SECTION 2. BACKGROUND

.01 Section 45J was enacted by § 1306 of the Energy Policy Act of 2005, Public Law 109-58, Title XIII, 119 Stat. 594, 997 (August 8, 2005). Subject to limitations under § 45J(b) and (c), a taxpayer may be allowed a § 45J credit of 1.8 cents for each kilowatt hour of electricity (1) that the taxpayer produces at an advanced nuclear power facility during the eight-year period beginning on the date the facility is placed in service and (2) that the taxpayer sells to an unrelated person during the taxable year (qualifying electricity). See § 45J(a).

.02 Under § 45J(d)(1), an “advanced nuclear power facility” is (i) any nuclear facility the reactor design for which is approved by the Nuclear Regulatory Commission (NRC) after December 31, 1993 (and such design or a substantially similar design of comparable capacity was not approved on or before that date), (ii) that is owned by the taxpayer, and (iii) uses nuclear energy to produce electricity. See § 45J(d).

.03 On May 1, 2006, the Treasury Department and the IRS published Notice 2006-40, 2006-18 I.R.B. 855, to provide guidance on the § 45J credit. Specifically, Notice 2006-40 specified the method that the IRS would use to allocate the NMCL and prescribed the application process by which taxpayers could request such an allocation. The notice also provided guidance on the requirement that electricity be sold to an unrelated person and on the effect of grants, tax-exempt bonds, subsidized energy financing, and other credits.

.04 On November 12, 2013, the Treasury Department and the IRS published

Notice 2013-68, which modified and superseded Notice 2006-40. Notice 201368 generally republished the guidance contained in Notice 2006-40, but also provided a new streamlined application process allowing an applicant to submit a single application only to the IRS. The IRS would then obtain necessary certification from the DOE. In addition, Notice 2013-68 provided guidance on the allocation rules for facilities that are directly or indirectly owned by more than one person and the time for filing an application with the NRC.

.05 As originally enacted in 2005, § 45J(d)(1) required all advanced nuclear power facilities to be placed in service before January 1, 2021, to be eligible for a § 45J credit. Accordingly, section 6 of Notice 2013-68 provided that the amount of the NMCL allocated to a facility under Notice 2013-68 will be withdrawn if the facility is not placed in service before January 1, 2021, or if the DOE informs the IRS that the DOE certification for the facility has been withdrawn. However, effective for taxable years beginning after its February 9, 2018, date of enactment, § 40501 of the 2018 Act added new § 45J(b)(5) to the Code, which, in part, eliminates the requirement for a facility receiving an allocation of unutilized NMCL pursuant to § 45J(b)(5) to be placed in service before January 1, 2021, to qualify as an advanced nuclear power facility.

.06 Under § 45J(b)(1) and (3), a taxpayer may be allowed a § 45J credit for qualifying electricity only if an amount of NMCL has been allocated to the facility, in the manner prescribed by the Secretary of the Treasury or her delegate (Secretary). ¹ The aggregate amount of NMCL allocated by the Secretary cannot exceed 6,000 megawatts. See § 45J(b)(2). .07 As added by § 40501 of the 2018 Act, § 45J(b)(5)(A) directs the Secretary to allocate any unutilized NMCL (as defined in § 45J(b)(5)(B)) as rapidly as is practicable after December 31, 2020, as follows: (i) first to facilities placed in service on or before December 31, 2020, to the extent that such facilities did not receive an allocation equal to their full

nameplate capacity under the procedures provided in Notice 2013-68, and (ii) then to facilities placed in service after December 31, 2020, in the order in which such facilities are placed in service. Section 45J(b)(5)(B) defines the term “unutilized NMCL” as the excess (if any) of 6,000 megawatts over the aggregate amount of NMCL allocated by the Secretary before January 1, 2021, reduced by any amount of such limitation that was allocated to a facility that was not placed in service before January 1, 2021. Under § 45J(b)(5)(C), any allocation of the unutilized NMCL is treated for purposes of the § 45J credit in the same manner as an allocation of the NMCL.

.08 The 2018 Act also added new § 45J(e) to the Code effective for taxable years beginning after February 9, 2018. Section 45J(e) permits a “qualified public entity” to make an election for any taxable year with respect to all or any portion of its § 45J credits to transfer such credits to one or more eligible project partners specified in the election. With respect to any § 45J credits transferred by a qualified public entity to an eligible project partner, the credit must be taken into account in the first taxable year of the eligible project partner ending with, or after, the qualified public entity’s taxable year with respect to which the credit was determined.

.09 Section 45J(e)(2)(A) defines the term “qualified public entity” to mean (i) a Federal, State, or local government entity, or any political subdivision, agency, or instrumentality thereof; (ii) a mutual or cooperative electric company described in § 501(c)(12) or § 1381(a)(2) of the Code; or (iii) a not-for-profit electric utility which had or has received a loan or loan guarantee under the Rural Electrification Act of 1936.

.10 Section 45J(e)(2)(B) defines the term “eligible project partner” to mean any person who (i) is responsible for, or participates in, the design or construction of the advanced nuclear power facility to which the § 45J credit relates; (ii) participates in the provision of the nuclear steam supply system to such facility; (iii) partic

1 The amount of the § 45J credit allowed a taxpayer under § 45J(a) for a taxable year may be (i) limited (after the application of § 45J(b)) by an annual limitation under § 45J(c)(1) applicable to each facility and (ii) reduced under § 45J(c)(2) based on an inflation adjusted reference price for electricity described in § 45(e)(2)(C) of the Code.

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ipates in the provision of nuclear fuel to such facility; (iv) is a financial institution providing financing for the construction or operation of such facility; or (v) has an ownership interest in such facility.

.11 In the case of a § 45J credit determined at the partnership level, a qualified public entity is treated as the taxpayer with respect to its distributive share of the § 45J credit, and the term “eligible project partner” includes any partner of the partnership. See § 45J(e)(3)(A).

.12 Section 38(b)(21) includes the § 45J credit as a current year business credit. Section 39(a)(1) provides, in part, that if the amount of the current year business credit for the taxable year exceeds the amount of the limitation imposed by § 38(c) for the taxable year (unused credit year), the excess results in a 1-year business credit carryback to the taxable year preceding the unused credit year, and a business credit carryforward to each of the twenty (20) taxable years following the unused credit year. Section 39(a)(2) (A) provides that the entire amount of the unused credit for an unused credit year is carried to the earliest of the twenty-one (21) taxable years to which the credit may be carried. Section 39(a)(2)(B) provides that the amount of the unused credit for the unused credit year is carried to each of the other twenty (20) taxable years to the extent that such unused credit may not be taken into account under § 38(a) for a prior taxable year because of the limitations of § 39(b) and (c).