ETHANOL PLANT owners and corn growers have plenty to smile about with the newly signed Energy Bill. The Renewable Fuels Standard (RFS) included in the bill calls for 4 billion gallons of ethanol to be blended into the nation's fuel supply in 2006.

While manufacturers are currently producing ethanol close to the 2006 rate, they will need to ramp up their efforts over the next six years to meet a nearly doubled annual standard of 7.5 billion gallons by 2012. Additionally, the energy law does not give MTBE (methyl-t-butyl ether) producers the groundwater liability protection that they were seeking, making it more likely that ethanol will become the fuel additive of choice.

Dave Burger, CPA and ethanol expert for Kennedy and Coe, says individual ethanol plants will benefit significantly from a higher threshold for the small producer tax credit. “Before, they only gave a federal tax credit to plants producing 30 million gallons of ethanol or less per year,” he says. “Most of the modern plants were built around the 40-million-gallon model. So in 2004, they couldn't receive a small producer tax credit because they were too large.”

The typical 40-million-gallon plant will now qualify for the $1.5-million-dollar federal tax credit per year because the new energy law has been expanded to include producers of up to 60 million gallons.

“In some cases, this may allow small producers to offset all of their federal tax — including the alternative minimum tax — which is very unusual,” Burger says. “It dramatically improves the usefulness of the energy law's expanded federal income tax credit.”