Part III. Administrative, Procedural, and Miscellaneous

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

Notice 2005–33

This notice publishes the nonconventional source fuel credit, inflation adjustment factor, and reference price under § 29 of the Internal Revenue Code for calendar year 2004. These are used to determine the credit allowable on fuel produced from a nonconventional source under § 29. The calendar year 2004 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 2004 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 phaseout 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 2004 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 (including 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 revision 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 for 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 in regulations prescribed 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) 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 2004 is 2.1853. The reference price for calendar year 2004 is $36.75. These amounts will be published in the Federal Register on April 6, 2005.

PHASEOUT CALCULATION

Because the calendar year 2004 reference price does not exceed $23.50 multiplied by the inflation adjustment factor, the phaseout of the credit provided for in § 29(b)(1) does not occur for any qualified fuel sold in calendar year 2004.

CREDIT AMOUNT

The nonconventional source fuel credit under § 29(a) is $6.56 per barrel-of-oil equivalent of qualified fuels ($3.00 x 2.1853). This amount will be published in the Federal Register on April 6, 2005.

DRAFTING INFORMATION CONTACT

The principal author of this notice is Kelly Morrison-Lee of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Ms. Morrison-Lee at (202) 622–3120 (not a toll-free call).

Weighted Average Interest Rates Update

Notice 2005–34

This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code. In addition, it provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II), and the weighted average interest rate and permissible ranges of interest rates based on the 30-year Treasury securities rate.

CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE

Sections 412(b)(5)(B)(ii) and 412(l)(7)(C)(i), as amended by the Pension Funding Equity Act of 2004, provide that the interest rates used to calculate current liability and to determine the required contribution under § 412(l) for plan years beginning in 2004 or 2005 must be within

April 25, 2005 960 2005–17 I.R.B.

to Notice 2004–34, the Service has determined this rate as the average of the monthly yields for the included corporate bond indices for that month.

The following corporate bond weighted average interest rate was determined for plan years beginning in the month shown below.

a permissible range based on the weighted average of the rates of interest on amounts invested conservatively in long term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year.

Notice 2004–34, 2004–18 I.R.B. 848, provides guidelines for determining the corporate bond weighted average interest

rate and the resulting permissible range of interest rates used to calculate current liability. That notice establishes that the corporate bond weighted average is based on the monthly composite corporate bond rate derived from designated corporate bond indices.

The composite corporate bond rate for March 2005 is 5.62 percent. Pursuant

Corporate

For Plan Years Bond 90% to 100%

Beginning in: Weighted Permissible Month Year Average Range

April 2005 6.01 5.41 to 6.01

imum amount of the deduction allowed under § 404(a)(1).

The rate of interest on 30-year Treasury securities for March 2005 is 4.78 percent. Pursuant to Notice 2002–26, 2002–1 C.B. 743, the Service has determined this rate as the monthly average of the daily determination of yield on the 30-year Treasury bond maturing in February 2031.

The following 30-year Treasury rates were determined for the plan years beginning in the month shown below.

30-YEAR TREASURY SECURITIES WEIGHTED AVERAGE INTEREST RATE

Section 417(e)(3)(A)(ii)(II) defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income

Tax Regulations provides that the applicable interest rate for a month is the annual interest rate on 30-year Treasury securities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin.

Section 404(a)(1) of the Code, as amended by the Pension Funding Equity Act of 2004, permits an employer to elect to disregard subclause (II) of § 412(b)(5)(B)(ii) to determine the max

30-Year

For Plan Years Treasury 90% to 105% 90% to 110%

Beginning in: Weighted Permissible Permissible Month Year Average Range Range

April 2005 5.05 4.54 to 5.30 4.54 to 5.55

be reached at 1–202–283–9714. The telephone numbers in the preceding sentences are not toll-free.

Drafting Information

The principal authors of this notice are Paul Stern and Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice,

please contact the Employee Plans’ taxpayer assistance telephone service at 1–877–829–5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday. Mr. Stern may be reached at 1–202–283–9703. Mr. Montanaro may

2005–17 I.R.B. 961 April 25, 2005

other rights under the contract (including any supplemental agreements, whether or not guaranteed), other than current insurance protection, are treated as property for purposes of § 83. The proposed regulations would apply to transfers that occur on or after February 13, 2004 (with an exception for any contract that was part of a split-dollar arrangement entered into on or before September 17, 2003, and which is not materially modified after that date).

(4) Contributions To and Distributions From Nonexempt Employees’ Trusts. Section 402(b)(1) provides that contributions to an employees’ trust made by an employer during a taxable year of the employer which ends with or within a taxable year of the trust for which the trust is not exempt from tax under § 501(a) are included in the gross income of the employee in accordance with § 83 (relating to property transferred in connection with the performance of services), except that the value of the employee’s interest in the trust is substituted for the fair market value of the property for purposes of applying § 83. Section 1.402(b)–1(a) of the regulations provides that any contributions to a nonexempt trust by an employer during a taxable year of the employer which ends within or with a taxable year of the trust shall be included as compensation in the gross income of the employee for the employee’s taxable year during which the contribution is made, but only to the extent that the employee’s interest in such contribution is substantially vested (within the meaning of § 1.83–3(b)) at the time the contribution is made.

Section 1.402(b)–1(b)(1) of the regulations provides that if rights of an employee under a trust become substantially vested during a taxable year of the employee and a taxable year for which the trust is not exempt under § 501(a) ends with or within such year, the value of the employee’s interest in the trust on the date of such change (substantially nonvested to substantially vested) is included in the employee’s gross income for that taxable year. Section 1.402(b)–1(b)(2)(i) provides that the term “the value of the employee’s interest in a trust” means the amount of the employee’s beneficial interest in the net fair market value of all the assets in the trust as of any date on which some or all of the employee’s interest in the trust becomes substantially vested. The net fair

26 CFR 601.201: Rulings and determination letters. (Also, Part I, §§ 79, 83, 402; §§ 1.79–1, 1.83–3, 1.402(a)–1.)

Rev. Proc. 2005–25