[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-8] [Page 363-367] TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY (CONTINUED) PART 1_INCOME TAXES--Table of Contents Sec. 1.468A-8 Effective date and transitional rules. (a) Effective date--(1) In general. Section 468A and Sec. Sec. 1.468A-1 through 1.468A-5, 1.468A-7 and 1.468A-8 are effective on July 18, 1984, and apply with respect to taxable years ending on or after such date. (2) Cut-off method applicable to electing taxpayers. Any amount of nuclear decommissioning costs taken into account before July 18, 1984, for a taxable year beginning before such date, is not allowable as a deduction after July 17, 1984, under section 468A(c)(2) and paragraph (e) of Sec. 1.468A-2. (b) Transitional rules--(1) Time for filing request for schedule of ruling amounts. The Internal Revenue Service shall provide a ruling amount for any taxable year that ends on or after July 18, 1984, and begins before January 1, 1987, if-- (i) Paragraph (g) of Sec. 1.468A-3 is satisfied for the taxable year; and (ii) The taxpayer files a request for a schedule of ruling amounts that includes a proposed ruling amount for the taxable year on or before June 1, 1988. (2) Manner of and time for making contributions to a nuclear decommissioning fund. (i) The amount of any contribution (including a contribution of property allowed under paragraph (b)(2)(ii) of this section) to a nuclear decommissioning fund that relates to a taxable year that ends on or after July 18, 1984, and begins before January 1, 1987, shall be deemed made during such taxable year if-- (A) The taxpayer makes such contribution on or before the 30th day after the date the taxpayer receives a ruling amount applicable to such taxable year; and (B) The taxpayer irrevocably designates the amount of such contribution as relating to such taxable year on the Election Statement attached to its Federal income tax return (or amended return) for such taxable year. (ii)(A) An electing taxpayer may contribute property to a nuclear decommissioning fund if the property-- (1) Is described in paragraph (a)(3)(i)(C) of Sec. 1.468-5; (2) Was acquired after July 18, 1984, and before March 3, 1988; and (3) Is contributed for any taxable year ending after July 18, 1984, and beginning before March 3, 1988. (B) If a taxpayer contributes property to a nuclear decommissioning fund under this paragraph (b)(2)(ii)-- (1) The amount of the contribution (and the basis of the property to the nuclear decommissioning fund) shall equal the fair market value of the property on the date the property is contributed to the nuclear decommissioning fund; (2) The contribution of the property to the nuclear decommissioning fund shall be considered a sale or exchange of the property by the taxpayer for purposes of section 1001; and (3) For purposes of section 1001, the amount realized by the taxpayer shall [[Page 364]] be the fair market value of the property on the date the property was contributed to the nuclear decommissioning fund. (iii) A fund established by a taxpayer for the purpose of paying the decommissioning costs of a nuclear power plant is not treated as a nuclear decommissioning fund before the earlier of-- (A) The date the taxpayer receives an initial schedule of ruling amounts with respect to the fund, or (B) The first day of the first taxable year of the taxpayer that begins on or after January 1, 1987, even if the taxpayer elects the application of section 468A for a taxable year that begins before such date. Any income earned before such date by the assets of a fund that satisfies the requirements of Sec. 1.468A-5 must be included in the gross income of the taxpayer treated under section 671 as the owner of such assets. (iv) If a fund is first treated as a nuclear decommissioning fund on the date described in paragraph (b)(2)(iii) of this section-- (A) The assets held in the fund on such date shall be treated for purposes of this paragraph (b)(2) as assets contributed to the nuclear decommissioning fund on such date; and (B) The withdrawal of any such assets on or before the date prescribed by law (including extensions) for filing the return of the nuclear decommissioning fund for the taxable year that includes such date shall be treated in the same manner as the withdrawal of an excess contribution (see paragraph (c)(2) of Sec. 1.468A-5). (3) Manner of and time for making election. A taxpayer may elect the application of section 468A for a taxable year that ends on or after July 18, 1984, and begins before January 1, 1987, by attaching the Election Statement and a copy of the schedule of ruling amounts to-- (i) A return that is filed on or before the time prescribed by law (including extensions) for filing to return for such