Rp 2001-29

of the lease term, for a person who is not a
member of the lessee group to purchase or
lease the facility from X. The facility is not
considered to be limited use property.
(e) X builds an electrical generating plant on land owned by Y and leases
the plant to Y. The lease term is 40 years,
and the plant has an estimated useful life
of 50 years. The land is leased to X pursuant to a ground lease for a term of 50
years. The plant is adjacent to a fuel
source that it is estimated will last for at
least 50 years. Access to this fuel source
is necessary for the commercial operation
of the plant, and Y has recently obtained
the contractual right to acquire all fuel
produced from the source for 50 years. Y
will use the plant to produce and generate
electrical power for sale to a city located
500 miles away. The plant is synchronized into a power grid that makes the
sale of electrical power to a number of potential markets commercially feasible. It
would not be commercially feasible to
disassemble the plant and reconstruct it at
a new location. The electrical generating
plant is considered to be limited use property because access to the fuel source held
exclusively by Y is necessary for the commercial operation of the plant.
(f) The facts are the same as in
example (e) except X has an option, exercisable at the end of the lease term of the
plant, to acquire from Y the contractual
right to acquire all fuel produced from the
fuel source for the 10-year period commencing at the end of such lease term. It
would be commercially feasible at the end
of such lease term for X to exercise this
option. Furthermore, it would be commercially feasible, at the end of such lease
term, for a person who is not a member of
the lessee group to purchase the contractual right to the fuel from X for an amount
equal to the option price and purchase or
lease the plant from X. The plant is not
considered to be limited use property.
SECTION 6. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 75–21, 1975–1 C.B. 715,
Rev. Proc. 76–30, 1976–2 C.B. 647, and
Rev. Proc. 79–48, 1979–2 C.B. 529, are
modified and, as modified, are superseded.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective
May 7, 2001.

May 7, 2001

SECTION 8. DRAFTING
INFORMATION

SECTION 3. GENERAL
REQUIREMENTS

The principal author of this revenue
procedure is Edward Schwartz of the Office of Associate Chief Counsel (Income
Tax and Accounting). For further information regarding this revenue procedure,
contact Mr. Schwartz at (202) 622-4960
(not a toll-free call).

.01 The lessor, the lessee, and any other
party with an interest in the leasing transaction for which a specific ruling is requested must join in the ruling request.
.02 The ruling request must include a
summary statement of the facts as described in section 8 of Rev. Proc. 2001–1,
2001–1 I.R.B. 1 (or its successor).
.03 In addition to the information and
documents required by section 8 of Rev.
Proc. 2001–1, the ruling request must include detailed information required by
section 4 of this revenue procedure. If the
information requested is not applicable to
the parties or to the transaction, an express statement to that effect is required.
The response to each item of information
requested must include a reference to the
page number of any relevant document
containing the information that supports
the response. Furthermore, portions of
the relevant documents supporting a particular response should be underscored or
otherwise highlighted and cross-referenced to the appropriate subsection of
section 4 of this revenue procedure. All
parties joining in the request for ruling are
jointly responsible for responses to each
item of information requested by section
4 of this revenue procedure, with the exception of section 4.02 for which only the
lessor is responsible.
.04 The lessor must also submit copies
of any offering circular, prospectus, economic analysis, or other document used to
induce the lessor’s investment in the
leased property (the “Property”). These
documents must include an analysis of the
projected cash flow to the lessor from the
lease transaction including the projected
benefits from the tax attributes thereof.

26 CFR 601.201: Rulings and determination
letters.
(Also Part I, sections 38, 61, 162, 167, 467; 1.61–1,
1.162–1, 1.167(a)–1, 1.467–3.)

