Undivided interests are getting another look from the IRS.

Nuclear power plants are usually owned by a group of utilities, each of which takes a share of the electricity in kind. An entity might be formed to own the power plants, but the various utilities that own it opt out of the partnership tax rules and treat themselves as if each owned an “undivided interest” in the power plant directly. They make an section under section 761 of the US tax code to receive this treatment.

Each utility might finance its ownership interest separately. For example, the IRS has ruled in the past that a utility can do a sale-leaseback on its undivided interest in such a plant.

Such arrangements are also common in power projects where a private developer teams up with an electric cooperative as joint owners of a new power plant.

The IRS said in late July that it is reviewing its rules for when it will let two or more companies claim they own a project by undivided interest rather than as partners and is collecting comments on how the current rules should be altered. It hinted that companies might not be allowed to opt for ownership by undivided interests if “an agreement with a third party, such as a lender . . . limits the rights of the coowners to take or dispose of their underlying shares.”

The IRS announcement is in Notice 2004-53. Comments are due by November 15.

Keith Martin