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Oil Company Finds Reg's Scope To Be Too Narrow.

JUN. 28, 1994

Oil Company Finds Reg's Scope To Be Too Narrow.

DATED JUN. 28, 1994
DOCUMENT ATTRIBUTES
  • Authors
    Watkins, Aurmond A., Jr.
  • Institutional Authors
    Occidental Petroleum Corporation
  • Cross-Reference
    PS-34-93
  • Code Sections
  • Subject Area/Tax Topics
  • Index Terms
    private activity bonds, exempt facility
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 94-6567
  • Tax Analysts Electronic Citation
    94 TNT 139-54
====== SUMMARY ======

Aurmond A. Watkins Jr. of Occidental Petroleum Corporation, Los Angeles, has objected to the scope of proposed reg. section 1.142(a)(5)-1. Specifically, Watkins states that limiting the scope of sewage treatment facilities to those operations historically performed at most publicly owned treatment works is overly restrictive and inconsistent with the legislative history of the 1986 Tax Reform Act. He asserts that the final regulations should include advanced, tertiary, and pretreatment of wastewater within the definition of sewage facilities.

====== FULL TEXT ======

June 28, 1994

Ms. Margaret Milner Richardson

 

Commissioner of Internal Revenue Service

 

CC:DOM:CORP:T:R (PS-34-93)

 

Internal Revenue Service

 

P.O. Box 7604, Ben Franklin Station, Room 5228

 

Washington, D.C. 20044

Re: Definition of Sewage Facilities for Tax-Exempt Bond Purposes

Dear Ms. Richardson:

The following comments, prepared by the undersigned on behalf of Occidental Petroleum Corporation (Occidental), are respectfully submitted for your consideration in connection with Proposed Treasury Regulation section 1.142(a)(5)-1, relating to the definition of sewage facilities for tax-exempt bond purposes, published in the Federal Register on May 3, 1994.

As the Background section of the Notice of Proposed Rulemaking explains, the Tax Reform Act of 1986 (the "1986 Act") eliminated the exemptions for air and water pollution control facilities, while retaining the exemption for sewage disposal facilities (renamed sewage facilities by the 1986 Act). The proposed regulation, however, attempts to limit the scope of qualifying projects to operations historically performed at most publicly-owned treatment works (POTW's), apparently viewing any facilities falling outside of this definition as analogous to prohibited water pollution control facilities.

It is the view of Occidental that the attempt to limit the scope of the sewage treatment facilities to those operations historically performed at most POTW's is overly restrictive and inconsistent with the legislative history of the 1986 Act. In this regard, the 1986 Conference Agreement (Bluebook at pg. 1169) provides as follows: THE ACT ALLOWS EXEMPT-FACILITY BONDS TO BE ISSUED TO FINANCE SEWAGE DISPOSAL FACILITIES, DEFINED IN THE SAME MANNER AS UNDER THE PRIOR LAW EXCEPTION FOR EXEMPT-ACTIVITY IDB'S FOR SEWAGE DISPOSAL FACILITIES. . . .

The foregoing passage from the 1986 Conference Agreement provides clear evidence of the Congressional intent to maintain the exemption for sewage facilities, as it existed prior to the 1986 Act. In addition, several private letter rulings, issued both prior to and subsequent to the passage of the 1986 Act, illustrate that the Internal Revenue Service, historically, has maintained a broad view of what constitutes sewage facilities under both the Internal Revenue Codes of 1954 and 1986, respectively. We believe that these rulings are quite useful in defining the scope of sewage facilities and otherwise are consistent with the legislative history in the tax- exempt financing area.

By way of example, PLR 8545051 specifically authorized tax- exempt financing for multistage tertiary treatment facilities related to the private industrial use of effluent subsequent to the primary and secondary treatment of the effluent at city owned waste-water treatment plants. The proposed regulations, on the other hand, would preclude TERTIARY and ADVANCED TREATMENT facilities from qualifying for tax-exempt financing.

Similarly, in PLR 8814017, tax-exempt financing was specifically authorized for certain PRETREATMENT facilities which would reduce the biochemical oxygen demand (BOD) load of sewage generated by private companies and emptied into a city's sewage treatment plant in accordance with relevant Environmental Protection Agency guidelines. The purpose of the tax-exempt facilities was to pretreat and clarify the effluent prior to its discharge into the city's sewage plant. Curiously, PLR 9019009 revoked PLR 8814017 without providing an adequate explanation as to why such revocation occurred or the reasons underlying the Service's change in policy. (PLR 8916053, also endorsing an expanded view of qualifying facilities, was similarly revoked by PLR 9018063.) The proposed regulations, apparently following the approach of the Service's changed ruling policy, would preclude tax-exempt financing for pretreatment facilities altogether, notwithstanding the beneficial effect of such facilities and a compelling public policy supporting a more clarified and cleaner effluent.

In view of the absence of any legislative history contained in the 1986 Act which would support the Service's policy change, it is Occidental's position that the less restrictive approach (pursued through at least 1990) should be maintained and that final regulations should include advanced, tertiary, and pretreatment of waste water within the definition of sewage facilities.

Occidental wishes to express its appreciation for the opportunity to comment on these proposed regulations. Should you or any of your representatives need any additional information in connection with the consideration of Occidental's submission, you may write to the undersigned at the address shown hereon or call directly at (310) 443-6262.

Very truly yours,

Aurmond A. Watkins, Jr.

 

Vice President -- Tax

 

Occidental Petroleum Corporation

 

Los Angeles, California
DOCUMENT ATTRIBUTES
  • Authors
    Watkins, Aurmond A., Jr.
  • Institutional Authors
    Occidental Petroleum Corporation
  • Cross-Reference
    PS-34-93
  • Code Sections
  • Subject Area/Tax Topics
  • Index Terms
    private activity bonds, exempt facility
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 94-6567
  • Tax Analysts Electronic Citation
    94 TNT 139-54
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