Section

[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.23-6]

[Page 50-54]

TITLE 26--INTERNAL REVENUE

CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY

PART 1--INCOME TAXES--Table of Contents

Sec. 1.23-6 Procedure and criteria for additions to the approved list of energy-conserving components or renewable energy sources.

(a) Procedures for additions to the list of energy-conserving
components or renewable energy sources--(1) In general. A manufacturer
of an item (or a group of manufacturers) desiring to apply for addition
to the approved list of energy-conserving components or renewable energy
sources pursuant to paragraph (d)(4)(viii) or (e)(2) of Sec. 1.23-2
shall submit an application to the Internal Revenue Service, Attention:
Associate Chief Counsel (Technical), CC:C:E, 1111 Constitution Avenue,
NW., Washington, DC 20224. The term ``manufacturer'' includes a person
who assembles an item or a system from components manufactured by other
persons. The application shall provide the information required under
paragraph (b) of this section. An application may request that more than
one item be added to the approved list. It will be the responsibility of
the Office of the Associate Chief Counsel (Technical) upon receipt of
the application to determine whether all the information required under
paragraph (b) of this section has been furnished with the application.
If an application lacks essential information, the applicant will be
advised of the additional information required. If the information (or a
reasonable explanation of the reason why the information cannot be made
available) is not forthcoming within 30 days of the date of that advice,
the application will be closed and the applicant will be so informed.
Any resubmission of information beyond the 30-day period will be treated
as a new application. If the Office of the Associate Chief Counsel
(Technical) already is considering an application with respect to the
same or a similar item, it may consolidate applications. The Office of
the Associate Chief Counsel will make a report and recommendation to the
ad hoc advisory board as to whether each item that is the subject to an
application should be added in accordance with the manufacturer's
request to the approved list of energy-conserving components or
renewable energy

[[Page 51]]

sources in light of the applicable criteria provided in paragraph (c)
and the standards for Secretarial determination provided in paragraph
(d) of this section. In making this recommendation, the Office of the
Associate Chief Counsel shall consult with the Secretary of Energy and
the Secretary of Housing and Urban Development (or their delegates) and
any other appropriate Federal officers to obtain their views concerning
the item in question. In addition, the Office of the Associate Chief
Counsel may request from the manufacturer clarification of information
submitted with the application. The Office of the Associate Chief
Counsel shall report its recommendation and forward the application to
the ad hoc advisory board for further consideration.
(2) Ad hoc advisory board. The Commissioner of Internal Revenue and
the Assistant Secretary (Tax Policy) shall establish an ad hoc advisory
board to consider applications and recommendations forwarded by the
Office of the Associate Chief Counsel (Technical). If a finding in favor
of addition of any item is made, the board shall report its
recommendation and forward the application to the Commissioner for
further consideration. If the item is approved by the Commissioner, the
application will be forwarded to the Secretary (or his delegate) for
further consideration. The application will be closed with respect to an
item if the board, the Commissioner, or the Secretary (or his delegate)
determines that, under the applicable criteria or the standards for
Secretarial determination, the item should not be added to the list of
energy-conserving components or renewable energy sources.
(3) Action on application. (i) A final decision to grant or deny any
application filed under paragraph (a)(1) shall be made within 1 year
after the application and all information required to be filed with such
request under paragraph (b) have been received by the Office of the
Associate Chief Counsel (Technical). The applicant manufacturer shall be
notified in writing of the final decision. In the event of a favorable
determination, a regulation will be issued in accordance with the
procedures contained in Sec. 601.601 to include the item as an energy-
conserving component or as a renewable energy source. A final decision
to grant approval of an application is made when a Treasury decision
adding the item (that is subject of the application) as an energy-
conserving component or as a renewable energy source is published in the
Federal Register.
(ii) The applicant manufacturer shall be entitled to a conference
and be so notified anytime an adverse action is contemplated by the
Office of the Associate Chief Counsel, the ad hoc advisory board, the
Commissioner of Internal Revenue, or the Secretary (or his delegate) and
no conference was previously conducted. Upon being advised in writing
that an adverse recommendation or decision as to any item that is the
subject of an application is contemplated, a manufacturer may request a
conference. The conference must be held within 21 calendar days from the
mailing of that advice. Procedures for requesting an extension of the
21-day period and notifying the manufacturer of the recommendation or
decision with respect to that request are the same as those applicable
to conferences on ruling requests by taxpayers. The applicant is
entitled to only one conference. There is no right to another conference
when a favorable recommendation or decision is reversed at a higher
level.
(iii) A report of any application which has been denied during the
preceding month and the reasons for the denial shall be published each
month.
(b) Contents of application. The application by the manufacturer
shall include the following information:
(1) A description of the item and the generic class to which it
belongs, including any features relating to safe installation and use of
the item. This description shall include appropriate design drawings and
technical specifications (or representative drawings and specifications
when application by a group of manufacturers).
(2) An explanation of the purpose, function, and each recommended
use of the item.
(3) An estimate (and explanation of the estimation methods employed
and the assumptions made) of the total number of units that would be
sold for

