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PLR 201024036 concludes that the underlying nature
and character of the rights conferred by emissions credits for
nitrogen oxide emissions (NOE) are like-kind to the rights
conferred by emissions credits for volatile organic compounds (VOC).
Interestingly, the ruling
also concludes the Parent Corporation (Parent) is deemed to have held
the emission credits for investment or for use in its trade or
business, despite the fact that the credits had only recently been
contributed to Parent by its wholly-owned Subsidiary (Sub).
In the conduct of their
business, Parent and Sub emit nitrogen oxide that is a by-product
of natural gas combustion.
Parent and Sub also generate
volatile organic compounds, which are chemical compounds that
evaporate under specific conditions.
Sub owns NOE credits that it
obtained after installing emission reducing equipment in its
facility.
The credits are government
issued licenses that permit Sub to emit certain levels of pollutants
without penalty. The credits are intangible personal property for
federal income tax purposes that Sub holds for investment or for use in
its trade or business.
Parent anticipates needing
additional VOC credits in the conduct of its business and desires to
exchange some of Sub's NOE credits for additional VOC credits from an
unrelated third party.
To achieve their objective,
Sub contributes NOE credits to Parent who immediately exchanges them
for VOC credits.
The IRS concluded that the
underlying nature and character of the emission credits were like-kind
and therefore eligible for non-recognition of gain under IRC Section
1031.
Additionally the Parent
is considered to have held the NOE credits for investment, or for use
in its trade or business. There is no rationale cited for this
statement.
Please call us with questions or to obtain
a copy of the PLR.
866-677-1031
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