TaxNewsFlash-Cooperatives

July 21, 2008
No. 2008-18

IRS Addresses Tax Treatment of Transfers, Expenses Under Termination Agreement Concerning Rural Electric Cooperative

The IRS recently issued a letter ruling that addresses a number of issues concerning the income tax treatment of consideration paid to or on behalf of a rural electric cooperative under a termination agreement and with respect to the expenses incurred in connection with the termination agreement. PLR 200828011, released July 11, 2008, and dated April 15, 2008.

For an electronic version of the letter ruling: PLR 200828011

Overview

The taxpayer is a public utility and a member of an affiliated group of corporations, and is engaged in the business of leasing and operating certain electric generation assets that are owned by a rural electric generation and transmission cooperative. The taxpayer is not related to the cooperative in any manner.

The cooperative is engaged in the business of purchasing electric power, reselling that electric power on a wholesale basis, and transmitting that electric power and other electric power over an extensive electricity transmission system owned and operated by it.

The cooperative filed a voluntary petition in bankruptcy.

A letter ruling request was filed with the IRS with respect to the treatment of certain transfers under power purchase agreements and concerning the treatment of payments made under a termination agreement.

For more information, contact KPMG’s National Director of Cooperative Tax Services:

Teree Castanias, in Sacramento, (916) 554-1146, tcastanias@kpmg.com

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