[[Page 52]]

each recommended use during the first 4 years following the addition of
the item to the approved list and of the total number that would be sold
for each recommended use during that period in the absence of addition.
If the item is sold in more than one size, the estimate shall indicate
the projected sales for each size. This estimate shall reflect total
industry sales of the item. Past industry sales information for each
recommended use for the previous two years shall also be provided.
(4) Whether sufficient capacity is available to increase production
to meet any increase in demand for the item, or for associated fuels and
materials, caused by such addition. This determination shall be based on
industry-wide data and not just the manufacturing capability of the
applicant. If the applicant has the exclusive right to manufacture the
item, this information shall also be provided in the application.
(5) An estimate (including estimation methods and assumptions) of
the energy in Btu's of oil and natural gas used directly or indirectly
per unit by the applicant in the manufacture of the item and other items
necessary for its use, the type of energy source (e.g., oil, natural
gas, coal, electricity), and the extent of its use in the manufacturing
process of the item. The applicant must also provide a list of the major
components of the item and their composition and weight.
(6) Test data and experience data (where experience data is
available) to substantiate for each recommended use the energy savings
in Btu's that are claimed will be achieved by one unit during a period
of one year. The data shall be obtained by controlled tests in which, if
possible, the addition of the item is the only variable. If the item may
be sold in various configurations, data shall be provided with respect
to energy savings from each configuration with significantly different
energy use characteristics. Test methods are to conform to recognized
industry or government standards. This determination shall take into
account the seasonal use of the item. If the energy savings of the item
varies with climatic conditions, data shall be provided with respect to
each climate zone. The applicant may use the Department of Energy's
climatic zones for heating and cooling (see Sec. 450.35 of 10 CFR part
450 (1980)).
(7) The impact of increased demand on the price of the item and the
energy source used by the item.
(8) The energy source which will be replaced or conserved by the
item, and, in the case of a request for addition to the approved list of
renewable energy sources, data establishing that the energy source is
inexhaustible.
(9) Data to show the total estimated savings of energy in Btu's
attributable to reduced consumption of oil or natural gas whether
directly or indirectly from use of the item, including assumptions
underlying this estimate. If the consumption of both oil and natural gas
will be reduced, data to show the energy savings in Btu's attributable
to each shall be provided. The estimate is to be based on energy savings
in Btu's per unit determined under paragraph (b)(6) of this section for
the first four years of the useful life of the item and is to take into
account only the additional units of the item estimated to be placed in
service as a result of the addition using data obtained under paragraph
(b)(3) of this section. If the item will result in reduction of oil or
natural gas consumption by replacing an item which uses such an energy
source, the application shall indicate the item replaced and the extent
to which this reduction will occur.
(10) Geographical information if required under paragraph (b)(6) of
this section to show the climatic zones of the country where the item is
expected to be used, including an estimate of the total number of
additional units to be placed in service during the first 4 years
following the addition of the item in the area as a result of the
addition of the item to the list of qualifying items.
(11) The retail cost of the item (or items if the item is sold in
more than one size) including all installation costs necessary for safe
and effective use.
(12) Whether the item is designed for residential use.
(13) The estimated useful life of the item and associated equipment
necessary for its use.

[[Page 53]]

(14) The type and amount of waste and emissions in weight per unit
of energy saved resulting from use of the item.
(15) If the item might reasonably be suspected of presenting any
health or safety hazard, test data to show that the item does not
present such hazard.