Rev. Proc. 2001–29
SECTION 1. PURPOSE
This revenue procedure sets forth the
information and representations required
to be furnished by taxpayers in requests
for advance rulings on leveraged lease
transactions within the meaning of Rev.
Proc. 2001–28, 2001–19 I.R.B. 1156.
Rev. Proc. 2001–28 provides guidelines
to be used for advance ruling purposes in
determining whether such a transaction is,
in fact, a valid lease for federal income
tax purposes. The specific terms used in
this revenue procedure are defined in Rev.
Proc. 2001–28.
SECTION 2. BACKGROUND
.01 The checklist set forth in this revenue procedure is designed to ensure the
inclusion and order of presentation of
necessary information in the initial ruling
request so that the Internal Revenue Service can more promptly and efficiently
process the request. However, since the
information necessary for the issuance of
a ruling with regard to any particular
transaction depends upon all the facts and
circumstances of that case, information in
addition to that outlined in the checklist
may be required with respect to that transaction.
.02 In view of the complexity of a typical leveraged lease transaction and the
voluminous nature of the related documentation, the Service cannot accept the
responsibility for raising or considering
issues arising out of such provisions that
are not specifically brought to its attention.

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SECTION 4. SPECIFIC
INFORMATION REQUIRED
.01 In general
(1) Describe in detail the type and
quantity of the Property.
(2) Identify and describe all parties to the leveraged lease transaction,
their respective interests in such transaction, and the relationships that exist
between or among such parties.
(3) Submit a diagram of the transaction showing (a) the parties to the transaction, (b) the succession of ownership to

2001–19 I.R.B.

the Property, and (c) the source, amounts,
and flow of the funds used to acquire the
Property (total acquisition cost within the
meaning of § 1012 of the Internal Revenue Code).
(4) Indicate whether the Property
is to be temporarily or permanently affixed to or installed on or in land, buildings, or other property. If so, indicate
who will own such land, buildings, or
other property.
(5) Indicate whether the Property
is new, reconstructed, used, or rebuilt.
(See §§ 1.48–2 and 1.48–3 of the Income
Tax Regulations; Rev. Rul. 68–111,
1968–1 C.B. 29; and Rev. Rul. 70–135,
1970–1 C.B. 10.)
(6) Indicate when, where, and
how the Property will be, or has been,
first placed in service or use.
.02 Minimum Unconditional At Risk Investment
The lessor must:
(1) Indicate the total acquisition
cost (within the meaning of § 1012) of the
Property.
(2) Indicate when and in what
amounts the lessor did or will make its
Equity Investment or incur personal liability for such Equity Investment.
(3) Indicate the conditions under
which the lessor would be entitled to a return of any portion of its Equity Investment or would be released from any
personal liability for such Equity Investment.
(4) Submit a representation of the
net worth of the lessor and financial data
to support the representation, including,
for example, audited balance sheets
or unaudited balance sheets with a representation that the latter are prepared in accordance with generally accepted accounting principles.
(5) Submit an analysis demonstrating that the lessor’s Equity Investment will remain equal to at least 20 percent of the cost of the Property at all times
throughout the lease term. This analysis
must demonstrate that throughout the
lease term the items designated as (a), (b),
(c), and (d) below solve the formula “(a)(b) never exceeds (c) + (d).”
(a) The projected cumulative
payments required to be paid by the lessee
to or for the lessor.
(b) The projected cumulative
disbursements required to be paid by or

2001–19 I.R.B.

