LMSB Control No: LMSB-4-0509-023
Impacted IRM 4.51.5

June 4, 2009

This Directive is intended to provide field direction on a Tier I Issue relating to Bioenergy Program (BEP) Payments.

Change of Status:

The BEP Payments sub-issue within the I.R.C. § 118 Abuse has been moved from active Tier I status to monitoring status; however, it remains a Coordinated Issue in accordance with IRM 4.51.2.4 (12-9-2005). The State and Local Tax Incentives and Environmental Remediation sub-issues under I.R.C. § 118 Abuse remain in active Tier I status until further notice.

The IRC § 118 BEP payments issue was designated a Tier I issue to emphasize a consistent tax position that BEP payments are intended to compensate the taxpayer for operating costs incurred as a result of purchases of commodities in the taxpayer’s bioenergy production process and do not qualify for the exclusion from gross income under I.R.C. § 118(a).  See Tier I Issue: Section 118 Abuse Directive #5 issued September 15, 2008.  

This directive amends the Tier status and procedural requirements outlined in
Directive #5 solely with respect to the I.R.C. § 118 BEP payments issue.  The IRC § 118 BEP payments issue is no longer in active Tier I status, but will continue as a monitored issue since it is well-defined, and published guidance in the form of a Coordinated Issue Paper ("CIP") has been issued.

Examination Guidance:

This issue should be examined under the guidance of IRM 4.51.2.4 “LMSB Coordinated Issues”.  When examining the issue, the UIL code 118.01-04 listed in the CIP should be used.

Issue guidance and support will continue through the LMSB Technical Advisor for the Agriculture Industry.

Examiners should utilize the following published guidance to develop the issue:

Coordinated Issue Paper on Bioenergy Program Payments (published 4/8/08.)  This CIP concludes that BEP payments are not designed to compensate the taxpayer for capital asset acquisition.  Rather, BEP payments are intended to compensate the taxpayer for operating costs incurred as a result of purchases of commodities in the taxpayer’s bioenergy production process.

Consequently, BEP payments do not qualify for the exclusion from gross income under I.R.C. § 118(a), and thus fall within the definition of gross income under I.R.C. § 61(a).

Contact:

For questions, contact the LMSB Agriculture Technical Advisor, Charles Schaffhauser, at 901-786-7305 (not toll-free).

This Directive is not an official pronouncement of law, and cannot be used, cited, or relied upon as such. 

cc:   Commissioner, LMSB
       Deputy Commissioner, Operations
       Deputy Commissioner, International
       Division Counsel, LMSB
       Chief, Appeals
       Directors, Field Operations
       Director, Planning, Quality, Analysis & Support