The IRS has released procedures (Notice 2020-8
) for claiming alternative fuel and biodiesel tax credits that were reinstated retroactively for 2018 and 2019. The procedures are similar to those offered for previous extensions and allow taxpayers to claim most credits from 2018 and 2019 on a single Form 8849, “Claim for Refund of Excise Taxes” filed by Aug. 11, 2020.
The following excise tax credits had all originally expired at the end of 2017:
- The alternative fuel credit under Section 6426
- The alternative fuel mixture credit under Section 6426
- The biodiesel mixture credit under Section 6426
- The second-generation biofuel credit under Section 40
- Credits for biodiesel, biodiesel mixtures, and agri-biodiesel under Section 40A
The fuels were all retroactively reinstated for 2018 and 2019 by the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Act) and have also been extended prospectively through either 2020 or 2022 depending on the credit.
Alternative fuel and biodiesel mixture
The alternative fuel credit and biodiesel mixture credit in Section 6426 are both refundable and can be claimed as refundable payments under Section 6427. Notice 2020-8 allows taxpayers to claim these credits for both 2018 and 2019 on a single Form 8849 Schedule 3 filed between Feb. 14 and Aug. 11, 2020. Alternatively, both of these credits can be claimed as an income tax credit under Section 34 using Form 4139. Taxpayers preferring to claim them as income tax credit must use normal procedures, meaning filing the Form 4139 to the 2019 return for 2019 claims and amending the 2018 return for 2018 claims. Partnerships cannot use the Form 4139, but can report credit amounts for partners to claim on their income tax returns.
The Act extends the alternative fuel credit through 2020 and the biodiesel credit under Section 6426 through 2022. Prospective claims should be made using normal procedures. The Act also continues to require the alternative fuel credit still be adjusted by each fuel’s energy equivalency to traditional fuel, and the credit is still available for the propane used in forklifts.
The IRS generally does not require any refundable portions of these fuel credits to be included in income or reduce any fuel deduction. The agency has taken the position, however, that if the credit offsets or should have been used to offset an actual fuel excise tax liability, the credit must be included in income, or the fuel deduction or cost of goods sold must be reduced by the reduction in the liability. This position is currently being litigated.
Alternative fuel mixture
The alternative fuel mixture credit is not refundable and must be claimed by amending the Form 720, “Quarterly Excise Tax Return” with a Form 720-X. The Form 720-X should be filed using normal procedures, meaning that all four quarters of a single calendar year can be combined on single form. So taxpayers must file separate forms for 2018 and 2019 claims. The normal three-year statute of limitations will apply.
The IRS position remains that the deduction for the original excise tax liability must be reduced (or cost of goods sold adjusted accordingly), or the credit must be included in income. The Act also excludes the following fuels from qualifying for the alternative fuel mixture credit: liquefied petroleum gas (propane and butane), compressed natural gas, liquefied natural gas and any compressed or liquefied gas derived from biomass. This change was primarily aimed at butane additives to gasoline, but was written broadly to capture all of the most common alternative fuel mixtures.
The alternative fuel mixture credit was also extended through 2020 and these claims should be made using normal procedures on Form 720.
Biodiesel income tax credits
Section 40A offers an equivalent income tax credit version of the biodiesel mixture credit in Section 6426, plus credits for general biodiesel and agri-biodiesel. These credits are claimed on Form 6478 with the annual tax return. Normal procedures apply, meaning taxpayers must amend the 2018 return to claim them for 2018, but can make 2019 claims with their 2019 returns. These credits have also been extended through 2022. The statute specifically requires taxpayers to include these credit in income.
Section 40 offers a nonrefundable income tax credit for second-generation biofuel, which should also be claimed using normal procedures: filing the Form 6478 with the annual tax return. This credit has been extended prospectively for 2020.
The Act generally required payment within 60 days of credit claims or interest will apply, but claims made before Feb. 14 will be considered filed on Feb. 14. The procedures should make it easy to obtain relatively quick refunds, but taxpayers should consider the law changes and all procedural options first. For example, partnerships cannot make annual claims on the Form 4136 at the entity level, and claiming the biodiesel mixture credit under Section 40A will require an income inclusion while using the Section 6426 procedure may not require this. The alternative fuel mixture credit is also no longer available for most types of alternative fuel.
For more information contact:
Washington National Tax Office
Grant Thornton LLP
+1 202 861 4144
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