Notice 2010-54 - Production Tax Credit for Refined Coal

Part III. Administrative, Procedural, and Miscellaneous
Production Tax Credit for
Refined Coal
Notice 2010–54
SECTION 1. PURPOSE
This notice sets forth interim guidance
pending the issuance of regulations relating to the tax credit under § 45 of the Internal Revenue Code (Code) for refined coal.
This notice supersedes Notice 2009–90,
2009–51 I.R.B. 859, which also sets forth
interim guidance regarding the tax credit
under § 45 of the Code for refined coal
by republishing the guidance contained in
that notice with the following modifications: (1) the definition of refined coal
is revised; (2) certain processing of utility-grade coal is permitted to be taken into
account in determining whether a qualified
emission reduction has been achieved; and
(3) the testing protocols for determining
emissions reductions are revised. The Service will continue its no rule policy concerning the placed in service date for a facility.
SECTION 2. BACKGROUND
Sections 45(c)(7), (d)(8), and (e)(8) of
the Code provide definitions and rules relating to the tax credit for refined coal (the
refined coal credit). Section 45(e)(8) provides that the refined coal credit increases
a taxpayer’s credit determined under the
other provisions of § 45. The credit is allowed for qualified refined coal (1) produced by the taxpayer at a refined coal production facility during the ten-year period
beginning on the date the facility is originally placed in service, and (2) sold by the
taxpayer to an unrelated person during that
ten-year period.
Sections 45(c)(7), (d)(8), and (e)(8)
were added to the Code by sections 710(a),
(b)(1), and (b)(2), respectively, of the
American Jobs Creation Act of 2004,
Pub. L. No. 108–357. These provisions
were amended by sections 403(t) and
412(j)(1) and (2) of the Gulf Opportunity
Zone Act of 2005, Pub. L. No. 109–135,
and by sections 101 and 108 of the Energy
Improvement and Extension Act of 2008,
Division B of Pub. L. No. 110–343.

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SECTION 3. DEFINITIONS, ETC.
The following definitions apply for purposes of this notice:
.01 Refined Coal.
(1) In General. Except as otherwise
provided in this section 3.01, the term “refined coal” means fuel that—
(a) is a liquid, gaseous, or solid fuel
(including feedstock coal mixed with an
additive or additives) produced from coal
(including lignite) or high carbon fly ash,
including (except to the extent inconsistent
with section 3.01(1)(b) of this notice) such
fuel used as a feedstock;
(b) is sold by the taxpayer (producer),
to an unrelated person, with the reasonable
expectation that it will be used for the purpose of producing steam; and
(c) is certified by the taxpayer as resulting (when used in the production of steam)
in a qualified emission reduction.
(2) Steel Industry Fuel. Refined coal
includes steel industry fuel (as defined in
§ 45(c)(7)(C)) that is produced and sold
after September 30, 2008.
(3) Pre-2009 Facilities. Refined coal
does not include fuel (other than steel
industry fuel) that is produced and sold
from a facility placed in service before
January 1, 2009, unless such fuel is
produced in such a manner as to result in
an increase of at least 50 percent in the
market value of the fuel (excluding any
increase caused by materials combined or
added during the production process) as
compared to the feedstock coal.
.02 Coal. The term “coal” means anthracite, bituminous coal, subbituminous
coal, and lignite. Coal includes waste coal
(that is, usable material that is a byproduct
of the previous processing of anthracite,
bituminous coal, subbituminous coal, or
lignite). Examples of waste coal include
fine coal of any of the listed ranks, coal
of any of the listed ranks obtained from a
refuse bank or slurry dam, anthracite culm,
bituminous gob, and lignite waste.
.03 Comparable Coal. The term “comparable coal” means, with respect to any
feedstock coal, coal that is of the same rank
as the feedstock coal and that has an emissions profile comparable to the emissions
profile of the feedstock coal.

