[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-5]

[Page 355-360]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.468A-5  Nuclear decommissioning fund qualification requirements; 

prohibitions against self-dealing; disqualification of nuclear 
decommissioning fund; termination of fund upon substantial completion of 
decommissioning.

    (a) Qualification requirements--(1) In general. (i) A nuclear 
decommissioning fund must be established and maintained at all times in 
the United States pursuant to an arrangement that qualifies as a trust 
under State law. Such trust must be established for the exclusive 
purpose of providing funds for the

[[Page 356]]

decommissioning of one or more nuclear power plants, but a single trust 
agreement may establish multiple funds for such purpose. Thus--
    (A) Two or more nuclear decommissioning funds can be established and 
maintained pursuant to a single trust agreement; and
    (B) One or more funds that are to be used for the decommissioning of 
a nuclear power plant and that do not qualify as nuclear decommissioning 
funds under this paragraph (a) can be established and maintained 
pursuant to a trust agreement that governs one or more nuclear 
decommissioning funds.
    (ii) A separate nuclear decommissioning fund is required for each 
electing taxpayer and for each nuclear power plant with respect to which 
an electing taxpayer possesses a qualifying interest. The Internal 
Revenue Service shall issue a separate schedule of ruling amounts with 
respect to each nuclear decommissioning fund and each nuclear 
decommissioning fund must file a separate income tax return even if 
other nuclear decommissioning funds or nonqualified decommissioning 
funds are established and maintained pursuant to the trust agreement 
governing such fund or the assets of other nuclear decommissioning funds 
or nonqualified decommissioning funds are pooled with the assets of such 
fund.
    (iii) An electing taxpayer can maintain only one nuclear 
decommissioning fund for each nuclear power plant with respect to which 
the taxpayer elects the application of section 468A. If a nuclear power 
plant is subject to the ratemaking jurisdiction of two or more public 
utility commissions and any such public utility commission requires a 
separate fund to be maintained for the benefit of ratepayers whose rates 
are established or approved by the public utility commission, the 
separate funds maintained for such plant (whether or not established and 
maintained pursuant to a single trust agreement) shall be considered a 
single nuclear decommissioning fund for purposes of section 468A and 
Sec. Sec. 1.468A-1 through 1.468A-5, 1.468A-7 and 1.468A-8. Thus, for 
example, the Internal Revenue Service shall issue one schedule of ruling 
amounts with respect to such nuclear power plant (see paragraph (f) of 
Sec. 1.468A-3), the nuclear decommissioning fund must file a single 
income tax return (see paragraph (d)(1) of Sec. 1.468A-4), and, if the 
Internal Revenue Service disqualifies the nuclear decommissioning fund, 
the assets of each separate fund are treated as distributed on the date 
of disqualification (see paragraph (c)(3) of this section).
    (iv) If assets of a nuclear decommissioning fund are (or will be) 
invested through an unincorporated organization, within the meaning of 
Sec. 301.7701-2 of this chapter, the Internal Revenue Service will 
rule, if requested, whether the organization is an association taxable 
as a corporation for federal tax purposes. A request for a ruling may be 
made by the electing taxpayer as part of its request for a schedule of 
ruling amounts.
    (2) Limitation on contributions. Except as otherwise provided in 
paragraph (b)(2)(ii) of Sec. 1.468A-8 (relating to a special 
transitional rule), a nuclear decommissioning fund is not permitted to 
accept any contributions in cash or property other than cash payments 
with respect to which a deduction is allowed under section 468A(a) and 
paragraph (a) of Sec. 1.468A-2. Thus, for example, unless the exception 
contained in paragraph (b)(2)(ii) of Sec. 1.468A-8 applies, securities 
may not be contributed to a nuclear decommissioning fund even if the 
taxpayer or a fund established by the taxpayer previously held such 
securities for the purpose of providing funds for the decommissioning of 
a nuclear power plant.
    (3) Limitation on use of fund--(i) In general. The assets of a 
nuclear decommissioning fund are to be used exclusively--
    (A) To satisfy, 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;
    (B) To pay administrative costs and other incidental expenses of the 
nuclear decommissioning fund; and
    (C) To the extent that the assets of the nuclear decommissioning 
fund are not currently required for the purposes described in paragraph 
(a)(3)(i) (A) or (B) of this section, to make investments.

