IRS Won't Rule On Whether Some Fuels Qualify For Nonconventional Fuel Credit.

Rev. Proc. 2000-47

SECTION 1. PURPOSE

[1] This revenue procedure amplifies Rev. Proc. 2000-3, 2000-1 I.R.B. 103, which sets forth areas of the Internal Revenue Code in which the Internal Revenue Service will not issue advance rulings or determination letters.

SECTION 2. BACKGROUND

[2] Section 5 of Rev. Proc. 2000-3 sets forth those areas under extensive study in which rulings or determination letters will not be issued until the Service resolves the issue through publication of a revenue ruling, revenue procedure, regulations, or otherwise.

[3] The purpose of section 29 of the Internal Revenue Code is to reduce United States dependence on imported energy. S. Rep. No. 394, 96th Cong., 1st Sess. 87 (1979), 1980-3 C.B. 131, 205.

[4] Section 29 provides a credit against income tax for the production and sale of "qualified fuels" produced from a nonconventional source. Section 29(c)(1)(C) provides that qualified fuels include liquid, gaseous, or solid synthetic fuels produced from coal (including lignite).

[5] Rev. Rul. 86-100, 1986-2 C.B. 3, adopts for purposes of section 29(c)(1)(C) the definition of synthetic fuel in section 1.48- 9(c)(5) of the Income Tax Regulations because of the similar purpose and language of section 29 and former section 48(l) of the Internal Revenue Code of 1954. Section 1.48-9(c)(5)(ii) provides that, to be "synthetic," a fuel must differ significantly in chemical composition, as opposed to physical composition, from the substance used to produce it.

[6] The Service has issued a number of rulings that allow taxpayers to claim the section 29 credit with respect to coke and solid fuels produced from waste coal and coal fines. Concern has been raised that taxpayers are also claiming the section 29 credit for processing coal in other ways that may not have been intended by the Congress. The Treasury Department and the Service are seeking information concerning the processes currently used in producing solid fuel for which the credit is claimed.

SECTION 3. PROCEDURE

[7] Rev. Proc. 2000-3 is amplified by adding the following to section 5:

Section 29. -- Credit for Production and Sale of Qualified Fuels. -- Whether a solid fuel other than coke or a fuel produced from waste coal is a qualified fuel under section 29(c)(1)(C). Waste coal for this purpose is limited to waste coal fines from normal mining and crushing operations and does not include fines produced (for example, by crushing run-of-mine coal) for the purpose of claiming the credit.

SECTION 4. EFFECTIVE DATE

[8] This revenue procedure applies to all ruling requests, including any pending in the national office and any submitted after the date of publication of this revenue procedure. Taxpayers that have pending ruling requests involving solid fuel other than coke but whose ruling requests do not indicate that the fuel is produced from waste coal fines may modify their ruling requests if they meet the standard described in section 3 of this revenue procedure so that the Service may continue to consider their requests.

SECTION 5. EFFECT ON OTHER DOCUMENTS

[9] Rev. Proc. 2000-3 is amplified.

SECTION 6. REQUEST FOR COMMENTS

[10] The Service requests comments concerning this revenue procedure and the standard to be applied in determining whether fuel produced from coal is a solid synthetic fuel. In particular, the Service requests comments on whether significant chemical change is an appropriate test and, if so, what constitutes such a change. The Service also requests comments on whether, in the case of solid fuels other than coke, additional or alternative tests are needed. Comments are specifically requested with respect to the following: (1) should the section 29 credit for solid synthetic fuel under section 29(c)(1)(C) be allowed only where domestic energy production is increased; (2) under what circumstances should the section 29 credit for solid synthetic fuel under section 29(c)(1)(C) be allowed with respect to fuel produced from waste coal and coal fines; and (3) must a solid synthetic fuel have a market value that is significantly greater than the market value of the coal and any additives from which it is produced.

[11] To facilitate speedy resolution, the Service requests that comments be submitted by November 27, 2000. An original and eight copies of written comments should be mailed to:

     Internal Revenue Service

[12] The principal author of this revenue procedure is David McDonnell of the Office of Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury participated in its development. For further information regarding this revenue procedure contact Mr. McDonnell on (202) 622- 3110 (not a toll-free call).