Td 9358

Federal Register / Vol. 72, No. 175 / Tuesday, September 11, 2007 / Rules and Regulations
documentation to the Regional
Administrator at the time of application
for a limited access permit that the
vessel has an operational VMS unit
installed on board that meets the
minimum performance criteria, unless
otherwise allowed under this paragraph
(b). If a vessel has already been issued
a limited access permit without the
owner providing such documentation,
the Regional Administrator shall allow
at least 30 days for the vessel to install
an operational VMS unit that meets the
criteria and for the owner to provide
documentation of such installation to
the Regional Administrator. The owner
of a vessel issued a limited access NE
multispecies permit that fishes or
intends to fish under a Category A or B
DAS as specified in paragraph (b)(1)(vi)
of this section must provide
documentation to the Regional
Administrator that the vessel has an
operational VMS unit installed on board
that meets those criteria prior to fishing
under a groundfish DAS. NMFS shall
send letters to all limited access NE
multispecies DAS and Atlantic surfclam
and ocean quahog permit holders and
provide detailed information on the
procedures pertaining to VMS purchase,
installation, certification, and use.
*
*
*
*
*
■ 6. In § 648.14, paragraph (a)(25) is
revised to read as follows:

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§ 648.14

Prohibitions.

(a) * * *
(25) Fail to maintain an operational
VMS unit as specified in § 648.9, and
comply with any of the notification
requirements specified in § 648.15(b)
including:
(i) Fish for, land, take, possess, or
transfer surfclams or ocean quahogs
under an open access surfclam or ocean
quahog permit without having provided
proof to the Regional Administrator of
NMFS that the vessel has a fully
functioning VMS unit on board the
vessel and declared a surfclam, ocean
quahog, or Maine mahogany quahog
fishing activity code via the VMS unit
prior to leaving port as specified at
§ 648.15(b);
(ii) Beginning January 1, 2009, fish
for, land, take, possess, or transfer ocean
quahogs under a limited access Maine
mahogany quahog permit without
having provided proof to the Regional
Administrator of NMFS that the vessel
has a fully functioning VMS unit on
board the vessel and declared a fishing
trip via the VMS unit as specified at
§ 648.15(b).
*
*
*
*
*
■ 7. In § 648.15, paragraph (b) is revised
to read as follows:

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§ 648.15

Facilitation of enforcement.

*

*
*
*
*
(b) Special notification requirements
applicable to surfclam and ocean
quahog vessel owners and operators. (1)
Surfclam and ocean quahog open
access permitted vessels. Vessel owners
or operators issued an open access
surfclam or ocean quahog open access
permit for fishing in the ITQ Program,
as specified at § 648.70, are required to
declare their intended fishing activity
via VMS prior to leaving port.
(2) Maine mahogany quahog limited
access permitted vessels. Beginning
January 1, 2009, vessel owners or
operators issued a limited access Maine
mahogany quahog permit for fishing for
Maine mahogany quahogs in the Maine
mahogany quahog zone, as specified at
§ 648.76, are required to declare via
VMS, prior to leaving port, and entering
the Maine mahogany quahog zone, their
intended fishing activity, unless
otherwise exempted under paragraph
§ 648.4(a)(4)(ii)(B)(1).
(3) Declaration out of surfclam and
ocean quahog fisheries. Owners or
operators that are transiting between
ports or fishing in a fishery other than
surfclams and ocean quahogs must
either declare out of fisheries or declare
the appropriate fishery, if required, via
the VMS unit, before leaving port. The
owner or operator discontinuing a
fishing trip in the EEZ or Maine
mahogany quahog zone must return to
port and offload any surfclams or ocean
quahogs prior to commencing fishing
operations in the waters under the
jurisdiction of any state.
(4) Inspection by authorized officer.
The vessel permits, the vessel, its gear,
and catch shall be subject to inspection
upon request by an authorized officer.
(5) Authorization for use of fishing
trip notification via telephone. The
Regional Administrator may authorize
or require the notification of surfclam or
ocean quahog fishing trip information
via a telephone call to the NMFS Office
of Law Enforcement nearest to the point
of offloading, instead of the use of VMS.
If authorized, the vessel owner or
operator must accurately provide the
following information prior to departure
of his/her vessel from the dock to fish
for surfclams or ocean quahogs in the
EEZ: Name of the vessel; NMFS permit
number assigned to the vessel; expected
date and time of departure from port;
whether the trip will be directed on
surfclams or ocean quahogs; expected
date, time, and location of landing; and
name of individual providing notice. If
use of a telephone call-in notification is
authorized or required, the Regional
Administrator shall notify affected
permit holders through a letter,

