Steam turbines and reactor vessel heads at a nuclear power plant are “separate assets,” the IRS said.

As a consequence, a utility that owns a nuclear plant was able to deduct its costs to remove them. The agency made the statement in a private letter ruling that it released to the public in mid-March.

The utility asked for the ruling to confirm that it did not have to add the removal costs to the “tax basis” that it has in the nuclear plant as a whole and recover it over time through depreciation.

The ruling is Private Letter Ruling 200711015.

The IRS has wrestled for years, without reaching any clear conclusion, about what is a unit of property at a power plant. The question also has a bearing on whether spending to fix components of the plant can be deducted immediately as “repairs.” The larger the unit of property, the more likely spending will be a repair. For example, $10,000 spent on fixing a component is more likely to be a repair if the component is worth $100 million than if it is worth only $15,000. As a corollary, the more significant the work as a percentage of asset value, the more likely to it is to be an “improvement” rather than a repair and have to be recovered through depreciation.

Keith Martin