The Internal Revenue Service has issued a new private letter ruling in which it concluded that a cellulosic ethanol plant is eligible for special bonus depreciation.  The IRS concluded in PLR 200910007 that a taxpayer’s demonstration plant would qualify even though the plant will produce ethanol through fermentation subsequent to hydrolysis rather than as a direct output of the hydrolysis process.

As a reminder, a special bonus depreciation allowance was provided for cellulosic ethanol facilities  IRC sec. 168(l)).  Bonus depreciation allows taxpayers to claim a depreciation deduction for 50% of a plant’s cost in the year the plant is placed in service.  However, the way in which the provision was drafted apparently created concern that the provision would only apply in certain narrow ways.  The ruling alleviates that concern, with the IRS concluding that the provision is to be interpreted broadly "in light of the purpose it was intended to serve."