November 29, 2020

Volume X, Number 334


Final Section 468A Regulations Issued At Last

On September 4, 2020, the Internal Revenue Service (IRS) and the US Department of the Treasury (Treasury) published in the Federal Register final regulations under section 468A of the Internal Revenue Code (the Code) that address three issues raised by the nuclear electric industry concerning qualified nuclear decommissioning funds (“qualified funds”). These final regulations conclude a many years-long regulation project to clarify the rules relating to decommissioning costs and self-dealing rules. McDermott submitted multiple sets of comments throughout the process, and Marty Pugh provided vital testimony during an IRS hearing on the proposed regulations.

In Depth

The final regulations address three issues: (1) the definition of “nuclear decommissioning costs” for purposes of section 468A; (2) clarification of the applicable self-dealing rules to services performed by a disqualified person; and (3) the definition of substantial completion of decommissioning.

First, the regulations respond to requests we made in a 2015 letter for guidance to allow a qualified fund to pay for expenses related to independent spent fuel storage installations (ISFSIs) regardless of whether such costs are immediately deductible. The final regulations confirm that the requirement that nuclear decommissioning costs be “otherwise deductible” under the Code do not apply to ISFSI expenses. The final regulations expand the definition of nuclear decommissioning costs to include expenses incurred to store spent nuclear fuel off site. The regulations confirm that the definition of nuclear decommissioning costs not only includes currently deductible costs, but also includes costs recoverable through depreciation or amortization. Additionally, costs for land improvements were included in the revised definition of nuclear decommissioning costs.

Second, the final regulations clarify the applicability of the self-dealing rules to transactions between a qualified fund and disqualified persons. The final regulations clarify that compensation paid by a qualified fund to a disqualified person for decommissioning services will not be an act of self-dealing even though such payment includes reimbursement of direct or indirect overhead costs or a profit element. Under the rules, compensation is generally permitted if it “would ordinarily be paid for like services by like enterprises under like circumstances.” This change provides welcomed clarity to allow power plant owners to contract with affiliates to decommission and provide other related services directly.

And finally, the final regulations adopt the proposed regulations to expand the definition of substantial completion to be the date on which “all federal, state, local and contractual decommissioning liabilities are fully satisfied.” This change permits a taxpayer to maintain a qualified fund to satisfy state, local or contractual obligations for decommissioning such as greenfielding or other environmental obligations, when the requirements of the Nuclear Regulatory Commission are already satisfied.

The final regulations were effective September 4, 2020 and generally apply to taxable years ending on or after September 4, 2020.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 259



About this Author

Martha Groves Pugh, Federal Income Tax Attorney, McDermott Will Emery Law Firm

Martha Groves Pugh is counsel in the law firm of McDermott Will & Emery LLP and is based in its Washington, D.C., office.  She focuses her practice on federal income tax issues with a particular emphasis on the nuclear and energy industries.  Marty has helped clients seek and receive many private letter rulings and has extensive experience in drafting legislative language for tax proposals. Her practice also includes tax planning for proposed transactions and advising clients on audits, appeals and litigation issues...

Brian Moore Associate Washington, DC Tax  Federal Taxation  State & Local Tax  Tax Structuring

Brian Moore focuses his practice on US and international tax matters. While in law school, Brian served as an AmeriCorps JD Veterans Legal Assistance Intern for Legal Assistance of Western New York and he was an articles editor for the Yale Law and Policy Review. Prior to attending law school, he served as a research assistant for the White House Council of Economic Advisors where he assisted the chairman and members of the council in advising the president on tax policy and other public finance matters. Additionally, he was a research analyst for a global think tank and a research...