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51703

notification in the Federal Register, email, or other appropriate means.
*
*
*
*
*
■ 8. In § 648.75, paragraph (a) is revised
to read as follows:
§ 648.75

Cage identification.

*

*
*
*
*
(a) Tagging. Before offloading, all
cages that contain surfclams or ocean
quahogs must be tagged with tags
acquired annually under paragraph (b)
of this section. A tag must be fixed on
or as near as possible to the upper
crossbar of the cage. A tag is required for
every 60 ft3 (1,700 L) of cage volume, or
portion thereof. A tag or tags must not
be removed until the cage is emptied by
the processor, at which time the
processor must promptly remove and
retain the tag(s) for 60 days beyond the
end of the calendar year, unless
otherwise directed by authorized law
enforcement agents.
*
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*
[FR Doc. E7–17898 Filed 9–10–07; 8:45 am]
BILLING CODE 3510–22–S

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9358]
RIN 1545–BC99

Treatment of Certain Nuclear
Decommissioning Funds for Purposes
of Allocating Purchase Price in Certain
Deemed and Actual Asset Acquisitions
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:

SUMMARY: This document contains final
regulations relating to the allocation of
purchase price in certain deemed and
actual asset acquisitions under sections
338 and 1060. These regulations affect
sellers and purchasers of nuclear power
plants or of the stock of corporations
that own nuclear power plants.
DATES: Effective Date: These regulations
are effective September 11, 2007.
Applicability Date: For dates of
applicability, see §§ 1.338–6(c)(5)(vi)
and 1.1060–1(e)(1)(ii)(C)(4).
FOR FURTHER INFORMATION CONTACT:
Richard Starke at (202) 622–7790 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:

Background
On September 16, 2004, the IRS and
Treasury Department issued a notice of

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proposed rulemaking and temporary
regulations in the Federal Register (69
FR 55740), modifying regulations under
sections 338 and 1060 of the Internal
Revenue Code (Code). The text of the
temporary regulations was identical to
the text of the proposed regulations.
Sections 338 and 1060 and the
regulations thereunder provide a
methodology by which the purchase or
sales price in certain actual and deemed
asset acquisitions is computed and
allocated among the assets acquired or
treated as acquired. The regime employs
a residual method of allocation that
divides assets into seven classes and
allocates the consideration to each of
the first six classes in turn, up to the fair
market value of the assets in the class.
The residual amount is allocated to
assets in the last class.
The purchase price generally includes
liabilities of the seller that are assumed
by the purchaser. Those liabilities,
however, must be treated as having been
incurred by the purchaser. In order to be
treated as having been incurred by the
purchaser, in addition to other
requirements, economic performance
must have occurred with respect to the
liability.
In connection with the sale of a
nuclear power plant, the assets sold by
the seller and purchased by the
purchaser may include the plant,
equipment, operating assets, and one or
more funds holding assets that have
been set aside for the purpose of
satisfying the owner’s responsibility to
decommission the nuclear power plant
after the conclusion of its useful life (the
decommissioning liability), and the
purchaser may have agreed to satisfy the
decommissioning liability. One or more
of such funds may not be a fund
described in section 468A. Such other
funds are referred to as nonqualified
funds. Contributions to nonqualified
funds do not give rise to a deduction in
the year of contribution. In addition, the
assets of a nonqualified fund continue
to be treated as assets of the contributor.
The preamble to the proposed and
temporary regulations concluded that
the decommissioning liability will not
satisfy the economic performance test
until decommissioning occurs, and
therefore that, as of the purchase date,
it is not included in the purchase price
that the purchaser allocates to the
acquired assets. As a result, as of the
purchase date, the purchase price to be
allocated by the purchaser among the
acquired assets may be significantly less
than the fair market value of those
assets. This situation will generally
persist until economic performance
with respect to the decommissioning

