[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.468A-2]

[Page 338-342]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.468A-2  Treatment of electing taxpayer.

    (a) In general. An eligible taxpayer that elects the application of 
section 468A pursuant to the rules contained in Sec. 1.468A-7 (an 
``electing taxpayer'') is allowed a deduction for the taxable year in 
which the taxpayer makes a cash payment (or is deemed to make a cash 
payment as provided in paragraph (c) of this section ) to a nuclear 
decommissioning fund. The amount of the deduction for any taxable year 
equals the total amount of cash payments made (or deemed made) by the 
electing taxpayer to a nuclear decommissioning fund (or nuclear 
decommissioning funds) during such taxable year. A payment may not be 
made (or deemed made) to a nuclear decommissioning fund before the first 
taxable year in which all of the following conditions are satisfied:
    (1) The construction of the nuclear power plant to which the nuclear 
decommissioning fund relates has commenced.
    (2) Nuclear decommissioning costs of the nuclear power plant to 
which the nuclear decommissioning fund relates are included in the 
taxpayer's cost of service for ratemaking purposes (see paragraph (b) of 
this section).
    (3) A ruling amount is applicable to the nuclear decommissioning 
fund (see Sec. 1.468A-3).
    (b) Limitation on payments to a nuclear decommissioning fund--(1) In 
general. For purposes of paragraph (a) of this section, the maximum 
amount of cash payments made (or deemed made) to a nuclear 
decommissioning fund during

[[Page 339]]

any taxable year shall not exceed the lesser of:
    (i) The cost of service amount applicable to the nuclear 
decommissioning fund for such taxable year (as defined in paragraph 
(b)(2) of this section); or
    (ii) The ruling amount applicable to the nuclear decommissioning 
fund for such taxable year (as determined under Sec. 1.468A-3).

If the amount of cash payments made (or deemed made) to a nuclear 
decommissioning fund during any taxable year exceeds the limitation of 
this paragraph (b)(1), the excess is not deductible by the electing 
taxpayer. In addition, see paragraph (c) of Sec. 1.468A-5 for rules 
which provide that the Internal Revenue Service may disqualify a nuclear 
decommissioning fund if the amount of cash payments made (or deemed 
made) to a nuclear decommissioning fund during any taxable year exceeds 
the limitation of this paragraph (b)(1).
    (2) Cost of service amount. (i) For purposes of section 468A and the 
regulations thereunder, the ``cost of service amount applicable to a 
nuclear decommissioning fund for a taxable year'' is the amount of 
decommissioning costs included in the electing taxpayer's cost of 
service for ratemaking purposes for such taxable year. Decommissioning 
costs are included in cost of service for a taxable year only to the 
extent such costs are directly or indirectly charged to customers of the 
taxpayer by reason of electric energy consumed during such taxable year 
or are otherwise required to be included in the taxpayer's income under 
section 88 and the regulations thereunder.
    (ii) Except as otherwise provided in paragraph (b)(4)(i) of Sec. 
1.468A-8 (relating to a special transitional rule), decommissioning 
costs shall generally not be considered included in cost of service for 
purposes of this section unless--
    (A) The order or opinion of the applicable public utility commission 
identifies the amount of decommissioning costs that is included in cost 
of service for ratemaking purposes; or
    (B) The written records of the ratemaking proceeding clearly and 
unambiguously indicate the amount of decommissioning costs that is 
included in cost of service for ratemaking purposes.
    (iii) Except as otherwise provided in paragraph (f)(2) of this 
section (relating to a special rule that applies to certain retroactive 
adjustments to interim rate orders), orders or opinions of a public 
utility commission that are issued after the close of any taxable year 
shall not be considered in determining the amount of decommissioning 
costs included in cost of service for such taxable year.
    (iv) If a taxpayer possesses a qualifying interest in two or more 
nuclear power plants that are the subject of a single ratemaking 
proceeding, the amount of decommissioning costs included in cost of 
service pursuant to such ratemaking proceeding must be allocated among 
such nuclear power plants. Such allocation must be reasonable and 
consistent, and must take into account the assumptions and 
determinations, if any, used by the public utility commission in 
establishing or approving the amount of decommissioning costs included 
in cost of service.
    (c) Deemed payment rules. (1) The amount of any cash payment made by 
an electing taxpayer to a nuclear decommissioning fund on or before the 
15th day of the third calendar month after the close of any taxable year 
(the ``deemed payment deadline date'') shall be deemed made during such 
taxable year if the electing taxpayer irrevocably designates the amount 
as relating to such taxable year on its timely filed Federal income tax 
return for such taxable year (see paragraph (b)(4)(iv) of Sec. 1.468A-7 
for rules relating to such designation).
    (2) The amount of any cash payment made by a customer of an electing 
taxpayer to a nuclear decommissioning fund of such electing taxpayer 
shall be deemed made by the electing taxpayer if the amount is included 
in the gross income of the electing taxpayer in the manner prescribed by 
section 88 and Sec. 1.88-1.
    (d) Treatment of distributions--(1) In general. Except as otherwise 
provided in paragraph (d)(2) of this section, the amount of any actual 
or deemed distribution from a nuclear decommissioning fund shall be 
included in the

