TaxNewsFlash-Cooperatives

November 3, 2008
No. 2008-26

IRS Considers Whether Cooperative Qualifies for Clean Renewable Energy Bond with Respect to Electricity Ultimately Produced From Municipal Solid Waste Biodegradation Plant

The IRS recently issued a letter ruling that addresses whether a cooperative’s electric generating project qualifies under the clean renewable energy bond (CREB) rules when the electricity is generated from gas that is in turn derived from a municipal solid waste biodegradation plant. PLR 200844008, dated June 25, 2008, and released October 31, 2008.

For an electronic version of the letter ruling: PLR 200844008

Summary

A finance cooperative makes loans to its rural utility system members who, in turn, use the funds to acquire, construct, and operate electric generation, distribution, transmission and related facilities. The finance cooperative also provides its members with letters of credit and guarantees of debt obligations. One of the members is a not-for-profit member-owned electric cooperative.

The IRS made an allocation of the clean renewable energy bond (CREB) limitation under section 54(f)(2) to the finance cooperative with respect to a project that produces electricity from gas derived from a municipal solid waste biodegradation plant to be owned by its member electric cooperative.

The finance cooperative plans to loan a portion of the CREB proceeds to the electric cooperative to reimburse it for costs incurred in constructing the project. The finance cooperative requested a ruling from the IRS as to whether the project constitutes a qualified project for purposes of section 54(d)(2)(A). At issue is how to interpret a reference to section 45 contained in section 54.

After examining the legislative history, the IRS concluded that in determining whether the project constitutes a qualified project for purposes of section 54(d)(2)(A), a reference in section 54(d)(2)(A) to section 45(d) is construed without applying section 45(e)(9)(A). This allows the finance cooperative to claim the section 54 credit.

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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