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.04 Qualified Emissions Reduction.
The term “qualified emissions reduction”
means—
(1) in the case of refined coal produced
at a facility placed in service after December 31, 2008, a reduction of at least 20
percent of the emissions of nitrogen oxide
(NOx) and at least 40 percent of the emissions of either sulfur dioxide (SO2) or mercury (Hg) released when burning the refined coal (excluding any dilution caused
by materials combined or added during the
production process), as compared to the
emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of
January 1, 2003; and
(2) in the case of production at a facility
placed in service before January 1, 2009, a
reduction of at least 20 percent of the emissions of NOx and at least 20 percent of
the emissions of either SO2 or Hg released
when burning the refined coal (excluding
any dilution caused by materials combined
or added during the production process), as
compared to the emissions released when
burning the feedstock coal or comparable
coal predominantly available in the marketplace as of January 1, 2003.
.05 Refined Coal Production Facility.
The term “refined coal production facility”
means—
(a) for purposes of the refined coal
credit allowable with respect to steel
industry fuel, any facility (or any modification to a facility) which is placed in
service before January 1, 2010, and
(b) for purposes of the refined coal
credit allowable with respect to refined
coal other than steel industry fuel, any facility placed in service after the date of the
enactment of the American Jobs Creation
Act of 2004 and before January 1, 2010,
other than a facility producing fuel for
which a credit under § 45K (or under § 29,
as in effect on the day before the date of
enactment of the Energy Tax Incentives
Act of 2005) was allowed for the taxable
year or any prior taxable year.
.06 Related Persons.
Persons are
treated as related to each other if they
would be treated as a single employer
under the regulations prescribed under
§ 52(b). A corporation that is a member
of an affiliated group filing a consolidated

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return is treated as selling coal to an unrelated person if the coal is sold to an
unrelated person by another member of
the affiliated group.
.07 Placed in Service. The year in
which property is placed in service is determined under the principles of § 1.46–3(d).
SECTION 4. COMPUTATION OF
CREDIT
.01 In General. The refined coal credit
for a taxable year is the tentative credit
for the year determined under this section
4.01, reduced to the extent provided in sections 4.02 and 4.04 of this notice. If the
taxable year is a calendar year, the tentative credit for the taxable year is the tentative credit for the calendar year. If the
taxable year includes parts of two calendar years, the tentative credit for the taxable year is the sum of the tentative credits for each partial calendar year included
in the taxable year. The tentative credit
for any calendar year (or partial calendar
year) is the applicable amount per ton of
qualified refined coal (1) produced by the
taxpayer at a refined coal production facility during the ten-year period beginning on
the date the facility is originally placed in
service, and (2) sold by the taxpayer to an
unrelated person during that ten-year period and during the calendar year (or partial calendar year). The applicable amount
for sales of refined coal during a calendar
year is $4.375 multiplied by the inflation
adjustment factor for the calendar year to
adjust for inflation since 1992.
.02 Limitation of the Credit.
(1) In General. The tentative credit
with respect to sales of refined coal during
a calendar year is reduced by an amount
that bears the same ratio to the tentative
credit as the excess reference price for the
calendar year bears to $8.75.
(2) Excess Reference Price. The excess reference price for a calendar year
is the amount by which (a) the reference
price for the calendar year of fuel used as a
feedstock exceeds (b) an amount equal to
1.7 multiplied by $31.90 and further multiplied by the inflation adjustment factor for
the calendar year.
.03 Reference Price and Inflation Adjustment Factor. The reference price and
inflation adjustment factor for a calendar
year are provided by notice published in
the Internal Revenue Bulletin. See, for

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example, Notice 2010–37, 2010–18 I.R.B.
654.
.04 Reduction for Grants, Tax-Exempt
Bonds, Subsidized Energy Financing and
Other Credits. The tentative credit, after
the reduction, if any, under section 4.02 of
this notice, is reduced by a prescribed percentage if the project received government
grants, subsidies, or other credits. The reduction percentage for a tax year is the
lesser of 50 percent or the percentage that
is determined by dividing the sum for the
taxable year and all earlier taxable years of
the four items listed below by the aggregate additions to the capital account attributable to the project for the taxable year
and all earlier taxable years. Those four
items are (1) governmental grants received
for the project; (2) proceeds from tax-exempt state or local government bonds used
to finance the project; (3) directly and indirectly provided subsidized energy financing under a federal, state or local program
in connection with the project and (4) any
other credit allowable with respect to any
property that is part of the project.
SECTION 5. RULES RELATING
TO THE AVAILABILITY OF THE
REFINED COAL CREDIT
.01 Leased Refined Coal Production
Facility. The refined coal credit is allowed for qualified refined coal produced
and sold to an unrelated person by the
taxpayer, without regard to whether the
taxpayer owns the refined coal production
facility in which the refined coal is produced. Accordingly, a taxpayer that leases
or operates a facility owned by another
person may claim the credit for refined
coal that the taxpayer produces in the facility.
.02 Addition or Improvement to an Existing Facility. A refined coal production
facility will not be treated as placed in service after October 22, 2004, if more than
20 percent of the facility’s total value (the
cost of the new property plus the value of
the used property) is attributable to property placed in service on or before October 22, 2004. The Service will not issue private letter rulings relating to when
a refined coal production facility has been
placed in service.

