Claiming biodiesel and alternative fuels excise tax credits for 2015
Notice 2016-05 addresses how to claim refunds for extended tax credits
TAX ALERT |
On Jan. 14, 2016, the IRS issued Notice 2016-05, which provides rules for taxpayers to follow in order to claim the credits and payments reinstated by the Protecting Americans from Tax Hikes Act of 2015, Pub. L. 114-113 Div. Q (2015)-page 799, for certain biodiesel and alternative fuels sold or used during calendar year 2015. Specifically, the notice covers payments and credits allowed under section 6426(c) relating to biodiesel (including renewable diesel) mixtures, section 6426(d) relating to alternative fuels, section 6426(e) relating to alternative fuel mixtures, and section 6427(e) relating to alcohol, biodiesel or alternative fuels not used for taxable purposes. The notice also provides instructions for certain income tax credit claims for biodiesel, second generation biofuel and alternative fuel.
The U.S. government imposes excise taxes on different types and uses of certain fuels. The transactions generally subject to fuel excise taxes involve fuel used to power trains, cars, boats and aircraft. However, when a fuel is used for a different purpose, there are certain exemptions, credits and payments available for fuel excise tax obligations.
Notice 2016-05 addresses the credits and payments available for certain excise taxes imposed under sections 4041 and 4081. Section 4041 imposes an excise tax on the following types of fuel: diesel; kerosene; alternative fuels; compressed natural gas; and fuels used in aviation. Section 4081 imposes an excise tax on the following uses of taxable fuel (gasoline, kerosene and diesel):
- The removal of a taxable fuel from any refinery or terminal
- Entry into the United States of any taxable fuel for consumption, use or warehousing
- The sale of a taxable fuel to any person that is not registered under section 4101 (relating to registration and bond) unless there was a prior taxable removal or entry of the fuel.
Credits against fuel excise taxes
Section 6426 provides a credit against the excise taxes imposed by sections 4041 and 4081 for the following types of fuel:
- Alcohol fuel mixtures
- Biodiesel mixtures
- Alternative fuels
- Alternative fuel mixtures
Notice 2016-05 specifically addresses the credits and payments allowed under section 6426(c) for biodiesel mixtures, section 6426(d) for alternative fuels, and section 6416(e) for alternative fuel mixtures.
- Biodiesel mixture credit: Under section 6426(c), a blender of a biodiesel mixture can claim a credit against its section 4081 excise tax liability of $1.00 per gallon of biodiesel used in producing a biodiesel mixture. A biodiesel mixture is defined as a biodiesel and diesel fuel mixture that the taxpayer uses or sells as a fuel.
- Alternative fuel credit: Under section 6426(d), a taxpayer that sells or uses alternative fuel for use in motor vehicles, motorboats or aviation can claim a $0.50 per gallon credit against its tax liability under section 4041. Alternative fuels include the following: liquefied petroleum gas (propane); P Series fuels (renewable non-petroleum-based fuels); compressed or liquefied natural gas; liquefied hydrogen; any liquid that meets the carbon capture requirements of section 6426(d)(4) and that is derived from coal through the Fischer-Tropsch process (which converts a mixture of hydrogen and carbon monoxide into liquid fuel); compressed or liquefied gas derived from biomass; and liquefied fuel derived from biomass. Alternative fuels do not include ethanol, methanol, biodiesel or any fuel derived from the production of paper or pulp.
- Alternative fuel mixture credit: Under section 6426(e), a blender of an alternative fuel mixture can claim a $0.50 per gallon credit against its tax liability under section 4081. An alternative fuel mixture is a mixture of alternative fuel and gasoline, diesel or kerosene that the taxpayer uses or sells as fuel. The alternative fuel mixture credit can only be used if the taxpayer has a section 4081 excise tax liability in the same quarter it sold or used the alternative fuel mixture. Furthermore, credit amounts that exceed the excise tax liability may not be claimed as a payment.
Payments and income tax credits for excess credits against fuel excise taxes
After applying fuel excise tax credits as described above, taxpayers may have credit amounts that exceed the amount of excise taxes originally paid. Section 6427(a) provides a mechanism for taxpayers that use fuel for a nontaxable use to receive a refund for the taxes paid. Section 6427(a) provides that the Treasury shall pay the ultimate purchaser that uses the fuel for a nontaxable use an amount equal to the excise tax imposed on the sale. Furthermore, section 6427(e) provides that the Treasury will pay a taxpayer that produces a mixture described in section 6426, or sells or uses an alternative fuel in its trade or business to power a motor vehicle or motorboat, an amount equal to the applicable section 6426 fuel credit. Therefore, section 6427(e) allows a taxpayer to receive the benefit of its fuel tax credits even if the credits exceed the taxpayer’s federal excise tax liability or the taxpayer had no excise tax liability. However, as noted above, the provisions in section 6427(e) do not apply to the alternative fuel mixture credit.
A taxpayer may not be eligible for payments under section 6427(e) under certain circumstances. The eligibility requirements for a payment under section 6427(e) are dictated by section 6427(k). Generally, section 6427(k) provides that the entities eligible to receive payments for fuel tax credits are those entities not subject to federal income taxes. There are two exceptions to this rule: (1) taxpayers with aggregate quarterly fuel excise tax liabilities of at least $750; and (2) a claim filed for fuel mixtures or alternative fuels for any period that is not less than one week and is $200 or more.
