n-16-36.pdf

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Transfers of Property to Regulated Public Utilities by Electricity Generators

Notice 2016-36
I. PURPOSE
This notice provides a safe harbor for transfers of property from either an
electricity generation or cogeneration facility or an energy storage facility to a
regulated public utility, used to facilitate the transmission of electricity over the
utility’s transmission system, to be treated as a contribution to the capital of a
corporation under § 118(a), and not a contribution in aid of construction (CIAC)
under § 118(b). Notice 88-129, 1988-2 C.B. 541; Notice 90-60, 1990-2 C.B.
345; and Notice 2001-82, 2001-2 C.B. 619, (collectively, the “Notices”) are
modified and superseded.
II. BACKGROUND
A. Law and Legislative History
Section 61(a) of the Internal Revenue Code and § 1.61-1 of the Income
Tax Regulations provide that gross income means all income from whatever
source derived, unless excluded by law. Section 118(a) provides that in the case
of a corporation, gross income does not include any contribution to the capital of
the taxpayer. Section 118(b) provides that for purposes of § 118(a), except as
provided in § 118(c), the term “contribution to the capital of taxpayer” does not
include any CIAC or any other contribution as a customer or potential customer.

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Section 1.118-1 provides, in part, that § 118 also applies to contributions to
capital made by persons other than shareholders. For example, the exclusion
applies to the value of land or other property contributed to a corporation by a
governmental unit or by a civic group for the purpose of enabling the corporation
to expand its operating facilities. However, the exclusion does not apply to any
money or property transferred to the corporation in consideration for goods or
services rendered.
The legislative history to § 118 indicates that Congress added the
exclusion from gross income for nonshareholder contributions to capital of a
corporation to address situations in which such contributions cannot be called
gifts because the contributors expect to derive indirect benefits; nor can the
contributions be characterized as payments for future services because the
anticipated future benefits are too intangible. The legislative history also
indicates that the provision was intended to codify the existing law that had
developed through court decisions on the subject. H.R. Rep. No. 1337, 83rd
Cong., 2d Sess. 17 (1954); S. Rep. No. 1622, 83d Cong., 2d Sess. 18-19 (1954).
B. Notice 88-129
Notice 88-129, which was amplified and modified by Notice 90-60 and
Notice 2001-82, provided specific guidance with respect to the treatment of
transfers of property to regulated public utilities by qualifying small power
producers and qualifying cogenerators (collectively, “Qualifying Facilities”), as
defined in section 3 of the Federal Power Act, as amended by section 201 of the
Public Utilities Regulatory Policies Act of 1978 (PURPA).

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As explained in Notice 88-129, PURPA and the regulations thereunder
require a utility to interconnect with a Qualifying Facility for the purpose of
allowing the sale of power produced by the Qualifying Facility. These rules
require the Qualifying Facility to bear the cost of the purchase and installation of
any equipment required for the interconnection (“intertie”). Generally, the utility
takes legal title to the intertie, which becomes part of the utility's transmission
network. Qualifying Facilities generally sell electricity to utilities pursuant to long
term power purchase contracts, and some of these contracts require the
Qualifying Facility to construct and install the intertie and transfer it to the utility.
1. Safe harbor
Section 1 of Notice 88-129 provided a safe harbor under § 118 for certain
transfers of interties by a Qualifying Facility to a regulated public utility. Under
the safe harbor, when a Qualifying Facility transfers an intertie to a utility
exclusively in connection with the sale of electricity by the Qualifying Facility to
the utility, the utility would not realize income upon the transfer (a “QF transfer”).
The possibility that an intertie may be used to transmit power to a utility that will
in turn transmit the power across its transmission network for sale by the
Qualifying Facility to another utility (“wheeling”) would not cause the contribution
of that intertie to be treated as a CIAC includible in income pursuant to § 118(b).
Under certain other power purchase contracts, a utility may construct and
install an intertie on behalf of a Qualifying Facility, with the Qualifying Facility
reimbursing or financing the construction and installation costs. A utility that
constructs an intertie in exchange for a cash payment from a Qualifying Facility

