or Construction of a Depreciable 
Asset as Part of Decommissioning Process Within Definition of Nuclear 
Decommissioning Costs

    Under the existing regulations, questions have arisen as to whether 
a cost must be currently deductible for that amount to be payable 
currently from the Fund under the ``otherwise deductible'' language of 
Sec.  1.468A-1(b)(6). For example, where a depreciable asset is 
purchased or constructed as part of the decommissioning process (and 
the asset is not considered abandoned) questions have arisen regarding 
whether the ``otherwise deductible'' language is satisfied solely by 
the fact that the property is depreciable or whether the expense is 
treated as a deductible decommissioning expense only to the extent that 
depreciation is currently allowed. This raises a timing issue regarding 
whether a fund may pay for the purchase or construction of a 
depreciable asset to be used in decommissioning that is not considered 
abandoned when completed. Under the present regulations, because the 
asset would be fully depreciable but the cost of the asset is not 
otherwise deductible, a fund may only pay for the portion of the 
depreciation allowable in the tax year in which such property is placed 
in service. The intent of section 468A is to allow owners of nuclear 
power plants to put amounts in a Fund on a tax-free basis and then to 
use those amounts and the earnings on those amounts to pay for 
decommissioning. In order to effectuate that intent, the proposed 
regulations broaden the definition of nuclear decommissioning costs to 
include the total cost of depreciable assets by adding the words ``or 
recoverable through depreciation'' following ``otherwise deductible'' 
in Sec.  1.468A-1(b)(6).
2. Clarification of the Applicability of the Self-Dealing Rules to 
Transactions Between the Fund and Related Parties
    Section 4951 imposes an excise tax on acts of self-dealing between 
a ``disqualified person'' and a trust described in section 501(c)(21). 
Section 468A(e)(5) provides that, under regulations prescribed by the 
Secretary, for purposes of section 4951, the Fund shall be treated in 
the same manner as a trust described in section 501(c)(21). Section 
1.468A-5(b)(1) states that the excise taxes imposed by section 4951 
apply to each act of self-dealing between the Fund and a disqualified 
person. Section 1.468A-5(b)(2) defines ``self-dealing,'' for purposes 
of Sec.  1.468A-5(b), as any act described in section 4951(d), but 
provides for some exclusions, including a payment by a Fund for the 
purpose of satisfying, in whole or in part, the liability of the 
taxpayer who has elected section 468A and established a Fund (electing 
taxpayer) for decommissioning costs of the nuclear power plant to which 
the Fund relates. Section 1.468A-5(b)(3), by reference to section 
4951(e)(4) and Sec.  53.4951-1(d), provides that the term 
``disqualified person'' includes, with respect to a trust, a 
contributor to the trust and a trustee of the trust.
    The IRS has issued several private letter rulings holding that a 
reimbursement to an electing taxpayer or an unrelated party by a Fund 
of decommissioning costs, such as severance payments and pre-
dismantlement decommissioning costs, is made for the purpose of 
satisfying the liability of the electing taxpayer for decommissioning 
costs of the nuclear power plant to which the Fund relates and 
therefore is not self-dealing. Thus, under these rulings, the 
reimbursement by a Fund of these costs represents a permissible use of 
the Funds. To remove any lingering uncertainty, as well as to avoid the 
burden on taxpayers of filing additional ruling requests on these 
issues, the proposed regulations clarify that reimbursements of 
decommissioning costs by the Fund to related parties (including the 
electing taxpayer) that paid such costs are not an act of self-dealing. 
However, no amount beyond what is actually paid by the related party, 
including amounts such as direct or indirect overhead or a reasonable 
profit element, may be included in the reimbursement by the Fund.
3. Definition of ``Substantial Completion'' in Sec.  1.468A-5(d)(3)(i)
    Existing Sec.  1.468A-5(d)(3)(i) defines the substantial completion 
date as ``the

[[Page 95931]]

date that the maximum acceptable radioactivity levels mandated by the 
Nuclear Regulatory Commission [NRC] with respect to a decommissioned 
nuclear power plant are satisfied.'' However, Sec.  1.468A-5(d)(3)(ii) 
provides that, if a significant portion of the total estimated 
decommissioning costs are not incurred on or before the substantial 
completion date, the electing taxpayer may request a ruling that 
designates a date subsequent to the substantial completion date as the 
termination date; such later date may be no later than the last day of 
the third taxable year after the taxable year that includes the 
substantial completion date. Under certain state and local 
requirements, the plant operator must return the site of the plant to 
conditions requiring time beyond that needed to reach the maximum 
radioactivity level mandated by the NRC. To accommodate these 
situations without requiring that the taxpayer request a ruling, the 
proposed regulations amend the definition of ``substantial completion'' 
to the date on which all Federal, state, local, and contractual 
decommissioning liabilities are fully satisfied.

