Federal Circuit denies refund claim for excise tax deduction

Tax Hot Topics newsletterThe Federal Circuit Court of Appeals has affirmed a decision by the Court of Federal Claims in Sunoco v. U.S. (No. 15-587T) denying Sunoco a deduction for fuel excise tax expense for the amount of its fuel tax credits. The decision follows a loss by Exxon on the same issue in a Texas District Court.

At issue is whether fuel tax credits are required to either reduce the deduction for fuel tax liability or 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. However, when there is actual fuel tax liability, 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 and is actively litigating it.

The Sunoco decision is a blow for taxpayers, but this issue isn’t yet settled. Exxon could still appeal its decision to Fifth Circuit Court of Appeals, and the Tax Court is separately considering the same issue in Growmark, Inc. & Subsidiaries v. Commissioner (Docket No. 023797-14). Sunoco announced that it was still evaluating its options, but the Supreme Court would be unlikely to take the case on appeal without a circuit split and an en banc rehearing also appears unlikely.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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