Renewable energy bond spending period extended for permit delay

Plain-English summary

An electric power cooperative asked the IRS for 24 more months to spend the remaining proceeds of new clean renewable energy bonds. The cooperative had expected to spend all proceeds within the original three-year period, but an air permit for one generating facility took longer than expected despite a timely application. Section 54A permits an extension when the delay is due to reasonable cause and qualified expenditures will continue with due diligence. The IRS found both requirements satisfied and extended the expenditure deadline to the requested redacted date. The extension avoided the requirement to redeem bonds associated with unspent proceeds at the end of the original period.

Ruling snapshot

• Question: Could the cooperative receive a 24-month extension to spend the remaining renewable energy bond proceeds?
• Outcome: Approved through the requested redacted date.
• Key authorities: IRC §§ 54A(d) and 54C(a)

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

Number: 201609005                                               Third Party Communication: None
Release Date: 2/26/2016                                         Date of Communication: Not Applicable
Index Number: 54A.00-00
                                                                Person To Contact:
-------------------------                                       ------------------, ID No. --------------
-----------------------------------------------------           Telephone Number:
----------------------------------------                        ----------------------
 ----------------------------------------------                 Refer Reply To:
                                                                CC:FIP:B05
                                                                PLR-129228-15
                                                                Date:
                                                                November 23, 2015


LEGEND:

Cooperative =               -----------------------------------------------------------
----------------------------------------------------

State             =        -----------

Bonds             =        ------------------------------------------------------------------------------------------
                  ---------------------------------------------------------------------------------------------------

Facility A        =        ------------------------------------------------------

Facility B        =        ---------------------------------------------------------------

Facility C        =        -----------------------------------------------------------

Owner             =        ----------------------------------

a                 =        --------------

b                 =        -----

c                 =        ----

Date 1            =        -------------------------

Date 2            =        -------------------------

Date 3            =        -------------------------

PLR-129228-15                                2

Dear ----------------:

This is in response to your request under section 54A(d)(2)(B)(iii) of the Internal
Revenue Code (the Code) for an extension of the expenditure period for the available
project proceeds of new clean renewable energy bonds.

Facts and Representations

Cooperative is a generation and transmission cooperative that provides wholesale
electric power to distribution systems. Organized in State, Cooperative is a not-for-profit
corporation privately held by its member distribution cooperatives.

Cooperative issued the Bonds on Date 1 and designated the Bonds as new clean
renewable energy bonds within the meaning of § 54C(a). All available project proceeds
of the Bonds were to be spent on three power generating plants (“Facility A”, “Facility
B”, and “Facility C”) (together, “Project”).

The original three-year expenditure period for the Bonds under section 54A(d)(2)(B)(i)
will expire on Date 2 (the “Original Expenditure Period”). At the time the Bonds were
issued, Cooperative expected that all available project proceeds of the Bonds would be
spent on the Project not later than Date 2. However, unexpected events have resulted
in an unforeseen delay in the expenditure of $a of the available project proceeds of the
Bonds.

Cooperative intends the $a of unspent proceeds to be expended for Facility A.
However, these proceeds cannot be expended until the owner of Facility A (the
“Owner”) receives an air permit, which requires State approval (the “Permit”). The
request for the Permit was timely filed with State. As of Date 1, Cooperative estimated
State would issue the Permit within b days. This estimate was based in part on its
previous experience with air permit applications. After c months, a Permit draft was
provided by State to Owner for comment. One month later, Owner provided its
comments on the draft Permit to State. As of the date of this ruling request, State has
not issued the Permit. Because a draft Permit has already been provided to Owner by
State, Cooperative believes the Permit will be issued with sufficient time to permit
expenditure of the remaining project proceeds within 24 months after the Original
Expenditure Period expires.

In order to spend the remaining available project proceeds of the Bonds, Cooperative
requests an extension of the expenditure period for the available project proceeds until
Date 3, which is 24 months after the Original Expenditure Period expires.

Cooperative submitted this request for a ruling prior to Date 2.

PLR-129228-15                                3

Law and Analysis

Section 54A(d)(1) provides that a new clean renewable energy bond is treated as a
qualified tax credit bond for purposes of Section 54A.

Section 54A(d)(2)(B)(i) provides in part that to the extent that less than 100 percent of
the available project proceeds of the issue are expended by the close of the expenditure
period for 1 or more qualified purposes, the issuer shall redeem all of the nonqualified
bonds within 90 days after the end of such period.

Section 54A(d)(2)(B)(ii) provides that for purposes of this subpart, the term “expenditure
period” means, with respect to any issue, the 3-year period beginning on the date of
issuance. Such term shall include any extension of such period under clause (iii).

Section 54A(d)(2)(B)(iii) provides that upon submission of a request prior to the
expiration of the expenditure period (determined without regard to any extension under
this clause), the Secretary may extend such period if the issuer establishes that the
failure to expend the proceeds within the original expenditure period is due to
reasonable cause and the expenditures for qualified purposes will continue to proceed
with due diligence.

Section 54A(d)((2)(C)(ii) provides that for purposes of this paragraph, in the case of a
new clean renewable energy bond, a “qualified purpose” means a purpose specified in
§ 54C(a)(1).

Section 54A(e)(4) of the Code defines “available project proceeds” to mean (A) the
excess of (i) the proceeds from the sale of an issue, over (ii) the issuance costs
financed by the issue (to the extent that such costs do not exceed 2 percent of such
proceeds), and (B) the proceeds from any investment of the excess described in
subparagraph (A).

At the time the Bonds were issued, Cooperative reasonably expected to spend all
available project proceeds within the Original Expenditure Period. The expected failure
to spend all available project proceeds of the Bonds by the expiration of the Original
Expenditure Period was due to reasonable cause. The expected failure was caused by
events that were not reasonably expected at the time the Bonds were issued and were
beyond the control of Cooperative. These events caused a significant delay in
committing and spending the Bond proceeds.

Cooperative will continue to spend the remaining available project proceeds on the
Project with due diligence. Cooperative expects to spend all available project proceeds
not later than Date 3, which is 24 months after the Original Expenditure Period expires.

PLR-129228-15                                  4

Conclusion

Under the facts and circumstances of this case, we conclude that Cooperative’s failure
to expend the available project proceeds of the Bonds by Date 2 is due to reasonable
cause and that Cooperative’s continued expenditure of the proceeds for qualified
purposes will proceed with due diligence. Therefore, Cooperative is granted an
extension of the Original Expenditure Period with respect to the Bonds until Date 3.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

In accordance with a Power of Attorney on file with this office, a copy of this letter is
being sent to Cooperative’s authorized representative.

The ruling contained in this letter is based upon information and representations
submitted by Cooperative and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the materials submitted
in support of the request for a ruling, it is subject to verification upon examination.

                                           Sincerely,

                                           Associate Chief Counsel
                                           (Financial Institutions & Products)

                                                               /S/
                                           By: _________________________
                                               James Polfer
                                               Chief, Branch 5