[[Page 357]]

    (ii) Definition of administrative costs and expenses. For purposes 
of paragraph (a)(3)(i) of this section, the term ``administrative costs 
and other incidental expenses of a nuclear decommissioning fund'' means 
all ordinary and necessary expenses incurred in connection with the 
operation of the nuclear decommissioning fund. Such term includes the 
tax imposed by section 468A(e)(2) and Sec. 1.468A-4(a), any State or 
local tax imposed on the income or the assets of the fund, legal 
expenses, accounting expenses, actuarial expenses and trustee expenses. 
Such term does not include decommissioning costs. Such term also does 
not include the excise tax imposed on the trustee or other disqualified 
person under section 4951 or the reimbursement of any expenses incurred 
in connection with the assertion of such tax unless such expenses are 
considered reasonable and necessary under section 4951(d)(2)(C) and it 
is determined that the trustee or other disqualified person is not 
liable for the excise tax.
    (4) Trust provisions. By December 31, 1996, each qualified nuclear 
decommissioning fund trust agreement must provide that assets in the 
fund must be used as authorized by section 468A and the regulations 
thereunder and that the agreement may not be amended so as to violate 
section 468A or the regulations thereunder.
    (b) Prohibitions against self-dealing--(1) In general. Except as 
otherwise provided in this paragraph (b), the excise taxes imposed by 
section 4951 shall apply to each act of self-dealing between a 
disqualified person and a nuclear decommissioning fund.
    (2) Self-dealing defined. For purposes of this paragraph (b), the 
term ``self-dealing'' means any act described in section 4951(d), 
except--
    (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;
    (ii) A withdrawal of an excess contribution by the electing taxpayer 
pursuant to the rules of paragraph (c)(2) of this section;
    (iii) A withdrawal by the electing taxpayer of amounts that have 
been treated as distributed under paragraph (c)(3) of this section;
    (iv) A payment of amounts remaining in a nuclear decommissioning 
fund to the electing taxpayer after the termination of such fund (as 
determined under paragraph (d) of this section);
    (v) Any act described in section 4951(d)(2) (B) or (C);
    (vi) Any act described in Sec. 53.4951-1(c) of this chapter only if 
undertaken to facilitate the temporary investment of assets or the 
payment of reasonable administrative expenses of the nuclear 
decommissioning fund; or
    (vii) A payment by a nuclear decommissioning fund for the 
performance of trust functions and certain general banking services by a 
bank or trust company which is a disqualified person, where the banking 
services are reasonable and necessary to carry out the purposes of the 
fund, if the compensation paid to the bank or trust company, taking into 
account the fair interest rate for the use of the funds by the bank or 
trust company, for such services is not excessive. The general banking 
services allowed by this paragraph (b)(2)(vii) are--
    (A) Checking accounts, as long as the bank does not charge interest 
on any overwithdrawals,
    (B) Savings accounts, as long as the fund may withdraw its funds on 
no more than 30 days' notice without subjecting itself to a loss of 
interest on its money for the time during which the money was on 
deposit, and
    (C) Safekeeping activities. (See example 3 of Sec. 53.4941(d)-
3(c)(2).)
    (3) Disqualified person defined. For purposes of this paragraph (b), 
the term ``disqualified person'' includes each person described in 
section 4951(e)(4) and paragraph (d) of Sec. 53.4951-1.
    (c) Disqualification of nuclear decommissioning fund--(1) In 
general. Except as otherwise provided in paragraph (c)(2) of this 
section, if at any time during a taxable year of a nuclear 
decommissioning fund--
    (i) The nuclear decommissioning fund does not satisfy the 
requirements of paragraph (a) of this section, or
    (ii) The nuclear decommissioning fund and a disqualified person 
engage in an act of self-dealing (as defined in

