Synfuels

No. 78
Monday April 23, 2001 Page G-4
ISSN 1523-567X
Tax, Budget & Accounting

EnergyIRS Resumes Issuing Private Letter Rulings
On Section 29 Tax Credit for Synthetic Fuels

The Internal Revenue Service announced April 20 in Revenue Procedure 2001-30
that it will resume issuing private letter rulings on whether synthetic fuels
produced from coal qualify for a tax credit under tax code Section 29.
Section 29 provides a credit for the production and sale of "qualified fuels"
produced from a nonconventional source, IRS said, including liquid, gaseous,
or solid synthetic fuels produced from coal or lignite. In Rev. Proc. 2000-47
(209 DTR G-1, L-1, 10/27/00), IRS stopped issuing rulings under Section 29
because it said it was concerned that taxpayers claiming the credit were not
processing the coal in the manner intended by Congress.
IRS asked for information on the processes used to produce solid fuel for
which taxpayers claimed the credit. It received numerous comment letters,
many urging it to resume issuing rulings, others agreeing that some processes
should not qualify for the credit.

Ruling Requirements

In Rev. Proc. 2001-30, IRS said it will issue a ruling on processes it had
approved prior to 2000. The production process must meet the following
requirements, IRS said:

substantially all of the coal used as feedstock must undergo a significant
chemical change;
the feedstock coal must consist entirely of coal fines or crushed coal
comprised of particles no larger than 1/8 inch;
the feedstock coal must be thoroughly mixed: (a) with styrene or other
monomers following an acid bath, (b) with quinoline or other organic resin
and left to cure for several days, © with ultra heavy hydrocarbons, or (d)
with an aluminum and/or magnesium silicate binder after being heated to a
minimum temperature of 500 degrees Fahrenheit; and
the treatment method must involve elevated temperature and pressure that
results in briquettes, pellets, or an extruded fuel product or the taxpayer
may represent that the omission of these procedures will not significantly
increase the production output of the facility.

The revenue procedure applies to both pending and future ruling requests.
Rev. Proc. 2001-30 will be published in Internal Revenue Bulletin 2001-19,
dated May 7.
Text of Rev. Proc. 2001-30 is in Section L.
Text of a Treasury Department news release on the revenue procedure is in BNA
TaxCore.

By Brant Goldwyn

Copyright , 2001 by The Bureau of National Affairs, Inc., Washington D.C.