Part III. Administrative, Procedural, and Miscellaneous

Nonconventional Source Fuel Credit, § 29 Inflation Adjustment Factor, and § 29 Reference Price

Notice 99–18

This notice publishes the nonconventional source fuel credit, inflation adjustment factor, and reference price under § 29 of the Internal Revenue Code for calendar year 1998. These are used to determine the credit allowable on fuel produced from a nonconventional source under § 29 of the Internal Revenue Code. The calendar year 1998 inflation-adjusted credit applies to the sales of barrel-of-oil equivalent of qualified fuels sold by a taxpayer to an unrelated person during the 1998 calendar year, the domestic production of which is attributable to the taxpayer.

BACKGROUND

Section 29(a) provides for a credit for producing fuel from a nonconventional source, measured in barrel-of-oil equivalent of qualified fuels, the production of which is attributable to the taxpayer and sold by the taxpayer to an unrelated person during the tax year. The credit is equal to the product of $3.00 and the appropriate inflation adjustment factor.

Section 29(b)(1) and (2) provides for a phase out of the credit. The credit allowable under § 29(a) must be reduced by an amount which bears the same ratio to the amount of the credit (determined without regard to § 29(b)(1)) as the amount by which the reference price for the calendar year in which the sale occurs exceeds $23.50 bears to $6.00. The $3.00 in § 29(a) and the $23.50 and $6.00 must each be adjusted by multiplying these amounts by the 1998 inflation adjustment factor. In the case of gas from a tight formation, the $3.00 amount in § 29(a) must not be adjusted.

Section 29(c)(1) defines the term “qualified fuels” to include oil produced from shale and tar sands; gas produced from geopressurized brine, Devonian shale, coal seams, or a tight formation, or biomass; and liquid, gaseous, or solid synthetic fuels produced from coal (in

cluding lignite), including such fuels when used as feedstocks.

Section 29(d)(1) provides that the credit is to be applied only for sale of qualified fuels the production of which is within the United States (within the meaning of § 638(1)) or a possession of the United States (within the meaning of § 638(2)).

Section 29(d)(2)(A) requires that the Secretary, not later than April 1 of each calendar year, determine and publish in the Federal Register the inflation adjustment factor and the reference price for the preceding calendar year.

Section 29(d)(2)(B) defines “inflation adjustment factor” for a calendar year as the fraction the numerator of which is the GNP implicit price deflator for the calendar year and the denominator of which is the GNP implicit price deflator for calendar year 1979. The term “GNP implicit price deflator” means the first version of the implicit price deflator for the gross national product as computed and published by the Department of Commerce.

Section 29(d)(2)(C) defines “reference price” to mean with respect to a calendar year the Secretary’s estimate of the annual average wellhead price per barrel of all domestic crude oil the price of which is not subject to regulation by the United States.

Section 29(d)(3) provides that in the case of a property or facility in which more than one person has an interest, except to the extent provided by regulations prepared by the Secretary, production from the property or facility (as the case may be) must be allocated among the persons in proportion to their respective interests in the gross sales from the property or facility.

Section 29(d)(5) and (6) provides that the term “barrel-of-oil equivalent” with respect to any fuel generally means that amount of the fuel which has a Btu content of 5.8 million.

INFLATION ADJUSTMENT FACTOR AND REFERENCE PRICE

The inflation adjustment factor for calendar year 1998 is 2.0384. The reference price for calendar year 1998 is $10.88. As required by § 29(d)(2)(A), the inflation

adjustment factor and reference price for calendar year 1998 will be published in the Federal Register on April 6, 1999.

PHASE-OUT CALCULATION

Because the calendar year 1998 reference price does not exceed $23.50 multiplied by the inflation adjustment factor, the phase out of the credit provided for in § 29(b)(1) does not occur for any qualified fuel sold in calendar year 1998.

CREDIT AMOUNT

The nonconventional source fuel credit under § 29(a) is $6.12 per barrel-of-oil equivalent of qualified fuels ($3.00 2.0284). This amount will be published in the Federal Register on April 6, 1999.

DRAFTING INFORMATION CONTACT

The principal author of this notice is Alan H. Cooper of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice contact Alan H. Cooper at (202) 622-3110 (not a toll-free call).