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SECTION 6. RULES RELATING TO
EMISSION REDUCTION
.01 Emission Reductions Attributable to
Mining Processes Disregarded.
(1) In General. A qualified emission
reduction does not include any reduction
attributable to mining processes or processes that would be treated as mining if
performed by the mine owner or operator. Accordingly, the feedstock coal for
purposes of comparing the emissions released when burning the refined coal to the
emissions released when burning the feedstock coal is the product resulting from
processes that are treated as mining under section 6.01(2) of this notice and are
actually applied by a taxpayer in any part
of the taxpayer’s process of producing refined coal from coal.
(2) Processes Treated as Mining. Any
process described in § 613(c)(2), (3),
(4)(A), (4)(C), or (4)(I), or that would be
described in those provisions if performed
by the mine owner or operator, shall be
treated as a mining process for purposes
of this notice. Section 613(c)(2) provides
that the term ’mining’ includes not merely
the extraction of the ores or minerals from
the ground but also the treatment processes considered as mining described in
§ 613(c)(4) (and the treatment processes
necessary or incidental thereto). Section
613(c)(3) provides that extraction of ores
or minerals from the ground includes the
extraction by mine owners or operators of
ores or minerals from the waste or residue
of prior mining. Section 613(c)(4)(A)
provides, in the case of coal, that cleaning,
breaking, sizing, dust allaying, treating to
prevent freezing and loading for shipment
by a mine owner or operator shall be considered as mining. Section 613(c)(4)(C)
provides, in the case of minerals that are
customarily sold in the form of a crude
mineral product, that sorting, concentrating, sintering, and substantially equivalent
processes to bring to shipping grade and
form (see § 1.613–4(f)(3)(i)) shall be considered as mining. Section 613(c)(4)(I)
provides that the Secretary may prescribe
certain treatment processes that will be
treated as mining; this authority has been
used, for example, to provide that drying to remove free water, provided that
such drying does not change the physical or chemical identity or composition
of the mineral, is treated as mining (see

October 4, 2010

§ 1.613–4(f)(5)). Section 613(c)(5) describes treatment processes that are not
considered as mining unless they are provided for in § 613(c)(4) or are necessary
or incidental to a process provided for in
§ 613(c)(4). Any cleaning process, such
as a process that uses ash separation, dewatering, scrubbing through a centrifugal
pump, spiral concentration, gravity concentration, flotation, application of liquid
hydrocarbons or alcohol to the surface of
the fuel particles or to the feed slurry, provided such cleaning does not change the
physical or chemical structure of the coal,
and drying to remove free water, provided
such drying does not change the physical
or chemical identity of the coal, will be
considered as mining.
(3) Exception for Processing Waste
Coal.
(a) In General. A cleaning process
shall not be treated as a mining process
for purposes of applying this section 6.01
to refined coal produced from waste coal
at a facility placed in service before January 1, 2010, for the primary purpose of
producing refined coal from waste coal.
For purposes of this section 6.01(3), waste
coal means the waste materials that are
separated through ordinary mining processes during the process of producing a
merchantable product from the coal extracted from a natural deposit. This section
6.01(3) does not apply with respect to the
refined coal produced at a facility during a taxable year unless a verification of
waste coal supply, as described in section
6.01(3)(b), is available for such facility.
(b) Verification of Waste Coal Supply.
The verification of the waste coal supply
for a facility required under this section
6.01(3) must contain the following:
(i) The name, address, and telephone
number of the qualified individual.
(ii) A statement that the person providing the verification of the waste coal supply is a qualified individual.
(iii) A statement that the coal to be
processed by the facility is “waste coal”
within the meaning of section 6.01(3)(a).
(iv) A declaration, signed by the qualified individual, in the following form:
“Under penalties of perjury, I declare that I
have examined this verification statement
and, to the best of my knowledge and belief, it is true, correct, and complete.”