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gross income of the electing taxpayer for the taxable year in which the 
distribution occurs. The amount of any distribution of property equals 
the fair market value of the property on the date of the distribution. A 
distribution from a nuclear decommissioning fund shall include an 
expenditure from the fund or the use of the fund's assets--
    (i) To satisfy, in whole or in part, the liability of the electing 
taxpayer for decommissioning costs of the nuclear power plant to which 
the fund relates; and
    (ii) To pay administrative costs and other incidental expenses of 
the fund.
    See paragraphs (c) and (d) of Sec. 1.468A-5 for rules relating to 
the deemed distribution of the assets of a nuclear decommissioning fund 
in the case of a disqualification or termination of the fund.
    (2) Exceptions to inclusion in gross income--(i) Payment of 
administrative costs and incidental expenses. The amount of any payment 
by a nuclear decommissioning fund for administrative costs or other 
incidental expenses of such fund (as defined in paragraph (a)(3)(ii) of 
Sec. 1.468A-5) shall not be included in the gross income of the 
electing taxpayer unless such amount is paid to the electing taxpayer 
(in which case the amount of the payment is included in the gross income 
of the electing taxpayer under section 61).
    (ii) Withdrawals of excess contributions. The amount of a withdrawal 
of an excess contribution (as defined in paragraph (c)(2)(ii) of Sec. 
1.468A-5) by an electing taxpayer pursuant to the rules of paragraph 
(c)(2) of Sec. 1.468A-5 shall not be included in the gross income of 
the electing taxpayer. See paragraph (b)(1) of this section, which 
provides that the payment of such amount to the nuclear decommissioning 
fund is not deductible by the electing taxpayer.
    (iii) Actual distributions of amounts included in gross income as 
deemed distributions. If the amount of a deemed distribution is included 
in the gross income of the electing taxpayer for the taxable year in 
which the deemed distribution occurs, no further amount is required to 
be included in gross income when the amount of the deemed distribution 
is actually distributed by the nuclear decommissioning fund. The amount 
of a deemed distribution is actually distributed by a nuclear 
decommissioning fund as the first actual distributions are made by the 
nuclear decommissioning fund on or after the date of the deemed 
distribution.
    (e) Deduction when economic performance occurs. An electing taxpayer 
using an accrual method of accounting is allowed a deduction for nuclear 
decommissioning costs no earlier than the taxable year in which economic 
performance occurs with respect to such costs (see section 461 (h)(2)). 
The amount of nuclear decommissioning costs that is deductible under 
this paragraph (e) is determined without regard to section 280B (see 
paragraph (b)(5) of Sec. 1.468A-1). A deduction is allowed under this 
paragraph (e) whether or not a deduction was allowed with respect to 
such costs under section 468A(a) and paragraph (a) of this section for 
an earlier taxable year (see paragraph (a)(2) of Sec. 1.468A-8, 
however, for the effective date applicable to this paragraph (e)).
    (f) Effect of interim rate orders and retroactive adjustments to 
such orders--(1) In general. (i) The amount of decommissioning costs 
included in cost of service for any taxable year that ends before the 
date of a retroactive adjustment to an interim rate order or interim 
determination of a public utility commission shall include amounts 
authorized pursuant to such interim rate order or interim determination 
unless a taxpayer elects the application of paragraph (f)(2) of this 
section for such taxable year. For purposes of this paragraph (f), a 
retroactive adjustment occurs on the effective date of the revised rate 
schedule that implements the retroactive adjustment.
    (ii) If a retroactive adjustment to an interim rate order or interim 
determination reduces the amount of decommissioning costs included in 
cost of service for one or more taxable years ending before the date of 
the adjustment, the amount of such reduction must be subtracted from the 
amount of decommissioning costs included in cost of service (as 
determined under paragraph (b)(2) of this section) for one or more 
taxable years ending on or after the date of the adjustment. For this

[[Page 341]]