Accounting Period Guidance

Notice 99–19

PURPOSE

This notice invites public comment on possible changes to published guidance concerning accounting period changes. Among possible changes under consideration are: (1) revising the criteria used to establish a substantial business purpose, including what constitutes a natural business year; and (2) allowing more accounting period changes to be made automatically.

BACKGROUND

Section 441 of the Internal Revenue Code provides that taxable income must be computed on the basis of the taxpayer’s taxable year. In general, the term “taxable year” means the taxpayer’s annual accounting period, which can be a calendar or fiscal year, or a period of less than 12 months for which a return is made

April 19, 1999 4 1999–16 I.R.B.

( i.e., a short period). The term “annual accounting period” means the annual period on the basis of which the taxpayer regularly computes its income in keeping its books. Special rules under the Code and Income Tax Regulations require particular accounting periods for certain taxpayers such as domestic international sales corporations and foreign sales corporations (§ 441(h)), personal service corporations (§ 441(i)), certain trusts (§ 644), partnerships (§ 706), real estate investment trusts (§ 859), real estate mortgage investment conduits (§ 860D(a)(5)), specified foreign corporations (§ 898), S corporations (§ 1378), and members of affiliated groups that file consolidated returns (Treas. Reg. § 1.1502–76).

Section 442 provides that if a taxpayer changes its annual accounting period, the new accounting period becomes the taxpayer’s taxable year only if the change is approved by the Secretary. In addition, adoptions of fiscal years by certain taxpayers are treated as accounting period changes and thus can become the taxpayer’s taxable year only with the approval of the Secretary. ( See e.g., § 706(b)(1)(C)).

Section 1.442–1(b) provides that approval for an accounting period change will not be granted unless the taxpayer and the Commissioner agree to the terms, conditions, and adjustments under which the change will be effected. In general, a change of annual accounting period will be approved where the taxpayer establishes a substantial business purpose for making the change.

Under the Code and regulations, certain taxpayers are allowed to change their annual accounting periods automatically without securing the prior approval of the Commissioner ( see, e.g., § 859(b) and Treas. Reg. §§ 1.442-1(c), (d), and (e)). In addition, the Service has issued several revenue procedures, such as Rev. Proc. 92–13, 1992–1 C.B. 665; Rev. Proc. 87– 32, 1987–2 C.B. 396; and Rev. Proc. 66– 50, 1966–2 C.B. 1260, that enable taxpayers to obtain automatic approval of changes in their accounting periods, if specific conditions are satisfied.

REQUEST FOR PUBLIC COMMENT

The Service is considering what, if any, changes should be made in order to clar

http://www.irs.ustreas.gov/prod/cover. html (the IRS Internet site). All comments should be received by June 18, 1999. The comments submitted will be available for public inspection and copying.

ify and simplify published guidance concerning accounting period changes. Accordingly, the Service and Treasury request comments on possible changes to current accounting period guidance including, but not limited to, the following:

(1) What changes should be made to the rules governing the approval of accounting period change requests? For example, what changes, if any, should be made to the substantial business purpose requirement? See Treas. Reg. § 1.4421(b)(1). How should deferral or shifting of income, or acceleration or shifting of deductions, (“deferral”) be considered in determining whether to approve an accounting period change request? For example, should safe harbors permitting de minimis deferral be established? If an accounting period change that creates deferral is permitted, what terms and conditions should apply to the change? Should all taxpayers, regardless of their form ( e.g., corporation, partnership, S corporation), be subject to the same criteria for approval? Should the rules for establishing a natural business year be revised, and if so, how? See Rev. Proc. 74–33, 1974–2 C.B. 489.

(2) How should the current automatic accounting period change procedures be organized, clarified, and simplified? See, e.g., Treas. Reg. § 1.442–1, Rev. Proc. 92–13, Rev. Proc. 87–32, and Rev. Proc. 66–50. Should the Service provide procedures for automatic approval to change accounting periods in additional situations? If so, what types of situations would warrant such automatic approval, and what, if any, terms and conditions should apply to such changes?

Taxpayers may submit comments in writing to:

DRAFTING INFORMATION

The principal author of this notice is Martin Scully of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this notice contact Mr. Scully on (202) 622-4960 (not a toll-free call).

26 CFR 601.201: Rulings and determination letters (Also, Part I, section 401; 1.401(b)–1.)

Rev. Proc. 99–23