SECTION 2. BACKGROUND

.01 Section 46 provides that the amount of the investment credit for any taxable year is the sum of the credits listed in § 46. That list includes the qualifying advanced coal project credit under § 48A.

.02 Section 48A(d)(1) provides that the Secretary, in consultation with the Secretary of Energy, shall establish a qualifying

advanced coal project program for the deployment of advanced coal-based generation technologies. The Treasury Department and the Service, in consultation with the Secretary of Energy, established the § 48A Phase I program in Notice 2006–24, 2006–1 C.B. 595, as modified and updated by Notice 2007–52, 2007–1 C.B. 1456.

.03 Under the § 48A Phase I program, the qualifying advanced coal project credit for a taxable year was an amount equal to (i) 20 percent of the qualified investment for that taxable year in qualifying projects that use an integrated gasification combined cycle (“IGCC”) and (ii) 15 percent of the qualified investment for that taxable year in qualifying projects that use other advanced coal-based generation technologies.

.04 Pursuant to § 48A(d)(3)(B), the § 48A Phase I program provided for (i) $800 million of credits to be allocated to IGCC projects and (ii) $500 million of credits to other advanced coal projects. The Service allocated credits through annual allocation rounds in 2006, 2007–08, and 2008–09, and a special allocation round in 2008.

.05 Pursuant to § 48A(d)(3)(B)(iii), the § 48A Phase II program provides for additional $1.25 billion of credits for advanced coal-based generation technology projects. The § 48A Phase II credit for a taxable year is 30 percent of the qualified investment for that taxable year in advanced coal-based generation technology projects.

.06 Section 48A(d)(4) requires the Secretary to review the allocation of § 48A Phase I credits as of the date that is 6 years after the date of enactment of § 48A. The Secretary has broad authority to establish an additional program to distribute the § 48A Phase I credits that are available for reallocation if the Secretary determines that: (i) there is an insufficient quantity of qualifying applications for certification pending at the time of the review, or (ii) any certification made pursuant to § 48A(d)(2) has been revoked because the project subject to the certification has been delayed as a result of third-party opposition or litigation.

.07 The Service has completed this review and has determined that § 48A

Phase I credits in the total amount of $658,500,000 are available for reallocation under the § 48A Phase III program.

.08 The § 48A Phase III program, like the § 48A Phase II program, requires a qualifying project to include equipment that separates and sequesters a percentage of such project’s total carbon dioxide (CO ) emissions (at least 65 percent un2 der the Phase II program and at least 70 percent under the Phase III program). The § 48A Phase I program did not include a similar requirement. Accordingly, the qualifying advanced coal project credit under the § 48A Phase III program will be computed using the rules applicable to the § 48A Phase II program rather than those applicable to the § 48A Phase I program. Thus, the credit for a taxable year under the § 48A Phase III program is an amount equal to 30 percent of the qualified investment (as defined in § 48A(b)) for that taxable year in a qualifying advanced coal project (as defined in § 48A(c)(1) and § 48A(e)). The 30 percent credit rate will apply to both facilities that use IGCC (as defined in § 48A(c)(7)) and those that use other advanced coal-based generation technologies.

.09 Section 48A(f) prescribes the requirements that must be satisfied to qualify as an advanced coal-based generation technology. These include requirements that the unit be designed to attain specified standards for emissions or removal of certain pollutants.

.10 Section 48A(e)(3)(A) provides for credit allocation by reference to the coal used as a primary feedstock. Section 48A(e)(3)(B) establishes priority for certain projects under the § 48A Phase I and Phase II programs. Section 48A(e)(3)(B) provides that high priority must be given to projects that include (i) greenhouse gas capture capability (as defined in § 48A(c)(5)), (ii) increased by-product utilization, (iii) applicant participants that have a research partnership with an eligible educational institution (as defined in § 529(e)(5)), and (iv) other benefits. Section 48A(e)(3)(C) provides that the highest priority is given to projects with the greatest separation and sequestration percentage of total CO The § 48A 2 emissions. Phase III program adopts priorities similar

2012–33 I.R.B. 150 August 13, 2012

function. See § 1.46–3(d)(1)(ii) of the Income Tax Regulations. Thus, a qualifying advanced coal project or eligible property (as defined in § 48A(c)(3)) that is a part of the project is placed in service in the taxable year in which the project is placed in a condition or state of readiness and availability for producing electricity from coal as required under § 48A(e).

.05 Separation and Sequestration . The term “separation and sequestration” refers to the separation and capture of a project’s CO emissions and the placement of the 2 captured CO into a repository in which 2 the CO will remain permanently se2 questered.