Proposed Effective/Applicability Date

    The rules contained in these regulations are proposed to apply to 
taxable years ending on or after the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register. Notwithstanding the prospective effective date, the 
IRS will not challenge return positions consistent with these proposed 
regulations for taxable years ending on or after the date these 
proposed regulations are published.

Special Analyses

    Certain IRS regulations, including these, are exempt from the 
requirements of Executive Order 12866, as supplemented and affirmed by 
Executive Order 13563. Therefore, a regulatory assessment is not 
required. It is hereby certified that these regulations will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based on (1) the fact that the rules in these 
proposed regulations primarily affect owners of nuclear power plants 
which are not small entities as defined by the Regulatory Flexibility 
Act (5 U.S.C. 601) and (2) the proposed regulations do not impose a 
collection of information on small entities. Accordingly, a Regulatory 
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. 
601) is not required. We request comment on the accuracy of this 
certification. Pursuant to section 7805(f) of the Code, these 
regulations have been submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comment on their impact on small 
business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronically generated comments that are 
submitted timely to the IRS. The Treasury Department and the IRS 
generally request comments on the clarity of the proposed rule and how 
it may be made easier to understand. All comments will be available for 
public inspection and copying. A public hearing may be scheduled if 
requested in writing by a person who timely submits comments. If a 
public hearing is scheduled, notice of the date, time, and place for 
the hearing will be published in the Federal Register.

Drafting Information

    The principal author of these regulations is Jennifer C. 
Bernardini, Office of Associate Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

0
Par. 2. Section Sec.  1.468A-1 is amended by revising paragraph (b)(6) 
to read as follows:


Sec.  1.468A-1  Nuclear decommissioning costs; general rules.

* * * * *
    (b) * * *
    (6)(i) The term nuclear decommissioning costs or decommissioning 
costs includes all otherwise deductible expenses to be incurred in 
connection with the entombment, decontamination, dismantlement, removal 
and disposal of the structures, systems and components of a nuclear 
power plant, whether that nuclear power plant will continue to produce 
electric energy or has permanently ceased to produce electric energy. 
Such term includes all otherwise deductible expenses to be incurred in 
connection with the preparation for decommissioning, such as 
engineering and other planning expenses, and all otherwise deductible 
expenses to be incurred with respect to the plant after the actual 
decommissioning occurs, such as physical security and radiation 
monitoring expenses. An expense is otherwise deductible for purposes of 
this paragraph (b)(6) if it would be deductible or recoverable through 
depreciation or amortization under chapter 1 of the Internal Revenue 
Code without regard to section 280B.
    (ii) The term nuclear decommissioning costs or decommissioning 
costs also includes costs incurred in connection with the construction, 
operation, and ultimate decommissioning of a facility used solely to 
store, pending delivery to a permanent repository or disposal, spent 
nuclear fuel generated by the nuclear power plant or plants located on 
the same site as the storage facility (for example, an Independent 
Spent Fuel Storage Installation). Such term does not include otherwise 
deductible expenses to be incurred in connection with the disposal of 
spent nuclear fuel under the Nuclear Waste Policy Act of 1982 (Pub. L. 
97-425).
* * * * *
0
Par. 3. Paragraph Sec.  1.468A-5 is amended by revising the heading and 
paragraphs (b)(2)(i) and (d)(3)(i) to read as follows:


Sec.  1.468A-5  Nuclear decommissioning fund--miscellaneous provisions.

* * * * *
    (b) * * *
    (2) * * *
    (i) A payment by a nuclear decommissioning fund for the purpose of 
satisfying, in whole or in part, the liability of the electing taxpayer 
for decommissioning costs of the nuclear power plant to which the 
nuclear decommissioning fund relates, whether such payment is made to 
an unrelated party in satisfaction of the decommissioning liability or 
to the plant operator or other otherwise disqualified person as 
reimbursement solely for actual expenses paid by such person in 
satisfaction of the decommissioning liability;
* * * * *
    (d) * * *
    (3) * * *
    (i) The substantial completion of the decommissioning of a nuclear 
power

[[Page 95932]]

plant occurs on the date on which all Federal, state, local, and 
contractual decommissioning requirements are fully satisfied (the 
substantial completion date). Except as otherwise provided in paragraph 
(d)(3)(ii) of this section, the substantial completion date is also the 
termination date.
* * * * *

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-31205 Filed 12-28-16; 8:45 am]
BILLING CODE 4830-01-P