taxable year; or (ii) An amended return for such taxable year that is filed on or before the 90th day after the date that the taxpayer receives a ruling amount for such table year. (4) Determination of cost of service limitation. (i) For purposes of section 468A(b)(1) and paragraph (b)(2)(ii) of Sec. 1.468A-2, decommissioning costs included in cost of service for any taxable year beginning before January 1, 1987, shall include decommissioning costs that can be accurately determined from information contained in the regulated books of account or other written records of the taxpayer. (ii) For purposes of section 468A(b)(1) and paragraph (b)(2) of Sec. 1.468A-2, the cost of service amount applicable to a nuclear decommissioning fund for the taxable year that includes July 18, 1984, is the amount determined under paragraph (b)(2) of Sec. 1.468A-2 multiplied by a fraction, the numerator of which is the amount of nuclear decommissioning costs that is directly or indirectly charged to customers in such taxable year and that is included in the taxable income of the taxpayer for such taxable year and the denominator of which is the amount of nuclear decommissioning costs that is directly or indirectly charged to customers in such taxable year and that would have been included in the gross income of the taxpayer if such costs were taken into account by the taxpayer in the same manner as amounts charged for electric energy (see Sec. 1.88-1). Under the preceding sentence, an amount of decommissioning costs is included in the taxable income of a taxpayer for the taxable year that includes July 18, 1984, if the amount is included in gross income for such taxable year and no deduction (other than a deduction allowed under section 468A(a) and paragraph (a) of Sec. 1.468A-2) is claimed with respect to such amount for such taxable year. (5) Assumptions and determinations to be used in determining ruling amounts. (i) To the extent consistent with the principles and provisions of Sec. 1.468A-3, a ruling amount for any taxable year beginning before January 1, 1987, shall be based on the reasonable assumptions and determinations used by the applicable public utility commission(s) in establishing or approving the amount of decommissioning costs included in cost of service for ratemaking purposes for such taxable year. [[Page 365]] (ii) If the applicable public utility commission(s) did not disclose the after-tax rate of return used in establishing or approving the amount of decommissioning costs included in cost of service for any period during a taxable year that ends on or after July 18, 1984, and begins before January 1, 1987, the after-tax rate of return during such period is equal to 54 percent of the overpayment rate in effect under section 6621 during such period. (iii) If the applicable public utility commission(s) did not disclose the other assumptions and determinations used in establishing or approving the amount of decommissioning costs included in cost of service for any taxable year that ends on or after July 18, 1984, and begins before January 1, 1987, ruling amount for each such taxable year shall be determined by taking into account-- (A) The amount of decommissioning costs included in cost of service for such taxable year; (B) The qualifying percentage (as determined under paragraph (d)(4) of Sec. 1.468A-3 and paragraph (b)(7) of this section); and (C) The amount of decommissioning costs included in cost of service for any earlier taxable year. (6) Exception to level funding limitation. Notwithstanding paragraph (b) of Sec. 1.468A-3, the Internal Revenue Service may, in its discretion, provide a schedule of ruling amounts specifying a ruling amount for a taxable year that ends on or after July 18, 1984, and begins before January 1, 1987, that is greater than the ruling amount specified in such scedule for a later taxable year. (7) Determination of qualifying percentage. (i)(A) The qualifying percentage shall be determined under this paragraph (b)(7)(i) if a nuclear power plant began commercial operations on or before July 10, 1986, and a taxpayer-- (1) Files a request for a schedule of ruling amounts for the nuclear decommissioning fund maintained with respect to such nuclear power plant on or before June 1, 1988; and (2) Elects the application of this paragraph (b)(7)(i) in its request for a schedule of ruling amounts. (B) If the qualifying percentage is determined under this paragraph (b)(7)(i), the estimated period for which the nuclear decommissioning fund is to be in effect for purposes of paragraph (d)(4)(ii) of Sec. 1.468A-3 begins on the later of-- (1) The first day of the taxable year that includes the date that the nuclear power plant began commercial operations; or (2) The first day of the taxable