How Biofuel Plants
How biofuel plants should be depreciated for tax purposes remains unclear.
The IRS told its field teams in late August not to rely on a memo that it circulated late last year that said facilities that produce ethanol should be depreciated over seven years. Many ethanol producers depreciate their plants over five years. The proper depreciation depends on whether the plants are considered used to make chemicals, which would allow them to be depreciated over five years, or are “waste reduction and resource recovery plants” that convert “biomass” into a “solid, liquid, or gaseous fuel.” The IRS has been challenging ethanol producers who used five-year depreciation on audit. A change in depreciation to seven years costs the typical ethanol producer about $3 million in extra taxes. In late August, the agency said it is still studying the issue. Its latest memo is Chief Counsel Advice 200835032.