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Tangible Assets Used In Converting Corn To Fuel Grade Ethanol Are Properly Included In Asset Class 49.5


A certain important person in my reality – my wife – is becoming increasingly interested in the business end of biomass refineries. You go girl. Funny but this interest also happens to correlate with a new file I am developing involving a farmer who owns an ethanol plant so hopefully we will be taking another journey together.What I am quickly learning is that valuation in this particular file really is all about the asset list, depreciation schedule, useful life, salvage value and the significance of having the assets properly categorized (to clean up the tax returns). It is a mess. From my warped perspective there is no better way to understand the business end of a refinery then to start with assets. So honey feel welcome to contribute to your heart’s content…

In conducting research I came acrossIRS Revenue Ruling 2014-17stating tangible assets used in converting corn to fuel grade ethanol are properly included in asset class 49.5 of Rev. Proc. 87-56,1987-2 C.B. 674, for depreciation purposes. Even though this ruling only applies toassets placed in service on or after June 9, 2014 it was helpful in understanding the nuances of Asset Class 49.5.

Asset Class 49.5 has a “Class Life” of 10 years and “Recovery Periods” of 7 years using General Depreciation methods and 10 years using Alternative Depreciation methods. This asset class specifically “includes assets used in theconversion of refuse or other solidwaste or biomass to heat or to asolid, liquid, or gaseous fuel. Alsoincludes all process plant equipmentand structures at the site used toreceive, handle, collect, andprocess refuse or other solid wasteor biomass to a solid, liquid, orgaseous fuel or to handle and burnrefuse or other solid waste orbiomass in a waterwall combustionsystem, oil or gas pyrolysis system,or refuse derived fuel system tocreate hot water, gas, steam and
electricity. Includes materialrecovery and support assets used in
refuse or solid refuse or solidwaste receiving, collecting,handling, sorting, shredding,classifying, and separation systems.Does not include any packageboilers, or electric generators andrelated assets such as electricity,hot water, steam and manufactured
gas production plants classified inclasses 00.4, 49.13, 49.221, and49.4. Does include, however, allother utilities such as water supplyand treatment facilities, ashhandling and other related landimprovements of a waste reductionand resource recovery plant.

Revenue Ruling 2014017 will be in IRB 2014-24, dated June 9, 2014.

 

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