Taxpayers that are not eligible for, or do not timely file an allowable claim for, payment under section 6427(e) but otherwise qualify for fuel tax incentives under section 6426 may file a claim for a refundable income tax credit under section 34. To claim a refundable income tax credit under section 34, a taxpayer must file Form 4136, Credit for Federal Tax Paid on Fuels, as an attachment to the taxpayer’s income tax return. Furthermore, a blender of biodiesel may elect out of the credits and payments under section 6426 and claim a nonrefundable income tax credit under section 40A (biodiesel and renewable diesel used as fuel) as an alternative to payments and credits allowed under sections 6426, 6427 and 34. Pursuant to Notice 2015-56, for purposes of the taxpayer’s income tax, the sections 4081 and 4041 excise tax liability must be reduced by the amount of the excise tax credit allowable under sections 6426(c) and 6426(d), respectively, when determining its deduction for the excise taxes or its cost of goods sold deduction attributable to the excise taxes. (See our Sept. 10, 2015, article, The IRS clarifies proper accounting period for deducting 2014 fuel credit.)
Instructions for making a one-time claim for credits and payments relating to biodiesel and alternative fuel incentives
Below are the procedures a taxpayer must follow when making a one-time claim for credits and payments authorized by sections 6426(c), 6426(d) and 6427(e) for calendar year 2015:
- Submit claims for 2015 biodiesel and alternative fuel incentives on Form 8849, Claim for Refund of Excise Taxes.
- Include Form 8849, Schedule 3, Certain Fuel Mixtures and the Alternative Fuel Credit, with the submission and enter amounts for 2015 biodiesel and alternative fuel incentives on Lines 2 and 3 of Schedule 3.
- Follow the instructions to Form 8849 and Schedule 3 when preparing the submission to the extent the instructions do not conflict with the notice.
- Claim all 2015 biodiesel and alternative fuel incentives for which the taxpayer is eligible on a single Form 8849. Claims for 2016 biodiesel and alternative fuel incentives should not be combined with the 2015 claim, but should instead be claimed using the normal rules for filing such claims.
- Mail the submission to the address listed for Schedule 3 in the instructions to Form 8849 under Where to File. Taxpayers may also electronically file Form 8849 and Schedule 3 through any electronic return system that participates in the IRS e-file program for excise taxes.
Claim period and due date for biodiesel and alternative fuel incentives
There is a 180-day claim period for 2015 biodiesel and alternative fuel incentives. The claim period begins on Feb. 8, 2016 (but claims may be filed as early as Jan. 15, 2016), and all claims must be filed on or before Aug. 8, 2016. If, within 60 days after a claim is received, the IRS does not pay the taxpayer any claim submitted, the IRS will pay the claim with interest from the claim filing date (Feb. 9, 2015, in the case of claims submitted before that date) using the overpayment rate under section 6621. There are three overpayment rates: (1) the federal short-term rate plus two percentage points (for overpayments by a corporation of $10,000 or less); (2) the federal short-term rate plus five percentage points (for overpayments by a corporation of more than $10,000); and (3) the federal short-term rate plus three percentage points (for all other overpayments).
Instructions for making a claim relating to the alternative fuel mixture credit
All 2015 claims for the alternative fuel mixture credit under section 6426(e), including claims for the fourth quarter, must be made on Form 720X, Amended Quarterly Federal Excise Tax Return. Taxpayers that do not file a Form 720, Quarterly Federal Excise Tax Return, and remit the section 4081 tax due for any quarter in 2015 before submitting a claim allowed under section 6426(e) on Form 720X will experience a delay in the processing of the claim and related payment.
Claim period and due date for the alternative fuel mixture credit
The claim period for the 2015 alternative fuel mixture credit begins Feb. 8, 2016. Generally, claims for the alternative fuel mixture credit must be made within three years from the time the return was filed or two years from the time the tax was paid, whichever is later.
Claims not affected by the notice
The notice does not affect the following claims for 2015:
- Nonrefundable income tax credits under section 40(b)(6) for second generation biofuel producers
- Taxpayers should continue to submit these claims for 2015 on Form 6478, Biofuel Producer Credit
- Nonrefundable income tax credits under section 40A(b)(1) for biodiesel mixtures, section 40A(b)(2) for biodiesel (including renewable diesel), and section 40A(b)(4) for the small agri-biodiesel producer credit
- Taxpayers should continue to submit these claims for 2015 on Form 8864, Biodiesel and Renewable Diesel Fuels Credit
- Refundable income tax credits under section 34 for biodiesel mixtures or alternative fuels
- Taxpayers should continue to submit these claims for 2015 on Form 4136, Credit for Federal Tax Paid on Fuels
The Code provisions that authorize credits and payments under sections 6426(c), 6426(d), 6426(e) and 6427(e) expired for sales and uses after Dec. 31, 2014. The Protecting Americans from Tax Hikes Act of 2015 reinstated the expired provisions authorizing these credits and payments, as well as credits for second generation biofuel producers (section 40(b)(6)) and biodiesel and renewable diesel used as fuel (section 40A), which also expired for sales and uses after Dec. 31, 2014.
Notice 2016-05 provides rules and procedures for taxpayers claiming biodiesel and alternative fuel incentives for 2015. Any taxpayers that filed protective or anticipatory claims during 2015 for payments and credits covered by this notice should refile their claims pursuant to the rules and procedures prescribed in the notice. The IRS will not treat as perfected any protective or anticipatory claims previously filed with the IRS that are not in accordance with the rules and procedures contained in the notice.
It should be noted that taxpayers generally must be registered by the IRS or obtain certain certifications in order to make claims for credits and payments for fuel excise taxes. To make alternative fuel claims (section 6426(d) and 6427(e)) and alternative fuel mixture claims (section 6426(e)), taxpayers must be registered by the IRS. Taxpayers that are not registered by the IRS may apply for registration by filing Form 637, Application for Registration (For Certain Excise Tax Activities). To claim the biodiesel mixture credit, a taxpayer must obtain a certification statement (see Notice 2005-62) from the producer (or reseller) of the biodiesel that identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.