Election To Expense Certain Refineries, 39227-39233 [08-1423]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 73, Number 132 (Wednesday, July 9, 2008)]
[Rules and Regulations]
[Pages 39227-39233]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 08-1423]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9412]
RIN 1545-BF06


Election To Expense Certain Refineries

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the 
election to expense qualified refinery property under section 179C of 
the Internal Revenue Code, and affects taxpayers who own refineries 
located in the United States. These temporary regulations reflect 
changes to the law made by the Energy Policy Act of 2005. The text of 
these temporary regulations also serves as the text of the proposed 
regulations set forth in the notice of proposed rulemaking on this 
subject in the Proposed Rules section in this issue of the Federal 
Register.

DATES: Effective Date: These regulations are effective on July 9, 2008.
    Applicability Date: For dates of applicability, see Sec.  1.179C-
1T(g).

FOR FURTHER INFORMATION CONTACT: Philip Tiegerman (202) 622-3110 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    These temporary regulations are being issued without prior notice 
and public procedure pursuant to the Administrative Procedure Act (5 
U.S.C. 553). For this reason, the collection of information contained 
in these regulations has been reviewed and, pending receipt and 
evaluation of public comments, approved by the Office of Management and 
Budget under control number (1545-2103). Responses to this collection 
of information are mandatory.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid OMB control number.
    For further information concerning this collection of information, 
and where to submit comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble to the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section in this 
issue of the Federal Register.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains proposed amendments to 26 CFR part 1 to 
provide regulations under section 179C of the Internal Revenue Code 
(Code). Section 179C was added to the Code by section 1323(a) of the 
Energy Policy Act of 2005, Public Law 109-58 (119 Stat. 594) to 
encourage the construction of new refineries and the expansion of 
existing refineries to enhance the nation's refinery capacity.

[[Page 39228]]

    Section 179C(a) allows a taxpayer to elect to deduct 50 percent of 
the cost of any qualified refinery property. The remaining 50 percent 
of the taxpayer's qualifying expenditures are generally recovered under 
section 168 and section 179B, if applicable. The provisions of section 
179C apply to qualified refinery property placed in service by a 
taxpayer after August 8, 2005, and before January 1, 2012. All costs 
properly capitalized into qualified refinery property are includable in 
the cost of the qualified refinery property.

Explanation of Provisions

Scope

    The temporary regulations restate the provisions of section 179C 
and provide guidance on certain issues related to electing and 
determining the deduction allowable under section 179C(a). 
Specifically, the temporary regulations provide guidance on making 
elections under section 179C(a) and (g), and the associated reporting 
requirements contained in section 179C(h). Further, the temporary 
regulations provide guidance on determining and substantiating the 
production capacity requirement, as well as guidance addressing the 
availability of the deduction in certain sale-leaseback transactions. 
The temporary regulations generally interpret the statute in a manner 
consistent with existing statutory and regulatory principles and 
recognize that taxpayers have had to address section 179C issues for 
prior tax years in the absence of regulations. While these temporary 
regulations generally apply to taxable years ending on or after July 9, 
2008 and terminate three years after the date they are published in the 
Federal Register, the temporary regulations may be applied by taxpayers 
to taxable years ending prior to July 9, 2008. These temporary 
regulations also provide procedures for claiming the section 179C(a) 
deduction for taxable years ending prior to July 9, 2008.

Property Eligible for the Section 179C Deduction

    Under section 179C(c), property must meet several requirements to 
be considered qualified refinery property eligible for the section 
179C(a) deduction. These requirements include the following: (1) The 
property must be part of a qualified refinery; (2) the original use of 
the property must commence with the taxpayer; (3) the property must be 
placed in service within a specified time period; (4) the property must 
meet certain production capacity requirements; (5) the property must 
meet all applicable environmental laws; and (6) the property must meet 
certain construction and written binding contract requirements.

Description of Qualified Refinery

    Section 179C(d) provides that a qualified refinery is a refinery 
located in the United States, whose primary purpose is to process 
liquid fuel from crude oil or qualified fuels. Section 179C(f) provides 
that refinery property is ineligible for the section 179C(a) deduction 
if the primary purpose of the refinery is for use as a topping plant, 
asphalt plant, lube oil facility, crude or product terminal, or 
blending facility; or if the refinery property is built solely to 
comply with consent decrees or projects mandated by Federal, state, or 
local governments.

