RFA UPDATE

September 15, 2009

IRS agrees to reconsider ruling
Following more than a year of intense work by the RFS with the Internal Revenue Service, the agency on August 24 issued a Notice of Proposed Revenue Ruling clarifying that it will not seek to impose a change in the cost recovery periods used by most ethanol producers. Historically, most ethanol producers have used cost recovery (or depreciation) periods of five years. Approximately 18 months ago, the IRS advised the industry that the cost recovery period should be seven years instead of five years, and it would be retroactive and apply to all tax returns of ethanol producers still open for examination by the IRS. The RFA succeeded in persuading the IRS not to make its decision retroactive.

"This decision by the IRS to propose changes on a prospective basis is not only correct but essential in today's economically challenging climate for America's ethanol industry," said Ed Hubbard, RFA director of government affairs, tax and international trade. "We are gratified that the IRS was willing to listen to and accept our arguments on this critical issue."

The RFA told the IRS that its ruling should not apply retroactively since it would result in significant costs to producers who relied on the IRS' previous acceptance of the five-year depreciation recovery period for such assets. In response, the IRS has proposed that the depreciation classification would apply to assets placed in service on or after the publication of a final revenue ruling. To prevent such retroactive application, the IRS specifically provided that it "will not require taxpayers to adopt this depreciation classification for tangible assets used in converting biomass to a liquid fuel, such as fuel- grade ethanol that is placed in service prior to the publication of a final revenue ruling."

The IRS has invited public comments on the proposed revenue ruling. Comments are due by Nov. 23. A final revenue ruling will not be issued until the comments have been considered.

Stacking the deck against ethanol
The U.S. EPA released the much anticipated peer reviews of its life-cycle greenhouse gas (GHG) analysis and indirect land use change (ILUC) modeling conducted for the proposed rule for the second stage of the renewable fuel standard. Among the "peer" reviewers are several noted anti-ethanol and anti-agriculture activists, including environmental lawyer Timothy Searchinger. The politically-motivated positions of Searchinger, Dr. Joseph Fargione, and others with respect to ILUC have repeatedly been called into question.

"EPA has asked the foxes to guard the hen house on this issue," RFA President Bob Dinneen said. "By adding lawyers and advocates to a scientific review panel, EPA bureaucrats have made a mockery of the Administration's commitment to sound science. These reviews absolutely cannot be viewed as objective or unbiased. Many of these reviewers have repeatedly and openly demonstrated unabashed and politically-motivated biases against biofuels in the past, which immediately casts a long shadow of doubt over the legitimacy of EPA's peer review process."

Searchinger and Fargione's speculations on the impacts of biofuel production on international land use decisions in foreign nations drew a harsh and immediate response from many in the scientific community when their articles were released in the February 2008 edition of Science.

Michael Wang, a fellow peer reviewer, scientist at the U.S. DOE's Argonne National Laboratory and developer of the GREET model said, "While scientific assessment of land use change issues is urgently needed in order to design policies that prevent unintended consequences from biofuel production, conclusions regarding the GHG emissions effects of biofuels based on speculative, limited land use change modeling may misguide biofuel policy development."

Beyond Searchinger and Fargione, several other vocal ethanol opponents with clear conflicts of interest were asked to "peer review" the EPA work. Among them are two researchers who were co-authors on Searchinger's controversial and discredited 2008 Science paper on ILUC; staffers from two environmental activist groups; and several academics with an ideological axe to grind against production agriculture and contemporary biofuels. Several of these academics have served as paid consultants to environmental groups with anti-ethanol and anti-agriculture agendas.

"This is a perversion of what the peer review process is supposed to achieve," Dinneen said. "The EPA cannot feel comfortable that it is getting complete and unbiased feedback based on the panel it has assembled here."

Advertisement

Advertisement

Upcoming Events

Sign up for our e-newsletter!

Advertisement

Advertisement