January 19, 2020
IRS issues rules for making one-time claims for 2018 and 2019 biodiesel and alternative fuel excise tax credits
In Notice 2020-08, the IRS instructs blenders of biodiesel and alternative fuel and sellers and users of alternative fuel on how to make a claim for retroactively extended incentives, including the biodiesel mixture credit, alternative fuel credit, and alternative fuel mixture credit.
Alternative fuel credits, alternative fuel mixture credits, and biodiesel mixture credits
The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Act), enacted as part of the Further Consolidated Appropriations Act, 2020, retroactively extended certain tax benefits through at least the end of 2020.1 Among other things, the Act extended the excise tax credits and payments for biodiesel mixtures through December 31, 2022, and for alternative fuels through December 31, 2020. The Act also extended the excise tax credit for alternative fuel mixtures, with clarifying language, through December 31, 2020. Under prior law, these incentives had expired on December 31, 2017.
As a result of the extension, IRC Section 6426 continues to allow the following excise tax credits for alternative fuel, biodiesel mixtures, and alternative fuel mixtures sold or used by the taxpayer:
The biodiesel mixture and alternative fuel mixture credits must be used first to offset the taxpayer's excise tax liability under IRC Section 4081. The alternative fuel credit must be used to first offset the taxpayer's excise tax liability under IRC Section 4041. For the biodiesel mixture and alternative fuel credits, the taxpayer can then claim the excess credit amount either as a payment under IRC Section 6427(e) or as a refundable income tax credit under IRC Section 34(a).2 A taxpayer claiming the alternative fuel mixture credit is limited to the amount of its IRC Section 4081 excise tax liability.
The Act instructed the IRS to issue procedures within 30 days of enactment for claiming the credits and refundable payments for 2018 and 2019.
One-time claim for credits and payments allowable under IRC Sections 6426(c), 6426(d), and 6427(e)
Notice 2020-08 (Notice) describes the procedure for claiming 2018 and 2019 biodiesel and alternative fuel incentives. Claimants that already filed "protective" or anticipatory claims for these incentives during these periods should refile their claims under the procedures prescribed by the Notice.
To make a one-time claim under the Notice for credits and payments allowable under IRC Sections 6426(c), 6426(d), and 6427(e) for the biodiesel mixture and alternative fuel tax credits, 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, and enter amounts for 2018 and 2019 biodiesel and alternative fuel incentives on Line 2 and Line 3, as appropriate. They may not, however, file Form 720X to claim the excise tax credits for biodiesel mixtures and alternative fuels for 2018 and the first three quarters of 2019 or file Form 720 and a separate Form 8849 to claim a credit or payment for Q4 of 2019.
Each claimant must use a single Form 8849 to claim all eligible 2018 and 2019 biodiesel and alternative fuel incentives. A one-time claim may be submitted from February 14, 2020, through August 11, 2020. One-time claims filed after August 11, 2020, will not be processed or paid. Any claim that is submitted by the method prescribed in the Notice before February 14, 2020, will be deemed by the IRS as being filed on February 14, 2020. Claims not paid within 60 days of being received will be paid with interest from the claim filing date.
Alternative fuel mixture claims under IRC Section 6426(e)
For 2018 and 2019, all alternative fuel mixture credit claims allowed by IRC Section 6426(e) must be made on Form 720X, Amended Quarterly Federal Excise Tax Return. Claimants must file separate Forms 720X for 2018 and 2019, entering claim amounts on Line 2 by quarter and identifying, again by quarter, the type of alternative fuels in the mixtures for which a credit is being claimed and the number of gallons of alternative fuels used by the claimant in producing the mixtures on Line 6. The claim for an IRC Section 6426(e) credit for any quarter may not exceed the IRC Section 4081 liability incurred in the quarter for which the credit is being claimed. To avoid processing delays or potential denial of the claim, claimants should file any outstanding Forms 720 for 2018 and 2019 before filing the Form 720X for which they are claiming the IRC Section 6426(e) alternative fuel mixture credit.
Claims for 2018 and 2019 alternative fuel mixture credits can be submitted beginning on February 14, 2020, and generally 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.
Claimants must register with the IRS by filing Form 637, Application for Registration (For Certain Excise Tax Activities) to make alternative fuel claims under IRC Sections 6426(d) and 6427(e) and to make alternative fuel mixture claims under IRC Section 6426(e). Registration is not required for biodiesel mixture credit claimants. Such claimants may, however, be required to register as blenders of taxable fuel, and biodiesel mixture credit claims must be supported by a Certificate for Biodiesel prepared by the registered producer of the biodiesel in the mixture.
In the Notice, the IRS provided much-needed clarity on the procedural steps for making claims for retroactively extended incentives, including the biodiesel mixture credit, alternative fuel credit, and alternative fuel mixture credit. The Notice includes guidance on the timing of making claims, the appropriate forms to make such claims, and the implications for taxpayers that have previously made protective or anticipatory claims for the incentives.
The Notice does not impact 2018 and 2019 refundable income tax credit claims under IRC Section 34(a) for biodiesel mixtures and alternative fuel sold or used during those periods. These claims should continue to be filed on Form 4136, Credit for Federal Taxes Paid of Fuels, and attached to the taxpayer's income tax return for the applicable year. Because the refundable income tax credit is only available for amounts payable under IRC Section 6427 (amounts in excess of excise tax liability), claimants with excise tax liability under IRC Section 4041 (for alternative fuel credit claimants) or IRC Section 4081 (for biodiesel mixture credit claimants) should make their claims on the annual Form 8849 as prescribed by the Notice.
1 See Tax Alert 2019-2271 for a summary of these extensions.
2 See IRS Notice 2015-56, and Tax Alert 2015-1625.