The IRS has released procedures (Notice 2022-39) for claiming the alternative fuel tax credits that were reinstated retroactively for 2022.
The alternative fuel and alternative fuel mixture tax credits under Section 6426 had originally expired at the end of 2021. The Inflation Reduction Act (IRA), signed into law on Aug. 16, 2022, retroactively extended the credits through the end of 2024. From 2025 to 2027, the credits will be replaced by a new technology-neutral credit under new Section 45Z that will be based on “well-to-wheel” lifetime emissions.
Notice 2022-39 allows taxpayers to claim their refundable alternative fuel credits for the first three quarters of 2022 on a single Form 8849 Schedule 3 filed between Oct. 13, 2022, and April 11, 2023. It appears taxpayers will be required to file a separate Form 8849 for the fourth quarter of 2022 even if they wait until 2023 to file their Form 8849 for the first three quarters of 2022. Taxpayers also retain the option of filing an annual claim for all of 2022 on a Form 4136 with the income tax return. Partnerships cannot claim the credit on a Form 4136 with Form 1065; partners must file the form on their own income tax returns.
Taxpayers must claim alternative fuel mixture credit, which is not refundable, on the Form 720. The notice requires taxpayers to file the amended Form 720X to claim the credit for the first two quarters of 2022. Taxpayers will have three years from Oct. 13, 2022, to file these amended returns. The third quarter credit should be claimed on the original Form 720, due on Oct. 31, 2022.
The notice does not affect claims for the second-generation biofuel credit, which also expired at the end of 2021 before being reinstated by the IRA. The biofuel credit is a nonrefundable income tax credit that must be taken on the income tax return with a Form 6478. The notice also does not affect the biodiesel and renewable diesel credits that were set to expire at the end of 2022 before being extended through 2024 by the IRA. These credits will also be replaced by the new credit under Section 45Z from 2025 to 2027.
The IRS used the notice to reiterate its position on the income tax treatment of fuel tax credits. The IRS has generally agreed (CCA 201342010) that when there is no actual excise tax liability, a fully 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, losing Sunoco v. U.S. (No. 15-587T) in the Court of Federal Claims and Federal Circuit Court of Appeal, Delek US Holdings, Inc v. U.S. (No. 21-5257) in district court and the Sixth Circuit Court of Appeals, and Exxon Mobil Corp v. U.S.A. (3:16-cv-02921) in the district court. Exxon is still appealing its case to the Fifth Circuit and the Tax Court is still deliberating on the issue in Growmark, Inc. & Subsidiaries v. Commissioner (Docket No. 023797-14).