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pursuant to a PURPA contract must recognize income from the construction in
the same manner as any other taxpayer constructing similar property under
contract. However, subsequent to the construction of the intertie, the Qualifying
Facility will be deemed to transfer the intertie to the utility in a QF transfer that is
treated in exactly the same manner as an in-kind QF transfer.
Section 2 of Notice 88-129 further explained that, in addition to
transmitting power from a Qualifying Facility to a utility, an intertie may be used to
transmit power from the utility for sale to the Qualifying Facility (a “dual-use
intertie”). Notice 88-129 treated the contribution of a dual-use intertie to a utility
as a QF transfer if it satisfied a “5% test.” A contribution satisfied the 5% test if,
in light of all information available to the utility at the time of transfer, it was
reasonably projected that during the ten taxable years of the utility beginning with
the taxable year in which the transferred intertie was placed in service, no more
than 5% of the projected total power flows over the intertie would flow to the
Qualifying Facility. The notice required the projection to be supported, if
practicable, by a report from an independent engineer. For purposes of the 5%
test, total power flows meant power flows to or from the Qualifying Facility over
the intertie and included power flows to a related party of the Qualifying Facility if
the transmission of power to the related party was facilitated by the transfer of
the intertie. Concerning the 5% test, the notice provided that transfer of an asset
necessary only for sale of power by the utility to the Qualifying Facility was not a
QF transfer and constituted a CIAC, even if the asset was used, in part, in
connection with the transmission of power to the utility.

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Section 3 of the notice provided that a transfer of an intertie by a
Qualifying Facility to a utility would not be treated as a QF transfer to the extent
the intertie was included in the utility’s rate base or if the term of the power
purchase contract was less than ten years.
2. Termination of safe harbor
Section 4 of Notice 88-129 provided that certain events would terminate
the safe harbor and require the utility to recognize income as a consequence of
the QF transfer.
Under section 4.A of Notice 88-129, if, for each of any three taxable years
within any period of five consecutive taxable years, more than 5% of the total
power flow over the intertie flowed from a utility to a Qualifying Facility (a
“disqualification event”), then the Qualifying Facility was deemed to have made a
transfer to the utility that constituted a CIAC, and a portion of the fair market
value of the intertie had to be included in income by the utility.
Section 4.B of Notice 88-129 provided that, upon the termination of the
power purchase contract between a Qualifying Facility and a utility, if the utility
obtained or retained ownership (for tax purposes) of the intertie, then the
Qualifying Facility was deemed to have made a transfer to the utility that
constituted a CIAC as of the first day of the termination. The amount of the CIAC
was the fair market value of the intertie, less the amount, if any, paid by the utility
to obtain or retain ownership of the property for tax purposes. Absent unusual
circumstances, the fair market value of a CIAC was determined under the
replacement cost method.

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3. Cost recovery
Finally, Notice 88-129 provided that the cost of property transferred in a
QF transfer was required to be capitalized by the Qualified Facility as an
intangible asset and recovered as appropriate. Taxpayers were not permitted to
currently deduct the total amount of an expenditure that resulted in the creation
of an asset having a useful life that extended substantially beyond the close of
the taxable year but were required to capitalize such expenditures as assets and
recover the cost of the expenditures over the useful life of the asset in question.
See, e.g., § 1.461-1(a)(1) and (2); Rev. Rul. 70-413, 1970-2 C.B. 103.
Notice 88-129 did not allow a utility to claim depreciation (or amortization)
deductions with respect to property transferred in a QF transfer. However, if
property that was the subject of a QF transfer was subsequently transferred or
deemed transferred to the utility as a CIAC, the utility was allowed to take
depreciation deductions with respect to the property.
C. Notice 90-60
Notice 90-60 amplified and modified Notice 88-129. Notice 90-60 clarified
that for purposes of determining the fair market value of a CIAC under section
4.A of Notice 88-129, the replacement cost method included taking into account
the condition of property deemed transferred as a CIAC in establishing its fair
market value. Absent unusual circumstances, the fair market value of used CIAC
property was the depreciated replacement cost.
Notice 90-60 also provided that upon the termination under section 4.B of
Notice 88-129 of a power purchase contract between a Qualifying Facility and a

