[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.142(a)(5)-1]
[Page 650-652]
TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)
PART 1--INCOME TAXES--Table of Contents
Sec. 1.142(a)(5)-1 Exempt facility bonds: Sewage facilities.
(a) In general. Under section 103(a), a private activity bond is a
tax-exempt bond only if it is a qualified bond. A qualified bond
includes an exempt facility bond, defined as any bond issued as part of
an issue 95 percent or more of the net proceeds of which are used to
provide a facility specified in section 142. One type of facility
specified in section 142(a) is a sewage facility. This section defines
the term sewage facility for purposes of section 142(a).
(b) Definitions--(1) Sewage facility defined. A sewage facility is
property--
(i) Except as provided in paragraphs (b)(2) and (d) of this section,
used for the secondary treatment of wastewater; however, for property
treating wastewater reasonably expected to have an average daily raw
wasteload concentration of biochemical oxygen demand (BOD) that exceeds
350 milligrams per liter as oxygen (measured at the time the influent
enters the facility) (the BOD limit), this paragraph (b)(1)(i) applies
only to the extent the treatment is for wastewater having an average
daily raw wasteload concentration of BOD that does not exceed the BOD
limit;
(ii) Used for the preliminary and/or primary treatment of wastewater
but only to the extent used in connection with secondary treatment
(without regard to the BOD limit described in paragraph (b)(1)(i) of
this section);
(iii) Used for the advanced or tertiary treatment of wastewater but
only to the extent used in connection with and after secondary
treatment;
(iv) Used for the collection, storage, use, processing, or final
disposal of--
(A) Wastewater, which property is necessary for such preliminary,
primary, secondary, advanced, or tertiary treatment; or
(B) Sewage sludge removed during such preliminary, primary,
secondary, advanced, or tertiary treatment (without regard to the BOD
limit described in paragraph (b)(1)(i) of this section);
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(v) Used for the treatment, collection, storage, use, processing, or
final disposal of septage (without regard to the BOD limit described in
paragraph (b)(1)(i) of this section); and
(vi) Functionally related and subordinate to property described in
this paragraph (b)(1), such as sewage disinfection property.
(2) Special rules and exceptions--(i) Exception to BOD limit. A
facility treating wastewater with an average daily raw wasteload
concentration of BOD exceeding the BOD limit will not fail to qualify as
a sewage facility described in paragraph (b)(1) of this section to the
extent that the failure to satisfy the BOD limit results from the
implementation of a federal, state, or local water conservation program
(for example, a program designed to promote water use efficiency that
results in BOD concentrations beyond the BOD limit).
(ii) Anti-abuse rule for BOD limit. A facility does not satisfy the
BOD limit if there is any intentional manipulation of the BOD level to
circumvent the BOD limit (for example, increasing the volume of water in
the wastewater before the influent enters the facility with the
intention of reducing the BOD level).
(iii) Authority of Commissioner. In appropriate cases upon
application to the Commissioner, the Commissioner may determine that
facilities employing technologically advanced or innovative treatment
processes qualify as sewage facilities if it is demonstrated that these
facilities perform functions that are consistent with the definition of
sewage facilities described in paragraph (b)(1) of this section.
(3) Other applicable definitions--(i) Advanced or tertiary treatment
means the treatment of wastewater after secondary treatment. Advanced or
tertiary treatment ranges from biological treatment extensions to
physical-chemical separation techniques such as denitrification, ammonia
stripping, carbon adsorption, and chemical precipitation.
(ii) Nonconventional pollutants are any pollutants that are not
listed in 40 CFR 401.15, 401.16, or appendix A to part 423.
(iii) Preliminary treatment means treatment that removes large
extraneous matter from incoming wastewater and renders the incoming
wastewater more amenable to subsequent treatment and handling.
(iv) Pretreatment means a process that preconditions wastewater to
neutralize or remove toxic, priority, or nonconventional pollutants that
could adversely affect sewers or inhibit a preliminary, primary,
secondary, advanced, or tertiary treatment operation.
(v) Primary treatment means treatment that removes material that
floats or will settle, usually by screens or settling tanks.
(vi) Priority pollutants are those pollutants listed in appendix A
to 40 CFR part 423.
(vii) Secondary treatment means the stage in sewage treatment in
which a bacterial process (or an equivalent process) consumes the
organic parts of wastes, usually by trickling filters or an activated
sludge process.
(viii) Sewage sludge is defined in 40 CFR 122.2 and includes
septage.
(ix) Toxic pollutants are those pollutants listed in 40 CFR 401.15.
(c) Other property not included in the definition of a sewage
facility. Property other than property described in paragraph (b)(1) of
this section is not a sewage facility. Thus, for example, property is
not a sewage facility, or functionally related and subordinate property,
if the property is used for pretreatment of wastewater (whether or not
this treatment is necessary to perform preliminary, primary, secondary,
advanced, or tertiary treatment), or the related collection, storage,
use, processing, or final disposal of the wastewater. In addition,
property used to treat, process, or use wastewater subsequent to the
time the wastewater can be discharged into navigable waters, as defined
in 33 U.S.C. 1362, is not a sewage facility.
(d) Allocation of costs. In the case of property that has both a use
described in paragraph (b)(1) of this section (a sewage treatment
function) and a use other than sewage treatment, only the portion of the
cost of the property allocable to the sewage treatment function is taken
into account as an expenditure to provide sewage facilities. The portion
of the cost of property allocable to
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the sewage treatment function is determined by allocating the cost of
that property between the property's sewage treatment function and any
other uses by any method which, based on all the facts and
circumstances, reasonably reflects a separation of costs for each use of
the property.
(e) Effective date--(1) In general. This section applies to issues
of bonds issued after February 21, 1995.
(2) Refundings. In the case of a refunding bond issued to refund a
bond to which this section does not apply, the issuer need not apply
this section to that refunding bond. This paragraph (e)(2) applies only
if the weighted average maturity of the refunding bonds, as described in
section 147(b), is not greater than the remaining weighted average
maturity of the refunded bonds.
[T.D. 8576, 59 FR 66163, Dec. 23, 1994]