Levin and Dingell Dismayed About Changes in Nonconventional Fuel Credit Availability

[1] We are writing to express our deep concern about the recent IRS ruling policy on section 29 tax credits contained in Revenue Procedure 2000-47. The policy set out in this revenue procedure threatens to do serious harm to energy- and steel-producing companies in Michigan and elsewhere, and must be corrected.

[2] Contrary to longstanding policy, the new section 29 revenue procedure provides that the IRS will rule on projects only in the case of synthetic fuel produced from waste coal. As we stated in our earlier letters to you on this subject, such a policy has a number of negative impacts. First of all, the new procedure unnecessarily changes long-established policy in the middle of the game. A number of companies have invested substantial sums in processes and facilities that produce synthetic fuel from coal. Under the October 27 procedure, many of these projects -- developed in accordance with longstanding IRS standards -- are no longer eligible for rulings on the section 29 credit, without regard to their merits.

[3] The new procedure would also harm the U.S. steel industry, which has benefitted from the use of synthetic fuel for coke production. As you know, steel making requires coke as a fuel. Coke is produced from metallurgical coal as well as synthetic fuel produced from metallurgical coal. Specifications for metallurgical coals or coal-based synfuels are demanding in the coke-making process; as a consequence, there is no occasion for the use of waste coal in the production of synfuel used as a coke feedstock. In adopting the position that only rulings involving synfuels produced from waste coal will be considered by the IRS, the IRS' new revenue procedure prevents the steel industry from benefitting from the credit.

[4] Further, there is no basis for restricting the section 29 credit to synfuels derived from waste coal. Section 29 provides a tax credit for synthetic fuel produced from coal. There is nothing in the code that limits -the credit to fuels created from waste coal. If Congress had intended to limit the credit to waste coal, it would have done so.

[5] The new revenue procedure must be corrected. At a minimum, rules should be at the earliest opportunity providing that synthetic fuel produced from metallurgical coal for the production of coke qualifies for the credit.

[6] Your prompt attention to this matter is urgently requested. We look forward to your reply. Thank you for your consideration of this important matter.

Sincerely,