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utility, if the utility obtained or retained ownership (for tax purposes) of property
transferred in a QF transfer, the Qualifying Facility was deemed to have made a
transfer to the utility as of the first day of the termination. Notice 90-60 modified
Notice 88-129 by providing that a deemed transfer was not treated as a CIAC,
except in circumstances indicating an intention by the parties to characterize as a
QF transfer a transaction that in substance constitutes a CIAC.
Finally, Notice 90-60 modified Notice 88-129 by deleting the requirement
that any property that was the subject of a QF transfer be subsequently
transferred or deemed transferred to the utility “as a CIAC” for the utility to be
allowed to take depreciation deductions with respect to the property.
D. Notice 2001-82
Notice 2001-82 further amplified and modified Notice 88-129. Notice
2001-82 extended the safe harbor provisions of Notice 88-129 to include
transfers of interties from both Qualifying and non-Qualifying Facilities and
transfers of interties used exclusively or in part for wheeling electricity. Notice
2001-82 required that ownership of the wheeled electricity pass to the purchaser
prior to its transmission on the utility’s transmission grid. This ownership
requirement was deemed satisfied if title passed at the busbar on the facility’s
end of the intertie. Further, Notice 2001-82 provided that a long-term
interconnection agreement in lieu of a long-term power purchase contract could
be used to satisfy the safe harbor provisions of Notice 88-129 with respect to
wheeling transactions. Finally, Notice 2001-82 required that a facility capitalize

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the cost of transferred property as an intangible asset and recover such cost
using the straight-line method over a useful life of 20 years.
E. Industry Changes
1. Regional implications of interconnecting to the grid
Since the issuance of the Notices, electricity transmission and distribution
systems have evolved and become interlinked so that close coordination of
operations within the major U.S. power grids is needed to maintain the various
interlinked components.
Utilities across geographic regions interconnect for improved reliability and
efficiency. Utilities can draw power from generator reserves in different regions
to ensure continuing, reliable power and to diversify their loads. Interconnection
also provides access to cheap bulk energy by allowing utilities to receive power
from different sources. Further, through greater coordination, utilities can help
one another maintain the frequency of oscillation of alternating current and
manage interconnections between utility regions.
In addition, utilities are responsible for maintaining the safety of their
systems and planning for future customer needs. A large failure in one part of
the grid can cause failures in other parts of the grid. Regional transmission
operators (RTOs) measure the available transmission capacity on transmission
lines and monitor the activities of parties that use space on power lines. Parties
may agree to a transaction involving specific transmission lines that, in theory,
are able to handle new capacity. However, the additional power delivered over
those lines may overload different transmission lines in another part of the grid,

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as the physical and the contractual flow of power may differ. When buyers and
sellers attempt to send more power over transmission lines than the system can
handle, RTOs can activate procedures that enable them to stop the flow of, or in
some situations, even cancel, power sales contracts (collectively, “curtailment”).
To avoid curtailment, an electricity generator in one region and a utility in a
different region that owns a transmission system that will be affected by power
delivered by the generator may enter into an agreement in which the utility
constructs upgrades to its transmission system, allowing it to handle the
generator’s new capacity, and the generator reimburses the utility for the costs of
the upgrades. The safe harbor in Notice 88-129, as amplified and modified by
Notice 2001-82, did not apply to such a transfer unless the upgrades were
constructed pursuant to a long-term power purchase contract or a long-term
interconnection agreement between the generator and the utility that constructed
the upgrades. Electricity generators typically do not enter into long-term power
purchase contracts with utilities outside of their service areas and do not enter
into long-term interconnection agreements with transmission systems that are not
located within their connectivity range (“neighboring transmission systems”).
Therefore, contributions of transmission system upgrades to neighboring
transmission systems would not qualify under the former safe harbor.
2. Energy storage facilities
Most sections of the U.S. power grid operate at 60 Hz. This is the
frequency with which electric current oscillates. The frequency fluctuates from
one second to the next as people turn on and off lights, TVs, computers, air