Original Use Requirement

    Pursuant to the requirements under section 179C(c)(1)(A), the 
temporary regulations provide that the original use of qualified 
refinery property must commence with the taxpayer. The temporary 
regulations define original use as the first use to which the property 
is put, whether or not that use corresponds to the use of the property 
by the taxpayer, and provide certain exceptions for taxpayers that 
engage in certain sale-leaseback transactions.
    The temporary regulations provide that if a taxpayer incurs capital 
expenditures to recondition or rebuild property acquired or owned by 
the taxpayer, those capital expenditures will meet the original use 
requirement, and may qualify for deduction under section 179C(a). 
Consistent with the statute, the temporary regulations clarify that 
reconditioned or rebuilt property acquired by a taxpayer does not 
satisfy the original use requirement and is not qualified refinery 
property. The question of whether property is reconditioned or rebuilt 
property is a question of fact.
    Consistent with section 179C(c)(2), the temporary regulations also 
provide an exception to the original use requirement for certain sale-
leaseback transactions. If property is originally placed in service by 
a person after August 8, 2005, and is sold to a taxpayer, and leased 
back to the person by the taxpayer within three months after the date 
the property was originally placed in service by the person, the 
original use of that property is considered to have commenced with the 
taxpayer-lessor.

Placed in Service Requirements

    Section 179C(c)(1)(B) provides that qualified refinery property is 
property that is placed in service by the taxpayer after August 8, 
2005, and before January 1, 2012.
    Consistent with section 179C(c)(2), the temporary regulations 
provide that, for certain sale-leaseback transactions, if property is 
originally placed in service by a person after August 8, 2005, and is 
sold to a taxpayer and leased back to the person by the taxpayer within 
three months after the date the property was originally placed in 
service by the person, the new property is treated as originally placed 
in service by the taxpayer-lessor not earlier than the date on which 
the property is used by the lessee under the sale-leaseback.

Production Capacity Requirements

    The production capacity requirement of section 179C(c)(1)(C) and 
(e) is met if any portion of qualified refinery property: (1) Enables 
an existing qualified refinery to increase its total volume output, 
determined without regard to asphalt or lube oil, by 5 percent or more 
on an average daily basis; or (2) enables the existing qualified 
refinery to increase the percentage of total throughput attributable to 
processing qualified fuels to a rate that is at least 25 percent of 
total throughput on an average daily basis. Any reasonable method may 
be used to determine the appropriate baseline for measuring capacity 
increases and to demonstrate and substantiate that the capacity of the 
existing qualified refinery has been sufficiently increased. For 
example, the average annual output over a number of normal production 
years may provide a reasonable baseline for measuring an increase in 
capacity. The temporary regulations confirm that the existing qualified 
refinery is the refinery prior to the installation of qualified 
refinery property. The temporary regulations also confirm that the 
question of whether the qualified refinery property has sufficiently 
enabled output or throughput increases is properly evaluated as of the 
placed-in-service date of the qualified refinery property.

Any Applicable Environmental Laws Requirement

    Section 179C(c)(1)(D) provides that qualified refinery property 
must meet all applicable Federal, state, and local environmental laws. 
However, the environmental compliance requirement applies only with 
respect to the laws in effect on the date that qualified refinery 
property is placed in service after August 8, 2005, and before January 
1, 2012. Furthermore, a refinery's failure to meet applicable 
environmental laws with respect to a portion of the refinery

[[Page 39229]]

that was in service prior to August 8, 2005 will not disqualify the 
taxpayer from making the election under section 179C(a) with respect to 
the otherwise qualifying refinery property.
    Section 179C(c)(1)(D) and (c)(3) provides that the property must 
comply with the Clean Air Act, notwithstanding any waiver received by 
the taxpayer under that Act.
    Consistent with section 179C(f)(2), the temporary regulations 
provide that the section 179C(a) election is not available for 
identifiable refinery property built solely to comply with state, 
locally or Federally mandated projects or consent decrees. For example, 
a taxpayer may not elect to expense the cost of a scrubber necessary 
for the refinery to comply with the Clean Air Act, even if the scrubber 
is installed as part of a larger project, if the scrubber itself does 
not otherwise enable an increase in production capacity.

