Rev. Rul. 85-41

1985-1 C.B. 17, 1985-14 I.R.B. 4.

ENERGY CREDIT; EQUIPMENT USED TO PRODUCE FUEL ALCOHOL FROM BIOMASS

FEEDSTOCK

Published: April 8, 1985

Section 48-Definition, Special Rules, 26 CFR 1.48-1: Definitions of section 38 property.

  Energy credit; equipment used to produce fuel alcohol from biomass feedstock. Equipment used to produce fuel alcohol from biomass feedstock does not qualify as biomass property under section 48(1)(15) when steam used as an energy source is produced in boilers fueled by oil or natural gas.

ISSUE

  Whether equipment used to produce fuel alcohol in the manner described below qualifies as biomass property under section 48(1)(15) of the Internal Revenue Code.

FACTS

  In 1984, taxpayer plans to construct a new plant to produce fuel alcohol from biomass feedstock. The fuel alcohol will be used in the production of gasohol.

  The main on-site source of energy for the production equipment used in making the fuel alcohol will be steam that is purchased from a nearby utility company and delivered by a pipeline to be constructed by the taxpayer. The utility company produces the steam in boilers fired by oil and natural gas.

LAW AND ANALYSIS

  Section 46(a)(2)(C) of the Code provides a 10 percent energy credit in the case of biomass property for the period beginning October 1, 1978 and ending December 31, 1985.

  Section 48(1)(15) of the Code provides that biomass property includes alternative energy property described in section 48(1)(3)(A)(iii) as modified by section 48(1)(15)(B). Under section 48(1)(3)(A)(iii), as modified by section 48(1)(15)(B), alternative energy property includes equipment for converting an alternate substance into a qualified fuel. Under section 48(1)(15)(C), alcohol for fuel purposes is a qualified fuel if the primary source of energy for the facility producing the alcohol is not oil or natural gas or a product of oil or natural gas.

  The steam used by the taxpayer to produce fuel alcohol will be produced by burning oil and natural gas in the utility company's boilers. Even though the boilers used to produce the steam are not located at taxpayer's plant site, the oil and natural gas used to fire the boilers will be the primary source of the energy required by taxpayer's equipment to convert biomass to fuel alcohol.

HOLDING

  Taxpayer's equipment used to produce fuel alcohol will not qualify as biomass property under section 48(1)(15) of the Code.

Rev. Rul. 85-41, 1985-1 C.B. 17, 1985-14 I.R.B. 4.