In Notice 2016-5, the IRS delivers rules for making one-time claims of the retroactively extended incentives for biodiesel mixtures and alternative fuels that were sold or used during 2015. The Notice also gives guidance for claiming other retroactively extended credits for 2015, including the alternative fuel mixture excise tax credit.

Background

Alternative fuel credits, alternative fuel mixture credits, and biodiesel mixture credits

On December 18, 2015, President Obama signed the Consolidated Appropriations Act, 2016 (the Act). The Act retroactively extended certain tax benefits through the end of 2016, including various energy provisions.¹ The energy provisions that were retroactively extended include the excise tax incentives for biodiesel and alternative fuels. Specifically, the Act extended the excise tax credits and payments for biodiesel mixtures and alternative fuels and the excise tax credit for alternative fuel mixtures through December 31, 2016. Under prior law, these incentives had expired on December 31, 2014.

As a result of the extension, Section 6426 continues to allow the following excise tax credits for alternative fuel, biodiesel mixtures, and alternative fuel mixtures sold or used after 2014 and until December 31, 2016:

Biodiesel mixture tax credit (Section 6426(c)): $1.00 per gallon of biodiesel used by the taxpayer in producing any biodiesel mixture for sale or use in its trade or business.

Alternative fuel tax credit (Section 6426(d)): $0.50 per gallon of an alternative fuel sold by the taxpayer for use as a fuel in a motor vehicle, motorboat, or in aviation or so used by the taxpayer.

Alternative fuel mixture tax credit (Section 6426(e)): $0.50 per gallon of alternative fuel used by the taxpayer in producing any alternative fuel mixture for sale or use in its trade or business.

The credits must be used first to offset the taxpayer's excise tax liability under Section 4081 (in the case of the biodiesel mixture credit and the alternative fuel mixture credit) and under Section 4041 (in the case of the alternative fuel credit). The taxpayer can then claim the excess credit amount either as a payment under Section 6427(e) or as a refundable income tax credit under Section 34(a).

The Act instructed the IRS to issue procedures for claiming the credits and refundable payments relating to periods during 2015.

Notice 2016-5

This Notice describes the procedure for claiming 2015 biodiesel and alternative fuel incentives. Claimants that filed "protective" or anticipatory claims during 2015 for biodiesel and alternative fuel incentives covered by this Notice should refile their claims under the described procedures.

To make a one-time claim under this Notice for payment of credits and payments allowable under Sections 6426(c), 6426(d), and 6427(e) relating to biodiesel and alternative fuel incentives (the one-time claim), claimants must submit Form 8849, Claim for Refund of Excise Taxes. Claimants must include Schedule 3 (Form 8849), Certain Fuel Mixtures and the Alternative Fuel Credit, with their submission and enter amounts for 2015 biodiesel and alternative fuel incentives on Line 2 and Line 3 of Schedule 3, as appropriate.

Each claimant making the one-time claim must use a single Form 8849 to claim all 2015 biodiesel and alternative fuel incentives for which the claimant is eligible. A one-time claim may be submitted during the period beginning on January 15, 2016, and ending on August 8, 2016. One-time claims filed after August 8, 2016, will not be processed or paid.

Making an alternative fuel mixture claim under Section 6426(e)

For 2015, all alternative fuel mixture credit claims allowed by Section 6426(e), including claims for the fourth quarter, must be made on Form 720X, Amended Quarterly Federal Excise Tax Return. The claim for a Section 6426(e) credit for any quarter may not exceed the Section 4081 liability incurred in the quarter for which the credit is being claimed. The claim for all four quarters in 2015 may be made on a single Form 720X. To avoid processing delays, claimants should file Form 720 for Q4 of 2015 before filing the 720X claiming the Section 6426(e) alternative fuel mixture credit for 2015.

The claim period for the 2015 alternative fuel mixture credit begins on February 8, 2016. Generally, claims for the Section 6426(e) alternative fuel mixture credit must be made within three years from the time the return was filed or two years from the time the tax was paid, whichever is later.

Registration required

Claimants must be registered by the IRS in order to make alternative fuel claims under Sections 6426(d) and 6427(e) and to make alternative fuel mixture claims under Section 6426(e). Claimants that are not already registered by the IRS may apply to the IRS for registration by filing Form 637, Application for Registration (For Certain Excise Tax Activities). (Registration is not required for biodiesel mixture claimants. However, such claimants may be required to register as blenders of taxable fuel, and biodiesel mixture claims must be supported by a Certificate for Biodiesel prepared by the registered producer of the biodiesel in the mixture.)

Implications

This Notice allows a qualified taxpayer to secure the refund of the biodiesel mixture and alternative fuel credits (including both credits that would otherwise be offset against excise tax liability and excess credits).

The Notice does not allow for the filing of Form 720X to claim the excise tax credits for biodiesel mixtures and alternative fuels for the first three quarters of 2015 or the filing of Form 720 and a separate Form 8849 to claim a credit or payment for Q4 of 2015. Under the procedure in the Notice, all excise tax credits and payments relating to biodiesel mixtures and alternative fuels sold or used in 2015 are claimed on the "annual" 8849 authorized by the Notice.

The Notice allows a taxpayer to claim a refundable income tax credit under Section 34(a) for biodiesel mixtures and alternative fuel sold or used in 2015 by filing Form 4136, Credit for Federal Taxes Paid of Fuels, with the taxpayer's income tax return for 2015. Because the refundable income tax credit is only available for amounts payable under Section 6427 (that is, amounts in excess of excise tax liability), claimants with excise tax liability under Section 4041 (in the case of alternative fuel claimants) or Section 4081 (in the case of biodiesel mixture claimants) should make their claims on the annual Form 8849 prescribed by the Notice.

The Notice warns taxpayers that they may not combine 2015 and 2016 claims for biodiesel and alternative fuel incentives. Claims for 2015 must be made in accordance with the rules in the Notice and claims for 2016 must be made in accordance with the normal rules for filing such claims.

The Notice also reminds taxpayers that, for federal income tax purposes, a taxpayer must reduce Section 4081 excise tax liability by the amount of the excise tax credit allowable under Section 6426(c) and Section 4041 excise tax liability by the amount of excise tax credit allowable under Section 6426(d) in determining its deduction for those taxes or its cost of goods sold deduction attributable to those excise taxes. See Notice 2015-56, 2015-35 I.R.B. 235, and Tax Alert 2015-1625.

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ENDNOTES

¹ See Tax Alert 2015-2375 for a summary of these extensions.