Construction and Written Binding Contract Requirements

    Under section 179C(c)(1), qualified refinery property will include 
otherwise qualified property that is placed in service by the taxpayer 
after August 8, 2005, and before January 1, 2012, but only if no 
written binding contract for the construction of the property was in 
effect on or before June 14, 2005. Pursuant to section 179C(c)(1)(F), a 
taxpayer must take some action constituting a construction commitment 
before January 1, 2008. To meet this test, any of the following three 
acts is sufficient: (1) Entering into a written binding construction 
contract before January 1, 2008; (2) placing the property in service 
before January 1, 2008; or (3) in the case of self-constructed 
property, starting self-construction after June 14, 2005, and before 
January 1, 2008.
    Consistent with existing section 168(k) principles, in the case of 
self-constructed property, the temporary regulations provide that 
construction begins when physical work (not including preliminary 
activities such as planning or designing, securing financing, 
exploring, or researching) of a significant nature begins. The 
determination of when work of a significant nature begins depends on 
the facts and circumstances. Cf. Treas. Regs. Sec.  1.168(k)-
1(b)(4)(iii)(B). Recognizing that taxpayers have had to make some 
determinations as to whether self-constructed property could qualify 
for the section 179C deduction in the absence of regulations, the 
temporary regulations provide that physical work of a significant 
nature will be deemed to have begun before January 1, 2008 for purposes 
of section 179C if the taxpayer performed some physical work before 
January 1, 2008 (such as clearing a site or excavation) and has 
performed physical work of a significant nature (as defined in Treas. 
Regs. Sec.  1.168(k)-1(b)(4)(iii)(B)) before October 7, 2008.

Elections

    Section 179C provides two elections. The first election is provided 
under section 179C(a), which allows a taxpayer to elect to deduct an 
amount equal to 50 percent of the costs paid or incurred by the 
taxpayer for qualified refinery property in the year the property is 
placed in service. The election generally must be made by the due date 
(including extensions) for filing the taxpayer's Federal income tax 
return for the taxable year in which the qualified refinery property is 
placed in service by the taxpayer. The taxpayer must make the election 
by entering the deduction claimed at the appropriate place on the 
taxpayer's Federal income tax return.
    A taxpayer that did not claim the section 179C(a) deduction on a 
Federal income tax return filed for a taxable year ending prior to July 
9, 2008 but wishes to claim the deduction for that taxable year may do 
so by properly making a section 179C(a) election under these proposed 
regulations on an amended return filed by December 31, 2008.
    In general, once an election is made under section 179C(a), it may 
not be revoked except with the written consent of the Commissioner. 
However, these temporary regulations provide that a taxpayer is deemed 
to have requested and been granted consent to revoke an election under 
section 179C(a) if the taxpayer revokes the election before the 
revocation deadline. The revocation deadline is the later of December 
31, 2008, or 24 months after the due date (including extensions) of the 
taxpayer's Federal income tax return for the taxable year for which the 
election applies. The taxpayer revokes the election by attaching a 
statement to an amended return for the taxable year for which the 
election applies. A taxpayer is not permitted to revoke an election 
under section 179C(a) after the revocation deadline. The revocation 
deadline may not be extended under Sec.  301.9100-1.
    The second election is provided in section 179C(g), which allows a 
taxpayer that is a subchapter T cooperative (cooperative taxpayer) and 
that has a subchapter T cooperative as one or more of its owners 
(cooperative owner(s)) to elect to allocate all or a portion of the 
deduction allowable under section 179C(a) for the taxable year to the 
cooperative owner(s). If a cooperative taxpayer makes an election under 
section 179C(g), the temporary regulations provide that this allocation 
is equal to the cooperative owner's ratable share of the total amount 
allocated, determined on the basis of the cooperative owner's ownership 
interest in the cooperative taxpayer at the beginning of the 
cooperative taxpayer's taxable year. Under the temporary regulations, 
the section 179C(g) election must be made by the due date (including 
extensions) for filing the cooperative taxpayer's original Federal 
income tax return for the taxable year for which the section 179C(a) 
election is made by the cooperative taxpayer. Under the temporary 
regulations, a cooperative taxpayer is required to make the election 
under section 179C(g) by attaching a statement to the cooperative 
taxpayer's Federal income tax return providing the name and taxpayer 
identification number of the cooperative taxpayer, the amount of the 
deduction allowable to the cooperative taxpayer, the name and taxpayer 
identification number of each cooperative owner, and the amount of the 
deduction allocated to each of the cooperative owner(s). Consistent 
with section 179C(g)(3), the temporary regulations also require the 
cooperative taxpayer to notify any cooperative owner in writing, and on 
Form 1099-PATR, ``Taxable Distributions Received from Cooperatives,'' 
of the amount of the section 179C(a) deduction that is apportioned to 
that cooperative owner. The written notice must be provided to the 
cooperative owner(s) before the due date (including extensions) of the 
cooperative taxpayer's original Federal income tax return.
    Consistent with section 179C(g)(2), once made, an election under 
section 179C(g) may not be revoked. Consequently, a taxpayer that has 
made an irrevocable section 179C(g) election may not elect to revoke 
its section 179C(a) election.