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conditioners, and other equipment that requires electricity to function. Grid
operators try to keep the frequency of the electricity on the grid within a narrow
band, from 59.8 to 60.2 Hz, for example. A drop in electricity demand as people
turn off equipment causes the frequency to increase. A spike in demand as
people turn on equipment causes the frequency to decrease. The fluctuating
frequency can cause damage.
Grid frequency is becoming harder to manage as more and more
intermittent wind and solar projects connect to the grid. Batteries and other
storage facilities play an important role in managing grid frequency. Standalone
batteries connected to the grid can allow the grid to shed electricity and call it
back in very short intervals to manage frequency as well as smooth the transition
to other energy sources.
III. SAFE HARBOR
A. Explanation of Provisions
This notice provides a new safe harbor in which a transfer of an intertie to
a regulated public utility will not be treated as a CIAC under § 118(b) or give rise
to gross income under § 118(a). This notice consolidates the safe harbor
requirements under the Notices and removes the requirement that the generator
must have a long-term power purchase contract or long-term interconnection
agreement with the utility that constructs the upgrades. Because no long-term
power purchase contract or long-term interconnection agreement is required
under the new safe harbor, a generator (such as a solar or wind farm) may
contribute an intertie to a utility that qualifies under the new safe harbor even if

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the generator is interconnected with a distribution system, rather than a
transmission system, if all of the requirements under section III.C of this notice
are met. This notice also extends the provisions of the safe harbor to transfers of
interties from energy storage facilities to regulated public utilities. The Treasury
Department and the Internal Revenue Service (IRS) believe that these
modifications will promote reliability and economic efficiency throughout the grid
and the development and interconnection of renewable energy resources.
B. Definitions
1. Generator. A generator is an electricity generation or cogeneration
facility or an energy storage facility.
2. Intertie. An intertie includes new connecting and transmission facilities,
or modifications, upgrades, or relocations of a utility’s existing transmission
network that enable or facilitate the interconnection of a generator with a utility or
improve efficiency on the utility’s transmission network.
3. Dual-use intertie. A dual-use intertie is an intertie that is used to
transmit power from a generator to a utility and that may be used to transmit
power from the utility for sale to the generator. A dual-use intertie may be used,
for example, when a generator relies on the utility as a backup or supplemental
power source, either sporadically or on a regular basis. A dual-use intertie
includes an intertie that may be used to transmit power from a third party for sale
to the generator.
4. Utility. A utility is a regulated public utility.
C. Requirements

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A contribution of an intertie, including a dual-use intertie, by a generator to
a utility will not be treated as gross income under § 118(a) or a CIAC under
118(b) if all of the following conditions are met:
1. The generator may not purchase electricity from the utility, unless the
purchase satisfies the 5% test.
a. 5% Test. If, in light of all information available to the utility at the time
the intertie is contributed, it is reasonably projected that, during the ten taxable
years of the utility beginning with the year in which the contributed intertie is
placed in service, no more than 5% of the projected total power flows over the
intertie will flow to the generator, the 5% test will be satisfied. Such a projection
must be supported by appropriate documentation. Total power flows mean
power flows to or from the generator over the intertie. Power flows to a generator
include power flows to a related party of the generator, if the transmission of
power to the related party has been facilitated by the contribution of the intertie.
For purposes of the 5% test, power flows in the taxable year in which the
transferred property is placed in service may, at the option of the utility, be
ignored. Power purchases by the generator from parties other than the utility are
not taken into account.
b. Example. A utility and a generator enter into a power purchase contract
with a term of twenty years, under which the generator will purchase electricity
from the utility. Power flows from the utility to the generator are expected to
comprise 10% of total power flows over the intertie in the first year (the taxable
year in which the facility is placed in service), 1% in the second and third years,