year that includes July 18, 1984. (ii)(A) The qualifying percentage shall be determined under this paragraph (b)(7)(ii) if a nuclear power plant began commercial operations before July 18, 1984, and a taxpayer-- (1) Files a request for a schedule of ruling amounts for the nuclear decommissioning fund maintained with respect to such nuclear power plant on or before June 1, 1988; and (2) Elects the application of this paragraph (b)(7)(ii) in its request for a schedule of ruling amounts. (B) If the qualifying percentage is determined under this paragraph (b)(7)(ii), the estimated period for which the nuclear decommissioning fund is to be in effect for purposes of paragraph (d)(4)(ii) of Sec. 1.468A-3 and the estimated useful life of the nuclear power plant for purposes of paragraph (d)(4)(iii) of Sec. 1.468A-3 shall end on the earlier of-- (1) The last day of the taxable year in which it is estimated that decommissioning will begin; or (2) The last day of the taxable year that includes the expiration date of the Nuclear Regulatory Commission operating license as in effect on July 18, 1984, without regard to any extensions or amendments thereto. (iii) In the case of a nuclear power plant that began commercial operations before July 18, 1984, and whose estimated useful life for ratemaking purposes was adjusted by a public utility commission before July 18, 1984, a taxpayer may elect in its request for a schedule of ruling amounts to compute the qualifying percentage in accordance with the following rules: (A) If the taxpayer files a request for a schedule of ruling amounts for the nuclear decommissioning fund maintained with respect to such nuclear [[Page 366]] power plant on or before June 1, 1988, the qualifying percentage equals the percentage of original depreciation costs (determined without regard to capitalized decommissioning costs) with respect to the nuclear power plant that remains to be recovered for ratemaking purposes as of the first day of the taxable year that includes July 18, 1984. (B) If a taxpayer does not file a request for a schedule of ruling amounts for the nuclear decommissioning fund maintained with respect to such nuclear power plant on or before June 1, 1988, the qualifying percentage equals the percentage of original depreciation costs (determined without regard to capitalized decommissioning costs) with respect to the nuclear power plant that remains to be recovered for ratemaking purposes as of the first day of the first taxable year for which a deductible payment is made to the nuclear decommissioning fund that relates to such nuclear power plant. (C) For purposes of this paragraph (b)(7)(iii), original depreciation costs with respect to a nuclear power plant include only those costs that were taken into account in determining the amount of depreciation with respect to such plant in the first ratemaking proceeding in which such depreciation was treated as a cost of service. (8) Limitation on payments to a nuclear decommissioning fund--(i) The limitation on payments to a nuclear decommissioning fund (see section 468A(b) and paragraph (b) of Sec. 1.468A-2) for a taxable year that ends on or after July 18, 1984, and begin before January 1, 1987, shall be determined under paragraph (b)(8)(ii) of this section if-- (A) The electing taxpayer receives a ruling amount applicable to such taxable year after the deemed payment deadline date for such taxable year; and (B) The requirements of paragraph (b)(8)(iii) of this section are satisfied. (ii) If the limitation on payments to a nuclear decommissioning fund for a taxable year is determined under this paragraph (b)(8)(ii), the maximum amount of payments made (or deemed made) to the nuclear decommissioning fund during such taxable year shall not exceed the sum of-- (A) The amount determined under section 468A(b) and paragraph (b) of Sec. 1.468A-2 (i.e., the lesser of the cost of service amount or the ruling amount) after application of the transitional rules contained in paragraph (b)(4), (5), (6) and (7) of this section; and (B) The amount of after-tax earnings that would have accumulated to the date of actual payment to the nuclear decommissioning fund if the amount described in paragraph (b)(8)(ii)(A) of this section had been contributed to the nuclear decommissioning fund on the deemed payment deadline date for such taxable year. In determining the after-tax earnings that would have accumulated to the date of payment, an electing taxpayer must use the after-tax rate of return of the nuclear decommissioning fund that was used in determining the initial schedule of ruling amounts. (iii) In order to compute the payment limitation under paragraph (b)(8)(ii) of this section for any taxable year, an electing taxpayer must-- (A) Indicate