Reporting Requirements

    Section 179C(h) provides that any taxpayer making a section 179C(a) 
election must submit a statement in order to claim the section 179C(a) 
deduction. The temporary regulations provide that in order to claim the 
section 179C(a) deduction on a tax return filed after July 23, 2008, 
the taxpayer must attach the statement to the taxpayer's Federal income 
tax return for the taxable year in which the qualified refinery 
property is placed in service by the taxpayer. The taxpayer must 
identify the name and location of the qualified refinery property and 
provide an affirmation that the

[[Page 39230]]

taxpayer's refinery property meets the production capacity requirements 
of section 179C(e). The taxpayer also must provide the total cost basis 
of the qualified refinery property and the depreciation treatment of 
the capitalized portion of the qualified refinery property. If it has 
not already filed the statement, a taxpayer that has claimed the 
section 179C(a) deduction on a Federal income tax return filed prior to 
July 23, 2008, must attach a statement to its next Federal income tax 
return for each taxable year in which the taxpayer claimed the 
deduction but did not file a statement.

Effective/Applicability Date

    These temporary regulations generally apply to taxable years ending 
on or after July 9, 2008, and terminate on July 1, 2011. However, the 
proposed regulations may be relied upon by taxpayers for taxable years 
ending prior to July 9, 2008.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For the 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
refer to the Special Analyses section of the preamble to the cross-
reference notice of proposed rulemaking published in the Proposed Rules 
section in this issue of the Federal Register. Pursuant to section 
7805(f) of the Code, these regulations have been submitted to the Chief 
Counsel for Advocacy of Small Business Administration for comment on 
their impact on small business.

Drafting Information

    The principal author of these regulations is Philip Tiegerman, 
Office of Associate Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority for part 1 continues to read in part as 
follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.179C-1T is added to read as follows:


Sec.  1.179C-1T  Election to expense certain refineries (temporary).