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(c) Qualified Individual. A qualified
individual for purposes of this section
6.01(3) is an individual that—
(i) is not related (within the meaning
of § 45(e)(4)) to the taxpayer claiming the
refined coal credit;
(ii) is properly licensed as a professional engineer; and
(iii) has the requisite qualifications to
provide the verification required under this
section 6.01(3).
(4) Exception for Certain Processing of
Utility-Grade Coal.
(a) In General. Mining processes do not
include a process that satisfies all of the
following requirements:
(i) The process modifies utility-grade
coal.
(ii) The process consists predominantly
of operations that are not ordinarily performed on similar coal by a mine owner or
operator.
(iii) The process goes beyond those necessary for the production of utility-grade
coal from similar coal.
(b) Utility-Grade Coal. Utility-grade
coal is coal that, without further processing, satisfies commonly applicable utility
specifications for similar coal.
(c) Similar Coal. Coals are similar if
they are of the same rank, are extracted
in the same geographic area, and are customarily sold in the same geographic area
(which may differ from the area where they
are extracted).
.02 Basis for Determining Emission Reduction.
(1) In General. Emission reductions are
determined by comparing the emissions
that result when feedstock coal and refined
coal are used to produce the same amounts
of useful thermal energy.
(2) Emissions Resulting from Production Process. Emissions that result from
the process of producing refined coal from
feedstock coal are treated for purposes of
this section 6.02 as emissions that result
when the refined coal is used to produce
useful thermal energy. In any case in
which waste heat from an activity other
than the production of refined coal is used
in the process of producing refined coal
from feedstock coal, the emissions associated with the waste heat are not treated as
emissions that result from such process.
The emissions that result when refined
coal is produced from feedstock coal must

405

be determined using a method that accurately measures such emissions.
(3) Adjustment for Additives. In any
case in which additives are used to produce the refined coal, appropriate adjustment must be made in determining the useful thermal energy produced by the refined
coal.
.03 Emission Reduction Testing Methods.
(1) CEMS Field Testing.
(a) In General. The emissions reduction may be determined using continuous
emission monitoring system (CEMS) field
testing. CEMS field testing is testing that
meets all the following requirements:
(i) The boiler used to conduct the test is
coal-fired and steam-producing and is of a
size and type commonly used in commercial operations.
(ii) Emissions are measured using a
CEMS.
(iii) If EPA has promulgated a performance standard that applies at the time
of the test to the pollutant emission being
measured, the CEMS must conform to that
standard.
(iv) Emissions for both the feedstock
coal and the refined coal are measured at
the same operating conditions and over a
period of at least 3 hours during which the
boiler is operating at a steady state and at
least 90 percent of full load. Operating
changes to power plant components that
are directly attributable to changing from
the feedstock coal to refined coal, such as
adjustment to primary and secondary air
are not treated as a change in operating
conditions for this purpose.
(v) Emissions of SO2 are measured upstream of any SO2 scrubber.
(vi) Emissions of Hg are measured upstream of any SO2 scrubber or Hg control
device (such as activated carbon injection).
(vii) Emissions of NOx are measured
upstream of any NOx controls.
(viii) A qualified individual verifies the
test results in a manner that satisfies the
requirements of section 6.03(1)(b) of this
notice.
(b) Downstream CEMS Testing Permitted. CEMS testing for emissions of
SO2 downstream of an SO2 scrubber, of
Hg downstream of an SO2 scrubber or Hg
control device, or of NOx downstream of
any NOx controls is permitted if such testing satisfies the requirements of section
6.03(1)(a)(i) through (iv) of this notice