[[Page 358]]

paragraph (b)(2) of this section), the Internal Revenue Service may, in 
its discretion, disqualify all or any portion of the fund as of the date 
that the fund does not satisfy the requirements of paragraph (a) of this 
section or the date on which the act of self-dealing occurs, whichever 
is applicable, or as of any subsequent date (``date of 
disqualification''). The Internal Revenue Service shall notify the 
electing taxpayer of the disqualification of a nuclear decommissioning 
fund and the date of disqualification by registered or certified mail to 
the last known address of the electing taxpayer (the ``notice of 
disqualification''). For further guidance regarding the definition of 
last known address, see Sec. 301.6212-2 of this chapter.
    (2) Exception to disqualification--(i) In general. A nuclear 
decommissioning fund will not be disqualified under paragraph (c)(1) of 
this section by reason of an excess contribution or the withdrawal of 
such excess contribution by an electing taxpayer if the amount of the 
excess contribution is withdrawn by the electing taxpayer on or before 
the date prescribed by law (including extensions) for filing the return 
of the nuclear decommissioning fund for the taxable year to which the 
excess contribution relates. In the case of an excess contribution that 
is the result of a payment made pursuant to paragraph (j)(1) of Sec. 
1.468A-3, a nuclear decommissioning fund will not be disqualified under 
paragraph (c)(1) of this section if the amount of the excess 
contribution is withdrawn by the electing taxpayer on or before the 
later of--
    (A) The date prescribed by law (including extensions) for filing the 
return of the nuclear decommissioning fund for the taxable year to which 
the excess contribution relates; or
    (B) The date that is 30 days after the date that the taxpayer 
receives the ruling amount for such taxable year.
    (ii) Excess contribution defined. For purposes of this section, an 
excess contribution is the amount by which cash payments made (or deemed 
made) to a nuclear decommissioning fund during any taxable year exceed 
the payment limitation contained in section 468A(b) and paragraph (b) of 
Sec. 1.468A-2.
    (iii) Taxation of income attributable to an excess contribution. The 
income of a nuclear decommissioning fund attributable to an excess 
contribution is required to be included in the gross income of the 
nuclear decommissioning fund under paragraph (b) of Sec. 1.468A-4.
    (3) Effect of disqualification. If all or any portion of a nuclear 
decommissioning fund is disqualified under paragraph (c)(1) of this 
section, the portion of the nuclear decommissioning fund that is 
disqualified is treated as distributed to the electing taxpayer on the 
date of disqualification. Such a distribution shall be treated for 
purposes of section 1001 as a disposition of property held by the 
nuclear decommissioning fund (see paragraph (c)(2) of Sec. 1.468A-4). 
In addition, the electing taxpayer must include in gross income for the 
taxable year that includes the date of disqualification an amount equal 
to the product of--
    (i) The fair market value of the assets of the fund determined as of 
the date of disqualification, reduced by--
    (A) The amount of any excess contribution that was not withdrawn 
before the date of disqualification if no deduction was allowed with 
respect to such excess contribution;
    (B) The amount of any deemed distribution that was not actually 
distributed before the date of disqualification (as determined under 
paragraph (d)(2)(iii) of Sec. 1.468A-2) if the amount of the deemed 
distribution was included in the gross income of the electing taxpayer 
for the taxable year in which the deemed distribution occurred; and
    (C) The amount of any tax that--
    (1) Is imposed on the income of the fund;
    (2) Is attributable to income taken into account before the date of 
disqualification or as a result of the disqualification; and
    (3) Has not been paid as of the date of disqualification; and
    (ii) The fraction of the nuclear decommissioning fund that was 
disqualified under paragraph (c)(1) of this section.