    (a) Scope and definitions--(1) Scope. This section provides the 
rules for determining the deduction allowable under section 179C(a) for 
the cost of any qualified refinery property. The provisions of this 
section apply only to a taxpayer that elects to apply section 179C in 
the manner prescribed under paragraph (d) of this section.
    (2) Definitions. For purposes of section 179C and this section, the 
following definitions apply:
    (i) Applicable environmental laws are any applicable Federal, 
state, or local environmental laws.
    (ii) Qualified fuels has the meaning set forth in section 45K(c).
    (iii) Cost is the unadjusted depreciable basis (as defined in Sec.  
1.168(b)-1(a)(3), but without regard to the reduction in basis for any 
portion of the basis the taxpayer properly elects to treat as an 
expense under section 179C and this section) of the property.
    (iv) Throughput is a volumetric rate measuring the flow of crude 
oil or qualified fuels processed over a given period of time, typically 
referenced on the basis of barrels per calendar day.
    (v) Barrels per calendar day is the amount of fuels that a facility 
can process under usual operating conditions, expressed in terms of 
capacity during a 24-hour period and reduced to account for down time 
and other limitations.
    (vi) United States has the same meaning as that term is defined in 
section 7701(a)(9).
    (b) Qualified refinery property--(1) In general. Qualified refinery 
property is any property that meets the requirements set forth in 
paragraphs (b)(2) through (b)(7) of this section.
    (2) Description of qualified refinery property--(i) In general. 
Property that comprises any portion of a qualified refinery may be 
qualified refinery property. For purposes of section 179C and this 
section, a qualified refinery is any refinery located in the United 
States that is designed to serve the primary purpose of processing 
crude oil or qualified fuels.
    (ii) Nonqualified refinery property. Refinery property is not 
qualified refinery property for purposes of this paragraph (b)(2) if--
    (A) The primary purpose of the refinery property is for use as a 
topping plant, asphalt plant, lube oil facility, crude or product 
terminal, or blending facility; or
    (B) The refinery property is built solely to comply with consent 
decrees or projects mandated by Federal, state or local governments.
    (3) Original use--(i) In general. For purposes of the deduction 
allowable under section 179C(a), refinery property will meet the 
requirements of this paragraph (b)(3) if the original use of the 
property commences with the taxpayer. Except as provided in paragraph 
(b)(3)(ii) of this section, original use means the first use to which 
the property is put, whether or not that use corresponds to the use of 
the property by the taxpayer. Thus, if a taxpayer incurs capital 
expenditures to recondition or rebuild property acquired or owned by 
the taxpayer, only the capital expenditures incurred by the taxpayer to 
recondition or rebuild the property acquired or owned by the taxpayer 
satisfy the original use requirement. However, the cost of 
reconditioned or rebuilt property acquired by a taxpayer does not 
satisfy the original use requirement. Whether property is reconditioned 
or rebuilt property is a question of fact. For purposes of this 
paragraph (b)(3)(i), acquired or self-constructed property that 
contains used parts will be treated as reconditioned or rebuilt only if 
the cost of the used parts is more than 20 percent of the total cost of 
the property.
    (ii) Sale-leaseback. If any new portion of a qualified refinery is 
originally placed in service by a person after August 8, 2005, and is 
sold to a taxpayer and leased back to the person by the taxpayer within 
three months after the date the property was originally placed in 
service by the person, the taxpayer-lessor is considered the original 
user of the property.
    (4) Placed-in-service date--(i) In general. Refinery property will 
meet the requirements of this paragraph (b)(4) if the property is 
placed in service by the taxpayer after August 8, 2005, and before 
January 1, 2012.
    (ii) Sale-leaseback. If a new portion of refinery property is 
originally placed in service by a person after August 8, 2005, and is 
sold to a taxpayer and leased back to the person by the taxpayer within 
three months after the date the property was originally placed in 
service by the person, the property is treated as originally placed in 
service by

[[Page 39231]]

