Tax Court dims hope on fuel tax credit suits


The Tax Court has ruled in Growmark, Inc. & Subsidiaries v. Commissioner (160 T.C. No. 11) that taxpayers must reduce deductions related to fuel excise taxes if they receive refundable fuel tax credits, foreclosing on one of the last opportunities for taxpayers to win a case on the contentious issue.


The Tax Court largely followed the reasoning in a string of other decisions that favored the IRS. At issue is whether taxpayers must either reduce deductions based on 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 cost of goods sold), or be included in income.

The IRS has released both a notice (Notice 2015-56) and Chief Counsel Advice (CCA 201406001) outlining this position, and has made it the focus of a compliance campaign. Taxpayers have yet to win a case on the issue despite six different courts taking it up:

  • Sunoco v. U.S. (No. 15-587T): The IRS prevailed in the Court of Federal Claims and Federal Circuit Court of Appeals, which declined to rehear the case en banc. The Supreme Court also declined to hear the case.
  • Delek US Holdings, Inc v. U.S. (No. 21-5257): The district court echoed Sunoco in its decision, which was upheld by a unanimous three-judge panel in the Sixth Circuit.
  • Exxon Mobil Corp v. U.S.A. (3:16-cv-02921): The district court agreed with the IRS and was upheld by the Fifth Circuit, which also declined a request for en banc rehearing.  

Growmark was one of the last opportunities for a taxpayer victory. The Tax Court had resolved all the other issues in the case in 2019, raising hopes that the court was struggling with the issue and could break from the other decisions. In the end, the Tax Court offered a strong endorsement of the other rulings, holding that the legislative history and statutory construction support a reading that tax credits must first be used to offset tax liability. There are few remaining opportunities for taxpayers to win on the issue, though Growmark can be appealed to the Seventh Circuit.


None of the cases address situations in which the activity that generates the fuel tax credit is in a separate entity from the activity that generates the tax liability for excise tax purposes. Taxpayers should consider how different structures may affect the tax result.    




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