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liability is satisfied through
decommissioning.
Generally under the residual method,
the purchase price is allocated to the
nonqualified fund’s assets, which are
typically Class I and Class II assets,
before it is allocated to the plant,
equipment, and other operating assets,
which are typically Class V assets.
Because the purchase price does not
reflect the decommissioning liability
and is first allocated to the assets of the
nonqualified fund, the purchase price
allocated to the plant, equipment, and
other operating assets may be less than
their fair market value. To the extent the
purchase price allocated to the plant,
equipment, and other operating assets is
less than their fair market value, the
purchaser will not recover a tax benefit
(that is, a depreciation deduction) for
the decommissioning liability until
economic performance occurs on
decommissioning.
To mitigate the tax effect of these
decommissioning liabilities’ not
satisfying the statutory requirements for
economic performance as to the
purchaser, the temporary regulations
added § 1.338–6T. That regulation
provides that, for purposes of allocating
purchase or sales price among the
acquisition date assets of a target, a
taxpayer may irrevocably elect to treat a
nonqualified fund as if such fund were
an entity classified as a corporation the
stock of which were among the
acquisition date assets of the target and
a Class V asset. In these cases, for
allocation purposes, the hypothetical
subsidiary corporation is treated as
bearing the responsibility for
decommissioning to the extent assets of
the fund are expected to be used for that
purpose. A section 338(h)(10) election is
treated as made for the hypothetical
subsidiary corporation (regardless of
whether the requirements for a section
338(h)(10) election are otherwise
satisfied).
The election converts the assets of the
nonqualified fund from primarily Class
I and Class II assets into stock of a
hypothetical subsidiary corporation
which is a Class V asset and allows the
present cost of the decommissioning
liability funded by the nonqualified
fund, which otherwise cannot be taken
into account for income tax purposes, to
be netted against the fund assets for the
sole purpose of valuing the stock of the
hypothetical subsidiary corporation.
Therefore, if the election is made, it is
expected that a larger amount of the
initial purchase price would be
available to be allocated to the plant and
other operating assets than if no such
election had been made. However, in
such a case, a much smaller amount of

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the initial purchase price would be
available to be allocated to the assets of
the nonqualified fund. Accordingly, a
disposition of the nonqualified fund
assets would likely result in current
gain recognition.
Explanation of Provisions and
Summary of Comments
A number of comments on the
proposed regulations were received, the
most significant of which are discussed
below. No public hearing was requested
nor held.
Economic Performance Test
The preamble to the proposed and
temporary regulations discussed
application of the economic
performance test of section 461 to the
assumption of decommissioning
liabilities by the purchaser. Various
commentators requested that, with
respect to the purchaser of a nuclear
power plant, the economic performance
rules outlined in the proposed and
temporary regulations be modified to
provide that economic performance
with respect to an assumed
decommissioning liability be deemed to
occur at the time of purchase rather than
upon performance of the
decommissioning activities.
Specifically, commentators pointed out
that the election in the proposed and
temporary regulations will typically
result in the purchaser holding the
assets of the nonqualified fund with
little or no tax basis, and subsequent
investment reallocations undertaken
during the course of portfolio
management will result in gain
recognition and a current tax liability.
Further, the commentators noted that
nonqualified trust agreements related to
nuclear decommissioning obligations
often require the trustees to remit to the
purchasers, out of trust assets, the
monies necessary to pay the purchasers’
taxes resulting from the trusts’ sales of
assets. The commentators expressed
concern that this requirement will result
in fewer assets in the trust to be used
to decommission the nuclear power
plant because trustees will be required
to either remit taxes from the fund or
restrict changes in the fund’s investment
portfolio.
The IRS and Treasury Department
recognize that requiring the purchaser to
satisfy the economic performance of a
liability assumed in a purchase
transaction can result in the deferral of
the basis of the acquired assets in the
hands of the purchaser. However, this
result is not unique to the assumption
of decommissioning liabilities and
therefore, the economic performance
concerns raised by commentators

