Rev. Rul. 84-64

1984-1 C.B. 20, 1984-18 I.R.B. 4.

                       Internal Revenue Service
                                 Revenue Ruling

      INVESTMENT CREDIT;  ENERGY PROPERTY;  RECYCLING EQUIPMENT; RENDERING
                                    PROCESS

                           Published: April 30, 1984

Section 48. - -Definitions;  Special Rules, 26 CFR 1.48-9: Definition of energy property.

  Investment credit;  energy property;  recycling equipment; rendering process.  Equipment acquired for use in a rendering process to produce commercial products from carcasses or animal parts is not recycling equipment that qualifies for the energy investment credit.

ISSUE

  Is equipment acquired by the taxpayer for use in a rendering process to produce commercial products from carcasses or animal parts, such as fat, bone, offal, and feathers, "recycling equipment" within the meaning of sections 48(1)(2)(A)(iv) and 48(1)(6) of the Internal Revenue Code of 1954 and section 1.48-9(g) of the Income Tax Regulations for purposes of the energy investment credit?

FACTS

  The taxpayer is in the business of rendering.  Rendering is the processing of animal carcasses and parts such as fat, offal, bone, and feathers into commercial products such as tallow, grease, and meat, bone or feather meal.  On a regular basis, the taxpayer collects fat, bone trimmings, meat scraps, feathers, bone, and offal from a variety of sources including butcher shops, supermarkets, restaurants, poultry processors, slaughter houses, and meat packing plants.  In addition, federal and state agriculture and public health departments work closely with the rendering industry to provide prompt collection services for fallen animals that have been accidentally killed or have died of old age.  The market value of the material collected by renderers is limited to its value as a raw material for the rendering process.

  The taxpayer's process consists essentially of the following four basic steps:  (1) the animal parts, bones, offal, scraps, etc., are crushed and ground;  (2) the ground material is heated or "cooked" to evaporate the moisture, melt the fat present in the material, and condition the animal fibrous tissue;  (3) the melted fat is separated from the solid proteinaceous material;  and (4) the fat is clarified and the solid proteinaceous material is ground and screened.  The rendering process is accomplished without adding any additional materials to the animal parts.  During 1982, the taxpayer purchased and installed equipment for a new continuous type rendering process at a new plant site.  The new equipment represents an increase in the taxpayer's total rendering capacity.

LAW AND ANALYSIS

  Section 48(1)(2)(A)(iv) of the Code defines the term "energy property" as including "recycling equipment."

  Section 48(1)(6) of the Code defines "recycling equipment" as any equipment which is used exclusively to sort and prepare solid waste for recycling, or any equipment used exclusively in the recycling of solid waste.

  Section 1.48-9(g)(1) of the regulations defines recycling equipment as equipment used exclusively to sort and prepare, or recycle, solid waste (other than animal waste) to recover usable raw materials ("recovery equipment") or to convert solid waste (including animal waste) into fuel or other useful forms of energy ("conversion equipment").  Recycling equipment may include certain other onsite related equipment.

  Section 1.48-9(g)(1) of the regulations specifically excludes from the term "recovery equipment" any equipment used to sort and prepare, or recycle animal waste.  As used in connection with recovery equipment, the term "animal waste" includes the remains or parts of dead animals, the type of waste material collected and used in the rendering industry.  Thus, equipment used in rendering is not recovery equipment under the regulation.

  Section 1.48-9(g)(1) of the regulations includes in the term "conversion equipment" equipment used exclusively to convert solid waste into fuel or other useful forms of energy.  However, the taxpayer's rendering process does not convert solid waste into fuel or other useful forms of energy, but produces commercial products from solid waste.  Thus, the equipment used in the taxpayer's rendering process is not conversion equipment.

HOLDING

  The equipment acquired by the taxpayer for use in a rendering process to produce commercial products from carcasses or animal parts, such as fat, bone, offal, and feathers, is not "recycling equipment" within the meaning of sections 48(1)(2)(A)(iv) and

48(1)(6) of the Code and section 1.48-9(g) of the regulations and, therefore, does not qualify for the energy investment credit.

Rev. Rul. 84-64, 1984-1 C.B. 20, 1984-18 I.R.B. 4.