A District Court in Tennessee has extended the IRS’s string of court victories on fuel tax deductions, ruling in Delek v. Commissioner (No. 3:19-cv-00332)
that a taxpayer must reduce its deduction for fuel excise taxes if it receives fuel tax credits.
At issue is whether fuel tax credits must either reduce the deduction for fuel tax liability or be included in income. The IRS has generally agreed (CCA 201342010
) that when there is no actual excise tax liability, purely refundable fuel tax credits do not reduce any deduction for fuel and need not be included in 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
The IRS won the seminal case in Sunoco v. U.S.
(No. 15-587T) in the Court of Federal Claims, but the judge said both sides had merit and that it was a close decision. The Federal Circuit Court of Appeals upheld the lower court’s ruling in a much more forceful decision in the IRS’s favor. Then the U.S. District Court, Northern District of Texas (Dallas), echoed Sunoco
in ruling for the IRS in Exxon Mobil Corp v. U.S.A.
(3:16-cv-02921). Now the U.S. District Court for the Middle District of Tennessee (Nashville) has followed suit in Delek
Taxpayers have yet to win a case on the issue, but it may not be settled yet. Exxon
could be appealed to the Fifth Circuit Court of Appeals and Delek
could be appealed the Sixth. More importantly, the Tax Court is still weighing the same issue in Growmark, Inc. & Subsidiaries v. Commissioner
(Docket No. 023797-14). Every other aspect of Growmark
has been decided, indicating that the court is likely struggling with the issue. Growmark
could be appealed to the Seventh Circuit after the Tax Court rules. The Supreme Court declined to hear Sunoco
, and it is likely taxpayers would have to win in a Circuit Court of Appeals to create a split before there is any hope of the Supreme Court addressing the issue.
Washington National Tax Office
+1 202 861 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.