Industries

RSM McGladrey, Inc. and the Renewable Fuels Association (RFA) are pleased to announce that meetings with the U.S. Department of Treasury have resulted in the IRS preparing new Chief Counsel Advice (CCA) regarding the cost recovery period used for ethanol equipment.

In a recent memorandum to the RFA Board of Directors, Edward S. Hubbard, Jr., the RFA’s Director of Tax and International Trade, wrote:

On April 4, 2008, the Internal Revenue Service (IRS) released a Chief Counsel Advice announcing that fuel ethanol production assets would be classified as 7-year recovery period assets, in contrast to the 5-year recovery period used by the industry over the past three decades.  As most of you already know, the RFA has been in discussions with the IRS to request that they return to the 5-year recovery period, or, at a minimum, allow prospective treatment for the new rule.  However, while the IRS has been evaluating the issue, several producers have indicated that field action on the CCA has not ceased.

In response to these producers’ concerns, the RFA requested that the IRS cease and desist all field action on the CCA during their consideration of the RFA’s position on the depreciation recovery period.  At the RFA’s request, the IRS recently issued another CCA to the field withdrawing the prior CCA and stating that the prior CCA cannot be relied on. The new CCA also states that the IRS will issue published guidance on the appropriate cost recovery period. However, the new CCA will not be released to the public for approximately another 90 days from its issuance to the field.

To confirm that field offices are following the new CCA and not continuing to set up cases on the cost recovery issue, the RFA has been in discussions with the IRS Chief Counsel’s office over the last several weeks.

According to Deputy Counsel Andrew Keyso, on August 8, 2008, the Area Counsel spoke with the technical advisor to the industry director and advised him that the 7-year issue "should be dropped in all cases in which it has been raised."  Moreover, Deputy Chief Counsel Keyso reiterated that any change in policy on the 7-year matter will be done only on a prospective basis.

Given IRS’ recent representations, it seems that we have made significant progress on this issue in favor of our membership.  We would, however, like to acknowledge the tremendous contributions to this effort made early on by RSM McGladrey.

Use our experience to your advantage
The RSM McGladrey renewable fuels team is focused on serving your industry. We work with renewable fuel producers, as well as other industry leaders and stakeholders, to help shape the rapidly changing environment. This team understands the characteristics unique to this industry and has the experience necessary to address compliance issues and other ethanol industry-specific questions that may arise.

If you have any questions or are still concerned about continued enforcement, contact Dustin Petersen, Des Moines, 515.558.6600 or dustin.petersen@rsmi.com or Jason Zanderson, Sioux Falls, 605-575-0510 or jason.zanderson@rsmi.com.