Dingell Urges Treasury to Reconsider Nonconventional Fuel Credit Guidance

[1] I am writing you to urge you to again reconsider your policy guidance to the Internal Revenue Service with respect to the administration of their advance ruling policy for certain coal synthetic fuels (synfuels) under Code section 29. This tax credit for qualified fuels has a long history at the Service. Although the Congress enacted the credit in 1980, general guidance to taxpayers on it has been sparse and grudging. In Revenue Ruling 86-100, 1986-2C B 3 the Service finally set forth its interpretation that the credit is granted to synthetic fuels produced from coal if they differ in chemical composition from the coal used to produce them.

[2] The Service issued nearly 50 letter rulings applying its standards for qualifying for the coal synfuel credit and taxpayers invested substantial amounts in synfuel facilities in reliance on these positions of the IRS, letter rulings became practical business prerequisite for synfuel investors and operators Last October, without any prior announcement, the Clinton Administration informally suspended the IRS rulings program in April of 2000 and Treasury announced a moratorium on ruling through Revenue Procedure 2000-47

[3] At that time, I, along with several other Members, expressed concern about the moratorium and their strong support for resumption of rulings based on the standards previously applied by the Service and relied upon by taxpayers. It was inappropriate and unfair for the Service to change its established position retroactively in the middle of the credit period.

[4] Shortly after the Bush Administration took office, Treasury and the Service Issued Revenue Procedures 2001-30 and 2001-34, purportedly reinstating the rulings program. The Treasury press release stated.

"The IRS is resuming ruling based on the standards embraced by

[6] Effected taxpayers have informed me that they only recently learned how the Service intends to implement Code section 29 and the Revenue procedure. It appears that the Service will impose additional limits, more stringent than the new one in the Revenue Procedure, that restrict the ability of the taxpayer to claim the credit to which they are entitled under law. This is contrary to the assurances given earlier this year.

[7] It is my understanding that the Service has taken the position on that the production capacity of the facility Will be limited to the minimum performance requirements contained in the contract for construction of the synfuel facility I am aware the Service has been presented with information and reports demonstrating that contract minimum capacities were never intended to represent the production capacity of the facility, but were conservative minimums by contractors constructing facilities with highly uncertain technologies. It appears that evidence presented to the Service by effected taxpayers demonstrates that their facilities are able to produce, and have produced amounts well in excess of the contractual minimum capacity to which the Service seems to be proposing to limit most of them Contrary to the Treasury release, this proposition by no means appears to increase certainty for taxpayers seeking private letter rulings."

[8] Finally, Congress is currently considering comprehensive energy bill that contains tax provisions that would provide incentives for taxpayers to invest in new technologies that are designed to spur energy production. The position of the Service on the section 29 credit does not appear to send a positive message on how such energy incentives will fare when the time comes to administer any of them that might be enacted.

[9] I thank you in advance for your consideration on this matter. Should you have any questions, please do not hesitate to contact me directly, or have your staff contact my legislative director, David Dumke.

[10] With every good wish,

Sincerely yours