the taxpayer-lessor not earlier than the date on which the property is 
used by the lessee under the leaseback.
    (5) Production capacity--(i) In general. Refinery property is 
considered qualified refinery property if--
    (A) It enables the existing qualified refinery to increase the 
total volume output, determined without regard to asphalt or lube oil, 
by at least five percent on an average daily basis; or
    (B) It enables the existing qualified refinery to increase the 
percentage of total throughput attributable to processing qualified 
fuels to a rate that is at least 25 percent of total throughput on an 
average daily basis.
    (ii) When production capacity is tested. The production capacity 
requirement of this paragraph (b)(5) is determined as of the date the 
property is placed in service by the taxpayer. Any reasonable method 
may be used to determine the appropriate baseline for measuring 
capacity increases and to demonstrate and substantiate that the 
capacity of the existing qualified refinery has been sufficiently 
increased.
    (iii) Multi-stage projects. In the case of multi-stage projects, a 
taxpayer must satisfy the reporting requirements of paragraph (f)(2) of 
this section, sufficient to establish that the production capacity 
requirements of this paragraph (b)(5) will be met as a result of the 
taxpayer's overall plan.
    (6) Applicable environmental laws--(i) In general. The 
environmental compliance requirement applies only with respect to 
refinery property, or any portion of refinery property, that is placed 
in service after August 8, 2005. A refinery's failure to meet 
applicable environmental laws with respect to a portion of the refinery 
that was in service prior to August 8, 2005 will not disqualify a 
taxpayer from making the election under section 179C(a) with respect to 
otherwise qualifying refinery property.
    (ii) Waiver under the Clean Air Act. Refinery property must comply 
with the Clean Air Act, notwithstanding any waiver received by the 
taxpayer under that Act.
    (7) Construction of property--(i) In general. Qualified property 
will meet the requirements of this paragraph (b)(7) if--
    (A) The property is placed in service by the taxpayer after August 
8, 2005, and before January 1, 2012; and
    (B) No written binding contract for the construction of the 
property was in effect before June 14, 2005.
    (ii) Definition of binding contract--(A) In general. A contract is 
binding only if it is enforceable under state law against the taxpayer 
or a predecessor, and does not limit damages to a specified amount (for 
example, by use of a liquidated damages provision). For this purpose, a 
contractual provision that limits damages to an amount equal to at 
least 5 percent of the total contract price will not be treated as 
limiting damages to a specified amount. In determining whether a 
contract limits damages, the fact that there may be little or no 
damages because the contract price does not significantly differ from 
fair market value will not be taken into account.
    (B) Conditions. A contract is binding even if subject to a 
condition, as long as the condition is not within the control of either 
party or the predecessor of either party. A contract will continue to 
be binding if the parties make insubstantial changes in its terms and 
conditions, or if any term is to be determined by a standard beyond the 
control of either party. A contract that imposes significant 
obligations on the taxpayer or a predecessor will be treated as 
binding, notwithstanding the fact that insubstantial terms remain to be 
negotiated by the parties to the contract.
    (C) Options. An option to either acquire or sell property is not a 
binding contract.
    (D) Supply agreements. A binding contract does not include a supply 
or similar agreement if the payment amount and design specification of 
the property to be purchased have not been specified.
    (E) Components. A binding contract to acquire one or more 
components of a larger property will not be treated as a binding 
contract to acquire the larger property. If a binding contract to 
acquire a component does not satisfy the requirements of this paragraph 
(b)(7), the component is not qualified refinery property.
    (iii) Self-constructed property--(A) In general. Except as provided 
in paragraph (b)(7)(iii)(B) of this section, if a taxpayer 
manufactures, constructs, or produces property for use by the taxpayer 
in its trade or business (or for the production of income by the 
taxpayer), the construction of property rules in this paragraph (b)(7) 
are treated as met for qualified refinery property if the taxpayer 
began manufacturing, constructing, or producing the property after June 
14, 2005, and before January 1, 2008. Property that is manufactured, 
constructed or produced for the taxpayer by another person under a 
written binding contract (as defined in paragraph (b)(7)(ii) of this 
section) that is entered into prior to the manufacture, construction, 
or production of the property for use by the taxpayer in its trade or 
business (or for the production of income) is considered to be 
manufactured, constructed, or produced by the taxpayer.
    (B) When construction begins. For purposes of this paragraph 
(b)(7)(iii), construction of property generally begins when physical 
work of a significant nature begins. Physical work does not include 
preliminary activities such as planning or designing, securing 
financing, exploring, or researching. The determination of when 
physical work of a significant nature begins depends on the facts and 
circumstances. Nevertheless, physical work of a significant nature will 
be deemed to have begun for purposes of this paragraph (b)(7)(iii)(B), 
and the construction of the property will be deemed to have met the 
requirements of paragraph (b)(7)(iii)(A) of this section, if the 
taxpayer performed some physical work before January 1, 2008 (such as 
clearing a site or excavation) and has performed physical work of a 
significant nature (as defined in Treas. Regs. Sec.  1.168(k)-
1(b)(4)(iii)(B)) before October 7, 2008.
    (C) Components of self-constructed property--(1) Acquired 
components. If a binding contract (as defined in paragraph (b)(7)(ii) 
of this section) to acquire a component of self-constructed property is 
in effect on or before June 14, 2005, the component does not satisfy 
the requirements of paragraph (b)(7)(i) of this section, and is not 
qualified refinery property. However, if construction of the self-
constructed property begins after June 14, 2005, the self-constructed 
property may be qualified refinery property if it meets all other 
requirements of section 179C and this section (including paragraph 
(b)(7)(i) of this section), even though the component is not qualified 
refinery property. If the construction of self-constructed property 
begins before June 14, 2005, neither the self-constructed property nor 
any component related to the self-constructed property is qualified 
refinery property. If the component was acquired before January 1, 
2008, but the construction of the self-constructed property begins 
after December 31, 2007, the component may qualify as qualified 
refinery property even if the self-constructed property is not 
qualified refinery property.
    (2) Self-constructed components. If the manufacture, construction, 
or production of a component fails to meet any of the requirements of 
paragraph (b)(7)(iii) of this section, the component is not qualified 
refinery property. However, if the manufacture, construction, or 
production of a component fails to meet any of the requirements 
provided in paragraph (b)(7)(iii) of this section, but the

