The Sixth Circuit Court of Appeals has ruled in Delek US Holdings, Inc v. U.S. (No. 21-5257) that taxpayers must reduce their deduction for fuel excise taxes if they receive refundable fuel tax credits, adding to the IRS’s string of victories on the contentious issue.
The three-judge panel ruled unanimously in Delek’s favor, echoing other recent cases. At issue is whether taxpayers must either reduce their deduction for fuel tax liability or include their refundable fuel tax credits in income. The IRS has generally agreed (CCA 201342010) that when there is no actual excise tax liability, a purely refundable fuel tax credit does not reduce any deduction for fuel or create any addition to income. When there is actual fuel tax liability, however, the IRS argues that the credits must first offset this liability and reduce the deduction for tax expense, or be included in income.
The IRS has released both a Notice (Notice 2015-56) and Chief Counsel Advice (CCA 201406001) outlining this position. It is also actively litigating the issue, and has made it the focus of a compliance campaign.
Taxpayers have yet to win a case on the issue in court, and the options for a favorable decision are narrowing. The IRS won the seminal case in Sunoco v. U.S. (No. 15-587T) in the Court of Federal Claims, but the judge said both sides had merit and that it was a close decision. The Federal Circuit Court of Appeals upheld the lower court’s ruling in a much more forceful decision in the IRS’s favor. The district courts in both Delek and Exxon Mobil Corp v. U.S.A. (3:16-cv-02921) echoed the Federal Circuit in favor of the IRS, and the Sixth Circuit has now joined the chorus.
The best hope for taxpayers rests with Exxon’s pending appeal to the Fifth Circuit and the Tax Court’s deliberation in Growmark, Inc. & Subsidiaries v. Commissioner (Docket No. 023797-14). Every other aspect of Growmark has been decided, indicating that the court is likely struggling with the issue. Growmark could be appealed to the Seventh Circuit after the Tax Court rules.
Delek could also appeal to the Supreme Court, but the court already declined to hear the issue when Sunoco appealed. The Supreme Court is unlikely to take up the issue unless a taxpayer wins and creates a circuit split.
Contact:
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.
More tax hot topics

No Results Found. Please search again using different keywords and/or filters.