Appendix A to Part 20 - Guidelines for Certification
40:1.0.1.1.19.0.1.11.3 : Appendix A
Appendix A to Part 20 - Guidelines for Certification 1. General. 2.
Air Pollution Control Facilities. a. Pollution control or treatment
facilities normally eligible for certification. b. Air pollution
control facility boundaries. c. Examples of eligibility limits. d.
Replacement of manufacturing process by another nonpolluting
process. 3. Water Pollution Control Facilities. a. Pollution
control or treatment facilities normally eligible for
certification. b. Examples of eligibility limits. 4.
Multiple-purpose facilities. 5. Facilities serving both old and new
plants. 6. State certification. 7. Dispersal of pollutants. 8.
Profit-making facilities. 9. Multiple applications.
1. General. Section 2112 of the Tax Reform Act of 1976
(Pub. L. 94-455, October 4, 1976) amended section 169 of the
Internal Revenue Code of 1954, “Amortization of Pollution Control
Facilities.” The amendment made permanent the rapid amortization
provisions of section 704 of the Tax Reform Act of 1969 (Pub. L.
91-172, December 30, 1969) and redefined eligibility limits to
allow certification of facilities which prevent the creation or
emission of pollutants.
The law defines a certified pollution control facility as
a new identifiable treatment facility which is:
(a) Used in connection with a plant or other property in
operation before January 1, 1976, to abate or control air or water
pollution by removing, altering, disposing of, storing, or
preventing the creation or emission of pollutants, contaminants,
wastes, or heat;
(b) Constructed, reconstructed, erected or (if purchased) first
placed in service by the taxpayer after December 31, 1975;
(c) Not to significantly increase the output or capacity,
extend the useful life, alter the nature of the manufacturing or
production process or facility or reduce the total operating costs
of the operating unit of the plant or other property most directly
associated with the pollution control facility (as suggested by the
legislative history, EPA regulations define the term
significant as any increase, reduction or extension greater
than 5%); and
(d) Certified by both State and Federal authorities, as provided
in section 169(d)(1) (A) and (B) of the Internal Revenue Code.
If the facility is a building, the statute requires that it be
exclusively devoted to pollution control. Most questions as to
whether a facility is a building and, if so, whether it is
exclusively devoted to pollution control are resolved by §
1.169-2(b)(2) of the Treasury Department regulations.
Since a treatment facility is eligible only if it furthers the
general policies of the United States under the Clean Air Act and
the Clean Water Act, a facility will be certified only if its
purpose is to improve the quality of the air or water outside the
plant. Facilities to protect the health or safety of employees
inside the plant are not eligible.
Facilities installed before January 1, 1976, in plants placed in
operation after December 31, 1968, are ineligible for certification
under the statute. 26 U.S.C. 169.
2. Air pollution control facilities.
a. Pollution control or treatment facilities normally
eligible for certification. The following devices are
illustrative of facilities for removal, alteration, disposal,
storage or preventing the creation or emission of air
pollution:
(1) Inertial separators (cyclones, etc.).
(2) Wet collection devices (scrubbers).
(3) Electrostatic precipitators.
(4) Cloth filter collectors (baghouses).
(5) Director fired afterburners.
(6) Catalytic afterburners.
(7) Gas absorption equipment.
(8) Vapor condensers.
(9) Vapor recovery systems.
(10) Floating roofs for storage tanks.
(11) Fuel cleaning equipment.
(12) Combinations of the above.
(b) Air Pollution control facility boundaries. Most
facilities are systems consisting of several parts. A facility need
not start at the point where the gaseous effluent leaves the last
unit of the processing equipment, nor will it always extend to the
point where the effluent is emitted to the atmosphere or existing
stack, breeching, ductwork or vent. It includes all the auxiliary
equipment used to operate the control system, such as fans,
blowers, ductwork, valves, dampers and electrical equipment. It
also includes all equipment used to handle, store, transport or
dispose of the collected pollutants.
(c) Examples of eligibility limits. The amortization
deduction is limited to new identifiable treatment facilities which
remove, alter, destroy, dispose of, store, or prevent the creation
or emission of pollutants, contaminants or wastes. It is not
available for all expenditures for air pollution control and is
limited to devices which are installed for the purpose of pollution
control and which actually remove, alter, destroy, dispose of,
store or prevent the creation or emission of pollutants by removing
potential pollutants at any stage of the production process.
(1) Boiler modifications or replacements. Modifications
of boilers to accommodate cleaner fuels are not eligible for
rapid amortization: e.g., removal of stokers from a coal-fired
boiler and the addition of gas or oil burners. The purpose of the
burners is to produce heat, and they are not identifiable as
treatment facilities nor do they prevent the creation or emission
of pollutants by removing potential pollutants. A new gas or
oil-fired boiler that replaces a coal-fired boiler would also be
ineligible for certification.
