[Code of Federal Regulations]
[Title 40, Volume 1]
[Revised as of July 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 40CFR20.10]
[Page 242-246]
TITLE 40--PROTECTION OF ENVIRONMENT
CHAPTER I--ENVIRONMENTAL PROTECTION AGENCY
PART 20_CERTIFICATION OF FACILITIES--Table of Contents
Sec. 20.10 Revocation.
Certification hereunder may be revoked by the Regional Administrator
on 30 days written notice to the applicant, served by certified mail,
whenever the Regional Administrator shall determine that the facility in
question is no longer being operated consistent with the Sec. 20.8 (b)
and (c) criteria in effect at the time the facility was placed in
service. Within such 30-day period, the applicant may submit to the
Regional Administrator such evidence, data or other written materials as
the applicant may deem appropriate to show why the certification
hereunder should not be revoked. Notification of a revocation under this
section shall be given to the Sec. etary of the Treasury or his delegate.
See 26 CFR 1.169-4(b)(1).
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. Sec. ion 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
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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 Sec. 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
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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
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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. Sec. ion 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 Sec. 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
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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]