for the lessor in connection with the ownership of the Property, excluding the
lessor’s initial Equity Investment, but
including any direct costs to finance the
Equity Investment.
(c) The excess of the lessor’s
initial Equity Investment over 20 percent
of the cost of the Property.
(d) A cumulative pro rata portion of the projected profits from the
transaction (exclusive of tax benefits).
Profit for this purpose is the excess of the
sum of (i) the amounts required to be paid
by the lessee to or for the lessor over the
lease term plus (ii) the value of the residual investment referred to in section
4.01(3) of Rev. Proc. 2001–28, over the
aggregate disbursements required to be
paid by or for the lessor in connection
with the ownership of the Property,
including the lessor’s initial Equity
Investment and any direct costs to finance
the Equity Investment.
(6) Furnish an opinion, from a
qualified expert who has professional
knowledge of the type of property subject to the lease, regarding:
(a) the fair market value of the
Property at the end of the lease term,
determined in accordance with section
4.01(3) of Rev. Proc. 2001–28, and the
manner in which such fair market value
was determined;
(b) the cost to the lessor, if any,
of the removal and delivery of possession
of the Property to the lessor at the end of
the lease term; and
(c) the remaining useful life of
the Property at the end of the lease term,
and the manner in which such useful life
was determined.
.03 Lease Term and Renewal Options
Indicate the period for which the Property will be leased initially, if there are any
provisions for the renewal or extension of
such period, and, if so, on what terms.
.04 Purchase and Sale Rights
(1) Indicate whether any member of the Lessee Group or any other party
has a contractual obligation or right to
purchase all or any part of the Property at
any time, and, if so, when, under what
conditions, and at what price.
(2) Indicate whether the lessor
or any other party has a contractual right
to cause any party to purchase the
Property, and if so, when and under what
conditions.

1161

(3) Indicate whether the lessor,
a shareholder of the lessor, or a party
related to the lessor (within the meaning
of § 318), or any other party who has
joined in the request for a ruling has any
present intention to acquire a contractual
right to cause any party to purchase or sell
the Property, and, if so, when and under
what conditions.
(4) Indicate whether the lessor
may abandon the Property to any party at
any time, and if so, when, to whom, and
under what conditions.
.05 No Investment by Lessee
(1) Indicate whether any member of the Lessee Group may be required
to furnish any part of the cost of the
Property, and if so, when and under what
conditions.
(2) Submit a representation that
at the commencement of the term of the
lease neither a Nonseverable Improvement, nor a Severable Improvepment
(other than a Severable Improvement of a
kind customarily furnished by purchasers
or lessees of property of the kind subject
to the lease) is required in order to complete the property for its intended use by
the lessee.
(3) If Severable Improvements
may be made to the Property, indicate
who will own the Severable Improvements and identify the parties who will
provide the funds necessary to purchase
them.
(4) Indicate whether any Severable Improvement is to be the subject of
a contract or option for purchase or sale,
and if so, describe the contract or option
terms.
(5) If Nonseverable Improvements may be made to the Property, identify the parties who will provide the funds
necessary to purchase them.
(6) Indicate whether a member
of the Lessee Group may receive compensation, directly or indirectly, for its interest in any Nonseverable Improvement.
(7) Indicate whether the lease
states that the addition of any Nonseverable
Improvement will not cause the Property to
become limited use property.
(8) Indicate whether a member
of the Lessee Group may provide the cost
of a Nonseverable Improvement that is
not described in one of the subparagraphs
of section 4.04(3)(a) of Rev. Proc.
2001–28.

May 7, 2001

(9) Indicate whether the lease
(or any document or other agreement)
requires a member of the Lessee Group
either to make a specific Nonseverable
Improvement, or to make Nonseverable
Improvements of a specific value or minimum value.
(10) Indicate whether the transaction contains any cost overrun provisions, who must pay the cost overrun, and
whether the lease provides for an adjustment to rents to compensate the lessor for
any additional cost incurred because of
cost overruns.
(11) If a member of the Lessee
Group may furnish amounts to pay for the
cost of a Nonseverable Improvement,
indicate which subparagraph of section
4.04(3)(a) of Rev. Proc. 2001–28
describes the Nonseverable Improvement.
.06 No Lessee Loans or Guarantees
(1) Indicate whether any member of the Lessee Group will guarantee an
indebtedness incurred in connection with
the acquisition of the Property by the
lessor and, if so, under what terms and
conditions.
(2) Indicate whether any member of the Lessee Group directly or indirectly made or will make any other guarantees as a part or result of the lease
transaction. If so, describe such guarantees.
.07 Profit Requirement
(1) Submit an analysis demonstrating that the lessor will receive a profit from the transaction exclusive of benefits from the tax attributes thereof. This
analysis should demonstrate that the items
identified as (a), (b), and (c) below will
solve the formula “(a) + (b) exceed (c).’’
(a) The projected aggregate
payments required to be paid by the lessee
to or for the lessor over the lease term.
(b) The value of the residual
investment described in section 4.01(3) of
Rev. Proc. 2001–28.
(c) The projected sum of the
aggregate disbursements required to be
paid by or for the lessor in connection
with the ownership of the Property,
including the lessor’s initial Equity
Investment, and any direct costs to
finance the Equity Investment.
(2) Submit an analysis demonstrating that the lessor will have a projected positive cash flow from the lease transaction. This analysis must contain the