Contributions made to a disqualified fund after the date of 
disqualification are not deductible under section 468A(a) and paragraph 
(a) of Sec. 1.468A-2, or, if the fund is disqualified only in part, are 
deductible only to the extent

[[Page 359]]

provided in the notice of disqualification. In addition, if any assets 
of the fund that are deemed distributed under this paragraph (c)(3) are 
held by the fund after the date of disqualification (or if additional 
assets are acquired with nondeductible contributions made to the fund 
after the date of disqualification), the income earned by such assets 
after the date of disqualification must be included in the gross income 
of the electing taxpayer (see section 671) to the extent that such 
income is otherwise includible under chapter 1 of the Internal Revenue 
Code. An electing taxpayer can establish a nuclear decommissioning fund 
to replace a fund that has been disqualified in its entirety only if the 
Internal Revenue Service specifically consents to the establishment of a 
replacement fund in connection with the issuance of an initial schedule 
of ruling amounts for such replacement fund.
    (d) Termination of nuclear decommissioning fund upon substantial 
completion of decommissioning--(1) In general. Upon substantial 
completion of the decommissioning of a nuclear power plant to which a 
nuclear decommissioning fund relates, such nuclear decommissioning fund 
shall be considered terminated and treated as having distributed all of 
its assets on the date the termination occurs. Such a distribution shall 
be treated for purposes of section 1001 as a disposition of property 
held by the nuclear decommissioning fund (see paragraph (c)(2) of Sec. 
1.468A-4). In addition, the electing taxpayer shall include in gross 
income for the taxable year in which the termination occurs an amount 
equal to the fair market value of the assets of the fund determined as 
of the date of termination, reduced by--
    (i) The amount of any deemed distribution that was not actually 
distributed before the date of termination if the amount of the deemed 
distribution was included in the gross income of the electing taxpayer 
for the taxable year in which the deemed distribution occurred; and
    (ii) The amount of any tax that--
    (A) Is imposed on the income of the fund;
    (B) Is attributable to income taken into account before the date the 
termination occurs or as a result of the termination; and
    (C) Has not been paid as of the date the termination occurs.

Contributions made to a nuclear decommissioning fund after the 
termination date are not deductible under section 468A(a) and paragraph 
(a) of Sec. 1.468A-2. In addition, if any assets are held by the fund 
after the termination date, the income earned by such assets after the 
termination date must be included in the gross income of the electing 
taxpayer (see section 671) to the extent that such income is otherwise 
includible under chapter 1 of the Internal Revenue Code. Finally, an 
electing taxpayer using an accrual method of accounting is allowed a 
deduction for nuclear decommissioning costs that are incurred during any 
taxable year (see paragraph (e) of Sec. 1.468A-2) even if such costs 
are incurred after substantial completion of decommissioning (e.g., 
expenses incurred to monitor or safeguard the plant site).
    (2) Substantial completion of decommissioning defined. (i) Except as 
otherwise provided in paragraph (d)(2)(ii) of this section, the 
substantial completion of the decommissioning of a nuclear power plant 
occurs on the date that the maximum acceptable radioactivity levels 
mandated by the Nuclear Regulatory Commission with respect to a 
decommissioned nuclear power plant are satisfied (the ``substantial 
completion date'').
    (ii) If a significant portion of the total estimated decommissioning 
costs with respect to a nuclear power plant are not incurred on or 
before the substantial completion date, an electing taxpayer may 
request, and the Internal Revenue Service shall issue, a ruling that 
designates the date on which substantial completion of decommissioning 
occurs. The date designated in the ruling shall not be later than the 
last day of the third taxable year after the taxable year that includes 
the substantial completion date. The request for a ruling under this 
paragraph (d)(2)(ii) must be filed during the taxable year that includes 
the substantial completion date and must comply with

[[Page 360]]

the procedural rules in effect at the time of the request.

[T.D. 8184, 53 FR 6815, Mar. 3, 1988, as amended by T.D. 8461, 57 FR 
62200, Dec. 30, 1992; T.D. 8580, 59 FR 66474, Dec. 27, 1994; 60 FR 8932, 
Feb. 16, 1995; T.D. 8939, 66 FR 2818, Jan. 12, 2001]