Rev. Rul. 83-21

1983-1 C.B. 12, 1983-5 I.R.B. 5.

                       Internal Revenue Service
                                 Revenue Ruling

              INVESTMENT CREDIT; SPECIALLY DEFINED ENERGY PROPERTY

                          Published: January 31, 1983

26 CFR 1.48-9: Definition of energy property

  Investment credit; specially defined energy property.  Heat exchangers utilizing heat from a conventionally oil-fired boiler and used in a continuous distillation process in chemical manufacturing are not heat exchangers that are "specially defined energy property" qualifying as energy investment property under section 48(1)(5)(D) of the Code.

ISSUE

  Are the devices described herein heat exchangers that are "specially defined energy property" qualifying as energy investment credit property under section 48(1)(5)(D) of the Internal Revenue Code?

FACTS

  A corporate taxpayer owns and operates a polymer plant for producing chemicals used in the manufacture of high grade plastic material.

  A continuous distillation process is used to recover and recycle valuable solvents used in the polymerization process.  To reduce the amount of energy consumed in distillation and recycling, the taxpayer installed a series of devices that preconcentrate the solvents by adding heat early in the process. The heat transferred to the process by the concentrating devices is obtained from a conventionally oil-fired boiler, and not by energy recovered from any source that could be described as waste heat.

LAW AND ANALYSIS

  Section 48(1)(2) of the Internal Revenue Code defines those items of energy property that qualify for the business energy investment credit (credit). Included among the items is "specially defined energy property".

  Section 48(1)(5) of the Code defines "specially defined energy property" to include 12 specific items plus any other property of a kind specified by the Secretary by regulations, the principal purpose of which is reducing the amount of energy consumed in any existing industrial or commercial process and which is installed in connection with an existing industrial or commercial facility. Section 48(1)(5)(D) lists a heat exchanger.

  Section 1.48-9(f)(7) of the Income Tax Regulations provides that heat exchangers, as included in section 48(1)(5) of the Code, recover energy, usually in the form of waste heat, from high temperature gases, liquids, or solids for transfer to low temperature gases, liquids or solids.

  While installation of the taxpayer's concentrating devices reduces the amount of energy consumed in the overall polymerization process, the reduction is achieved by merely shifting the point at which heat is transferred to the process.  The devices are heat exchangers in that they transfer heat from a higher temperature source (the oil-fired boiler) to a point of lower temperature.  However, the devices utilize a conventional heat source, and not recovered energy as is required by section 1.48-9(f)(7) of the regulations for "specially defined energy property" listed in section 48(1)(5)(D) of the Code.

HOLDING

  The devices described herein are not heat exchangers that are "specially defined energy property" qualifying as energy investment credit property under section 48(1)(5)(D) of the Code.

Rev. Rul. 83-21, 1983-1 C.B. 12, 1983-5 I.R.B. 5.