May 7, 2001

following information in order to demonstrate that the items identified as (a) and
(b) will solve the formula “(a) exceeds (b)
by a reasonable minimum amount.”
(a) The projected aggregate
payments required to be paid by the lessee
to or for the lessor over the lease term.
(b) The projected aggregate disbursements required to be paid by or for
the lessor in connection with the ownership of the Property, excluding the
lessor’s initial Equity Investment, but
including any direct costs to finance the
Equity Investment.
.08 Other Considerations: Limited
Use Property
(1) Indicate whether the
Property is expected to be useful or usable
by the lessor at the end of the lease term
and capable of continued leasing or transfer to any party. If such a representation
is made, demonstrate its commercial feasibility.
(2) Indicate whether the Property would be useful or usable at the end
of the lease term by a party other than a
member of the Lessee Group, and if so,
describe such use.
(3) Indicate whether the
Property needs to be dismantled, disconnected, or removed from any site on
which it was placed or installed in order
for possession thereof to be returned to
the lessor at the end of the lease term. If
so:
(a) Indicate whether and how
such dismantling, disconnection, or
removal will affect the value of the
Property for the purpose for which it was
originally intended to be used, and
(b) Demonstrate the commercial feasibility of reassembling, reconnecting, or installing the Property at
another location.
.09 Other
(1) Set forth the details of the
repayment of the portion of the total
acquisition cost borrowed by the lessor
(debt service), including an analysis of the
anticipated repayment of principal and
interest on such debt by the lessor.
(2) List and explain all provisions of the lease transaction relating to
indemnities, termination, obsolescence,
casualty, stipulated casualty value, and
insurance.
(3) State that if the Service
rules that the lessor is the owner of the

1162

Property for federal income tax purposes
at the time that the Property is first placed
in service or use, the lessee will not claim
that it is such an owner at such time.
SECTION 5. OTHER INSTRUCTIONS
Documents that have been submitted
with the request for an advance ruling
may, as indicated below, be amended by
the parties, prior to the date on which the
Property is first placed in service or use.
A complete explanation of the changes
must be submitted together with specific
references to both the original and
amended documents. If, as a result of the
amended documents, the responses required by section 4 of this revenue procedure are modified, the revised responses
must be brought to the attention of the
Service in such a fashion as to be readily
understandable. In situations where the
transaction is materially revised by the
amendments, the original request for advance ruling, together with all submissions including the amended documents,
will be considered by the Service to be a
new request for advance ruling received
on the date that it receives the amended
documents. The Service ordinarily will
not rule on the consequences of a proposed amendment that purports to relate
back to the time when the Property was
first placed in service, or purports to affect the issue of the ownership of the
Property at that time.
SECTION 6. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 75–28, 1975–1 C.B. 752,
and Rev. Proc. 79–48, 1979–2 C.B. 529,
are modified, and as modified, are superseded.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information contained in this revenue procedure have
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 1545–1738.
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.

2001–19 I.R.B.

The collection of information is contained in section 4 of this revenue procedure. This information is required to establish the economic substance of the
transaction and its bona fides as a true
lease. The likely respondents are individual taxpayers and corporations.
The estimated total annual reporting
burden is 800 hours.
The estimated annual burden per respondent will vary from 60 hours to 100 hours,
depending on individual circumstances,
with an estimated average of 80 hours. The
estimated number of respondents is 10.
The estimated annual frequency of responses is on occasion.
Books and 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 § 6103.
SECTION 8. EFFECTIVE DATE
This revenue procedure is effective
May 7, 2001.
SECTION 9. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Edward Schwartz of the Office of Associate Chief Counsel (Income
Tax and Accounting). For further information regarding this revenue procedure,
contact Mr. Schwartz at (202) 622-4960
(not a toll-free call).