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and emissions are measured in accordance
with section 6.03(1)(b)(i) or (if applicable)
(ii) of this notice.
(i) Except as provided in section
6.03(1)(b)(ii) of this notice, the emissions
must be measured in accordance with section 6.03(1)(a)(iv) and the taxpayer must
provide verification that any scrubber or
control device was operated under the
same operating conditions during the test
period. Such verification should include,
depending on the nature and type of the
control device, important control device
operating parameters such as, for a scrubber, continuous pressure drop, liquid flow
rate, and gas flow rate, and for an electrostatic precipitator, continuous secondary
voltage and current and number of fields
in operation.
(ii) If, during the 5-year period immediately preceding the date that the plant
began burning the refined coal, the plant
burned, throughout any 24-consecutivemonth period selected by the taxpayer
(the base period), feedstock coal from the
same source and of the same rank as the
feedstock coal used to produce the refined
coal, emissions of SO2 or NOx may be
measured by treating the average emissions at which the plant actually emitted
the pollutant during the base period as
the emissions for the feedstock coal and
the average emissions at which the plant
actually emitted the pollutant during a
6-month period in which the plant burned
the refined coal as emissions for the refined coal. Emissions must be determined
for purposes of this section 6.03(1)(b)(ii)
without regard to any reduction attributable to physical improvements or replacements of pollution control devices or other
physical changes to the plant made after
the beginning of the base period.
(c) Verification of Test Results. A verification of test results for purposes of this
section 6.03(1) must contain the following:
(i) The name, address, and telephone
number of the qualified individual.
(ii) A statement that the person providing the verification of test results is a qualified individual.
(iii) A statement that the testing satisfied all the requirements specified in either
section 6.03(1)(a)(i) through (vii) or (if applicable) section 6.03(1)(a)(i) through (iv)
and (b) of this notice.
(iv) In the case of any changes to operating conditions permitted under section

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6.03(1)(a)(iv) of this notice, a statement
that such operating changes are directly
attributable to the change in fuel and are
consistent with good air pollution control
practices.
(v) A statement that the amount of the
emissions reduction was determined in accordance with the provisions of section
6.01 and section 6.02 of this notice.
(vi) A declaration, signed by the qualified individual, in the following form:
“Under penalties of perjury, I declare that I
have examined this verification statement
and, to the best of my knowledge and belief, it is true, correct, and complete.”
(d) Qualified Individual. A qualified
individual for purposes of this section
6.03(1) is an individual that—
(i) is not related (within the meaning
of § 45(e)(4)) to the taxpayer claiming the
refined coal credit;
(ii) is properly licensed as a professional engineer; and
(iii) has the requisite qualifications to
provide the verification required under this
section 6.03(1).
(e) Reliance Permitted. If CEMS field
testing is used to determine the emissions
reduction, the Service will not, on examination, require any additional proof of the
emission reduction achieved. The Service
may, however, require the taxpayer to establish that the testing used qualifies as
CEMS field testing.
(2) Other Testing Methods. Methods
other than CEMS field testing may be used
to determine the emissions reduction. If a
method other than CEMS field testing is
used, the Service may require the taxpayer
to provide additional proof that the emission reduction has been achieved. Permissible methods include the following:
(a) Demonstration Pilot-Scale Combustion Furnace. A testing method using a
demonstration pilot-scale combustion furnace if it is established that the method
accurately measures the emissions reduction that would be achieved in a boiler described in section 6.03(1)(a)(i) of this notice and a qualified individual verifies the
test results in a manner that satisfies the
requirements of section 6.03(1)(c)(i), (ii),
(v), and (vi) of this notice.
(b) Laboratory Analysis of the Feedstock Coal and the Refined Coal. A laboratory analysis that complies with a currently
applicable EPA or ASTM standard and is

406

permitted under section 6.03(2)(b)(i) or (ii)
of this notice.
(i) Laboratory analysis may be used to
establish that the requisite emissions reduction for SO2 or Hg will be achieved if
the analysis shows that the sulfur(S) or Hg
content of the amount of refined coal necessary to produce an amount of useful energy has been reduced by at least 20 percent (40 percent, in the case of facilities
placed in service after December 31, 2008)
in comparison to the S or Hg content of
the amount of feedstock coal necessary to
produce the same amount of useful energy,
excluding any dilution caused by materials
combined or added during the production
process.
(ii) Laboratory analysis, including
proximate and ultimate analysis, if combined with appropriate analytical methods,
including Computational Fluid Dynamics
(CFD) modeling, may be used to show
that the requisite reduction in NOx will be
achieved when the refined coal is burned.
Such analytical methods must be based
on sufficient combustion emission data to
permit a qualified individual, as defined in
section 6.03(1) of this notice, to reliably
conclude that the emission reduction will
be achieved.
(3) In General. A taxpayer may show
qualified emission reduction of any pollutant by any of the testing methods that is
described as a permissible method of testing the emission reduction of that pollutant
in this section 6.03.
.04 Frequency of Testing.
(1) In General. A taxpayer may establish that a qualified emissions reduction
determined under section 6.03 of this notice applies to production from a facility by
a determination or redetermination that is
valid at the time the production occurs. A
determination or redetermination is valid
for the period beginning on the date of the
determination or redetermination and ending with the occurrence of the earliest of
the following events: (i) The lapse of six
months from the date of such determination or redetermination.
(ii) A change in the source or rank of
feedstock coal that occurs after the date of
such determination or redetermination.
(iii) A change in the process of producing refined coal from the feedstock coal
that occurs after the date of such determination or redetermination.