(2) Fuel processing. Eligible air pollution control
facilities include preprocessing equipment which removes potential
air pollutants from fuels before they are burned. A desulfurization
facility would thus be eligible provided it is used in connection
with the plant where the desulfurized coal will be burned or is
used as a centralized facility for one or more plants. However,
fluidized bed facilities would generally not be eligible for rapid
amortization. Such facilities would almost certainly increase
output or capacity, reduce total operating costs, or extend the
useful life of the plant or other property by more than 5%, since
the boiler itself would be the operating unit of the plant most
closely associated with the pollution control facility. Where the
Regional Office and the taxpayer disagree as to the applicability
of the 5% rule, the Regional office should nonetheless certify the
facility if it is otherwise eligible and leave the ultimate
determination to the Treasury Department. The certification should
alert Treasury to the possibility that the facility is ineligible
for rapid amortization.
(3) Incinerators. The addition of an afterburner,
secondary combustion chamber or particulate collector would be
eligible as would any device added to effect more efficient
combustion.
(4) Collection devices used to collect products or process
material. In some manufacturing operations, devices are used to
collect product or process material, as in the case of the
manufacture of carbon black. The baghouse would be eligible for
certification, but the certification should notify the Treasury
Department of the profitable waste recovery involved. (See
paragraph 8 below.)
(5) Intermittent control systems. Measuring devices which
inform the taxpayer that ambient air quality standards are being
exceeded are not eligible for certification since they do not
physically remove, alter, destroy, dispose of, store or prevent the
creation or emission of pollutants, but merely act as a signal to
curtail operations. Of course, measuring devices used in connection
with an eligible pollution control facility would be eligible.
d. Replacement of manufacturing process by another,
nonpolluting process. An installation does not qualify for
certification where it uses a process known to be cleaner
than an alternative, but which does not actually remove, alter,
destroy, dispose of, store or prevent the creation or emission of
pollutants by removing potential pollutants at any stage in the
production process. For example, a minimally polluting electric
induction furnace to melt cast iron which replaces, or is installed
instead of, a heavily polluting iron cupola furnace would be
ineligible for this reason and because it is not an identifiable
treatment facility. However, if the replacement equipment has an
air pollution control device added to it, the control device would
be eligible even though the process equipment would not. For
example, where a primary copper smelting reverberatory furnace is
replaced by a flash smelting furnace, followed by the installation
of a contact sulfuric acid plant, the acid plant would qualify
since it is a control device not necessary to the production
process. The flash smelting furnace would not qualify because its
purpose is to produce copper matte.
3. Water Pollution Control Facilities.
a. Pollution control or treatment facilities normally
eligible for certification. The following types of equipment
are illustrative of facilities to remove, alter, destroy, store or
prevent the creation of water pollution:
(1) Pretreatment facilities which neutralize or stabilize
industrial or sanitary wastes, or both, from a point immediately
preceding the point of such treatment to the point of disposal to,
and acceptance by, a publicly-owned treatment works. The necessary
pumping and transmitting facilities are also eligible.
(2) Treatment facilities which neutralize or stabilize
industrial or sanitary wastes, or both, to comply with Federal,
State or local effluent or water quality standards, from a point
immediately preceding the point of such treatment to the point of
disposal, including necessary pumping and transmitting facilities,
including those for recycle or segregation of wastewater.
(3) Ancillary devices and facilities such as lagoons, ponds and
structures for storage, recycle, segregation or treatment, or any
combination of these, of wastewaters or wastes from a plant or
other property.
(4) Devices, equipment or facilities constructed or installed
for the primary purpose of recovering a by-product of the operation
(saleable or otherwise) previously lost either to the atmosphere or
to the waste effluent. Examples are:
(A) A facility to concentrate and recover vaporous by-products
from a process stream for reuse as raw feedstock or for resale,
unless the estimated profits from resale exceed the cost of the
facility (see paragraph 8 below).
(B) A facility to concentrate or remove gunk or similar
tars or polymerized tar-like materials from the process
waste effluent previously discharged in the plant effluents.
Removal may occur at any stage of the production process.
(C) A device used to extract or remove insoluble constitutents
from a solid or liquid by use of a selective solvent; an open or
closed tank or vessel in which such extraction or removal occurs; a
diffusion battery of tanks or vessels for countercurrent
decantation, extraction, or leaching, etc.
(D) A skimmer or similar device for removing grease, oils and
fat-like materials from the process or effluent stream.
(b) Examples of eligibility limits. (1) In-plant process
changes which may result in the reduction or elimination of
pollution but which do not themselves remove, alter, destroy,
dispose of, store or prevent the creation of pollutants by removing
potential pollutants at some point in the process stream are not
eligible for certification.
(2) A device, piece of equipment or facility is not eligible if
it is associated with or included in a stream for subsurface
injection of untreated or inadequately treated industrial or
sanitary waste.
4. Multiple-purpose facilities. A facility can qualify
for rapid amortization if it serves a function other than the
abatement of pollution (unless it is a building). Otherwise, the
effect might be to discourage installation of sensible pollution
abatement facilities in favor of less efficient single-function
facilities.
