Companies that sell or use alternative fuel in a motor vehicle or motorboat could benefit from new IRS guidance regarding one-time claims for alternative fuels excise tax credits. Credits that had expired have been retroactively reinstated and extended due to the Inflation Reduction Act of 2022. There are no surprises in the guidance, which is similar to the guidance issued by the IRS previously after retroactive reinstatement of the credit.
IRS issues guidance regarding one-time claims for alternative fuels excise tax credits
The IRS has released Notice 2022-39 providing rules that taxpayers must follow to make a one-time claim for alternative fuel credits during recently expired periods. The one-time claim may be made for alternative fuels sold or used for the first, second and third quarters of 2022. These credits, which had expired after Dec. 31, 2021, have been retroactively reinstated and extended through Dec. 31, 2024, due to the recent passage of the Inflation Reduction Act of 2022. The most common claim is for propane used in forklifts.
The alternative fuel credit is claimed by companies that sell or use alternative fuel in a motor vehicle or motorboat. Alternative fuel includes propane, liquefied natural gas and compressed natural gas.
The credit is 50 cents per gallon (or gallon equivalent) and is first claimed against excise tax liability. Any credit in excess of the tax liability may be claimed as an excise tax payment or refundable income tax credit.
The notice sets forth procedures (as directed by the Inflation Reduction Act) for making a one-time claim for fuel used during the period when the credit was expired.
The notice also sets forth procedures for claiming the 50 cents per gallon alternative fuel mixture credit during the period in which that credit was expired. This credit is claimed only against excise tax liability. An excise tax payment cannot be made for this credit. This credit is claimed by amending previously filed excise tax returns. The alternative fuel mixture credit claim cannot exceed the taxpayer’s excise tax liability.
Notably, taxpayers should be registered as an alternative fueler (Activity letter AL) or alternative fuel mixture producer (Activity letter AM) before the credits will be allowed by the IRS. Application for registration is made on IRS Form 637.
Washington National Tax takeaways
In the first issuance of what is expected to be much guidance related to the Inflation Reduction Act, the Department of the Treasury has issued guidance on how to make one-time claims for the expired alternative fuel credit. The Inflation Reduction Act directed the Treasury Department to issue guidance within 180 days of enactment.
There are no surprises in the guidance. It is similar to the guidance issued by the IRS previously after retroactive reinstatement of the credit.
The alternative fuel credit is primarily of interest to the following entities:
- Users of propane in forklifts
- Sellers of alternative fuel at the retail pump
- Purchasers of alternative fuel in bulk for use in motor vehicles (such as propane in forklifts)
- Users of CNG or LNG in fleet vehicles or buses
In order to prevent invalid claims and possible audits from the IRS, claimants must carefully follow the procedures outlined in the notice. To ensure this is done properly, taxpayers should consult with their tax advisors.