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extend beyond the scope of these
regulations. The final regulations adopt
the rules provided in the proposed and
temporary regulations which are
consistent with the application of
economic performance rules of section
461 to liabilities assumed by a
purchaser.
The Deemed Section 338(h)(10) Election
Several of the commentators urge that,
if the IRS and Treasury Department
decline to change the position on
economic performance, then the final
regulations should eliminate the
particular result of the § 1.338–6T(c)(5)
election set forth in § 1.338–
6T(c)(5)(i)(E). That provision deems a
section 338(h)(10) election to be made
with respect to the hypothetical
subsidiary corporation that results from
making the § 1.338–6T(c)(5) election.
The deemed section 338(h)(10) election
operates to eliminate any carryover of
the historic basis in the assets in the
nonqualified decommissioning fund
from the seller to the buyer. The
commentators maintain that, as a
substitute for the § 1.338–6T(c)(5)
election, the parties to the transaction
could preserve the historic basis in the
assets in the nonqualified fund by
having the seller incorporate the
nonqualified fund in a new subsidiary
with the subsidiary assuming the
appropriate portion of the
decommissioning obligation long before
the sale of the nuclear power plant.
However, simply eliminating the
deemed section 338(h)(10) election that
results from making the § 1.338–6T(c)(5)
election would not necessarily result in
the same tax consequences to the parties
as a transaction in which the seller
incorporated the nonqualified fund in a
new subsidiary prior to the sale of the
nuclear power plant. The purchase of a
subsidiary as opposed to an assumption
of the decommissioning liability
generally would result in tax accounting
differences not only to the buyer but
also the seller. Eliminating the deemed
section 338(h)(10) election that results
from making the § 1.338–6T(c)(5)
election would have the effect of
essentially accelerating economic
performance with respect to an assumed
nuclear decommissioning liability in a
manner inconsistent with the economic
performance rules of other assumed
liabilities. Therefore, the final
regulations adopt the deemed section
338(h)(10) election rule as provided in
§ 1.338–6T(c)(5)(i)(E).
Another group of commentators urge
that the § 1.338–6T(c)(5) election be
made retroactively available prior to
September 15, 2004. The allocation
rules applicable under sections 338 and

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51705

1060 prior to September 15, 2004,
however, were comprehensive, and the
manner in which they operated was
well known to participants in the
nuclear power industry. Section 1.338–
6T(c)(5) originally was proposed with a
prospective effective date, and, while
the members of the nuclear power
industry at that time urged that § 1.338–
6T(c)(5) be made available retroactively,
the IRS and Treasury Department
declined to do so because transactions
negotiated prior to September 15, 2004,
would have been based on the rules of
§ 1.338–6 without inclusion of § 1.338–
6T(c)(5). Although the commentators
state that the nuclear power industry is
very competitive and that some
purchasers who purchased nuclear
power plants prior to September 15,
2004, might be at a disadvantage relative
to those who purchased on or after
September 15, 2004, these final
regulations are only applicable
prospectively so as not to retroactively
alter the tax consequences of prior
transactions.
Finally, one commentator notes that
§ 1.338–6T(c)(5)(i)(D) treats the
hypothetical subsidiary corporation as
bearing responsibility for
decommissioning only to the extent that
assets of the fund are expected to be
used for that purpose (the expected use
standard). The commentator argues that
proving the expected use of the
nonqualified assets might be a
contentious issue and prove difficult.
The commentator proposes that, for
purposes of clarity, the hypothetical
subsidiary corporation should be treated
as bearing the responsibility for
decommissioning in an amount equal to
the fair market value of the nonqualified
fund assets at the time of the closing of
the transaction (causing the stock of the
hypothetical subsidiary corporation to
be assigned a zero value). The
commentator suggests that such an
approach would eliminate the
uncertainty contained in the expected
use standard and ensure that no portion
of the purchase price is allocated to the
nonqualified assets.
The IRS and Treasury Department
believe, however, that the
implementation of an approach that
does not establish a connection between
the fund assets and their expected use
may lead to the over funding of
nonqualified funds in certain
circumstances and inappropriate
allocations of basis. Accordingly, the
final regulations retain the expected use
standard.

regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has also been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations and pursuant to 5
U.S.C. 553(d)(3) it has been determined
that that a delayed effective date is
unnecessary because this rule finalizes
currently effective temporary rules
regarding the treatment of certain
nuclear decommissioning funds for
purposes of allocating purchase price in
certain acquisitions without substantive
change. It is hereby certified that these
regulations will not have a significant
economic impact on a substantial
number of small entities. This
certification is based on the fact that
these regulations will affect sellers and
purchasers of nuclear power plants or
the stock of corporations that own
nuclear power plants in qualified stock
purchases, which tend to be larger
businesses. Therefore, a regulatory
flexibility analysis is not required.
Pursuant to section 7805(f) of the Code,
the notice of proposed rulemaking
preceding these final regulations was
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.

Special Analyses
It has been determined that this
Treasury decision is not a significant

§ 1.338–6 Allocation of ADSP and AGUB
among target assets.

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Drafting Information
The principal author of these
regulations is Richard Starke, Office of
the Associate Chief Counsel (Corporate).
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by removing the
entries for Sections 1.338–6T and
1.1060–1T.

■

Authority: 26 U.S.C. 7805. * * *
■ Par. 2. Section 1.338–0 is amended by
removing the entry in the list of
captions for § 1.338–6T and by revising
the entry in the list of captions for
paragraph (c)(5) of § 1.338–6 to read as
follows:

§ 1.338–0

*

*

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*

Outline of topics.

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(c) * * *
(5) Allocation to certain nuclear
decommissioning funds.
*
*
*
*
*
■ Par. 3. Paragraph (c)(5) of § 1.338–6 is
amended to read as follows:
§ 1.338–6 Allocation of ADSP and AGUB
among target assets.

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*

*
*
*
*
(c) * * *
(5) Allocation to certain nuclear
decommissioning funds—(i) General
rule. For purposes of allocating ADSP or
AGUB among the acquisition date assets
of a target (and for no other purpose), a
taxpayer may elect to treat a
nonqualified nuclear decommissioning
fund (as defined in paragraph (c)(5)(ii)
of this section) of the target as if—
(A) Such fund were an entity
classified as a corporation;
(B) The stock of the corporation were
among the acquisition date assets of the
target and a Class V asset;
(C) The corporation owned the assets
of the fund;
(D) The corporation bore the
responsibility for decommissioning one
or more nuclear power plants to the
extent assets of the fund are expected to
be used for that purpose; and
(E) A section 338(h)(10) election were
made for the corporation (regardless of
whether the requirements for a section
338(h)(10) election are otherwise
satisfied).
(ii) Definition of nonqualified nuclear
decommissioning fund. A nonqualified
nuclear decommissioning fund means a
trust, escrow account, Government fund
or other type of agreement—
(A) That is established in writing by
the owner or licensee of a nuclear
generating unit for the exclusive
purpose of funding the
decommissioning of one or more
nuclear power plants;
(B) That is described to the Nuclear
Regulatory Commission in a report
described in 10 CFR 50.75(b) as
providing assurance that funds will be
available for decommissioning;
(C) That is not a Nuclear
Decommissioning Reserve Fund, as
described in section 468A;
(D) That is maintained at all times in
the United States; and
(E) The assets of which are to be used
only as permitted by 10 CFR 50.82(a)(8).
(iii) Availability of election. P may
make the election described in this
paragraph (c)(5) regardless of whether
the selling consolidated group (or the
selling affiliate or the S corporation
shareholders) also makes the election. In
addition, the selling consolidated group
(or the selling affiliate or the S
corporation shareholders) may make the