purpose, the amount of such reduction must be taken into account in the 
following manner:
    (A) If the retroactive adjustment reduces the amount of 
decommissioning costs included in cost of service for one taxable year 
ending before the date of the adjustment, the total amount of the 
reduction must be taken into account for the taxable year that includes 
the date of the adjustment.
    (B) If the retroactive adjustment reduces the amount of 
decommissioning costs included in cost of service for two taxable years 
ending before the date of the adjustment, at least one-half of the total 
amount of the reduction must be taken into account for the first taxable 
year ending on or after the date of the adjustment and the total amount 
of the reduction must be taken into account over the first two taxable 
years ending on or after the date of the adjustment.
    (C) If the retroactive adjustment reduces the amount of 
decommissioning costs included in cost of service for three or more 
taxable years ending before the date of the adjustment, at least one-
third of the total amount of the reduction must be taken into account 
for the first taxable year ending on or after the date of the 
adjustment, at least two-thirds of the total amount of the reduction 
must be taken into account over the first two taxable years ending on or 
after the date of the adjustment, and the total amount of the reduction 
must be taken into account over the first three taxable years ending on 
or after the date of the adjustment.
    (2) Special rule permitting withdrawal of excess contribution that 
results from retroactive adjustment to interim rate order. (i) If a 
retroactive adjustment that reduces the amount of decommissioning costs 
included in cost of service for a taxable year occurs on or before the 
date prescribed by law (including extensions) for filing the return of 
the nuclear decommissioning fund for such taxable year, a taxpayer may 
elect the application of this paragraph (f)(2) for such taxable year 
by--
    (A) Including in the amount of decommissioning costs included in 
cost of service for such taxable year only the amount of decommissioning 
costs authorized for such taxable year under the retroactive adjustment; 
and
    (B) Withdrawing any excess contribution that results from such 
treatment in accordance with the rules of paragraph (c)(2) of Sec. 
1.468A-5.
    (ii) If a taxpayer elects the application of this paragraph (f)(2) 
for any taxable year, the retroactive adjustment shall not be treated 
for purposes of paragraph (f)(1)(ii) of this section as a reduction in 
the amount of decommissioning costs included in cost of service for such 
taxable year.
    (3) Revised schedule of ruling amounts. (i) If the rules provided in 
this paragraph (f) result in a cost of service amount applicable to a 
nuclear decommissioning fund for any taxable year that is less than the 
cost of service amount applicable to the nuclear decommissioning fund 
for the immediately preceding taxable year, the taxpayer must request a 
revised schedule of ruling amounts on or before the deemed payment 
deadline date for the taxable year in which the retroactive adjustment 
occurs. The first taxable year to which the revised schedule of ruling 
amount applies shall be the taxable year in which the retroactive 
adjustment occurs.
    (ii) The requirement of this paragraph (f)(3) does not apply if the 
taxpayer determines its schedule of ruling amounts under a formula or 
method obtained under Sec. 1.468A-3(a)(4) and the cost of service 
amount is a variable element of that formula or method.
    (4) Example. The following example illustrates the application of 
the principles of this paragraph (f):

    Example. (i) X corporation is a calendar year, accrual method 
taxpayer engaged in the sale of electric energy generated by a nuclear 
power plant owned by X. During 1989, X is authorized pursuant to an 
interim rate order issued by the public utility commission of State A to 
collect nuclear decommissioning costs of $500,000 per year beginning on 
January 1, 1990. On May 1, 1992, the public utility commission of State 
A issues a final rate order that is effective on July 1, 1992. The final 
rate order authorizes X to collect decommissioning costs of $400,000 per 
year and requires X to refund to the ratepayers of State A excess 
decommissioning costs of $250,000 collected between January 1, 1990, and 
July 1, 1992.
    (ii) If X elects the application of paragraph (f)(2) of this section 
for the 1991 taxable year,

[[Page 342]]

the amount of decommissioning costs included in cost of service for such 
taxable year is $400,000. If X made a contribution of $500,000 to a 
nuclear decommissioning fund for the 1991 taxable year, X must withdraw 
$100,000 from the nuclear decommissioning fund on or before the date 
prescribed by law (including extensions) for filing the return of the 
nuclear decommissioning fund for the 1991 taxable year (see paragraph 
(c)(2) of Sec. 1.468A-5).
    (iii) In addition, under paragraph (f)(1)(i) of this section, the 
amount of decommissioning costs included in cost of service for the 1990 
taxable year is $500,000, and, under paragraph (f)(1)(ii) of this 
section, the amount of decommissioning costs included in cost of service 
for the 1992 taxable year is $300,000. Because the cost of service 
amount for the 1991 taxable year ($400,000) is less than the cost of 
service amount for the 1990 taxable year ($500,000), paragraph (f)(3) of 
this section applies and X must file a request for a revised schedule of 
ruling amounts for the period beginning with the 1992 taxable year on or 
before March 15, 1993.
    (iv) Alternatively, if X does not elect the application of paragraph 
(f)(2) section, the amount of decommissioning costs included in cost of 
service for the 1990 and 1991 taxable years is $500,000, and, under 
paragraph (f)(1)(ii) of this section, the amount of decommissioning 
costs included in cost of service for the 1992 taxable year may not 
exceed $300,000. Because the cost of service amount for the 1992 taxable 
year is less than the cost of service amount for the 1991 taxable year, 
paragraph (f)(3) of this section applies and X must file a request for a 
revised schedule of ruling amounts for the period beginning with the 
1992 taxable year on or before March 15, 1993.

[T.D. 8184, 53 FR 6806, Mar. 3, 1988, as amended by T.D. 8461, 57 FR 
62199, Dec. 30, 1992; T.D. 8758, 63 FR 2894, Jan. 20, 1998]