[[Page 39232]]

construction of the self-constructed property begins after June 14, 
2005, the self-constructed property may qualify as qualified refinery 
property if it meets all other requirements of section 179C and this 
section (including paragraph (b)(7)(i) of this section). If the 
construction of the self-constructed property begins before June 14, 
2005, neither the self-constructed property nor any components related 
to the self-constructed property are qualified refinery property. If 
the component was self-constructed before January 1, 2008, but the 
construction of the self-constructed property begins after December 31, 
2007, the component may qualify as qualified refinery property, 
although the self-constructed property is not qualified refinery 
property.
    (c) Computation of expense deduction for qualified refinery 
property. In general, the allowable deduction under paragraph (d) of 
this section for qualified refinery property is determined by 
multiplying by 50 percent the cost of the qualified refinery property 
paid or incurred by the taxpayer.
    (d) Election--(1) In general. A taxpayer may make an election to 
deduct as an expense 50 percent of the cost of any qualified refinery 
property. A taxpayer making this election takes the 50 percent 
deduction for the taxable year in which the qualified refinery property 
is placed in service.
    (2) Time and manner for making election--(i) Time for making 
election. An election specified in this paragraph (d) generally must be 
made not later than the due date (including extensions) for filing the 
original Federal income tax return for the taxable year in which the 
qualified refinery property is placed in service by the taxpayer. 
However, a taxpayer that did not claim the section 179C(a) deduction on 
a Federal income tax return filed for a taxable year ending prior to 
July 9, 2008 but wishes to claim the deduction for that taxable year 
may do so by properly making a section 179C(a) election under this 
paragraph (d) on an amended return filed by December 31, 2008.
    (ii) Manner of making election. The taxpayer makes an election 
under section 179C(a) and this paragraph (d) by entering the amount of 
the deduction at the appropriate place on the taxpayer's timely filed 
original Federal income tax return for the taxable year in which the 
qualified refinery property is placed in service (or on the amended 
return, as provided in paragraph (d)(2)(i) of this section), and 
attaching a report as specified in paragraph (f) of this section to the 
taxpayer's timely filed original Federal income tax return for the 
taxable year in which the qualified refinery property is placed in 
service (or on the amended return, as provided in paragraph (d)(2)(i) 
of this section).
    (3) Revocation of election--(i) In general. An election made under 
section 179C(a) and this paragraph (d), and any specification contained 
in such election, may not be revoked except with the consent of the 
Commissioner of Internal Revenue.
    (ii) Revocation prior to the revocation deadline. A taxpayer is 
deemed to have requested, and to have been granted, consent of the 
Commissioner to revoke an election under section 179C(a) and this 
paragraph (d) if the taxpayer revokes the election before the 
revocation deadline. The revocation deadline is the later of December 
31, 2008, or 24 months after the due date (including extensions) for 
filing the taxpayer's Federal income tax return for the taxable year 
for which the election applies. An election under section 179C(a) and 
this paragraph (d) is revoked by attaching a statement to an amended 
return for the taxable year for which the election applies. The 
statement must specify the name and address of the refinery for which 
the election applies and the amount deducted on the taxpayer's original 
Federal income tax return for the taxable year for which the election 
applies.
    (iii) Revocation after the revocation deadline. An election under 
section 179C(a) and this paragraph (d) may not be revoked after the 
revocation deadline. The revocation deadline may not be extended under 
Sec.  301.9100-1.
    (iv) Revocation by cooperative taxpayer. A taxpayer that has made 
an election to allocate the section 179C deduction to cooperative 
owners under section 179C(g) and paragraph (e) of this section may not 
revoke its election under section 179C(a).
    (e) Election to allocate section 179C deduction to cooperative 
owners--(1) In general. If a cooperative taxpayer makes an election 
under section 179C(g) and this paragraph (e), the cooperative taxpayer 
may elect to allocate all, some, or none of the deduction allowable 
under section 179C(a) for that taxable year to the cooperative 
owner(s). This allocation is equal to the cooperative owner(s)' ratable 
share of the total amount allocated, determined on the basis of each 
cooperative owner's ownership interest in the cooperative taxpayer. For 
purposes of this section, a cooperative taxpayer is an organization to 
which part I of subchapter T applies, and in which another organization 
to which part I of subchapter T applies (cooperative owner) directly 
holds an ownership interest. No deduction shall be allowed under 
section 1382 for any amount allocated under this paragraph (e).
    (2) Time and manner for making election--(i) Time for making 
election. A cooperative taxpayer must make the election under section 
179(g) and this paragraph (e) by the due date (including extensions) 
for filing the cooperative taxpayer's original Federal income tax 
return for the taxable year to which the cooperative taxpayer's 
election under section 179C(a) and paragraph (d) of this section 
applies.
    (ii) Manner of making election. An election under this paragraph 
(e) is made by attaching to the cooperative taxpayer's timely filed 
Federal income tax return for the taxable year (including extensions) 
to which the cooperative taxpayer's election under section 179C(a) and 
paragraph (d) of this section applies a statement providing the 
following information:
    (A) The name and taxpayer identification number of the cooperative 
taxpayer.
    (B) The amount of the deduction allowable to the cooperative 
taxpayer for the taxable year to which the election under section 
179C(a) and paragraph (d) of this section applies.
    (C) The name and taxpayer identification number of each cooperative 
owner to which the cooperative taxpayer is allocating all or some of 
the deduction allowable.
    (D) The amount of the allowable deduction that is allocated to each 
cooperative owner listed in paragraph (e)(2)(ii)(C) of this section.
    (3) Written notice to owners. If any portion of the deduction 
allowable under section 179C(a) is allocated to a cooperative owner, 
the cooperative taxpayer must notify the cooperative owner of the 
amount of the deduction allocated to the cooperative owner in a written 
notice, and on Form 1099-PATR, ``Taxable Distributions Received from 
Cooperatives.'' This notice must be provided on or before the due date 
(including extensions) of the cooperative taxpayer's original Federal 
income tax return for the taxable year for which the cooperative 
taxpayer's election under section 179C(a) and paragraph (d) of this 
section applies.
    (4) Irrevocable election. A section 179C(g) election, once made, is 
irrevocable.
    (f) Reporting requirement--(1) In general. A taxpayer may not claim 
a deduction under section 179C(a) for any taxable year unless the 
taxpayer files a report with the Secretary containing information with 
respect to the operation of the taxpayer's refineries.