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(2) Redetermination Methods. In the
case of a redetermination required because
of a change in the process of producing refined coal from the feedstock coal, the redetermination required under this section
6.04 must use a method that meets the requirements of section 6.03 of this notice.
In any other case, the redetermination requirement may be satisfied by laboratory
analysis establishing that—
(a) The S or Hg content of the amount
of refined coal necessary to produce an
amount of useful energy has been reduced
by at least 20 percent (40 percent, in the
case of facilities placed in service after December 31, 2008) in comparison to the S
or Hg content of the amount of feedstock
coal necessary to produce the same amount
of useful energy, excluding any dilution
caused by materials combined or added
during the production process; or
(b) The S and Hg content of both the
feedstock coal and the refined coal do not
vary by more than ten percent from the
S and Hg content of the feedstock coal
and refined coal used in the most recent
determination that meets the requirements
of section 6.03 of this notice.
.05 Certification of Emissions Reduction. The certification requirement of section 3.01(1)(c) of this notice is satisfied
with respect to fuel for which the refined
coal credit is claimed only if the taxpayer
attaches to its tax return on which the credit
is claimed a certification that contains the
following:
(1) A statement that the fuel will result
in a qualified emissions reduction when
used in the production of steam.
(2) A statement indicating whether
CEMS field testing was used to determine
the emissions reduction.
(3) If CEMS field testing was not used
to determine the emissions reduction, a description of the method used.
(4) A statement that the emissions reduction was determined or redetermined
within the six months preceding the production of the fuel and that there have been
no changes in the source or rank of feedstock coal used or in the process of producing refined coal from the feedstock coal
since the emissions reduction was determined or was most recently redetermined.
(5) A declaration signed by the taxpayer
in the following form: “Under penalties of
perjury, I declare that I have examined this
certification and to the best of my knowl-

October 4, 2010

edge and belief, it is true, correct, and complete.”
SECTION 7. RECORDKEEPING
Section 6001 provides that every person liable for any tax imposed by the
Code, or for the collection thereof, must
keep such records, render such statements,
make such returns, and comply with such
rules and regulations as the Secretary may
from time to time prescribe. The books
and records required by § 6001 must be
kept at all times available for inspection
by authorized internal revenue officers
or employees, and must be retained so
long as the contents thereof may become
material in the administration of any internal revenue law. In order to satisfy the
recordkeeping requirements of § 6001 and
the regulations thereunder, a taxpayer that
claims the refined coal credit must retain
adequate books and records so that, for
any taxable year, it can be verified from
those books and records that the property
with respect to which the credit is claimed
satisfies the applicable requirements of
§ 45 and this notice.
SECTION 8. REQUEST FOR
COMMENTS
The IRS and the Treasury Department
invite comments concerning section 6.03
of this notice relating to emission reduction testing methods. Comments should
refer to Notice 2010–54 and be submitted
to:
Internal Revenue Service
CC:PA:LPD:PR (Notice 2010–54)
Room 5203
P. O. Box 7604
Ben Franklin Station
Washington, DC 20044
Submissions may be hand delivered Monday through Friday between the hours of 8
a.m. and 4 p.m. to:
Courier’s Desk
Internal Revenue Service
1111 Constitution Ave., N.W.
Washington, DC 20224
Attn: CC:PA:LPD:PR
(Notice 2010–54)
Alternatively,
taxpayers
may
submit comments electronically to
[email protected].

