[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.88-1]

[Page 348-349]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.88-1  Nuclear decommissioning costs.

    (a) In general. Section 88 provides that the amount of nuclear 
decommissioning costs directly or indirectly charged to the customers of 
a taxpayer that is engaged in the furnishing or sale of electric energy 
generated by a nuclear power plant must be included in the gross income 
of such taxpayer in the same manner as amounts charged for electric 
energy. For this purpose, decommissioning costs directly or indirectly 
charged to the customers of a taxpayer include all decommissioning costs 
that consumers are liable to pay by reason of electric energy furnished 
by the taxpayer during the taxable year, whether payable to the 
taxpayer, a trust, State government, or other entity, and even though 
the taxpayer may not control the investment or current expenditure of 
the amount and the amount may not be paid to the taxpayer at the time 
decommissioning costs are incurred. However, decommissioning costs 
payable to a taxpayer holding a qualified leasehold interest (as 
described in paragraph (b)(2)(ii) of Sec. 1.468A-1) are included in the 
gross income of such taxpayer, and not in the gross income of the 
lessor.
    (b) Examples. The following examples illustrate the application of 
the principles of paragraph (a) of this section:

    Example (1). X corporation, an accrual method taxpayer engaged in 
the sale of electric energy generated by a nuclear power plant owned by 
X, is authorized by the public utility commission of State A to collect 
nuclear decommissioning costs from ratepayers residing in State A. With 
respect to the sale of electric energy, X includes in income amounts 
that have been billed to customers as well as estimated unbilled amounts 
that relate to energy provided by X after the previous billing but 
before the end of the taxable year (``accrued unbilled amounts''). The 
decommissioning costs are included in the monthly bills provided by X to 
its ratepayers and the entire amount billed is remitted directly to X. 
Under paragraph (a) of this section, the decommissioning costs must be 
included in the gross income of X in the same manner as amounts charged 
for electric energy (i.e., by including in income decommissioning costs 
that relate to amounts billed as well as decommissioning costs that 
relate to accrued unbilled amounts). The same rule would apply if the 
decommissioning costs charged to ratepayers were separately billed and 
the amounts billed were remitted to State A to be held in trust for the 
purpose of decommissioning the nuclear power plant owned by X. In that 
case, X must include in gross income decommissioning costs that relate 
to amounts billed as well as decommissioning costs that relate to 
accrued unbilled amounts.
    Example (2). Assume the same facts as in Example (1), except that X 
and M, a municipality located in State A, have entered into a life-of-
unit contract pursuant to which (i) M is entitled to 20 percent of the 
electric energy generated by the nuclear power plant owned by X, and 
(ii) M is obligated to pay 20 percent of the plant operating costs, 
including decommissioning costs, incurred by X. Under paragraph (a) of 
this section, the decommissioning costs that relate to electric energy 
consumed or distributed by M during any taxable year must be included in 
the gross income of X for such taxable year. The result contained in 
this example would be the same if M was a State or an agency or 
instrumentality of a State or a political subdivision thereof.

    (c) Cross reference. For special rules relating to the deduction for 
amounts paid to a nuclear decommissioning fund, see Sec. 1.468A-1 
through Sec. 1.468A-5, 1.468A-7, 1.468A-8.
    (d) Effective date. (1) Section 88 and this section apply to nuclear 
decommissioning costs directly or indirectly charged to the customers of 
a taxpayer

[[Page 349]]

on or after July 18, 1984, and with respect to taxable years ending on 
or after such date.
    (2) If the amount of nuclear decommissioning costs directly or 
indirectly charged to the customers of a taxpayer before July 18, 1984, 
was includible in gross income in a different manner than amounts 
charged for electric energy, such amount must be included in gross 
income for the taxable year in which includible in gross income under 
the method of accounting of the taxpayer that was in effect when such 
amount was charged to customers.

[T.D. 8184, 53 FR 6804, Mar. 3, 1988]

              Items Specifically Excluded From Gross Income