Industries

In recent audits of ethanol producer’s tax returns, the IRS has made its position known determining that a seven-year cost recovery period must be used for equipment instead of a five-year cost recovery period for federal income tax purposes. If the IRS continues this trend, ethanol producers would be required to stretch out their cost recovery (or depreciation) deductions over a seven-year period for equipment, rather than a five-year period, which would significantly reduce the present value of those deductions. 

Although the IRS does not have a published position on whether or not these assets should be classified as five-year property or seven-year property, the positions taken in recent IRS audits have been consistent.  Numerous contacts with personnel at the IRS and at the IRS Office of Chief Counsel indicate that the IRS is seriously pursuing the seven-year classification. 

To respond to and address these challenges from the IRS, you must have a thorough understanding of the ethanol industry and related tax laws. RSM McGladrey has a team that is focused on serving the ethanol industry. We work with ethanol clients, as well as other ethanol industry leaders and stakeholders to help shape the rapidly changing tax environment. This team understands the unique industry characteristics and has the expertise necessary to address this depreciation issue and other ethanol industry-specific questions that may arise. 

If you would like to set up an appointment with an RSM McGladrey tax advisor, please contact Cristina Hurley at 319.896.5415 or cristina.hurley@rsmi.com.

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