[[Page 39233]]

    (2) Information to be included in the report. The taxpayer must 
specify--
    (i) The name and address of the refinery;
    (ii) Under which production capacity requirement under section 
179C(e) and paragraph (b)(5)(i)(A) and (B) of this section the 
taxpayer's qualified refinery qualifies;
    (iii) Whether the refinery is qualified refinery property under 
section 179C(d) and paragraph (b)(2) of this section, sufficient to 
establish that the primary purpose of the refinery is to process liquid 
fuel from crude oil or qualified fuels.
    (iv) The total cost basis of the qualified refinery property at 
issue for the taxpayer's current taxable year; and
    (v) The depreciation treatment of the capitalized portion of the 
qualified refinery property.
    (3) Time and manner for submitting report--(i) Time for submitting 
report. The taxpayer is required to submit the report specified in this 
paragraph (f) not later than the due date (including extensions) of the 
taxpayer's Federal income tax return for the taxable year in which the 
qualified refinery property is placed in service. A taxpayer that has 
made a section 179C(a) election for a prior taxable year by claiming 
the section 179C(a) deduction on a Federal income tax return filed 
prior to July 23, 2008, but has not already filed a report for that 
year, must attach a report to its next Federal income tax return for 
each taxable year the taxpayer claimed the deduction but did not file a 
report.
    (ii) Manner of submitting report. The taxpayer must attach the 
report specified in this paragraph (f) to the taxpayer's timely filed 
original Federal income tax return for the taxable year in which the 
qualified refinery property is placed in service.
    (g) Effective/applicability date. This section is applicable for 
taxable years ending on or after July 9, 2008.
    (h) Expiration date. The applicability of this section expires on 
or before July 1, 2011.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 3. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 4. In Sec.  602.101, paragraph (b) is amended by adding the 
following entry in numerical order to the table to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                             Current OMB
    CFR part or section where identified and described       Control No.
------------------------------------------------------------------------
 
                                * * * * *
1.179C-1T.................................................     1545-2103
 
                                * * * * *
------------------------------------------------------------------------


    Approved: July 3, 2008.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.

Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 08-1423 Filed 7-3-08; 3:33 pm]
BILLING CODE 4830-01-P