on the Election Statement for the taxable year that the amount of the deductible payment is greater than the amount determined under section 468A(b) and paragraph (b) of Sec. 1.468A-2 because paragraph (b)(8) of Sec. 1.468A-8 applies; (B) Not have claimed a deduction for the taxable year under section 468A(a) or paragraph (a) of Sec. 1.468A-2 on any return that is filed before the date that a ruling amount is received for the taxable year; (C) Not have taken a deduction under section 468A (a) or paragraph (a) of Sec. 1.468A-2 into account in determining the amount properly estimated as tax for the taxable year under section 6081 (b) (relating to the automatic extension for filing corporate income tax returns); and (D) Not take the deduction allowed with respect to such payment into account in determining the amount of any overpayment of tax (within the meaning of section 6611) or underpayment of tax (within the meaning of section 6601) for the period ending on the date of such payment (see paragraph (b)(9) of this section). [[Page 367]] (iv) The following example illustrates the application of the principles of paragraph (b)(8) of this section: Example. 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. On September 15, 1987, X receives a schedule of ruling amounts from the Internal Revenue Service that includes a ruling amount of $1,000,000 for the 1986 taxable year. For purposes of this example, assume that the cost of service amount applicable to the nuclear decommissioning fund for the 1986 taxable year is also $1,000,000 and that the after-tax rate of return of the nuclear decommissioning fund that was used in determining the schedule of ruling amounts is 10 percent compounded semi-annually. On September 15, 1987, X makes a contribution of $1,050,000 to a nuclear decommissioning fund established by X. Under paragraph (b)(8)(ii) of this section, this contribution does not exceed the limitation on payments for the 1986 taxable year and the entire amount of the contribution is deductible for such year. The additional $50,000 deductible payment that is allowed under this paragraph (b)(8) reflects the foregone earnings of the fund for the six- month period beginning on the deemed payment deadline date for the 1986 taxable year (March 15, 1987) and ending on the date of the contribution (September 15, 1987). (9) Denial of interest on overpayment. If a deduction is allowed by reason of paragraph (b)(2) of this section for the amount of any payment made after the 15th day of the third calendar month after the close of the taxable year to which such payment relates, such deduction shall not be taken into account in determining the amount of any overpayment of tax (within the meaning of section 6611) or underpayment of tax (within the meaning of section 6601) for the period ending on the date of such payment. (10) Determination of addition to tax for failure to pay estimated tax. In the case of any taxable year that ends on or after July 18, 1984, and begins before January 1, 1987, the tax shown on the return for such taxable year for purposes of section 6655(b) shall equal the tax that would be shown on the return if a deduction were allowed for the lesser of-- (i) The amount of the payment made to the nuclear decommissioning fund for such taxable year; or (ii) The amount determined under section 468A(b) and paragraph (b) of Sec. 1.468A-2 (i.e., the lesser of the cost of service amount or the ruling amount) after application of the transitional rules contained in paragraph (b)(4), (5), (6) and (7) of this section but without regard to the transitional rule contained in paragraph (b)(8) of this section. (11) Nuclear decommissioning fund qualification requirements. For tax years beginning prior to January 1, 1995, the Service will not assert that an unincorporated organization referred to in Sec. 1.468A- 5(a)(1)(iv), established prior to January 1, 1993, through which the assets of a nuclear decommissioning fund are invested, is an association taxable as a corporation for federal tax purposes. (12) Use of formula or method. Section 1.468A-2(f)(3)(ii) and Sec. 1.468A-3(a)(4) (to the extent it permits a formula or method when the applicable public utility commission estimates the cost of decommissioning in future dollars), (e)(5), (i)(1)(ii)(A) (to the extent it requires the taxpayer to file a request for a revised schedule because of a substantial variation in ruling amounts), and (i)(1)(iii)(C) apply only to requests for a formula or method submitted on or after January 20, 1998 and to formulas and methods obtained in response to those requests. [T.D. 8184, 53 FR 6818, Mar. 3, 1988; 53 FR 9276, Mar. 24, 1988, as amended by T.D. 8461, 57 FR 62200, Dec. 30, 1992; T.D. 8758, 63 FR 2894, Jan. 20, 1998]