29 May 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.Â 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). Â 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 acrossÂ IRS Revenue Ruling 2014-17Â stating 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 toÂ assets 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 theÂ conversion of refuse or other solidÂ waste or biomass to heat or to aÂ solid, liquid, or gaseous fuel. AlsoÂ includes all process plant equipmentÂ and structures at the site used toÂ receive, handle, collect, andÂ process refuse or other solid wasteÂ or biomass to a solid, liquid, orÂ gaseous fuel or to handle and burnÂ refuse or other solid waste orÂ biomass in a waterwall combustionÂ system, oil or gas pyrolysis system,Â or refuse derived fuel system toÂ create hot water, gas, steam and
electricity. Includes materialÂ recovery and support assets used in
refuse or solid refuse or solidÂ waste receiving, collecting,Â handling, sorting, shredding,Â classifying, and separation systems.Â Does not include any packageÂ boilers, or electric generators andÂ related assets such as electricity,Â hot water, steam and manufactured
gas production plants classified inÂ classes 00.4, 49.13, 49.221, andÂ 49.4. Does include, however, allÂ other utilities such as water supplyÂ and treatment facilities, ashÂ handling and other related landÂ improvements of a waste reductionÂ and resource recovery plant.
Revenue Ruling 2014017 will be in IRB 2014-24, dated June 9, 2014.