The regulations require applicants to state what percentage of
the cost of a facility is properly allocable to its abatement
function and to justify the allocation. The Regional Office will
review these allocations, and the certification will inform the
Treasury Department if the allocation appears to be incorrect.
Although not generally necessary or desireable, site inspections
may be appropriate in cases involving large sums of money or
unusual types of equipment.
5. Facilities serving both old and new plants. The
statute provides that pollution control facilities must be used in
connection with a plant or other property in operation before
January 1, 1976. When a facility is used in connection with both
pre-1976 and newer property, it may qualify for rapid amortization
to the extent it is used in connection with pre-1976 property.
Again, the applicant will submit a theory of allocation for
review by the Regional Office. The usual method of allocation is to
compare the effluent capacity of the pre-1976 plant to the
treatment capacity of the control facility. For example, if the old
plant has a capacity of 80 units of effluent (but an average output
of 60 units), the new plant has a capacity of 40 units (but an
average output of 20 units), and the control facility has a
capacity of 150 units, then 80/150 of the cost of the control
facility would be eligible for rapid amortization.
If a taxpayer presents a seemingly reasonable method of
allocation different from the foregoing, Regional Office personnel
should consult with the Office of Air Quality Planning and
Standards or the Office of Water Planning and Standards, and with
the Office of General Counsel.
6. State certification. To qualify for rapid amortization
under section 169, a facility must first be certified by the State
as having been installed “in conformity with the State program or
requirements for abatement or control of water or atmospheric
pollution or contamination.” Significantly, the statute does not
say that the State must require that a facility be installed. If
use of a facility will not actually contravene a State requirement,
the State may certify. However, since State certification is a
prerequisite to EPA certification, EPA may not certify if the State
has denied certification for whatever reason.
It should be noted that certification of a facility does not
constitute the personal warranty of the certifying official that
the conditions of the statute have been met. EPA certification is
binding on the Government only to the extent the submitted facts
are accurate and complete.
7. Dispersal of pollutants. Section 169 applies to
facilities which remove, alter, destroy, dispose of, store or
prevent the creation or emission of pollutants - including heat.
Facilities which merely disperse pollutants (such as tall stacks)
do not qualify. However, there is no way to dispose of heat
other than by transferring B.t.u.'s to the environment. A cooling
tower is therefore eligible for certification provided it is used
in connection with a pre-1976 plant. A cooling pond or an addition
to an outfall structure which results in a decrease in the amount
by which the temperature of the receiving water is raised and which
meets applicable State standards is likewise eligible.
8. Profit-making facilities. The statute denies rapid
amortization where the cost of pollution control facilities will be
recovered from profits derived through the recovery or wastes or
otherwise.
If a facility recovers marketable wastes, estimated profits on
which are not sufficient to recover the entire cost of the
facility, the amortization basis of the facility will be reduced in
accordance with Treasury Department regulations. The responsibility
of the Regional Offices is merely to identify for the Treasury
Department those cases in which estimated profits will arise. The
Treasury Department will determine the amount of such profits and
the extent to which they can be expected to result in cost
recovery, but the EPA certification should inform the Treasury
whether cost recovery is possible.
The phrase or otherwise also includes situations where
the taxpayer is in the business of renting the facility for a fee
or charging for the treatment of waste. In such cases, the facility
may theoretically qualify for EPA certification. The decision as to
the extent of its profitability is for the Treasury Department.
Situations may also arise where use of a facility is furnished at
no additional charge to a number of users, or to the public, as
part of a package of other services. In such cases, no profits will
be deemed to arise from operation of the facility unless the other
services included in the package are merely ancillary to use of the
facility. Of course, the cost recovery provision does not apply
where a taxpayer merely recovers the cost of a facility through
general revenues; otherwise no profitable firm would ever be
eligible for rapid amortization.
It should be noted that § 20.9 of the EPA regulation is not
meant to affect general principles of Federal income tax law. An
individual other than the title holder of a piece of property may
be entitled to take depreciation deductions on it if the
arrangements by which such individual has use of the property may,
for all practical purposes, be viewed as a purchase. In any such
case, the facility could qualify for full rapid amortization,
notwithstanding the fact that the title holder charges a separate
fee for the use of the facility, so long as the taxpayer - in such
a case, the user - does not charge a separate fee for use of the
facility.
9. Multiple applications. Under EPA regulations, a
multiple application may be submitted by a taxpayer who applies for
certification of substantially identical pollution abatement
facilities used in connection with substantially identical
properties. It is not contemplated that the multiple application
option will be used with respect to facilities in different States,
since each such facility would require a separate application for
certification to the State involved. EPA regulations also permit an
applicant to incorporate by reference in an application material
contained in an application previously filed. The purpose of this
provision is to avoid the burden of furnishing detailed information
(which may in some cases include portions of catalogs or process
flow diagrams) which the certifying official has previously
received. Accordingly, material filed with a Regional Office of EPA
may be incorporated by reference only in an application
subsequently filed with the same Regional Office.
[47 FR 38319, Aug. 31, 1982]