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and 0.5% in each of the fourth through tenth years. Total power flows are
projected to be 100 megawatt hours ("MWH") in the first and second years, and
200 MWH in the third through tenth years. The utility excludes the first year of
the contract from the projection. Thus, the utility reasonably projects that power
flows to the generator will be 0.59% of total power flows over the intertie for the
applicable nine-year period ((1% × 100 MWH) + (1% × 200 MWH) + (7 × (0.5% ×
200 MWH))/(100 MWH + (8 × 200 MWH)). The purchase of electricity by the
generator satisfies the 5% test.
2. In the case of electricity wheeled over the utility’s transmission system,
ownership of the wheeled electricity remains with the generator prior to its
transmission onto the grid. This ownership requirement is deemed to be satisfied
if title to electricity wheeled passes to the purchaser at the busbar on the
generator's end of the intertie.
3. The cost of the intertie is not included in the utility’s rate base.
4. The intertie will be used for transmitting electricity.
5. The cost of the intertie is capitalized by the generator as an intangible
asset and recovered using the straight-line method over a useful life that is
treated as 20 years. A utility may not claim depreciation (or amortization)
deductions with respect to the intertie. However, if the intertie is subsequently
transferred or deemed transferred to the utility, the utility may be allowed to take
depreciation deductions with respect to the intertie.
IV. TERMINATION OF SAFE HARBOR

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The occurrence of an event specified below will terminate the safe harbor
and require the utility to recognize income as a consequence of the contribution
of an intertie to a utility by a generator.
A. Proportionate Disqualification
1. General rule.
If, for each of any three taxable years within any period of five consecutive
taxable years, more than 5% of the total power flows over the intertie flow from
the utility to the generator (a "disqualification event"), then the generator will be
deemed to have made a transfer to the utility that constitutes a CIAC under
§ 118(b) as of the last day of the third such year. At the option of the utility, the
taxable year in which the property is placed in service shall not be taken into
account in determining whether there has been a disqualification event. The
amount of the CIAC shall be equal to the percentage of the fair market value of
the intertie as of the date of the deemed transfer that reflects the use of the
intertie for the purpose of selling power to the generator, as determined by the
IRS by taking into account all facts and circumstances. Relevant factors include
the use of the intertie since the date it was placed in service and the reasonably
anticipated use of the intertie. This proportionate disqualification does not apply
to any property necessary for, and used solely to facilitate, the transmission of
power by the generator to the utility.
2. Examples.
These principles are illustrated by the following examples.

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Example 1. A generator contributes a dual-use intertie to a utility that is a
calendar year taxpayer. The utility places the intertie in service in 2010 and
reasonably projects that, over the ten taxable years beginning in 2010, power
flows over the intertie to the generator will be less than 5% of total power flows
over the intertie. Actual power flows over the intertie to the generator constitute
the following percentages of total flows over the intertie: 10% in 2010; 7% in
2011; 6% in 2012; 3% in 2013; 1% in 2014; and 6% in 2015. The utility excludes
2010 (the year in which the intertie is placed in service) from the determination of
whether a disqualification event has occurred. A disqualification event occurs
due to power flows in 2015, the third year within the five year period from 2011 to
2015 in which more than 5% of power flows over the intertie flow to the
generator. Therefore, the generator is deemed to have made a CIAC transfer to
the utility as of December 31, 2015.
Example 2. A contract between a generator and a utility requires the utility
to relocate a major transmission line and to construct an intertie to the generator,
including protective devices that are necessary and used solely for the delivery of
power to the utility. Several years into the contract, the use of the intertie by the
utility for delivery of power results in a disqualification event. Payments made for
the construction of the protective devices are not subject to proportionate
disqualification because the protection devices were necessary for, and used
solely to facilitate, the transmission of power by the generator to the utility.
However, because the transmission line is used for the delivery of power over the