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election regardless of whether P also
makes the election. If T is an S
corporation, all of the S corporation
shareholders, including those that do
not sell their stock, must consent to the
election for the election to be effective
as to any S corporation shareholder.
(iv) Time and manner of making
election. The election described in this
paragraph (c)(5) is made by taking a
position on an original or amended tax
return for the taxable year of the
qualified stock purchase that is
consistent with having made the
election. Such tax return must be filed
no later than the later of 30 days after
the date on which the section 338
election is due or the day the original
tax return for the taxable year of the
qualified stock purchase is due (with
extensions).
(v) Irrevocability of election. An
election made pursuant to this
paragraph (c)(5) is irrevocable.
(vi) Effective/applicability date. This
paragraph (c)(5) applies to qualified
stock purchases occurring on or after
September 11, 2007. For qualified stock
purchases occurring before September
11, 2007 and on or after September 15,
2004, see § 1.338–6T as contained in 26
CFR Part 1 in effect on April 1, 2007.
For qualified stock purchases occurring
before September 15, 2004, see § 1.338–
6 as contained in 26 CFR Part 1 in effect
on April 1, 2004.
§ 1.338–6T

[Removed]

Par. 4. Section 1.338–6T is removed.
Par. 5. Section 1.1060–1 is amended
by:
■ 1. Revising in the Outline of Topics in
paragraph (a)(3), the entry for paragraph
(e)(1)(ii)(C).
■ 2. Removing the last sentence of
paragraph (c)(3) and adding four new
sentences in its place.
■ 3. Revising paragraph (e)(1)(ii)(C).
The revisions read as follows:
■
■

§ 1.1060–1 Special allocation rules for
certain asset acquisitions.

(a) * * *
(3) * * *
*
*
*

*

*

(e) * * *
(1) * * *
(ii) * * *
(C) Election described in § 1.338–6(c)(5).

*

*
*
*
*
(c) * * *
(3) Certain costs. * * * If an election
described in § 1.338–6(c)(5) is made
with respect to an applicable asset
acquisition, any allocation of costs
pursuant to this paragraph (c)(3) shall be
made as if such election had not been
made. The preceding sentence applies
to applicable asset acquisitions

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occurring on or after September 11,
2007. For applicable asset acquisitions
occurring before September 11, 2007,
and on or after September 15, 2004, see
§ 1.1060–1T as contained in 26 CFR Part
1 in effect on April 1, 2007. For
applicable asset acquisitions occurring
before September 15, 2004, see
§§ 1.338–6 and 1.1060–1 as contained in
26 CFR Part 1 in effect on April 1, 2004.
*
*
*
*
*
(e) * * *
(1) * * *
(ii) * * *
(C) Election described in § 1.338–
6(c)(5)—(1) Availability. The election
described in § 1.338–6(c)(5) is available
in respect of an applicable asset
acquisition provided that the
requirements of that section are
satisfied. Such election may be made by
the seller, regardless of whether the
purchaser also makes the election, and
may be made by the purchaser,
regardless of whether the seller also
makes the election.
(2) Time and manner of making
election. The election described in
§ 1.338–6(c)(5) is made by taking a
position on a timely filed original tax
return for the taxable year of the
applicable asset acquisition that is
consistent with having made the
election.
(3) Irrevocability of election. The
election described in § 1.338–6(c)(5) is
irrevocable.
(4) Effective/applicability date. This
paragraph (e)(1)(ii)(C) applies to
applicable asset acquisitions occurring
on or after September 11, 2007. For
applicable asset acquisitions occurring
before September 11, 2007 and on or
after September 15, 2004, see § 1.1060–
1T as contained in 26 CFR Part 1 in
effect on April 1, 2007. For applicable
asset acquisitions occurring before
September 15, 2004, see §§ 1.338–6 and
1.1060–1 as contained in 26 CFR Part 1
in effect on April 1, 2004.
*
*
*
*
*
§ 1.1060–1T
■

[Removed]

Par. 6. Section 1.1060–1T is removed.

Kevin M. Brown,
Deputy Commissioner for Services and
Enforcement.
Dated: August 31, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. E7–17817 Filed 9–10–07; 8:45 am]
BILLING CODE 4830–01–P

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