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Please include “Notice 2010–54”
in the subject line of any electronic
communications.
All comments will be available for public inspection and copying.
SECTION 9. EFFECTIVE DATE
This notice is effective for refined coal
produced after September 16, 2010. Taxpayers may apply the provisions of this notice with respect to refined coal produced
on or before September 16, 2010.
SECTION 10. PAPERWORK
REDUCTION ACT
The collection of information contained
in this notice has been reviewed and approved by the Office of Management and
Budget (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. § 3507)
under control number 1545–2158.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this notice is in section 6 of this notice. This information will be used by the Service to
verify that the taxpayer is eligible for the
production tax credit for refined coal. The
collection of information is required to obtain a benefit. The likely respondents are
businesses or other for-profit institutions.
The estimated total annual reporting
burden is 1500 hours.
The estimated annual burden per respondent varies from 10 to 20 hours, depending on individual circumstances, with
an estimated average of 15 hours. The estimated number of respondents is 100.
The estimated annual frequency of responses is on occasion.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and return information are confidential, as required by
26 U.S.C. § 6103.
SECTION 11. DRAFTING AND
CONTACT INFORMATION
The principal author of this notice is
Philip Tiegerman of the Office of Associate Chief Counsel (Passthroughs and

2010–40 I.R.B.

Special Industries). However, other personnel from the IRS and Treasury participated in its development. For further
information regarding this notice, contact
Mr. Tiegerman at (202) 622–3110.

Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2010–61
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in effect for plan years beginning before 2008.
It also provides guidance on the corporate bond monthly yield curve (and the
corresponding spot segment rates), the
24-month average segment rates, and
the funding transitional segment rates
under § 430(h)(2). In addition, this notice provides guidance as to the interest
For Plan Years
Beginning in

rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the minimum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections 412(b)(5)(B)(ii) and 412(l)(7)
(C)(i), as amended by the Pension Funding
Equity Act of 2004 and by the Pension
Protection Act of 2006 (PPA), provide that
the interest rates used to calculate current
liability and to determine the required
contribution under § 412(l) for plan years
beginning in 2004 through 2007 must be
within a permissible range based on the
weighted average of the rates of interest on
amounts invested conservatively in long
term investment grade corporate bonds
during the 4-year period ending on the last
day before the beginning of the plan year.

Month

Year

Corporate
Bond Weighted
Average

September

2010

6.24

YIELD CURVE AND SEGMENT
RATES
Generally for plan years beginning
after 2007 (except for delayed effective
dates for certain plans under sections 104,
105, and 106 of PPA), § 430 of the Code
specifies the minimum funding requirements that apply to single employer plans
pursuant to § 412. Section 430(h)(2) specifies the interest rates that must be used
to determine a plan’s target normal cost
and funding target. Under this provision,
present value is generally determined using three 24-month average interest rates

2010–40 I.R.B.

(“segment rates”), each of which applies
to cash flows during specified periods.
However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates. For
plan years beginning in 2008 and 2009, a
transitional rule under § 430(h)(2)(G) provides that the segment rates are blended
with the corporate bond weighted average
as specified above. An election may be
made under § 430(h)(2)(G)(iv) to use the
segment rates without applying the transitional rule.
Notice 2007–81, 2007–2 C.B. 899,
provides guidelines for determining the

Notice 2004–34, 2004–1 C.B. 848, provides guidelines for determining the corporate bond weighted average interest rate
and the resulting permissible range of interest rates used to calculate current liability. That notice establishes that the corporate bond weighted average is based on the
monthly composite corporate bond rate derived from designated corporate bond indices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
August 2010 is 5.16 percent. Pursuant
to Notice 2004–34, the Service has determined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.

Permissible Range
90%
5.62

to

6.24

monthly corporate bond yield curve, the
24-month average corporate bond segment rates, and the funding transitional
segment rates used to compute the target normal cost and the funding target.
Pursuant to Notice 2007–81, the monthly
corporate bond yield curve derived from
August 2010 data is in Table I at the end
of this notice. The spot first, second, and
third segment rates for the month of August 2010 are, respectively, 1.81, 4.81,
and 5.88. The three 24-month average
corporate bond segment rates applicable
for September 2010 under the election of
§ 430(h)(2)(G)(iv) are as follows:

First
Segment

Second
Segment

Third
Segment

3.78

6.31

6.57

408

100%

October 4, 2010