Close
Close

Controversy grows over inclusion of fuel tax credits in income

RFP
Tax Hot TopicsThe fight between taxpayers and the IRS over whether fuel excise tax credits must always be included in income saw two important new developments.

The Federal Court of Claims ruled in Sunoco v. U.S., No. 15-587T (Cl. Ct. 2016) that Notice 2015-56 is not entitled to deference, and is merely another vehicle for the government to convey its position that must be weighed equally under Sunoco’s arguments. Sunoco is suing for more than $300 million in refunds by arguing that fuel excise tax credits do not reduce the cost of goods sold and do not need to be included in income.

The IRS has generally agreed (CCA 201342010) that a refundable tax credit that does not reduce fuel excise tax does not need to be included in income and does not reduce the deduction for the fuel. But the IRS has argued that if there is actual excise tax liability, the credit must offset this liability first and either reduce the deduction for that liability or be included in income. Notice 2015-56 and Chief Counsel Advice (CCA 201406001) take this position.

Taxpayers have argued that the credits are merely refundable credits meant to incentivize a specific activity and should affect the deduction for any excise tax liability. The claims court must still rule on the underlying claim in Sunoco, and the case could go a long way to resolving the controversy, but it is not the only pending litigation. ExxonMobil has just sued the IRS for a $1.35 billion refund over the same issue in a Texas district court.

Contact
Dustin Stamper
Director, Washington National Tax Office
T 202.861.4144


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.