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intertie by the utility to the generator, payments made for the relocation of the
transmission lines are subject to proportionate disqualification.
3. Determination of fair market value.
The fair market value of a CIAC generally is determined under the
replacement cost method, taking into account the condition of the property
deemed transferred as a CIAC. See Notice 87-82, 1987-2 C.B. 389. Absent
unusual circumstances, the fair market value of used CIAC property will be its
depreciated replacement cost (the percentage of the replacement cost that
reflects the remaining economic useful life of the property). For example, a trunk
line originally cost $100x to install. Ten years later, the replacement cost of the
line is $150x, and 60% of its useful life remains. The depreciated replacement
cost is $90x (60% of $150x).
B. Termination of Power Purchase Contract
1. General rule.
Upon the termination of a power purchase contract between a generator
and a utility, if the utility obtains or retains ownership (for tax purposes) of the
intertie, the generator will be deemed to have transferred the intertie to the utility
as of the first day of such termination. Such a deemed transfer will not be treated
as a CIAC, except in circumstances that indicate an intention by the parties to
characterize a contribution of an intertie as a transaction that in substance
constitutes a CIAC. The utility shall include in income the fair market value of the
property deemed transferred less the amount, if any, paid by the utility to obtain
or retain ownership of the property for tax purposes.

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The amount paid by the utility to obtain or retain ownership of the property
deemed transferred shall include any "extension allowance" or similar payment
by the utility to the generator during the term of the power purchase contract. For
this purpose, an extension allowance is a payment to compensate the generator
in consideration of the anticipated use of the property by the utility to deliver
power to customers other than the generator.
2. Determination of fair market value. The fair market value of the
property deemed transferred upon termination (except for any deemed transfer
treated as a CIAC) shall be determined by taking into account all facts and
circumstances, including the age and condition of the property and whether the
property is needed to serve the utility's customers.
If a utility pays to a generator an amount that is determined upon
termination of a power purchase contract to be the fair market value for such
property under a procedure or method established or used by the relevant utility
commission, such fair market value shall be presumed correct in the absence of
substantial contrary evidence. For this purpose, a utility commission may take
into account any relevant factors, including payments made in connection with
the retention of property by a utility upon the termination of a contract and
payments by the utility during the term of the contract (for example, extension
allowances).
3. Examples. These principles are illustrated by the following examples:
Example 1. A generator contributes to a utility a circuit breaker that is
installed as part of an intertie to protect the utility against damage to its system in

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the event of a breakdown at the generator. At the termination of the power
purchase contract, the utility does not need the circuit breaker to serve its
customers. The fair market value of the circuit breaker is its salvage value (less
any cost of removal).
Example 2. Upon the termination of a 20-year power purchase contract, a
utility retains ownership of a 50-megawatt trunk line that was transferred by a
generator at the commencement of the contract. The utility will not use the trunk
line other than to supply power to a 10 megawatt customer who has hooked into
the trunk line. The fair market value of the trunk line is the economic value to the
utility of a 20-year old 10-megawatt line, taking into account any other
characteristics or factors that are relevant.
Example 3. Assume the same facts as Example 2, except that upon
termination the local public utility commission requires the utility to pay $10x to
the generator, which the commission has determined to be the fair market value
of the trunk line. In the absence of substantial contrary evidence, the
commission's finding will be presumed correct. The $10x will be treated as the
fair market value for federal income tax purposes, and, because the $10x fair
market value is offset by the $10x the utility paid to the generator, the utility will
not be required to include any amount in income upon termination.
Example 4. A generator transfers a trunk line to a utility pursuant to a long-
term power purchase agreement. The trunk line cost the generator $10x to
construct. Three years later, a customer of the utility interconnects into the trunk
line, and the local public utility commission requires the utility to pay to the

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generator an extension allowance of $5x. The following year, another customer
of the utility interconnects into the line, and the commission requires another
extension allowance of $4x. The commission employs a procedure under which
the utility will be required to compensate the generator for the fair market value of
property deemed transferred upon termination. When the contract terminates,
the commission determines that the utility has, by means of the extension
allowances, paid to the generator the fair market value of the property. In the
absence of substantial contrary evidence, the commission's finding will be
respected, and the utility will not be required to include any amount in income
upon termination.
Example 5. A generator transfers a trunk line to a utility pursuant to a 20-
year power purchase contract. Upon the termination of the contract, the utility
commission determines the fair market value of the trunk line to be $10x, but
does not require the utility to pay this amount to the generator. No presumption
of correctness attaches to the utility commission's findings.
V. CHANGE IN METHOD OF ACCOUNTING
A. In General. A change in a utility’s treatment of a transfer of an intertie,
including a change to or from the safe harbor method of accounting provided in
section III of this notice, is a change in method of accounting to which the
provisions of §§ 446 and 481 and the regulations thereunder apply. A utility that
wants to change to the methods of accounting described in this notice must use
the automatic change procedures in Rev. Proc. 2015-13, 2015-5 I.R.B. 419, or its
successor.

