January 7, 1993
TO: TAX COMMITTEE NO. 2-93
INSTITUTIONAL FUNDS COMMITTEE NO. 1-93
RE: FINAL REGULATIONS ON POOLING OF ASSETS OF NUCLEAR
DECOMMISSIONING FUNDS
__________________________________________________________
In 1990, the Internal Revenue Service ("IRS") proposed
regulations dealing with the permissible pooling arrangements for
the investment of the assets of nuclear decommissioning funds
("NDFs"), which are the pools of money established by the owners
of nuclear power plants to pay for dismantling the plants at the
end of their useful lives. (See Institute Memorandum to Tax
Committee No. 19-90, dated July 26, 1990.) These proposed
regulations would have changed the then-current law to allow NDFs
to invest in regulated investment companies ("RICs") which met
certain conditions concerning assets and conduct.
The Institute filed written comments and testified at an
IRS hearing generally in support of the proposed regulations,
with two suggested changes. First, the Institute proposed that
RICs be exempt from following the self-dealing provisions of the
Black Lung Benefits Trust provisions of the Internal Revenue Code
(the "Code"), because these provisions merely duplicate the self-
dealing provisions of the Investment Company Act of 1940.
Second, the Institute suggested that the restriction be removed
which limited NDFs to investments in RICs whose only shareholders
were other NDFs. (See Institute Memoranda to Tax Committee No.
27-90 and SEC Rules Committee No. 47-90, dated September 4, 1990,
and to Tax Committee No. 38-90 and Institutional Funds Committee
No. 6-90, dated December 26, 1990.)
In 1991, the IRS issued new proposed regulations which
would have removed the limitation on the shareholders of RICs in
which NDFs invested, but retained the portion of the proposed
regulations relating to the self-dealing prohibitions of the
Black Lung Benefit Trust provisions of the Code. (See Institute
Memorandum to Tax Committee No. 28-91 and Institutional Funds
Committee No. 5-91, dated August 23, 1991.) Subsequently, the
Energy Policy Act of 1992 repealed the investment limitations
which had prevented NDFs from investing in RICs and which had
necessitated the issuance of the proposed regulations. (See
Institute Memorandum to Tax Members No. 68-92, Operations Members
No. 40-92, Transfer Agent Advisory Committee No. 63-92 and
Institutional Funds Committee No. 24-92, dated October 26, 1992.)
The IRS has issued the attached final regulations on
qualified investments of NDFs, which take into account the
changes made by the Energy Policy Act of 1992. As a result, NDFs
may now invest in a RIC with no restrictions as to the RIC's
other shareholders or permissible assets. In addition, the final
regulations eliminate the requirement in the proposed regulations
that the RIC comply with the self-dealing prohibitions of the
Black Lung Benefit Trust provisions of the Code.
We will keep you informed of further developments.
David J. Mangefrida Jr.
Assistant Counsel - Tax