About 70 biodiesel manufacturers and distributors have urged the IRS to allow 100 percent biodiesel (known as neat biodiesel or B100) to qualify for the recently enacted excise tax exemption for biofuels.
At issue for the ad-hoc biodiesel coalition was an Internal Revenue Bulletin 2005-2, dated January 10, 2005. In the bulletin the IRS interprets the new tax credits in a way that would exclude B100 from the Excise Tax Credit (one cent per percentage point of biodiesel blended with petroleum diesel for first-use oils and one-half cent per percentage for biodiesel made from other sources, like waste cooking oil.) Under the IRS interpretation, a 99 percent biodiesel blend would be eligible for the tax credit but B100 would not.
The biodiesel groups argued, “We believe the spirit of the Biodiesel Excise Tax Credit created by the American Jobs Creation Act of 2004 is to encourage growth of the biodiesel industry through financial incentives which bring the cost of biodiesel down for the consumer. The most direct and effective way to reduce the cost of biodiesel to consumers and encourage growth of the biodiesel industry is for the Excise Tax Credit to apply to all blends of biodiesel up to and including B100.”
The groups urge the IRS to provide a broad interpretation of the term “blend”. The group’s comments note, “The common terminology in the industry is to refer to blends of biodiesel ‘ B20, B50, B100; similar to grades of gasoline ‘ regular, unleaded, premium. Since biodiesel is inherently a blended mixture, it seems appropriate that the Service broadly interpret “mixture” to include all biodiesel blends including B100.”
Not allowing B100 to qualify for the tax credit according to the biodiesel groups would:
- provide a disincentive to nonprofit organizations, municipalities, and state government agencies from using B100.
- provide a strong financial incentive to add the minimum amount of diesel fuel to the B100 in order to qualify for the excise tax credit.
- create an unnecessary complexity of compliance due to common practices in biodiesel handling that would be far simpler if all biodiesel, including B100, were eligible for the excise tax credit.In summary the biodiesel groups asked the IRS for the following:
- B100 should be eligible for the Excise Tax Credit under Section 6426
- All biodiesel blends should be eligible for the Excise Tax Credit
- The definition of a “retail sale” for tax and credit purposes should be consistent
- The Biodiesel Income Tax Credit should be able to be carried forward
- Calculation of the credit for Agri-biodiesel and all other biodiesel should be
- Section 4041(a)(1) tax should not be imposed on a biodiesel mixtureMore
- Full Text of IRS Comment Letter – submitted by biodiesel groups, February 14, 2005
- New Rules Projects section on Ethanol and Biodiesel Production Rules