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B. Automatic Change. Rev. Proc. 2016-29, 2016-21 I.R.B. 880, is
modified to add new section 15.16 to read as follows:
15.16 Transfers of interties under the safe harbor described in Notice
2016-36 (§ 118).
(1) Description of change.
(a) Safe harbor applicable. This change applies to a utility that wants
to change to the safe harbor method of accounting provided in section III.C of
Notice 2016-36, I.R.B. 2016-25, for the treatment under § 118 of a transfer of an
intertie, including a dual-use intertie, by a generator to a utility. Under this safe
harbor method of accounting, such a transfer will not be treated as gross income
under § 118(a) or a contribution in aid of construction (CIAC) under
§ 118(b) if all of the conditions specified in section III.C of Notice 2016-36 are
met.
(b) Safe harbor terminates. This change applies to a utility that is
using the safe harbor method of accounting provided in section III.C of Notice
2016-36 and is required to terminate that safe harbor method of accounting
because of the occurrence of an event specified in section IV of Notice 2016-36.
The occurrence of such event will require the utility to recognize income as a
consequence of the transfer of an intertie, including a dual-use intertie, to the
utility by a generator.
(2) Definitions. For purposes of this section 15.16, the terms “utility,”
“intertie,” “dual-use intertie,” and “generator” are defined in section III.B of Notice
2016-36.

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(3) Certain eligibility rules inapplicable. The eligibility rules in sections
5.01(1)(d) and (f) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to a
utility making a change under this section 15.16.
(4) Manner of making change.
(a) The change in method of accounting under section 15.16(1)(a) of
this revenue procedure is made with a § 481(a) adjustment.
(b) The change in method of accounting under section 15.16(1)(b) of
this revenue procedure is made using a cut-off method and applies to a transfer
of an intertie, including a dual-use intertie, by a generator to a utility made on or
after the beginning of the taxable year in which the safe harbor method of
accounting terminates.
(5) Concurrent automatic change. A utility making a change under this
section 15.16 for more than one transfer of an intertie, including a dual-use
intertie, for the same year of change should file a single Form 3115 for all such
transfers. The single Form 3115 must provide a single net § 481(a) adjustment
for all changes under section 15.16(1)(a) of this revenue procedure.
(6) Designated automatic accounting method change number. The
designated automatic accounting method change number for a change to the
methods of accounting under this section 15.16 is “226.”
(7) Contact information. For further information regarding a change under this
section 15.16, contact David Selig at (202) 317-4137 (not a toll-free call).
VI. EFFECT OF THIS DOCUMENT

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This document serves as an "administrative pronouncement" as that term
is described in § 1.6661-3(b)(2) and may be relied upon to the same extent as a
revenue ruling or a revenue procedure.
VII. EFFECT ON OTHER DOCUMENTS
Notice 88-129, 1988-2 C.B. 541; Notice 90-60, 1990-2 C.B. 345; and
Notice 2001-82, 2001-2 C.B. 619, are modified and superseded. Rev. Proc.
2016-29 is modified to include the accounting method changes provided in
section V of this Notice in section 15 of Rev. Proc. 2016-29.
VIII. EFFECTIVE DATE
This notice applies to transfers of interties meeting all of the requirements
under this notice made on or after June 20, 2016. However, taxpayers may
choose to rely on this safe harbor for transfers with respect to qualifying transfers
made prior to June 20, 2016. The IRS will not issue private letter rulings
involving this safe harbor.
IX. DRAFTING INFORMATION
The principal author of this notice is David Selig of the Office of the
Associate Chief Counsel (Passthroughs and Special Industries). For further
information regarding this notice, contact Mr. Selig at (202) 317-4137 (not a toll
free call).