With respect to applications for addition to the approved list of
renewable energy sources, the term ``item'' as used in this paragraph
refers to the property which uses the energy source and not the energy
source itself. The application should clearly indicate whether the
request is for addition to the approved list of energy-conserving
components or renewable energy sources, identify the provisions for
which data is being submitted, and present the data in the order
requested. The tests required under this paragraph may be conducted by
independent laboratories but the underlying data must be submitted along
with the test results. There shall accompany the request a declaration
in the following form: ``Under penalties of perjury, I declare that I
have examined this application, including accompanying documents, and,
to the best of my knowledge and belief, the facts presented in support
of the application are true, correct and complete.'' The statement must
be signed by the person or persons making the application. The
declaration shall not be made by the taxpayer's representative.
(c) Criteria for additions--(1) Additions to the approved list of
energy-conserving components. For an item to be considered for addition
to the approved list of energy-conserving components, the manufacturer
must show that the item increases the energy efficiency of a dwelling.
For an item to be considered as increasing the energy efficiency of a
dwelling, all of the following criteria must be met:
(i) The use of the item must improve the energy efficiency of the
dwelling structure, structural components of the dwelling, hot water
heating, or heating or cooling systems.
(ii) The use of the item must result, directly or indirectly, in a
significant reduction in the consumption of oil or natural gas.
(iii) The increase in energy efficiency must be established by test
data and in accordance with accepted testing standards.
(iv) The item must not present a safety, fire, environmental, or
health hazard when properly installed.
(2) Additions to the approved list of renewable energy sources. For
an energy source to be considered for addition to the approved list of
renewable energy sources, the manufacturer must show that the following
criteria are met:
(i) As in the case of solar, wind, and geothermal energy, the energy
source must be an inexhaustible energy supply. Accordingly, wood and
agricultural products and by-products are not considered renewable
energy sources. Similarly, no exhaustible or depletable energy source
(such as sources that are depletable under 611) will be considered.
(ii) The energy source must be capable of being used for heating or
cooling a residential dwelling or providing hot water or electricity for
use in such a dwelling.
(iii) A practical working device, machine, or mechanism, etc., must
exist and be commercially available to use such renewable energy source.
(iv) The use of the renewable energy source must not present a
significant safety, fire, environmental, or health hazard.
(d) Standards for Secretarial determination--(1) In general. The
Secretary will not make any addition to the approved list of energy-
conserving components or renewable energy sources unless the Secretary
determines that--
(i) There will be a reduction in the total consumption of oil or
natural gas as a result of the addition, and that reduction is
sufficient to justify any resulting decrease in Federal revenues.
(ii) The addition will not result in an increased use of any item
which is known to be, or reasonably suspected to be, environmentally
hazardous or a threat to public health or safety, and
(iii) Available Federal subsidies do not make the addition
unnecessary or inappropriate (in the light of the most advantageous
allocation of economic resources).

[[Page 54]]

(2) Factors taken into account. In making any determination under
paragraph (d)(1)(i) of this section, the Secretary will--
(i) Make an estimate of the amount by which the addition will reduce
oil and natural gas consumption, and
(ii) Determine whether the addition compares favorably, on the basis
of the reduction in oil and natural gas consumption per dollar of cost
to the Federal Government (including revenue loss), with other Federal
programs in existence or being proposed.
(3) Factors taken into account in making estimates. In making any
estimate under subparagraph (2)(i), the Secretary will take into account
(among other factors)--
(i) The extent to which the use of any item will be increased as a
result of the addition,
(ii) Whether sufficient capacity is available to increase production
to meet any increase in demand for the item or associated fuels and
materials caused by the addition,
(iii) The amount of oil and natural gas used directly or indirectly
in the manufacture of the item and other items necessary for its use,
(iv) The estimated useful life of the item, and
(v) The extent additional use of the item leads, directly or
indirectly, to the reduced use of oil or natural gas. Indirect uses of
oil or natural gas include use of electricity derived from oil or
natural gas.
(e) Effective date of addition to approved lists. In the case of
additions to the approved list of energy-conserving components or
renewable energy sources, the credit allowable by Sec. 1.23-1 shall
apply with respect to expenditures which are made on or after the date a
Treasury decision amending the regulations pursuant to the application
is published in the Federal Register. However, the Secretary may
prescribe by regulations that expenditures for additions made on or
after the date referred to in the preceding sentence and before the
close of the taxable year in which such date occurs shall be taken into
account in the following taxable year. Additions to the list will be
subject to the performance and quality standards (if any) provided under
Sec. 1.23-4 which are in effect at the time of the addition.
Furthermore, any addition made to the approved list will be subject to
reevaluation by the Secretary for the purpose of determining whether the
item still meets the requisite criteria and standards for addition to
the list. If it is determined by the Secretary that an item no longer
meets the requisite criteria, the Secretary will amend the regulations
to delete the item from the approved list. Removal of an item from the
list will be prospective from the date a Treasury decision amending the
regulations is published in the Federal Register.

(Secs. 44C and 7805 of the Internal Revenue Code of 1954 (92 Stat. 3175,
26 U.S.C. 44C; 68A Stat. 917, 26 U.S.C. 7805). The amendments to the
Statement of Procedural Rules are issued under the authority contained
in 5 U.S.C. 301 and 552)

[T.D. 7861, 47 FR 56331, Dec. 16, 1982. Redesignated and amended by T.D.
8146, 52 FR 26673, July 16, 1987]