26 CFR 601.201: Rulings and determination
letters.
(Also Part I, § 29.)

Rev. Proc. 2001–30
SECTION 1. PURPOSE
This revenue procedure informs the
public of the Internal Revenue Service’s
decision to issue private letter rulings regarding whether a solid fuel produced
from coal is a qualified fuel under
§ 29(c)(1)(C) of the Internal Revenue
Code under the circumstances described
in section 3 of this revenue procedure.

2001–19 I.R.B.

SECTION 2. BACKGROUND
Section 2.01 of Rev. Proc. 2001–3,
2001–1 I.R.B. 111, provides that whenever appropriate in the interest of sound
tax administration, it is the policy of the
Service to answer inquiries of individuals
and organizations regarding their status
for tax purposes and the tax effects of
their acts or transactions, prior to the filing of returns or reports that are required
by the revenue laws. There are, however,
certain areas in which, because of the inherently factual nature of the problems involved, or for other reasons, the Service
will not issue rulings or determination letters.
Section 4 of Rev. Proc. 2001–3 sets
forth those areas in which rulings or determination letters will not ordinarily be
issued. “Not ordinarily” means that
unique and compelling reasons must be
demonstrated to justify the issuance of a
ruling or determination letter. Section
2.01 of Rev. Proc. 2001–3.
Section 4.02(1) of Rev. Proc. 2001–3
provides that the Service will not ordinarily issue rulings or determination letters
regarding any matter in which the determination requested is primarily one of
fact, for example, market value of property, or whether an interest in a corporation is to be treated as stock or indebtedness.
Section 5 of Rev. Proc. 2001–3 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.
Section 5.01 of Rev. Proc. 2001–3 provides that the Service will not issue rulings or determination letters on whether a
solid fuel other than coke or a fuel produced from waste coal is a qualified fuel
under § 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 5.01 of Rev. Proc. 2001–3 supersedes Rev. Proc. 2000–47, 2000–46
I.R.B. 482. Rev. Proc. 2000–47 was published because concern had been raised
that taxpayers were claiming the § 29
credit for processing coal in ways that

1163

may not have been intended by the Congress. Rev. Proc. 2000–47 requested
comments concerning the standard to be
applied in determining whether fuel produced from coal is a solid synthetic fuel.
The Service received extensive comments.
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).
Rev. Rul. 86–100, 1986–2 C.B. 3,
adopts for purposes of § 29(c)(1)(C) the
definition of synthetic fuel in
§ 1.48–9(c)(5) of the Income Tax Regulations. 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. Rev.
Rul. 86–100 describes favorably
processes such as gasification, liquefaction, and production of solvent refined
coal that result in substantial chemical
changes to the entire coal feedstock rather
than changes that affect only the surface
of the coal.
Section 29(f) provides that § 29 applies
to qualified fuels that are produced in a
facility placed in service after December
31, 1979, and before January 1, 1993, and
that are sold before January 1, 2003. Section 29(g)(1)(A) provides that a facility
for producing qualified fuels described in
§ 29(c)(1)(C) is treated for this purpose as
being placed in service before January 1,
1993, if the facility is placed in service
before July 1, 1998, pursuant to a binding
written contract in effect before January
1, 1997. For a facility that meets this condition and is originally placed in service
after December 31, 1992, § 29(g)(1)(B)
provides that the § 29 credit applies to
qualified fuels that are sold before January 1, 2008.
Property is “placed in service” in the
taxable year the property is placed in a
condition or state of readiness and availability for a specifically assigned function. See, for example, § 1.167(a)
–11(e)(1)(i). Thus, the § 29 credit is not
allowed for fuel produced in a facility that
was originally placed in service for a
function other than producing qualified
fuel under § 29(c)(1)(C) and was not con-

May 7, 2001