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Alcohol Fuel Tax Credit

Alcohol Fuel Credit

If you sell or use alcohol as a fuel, you may be eligible for an income tax credit. The alcohol fuel credit consists of a straight alcohol credit, an alcohol mixture credit, and a small ethanol producer credit. Each of these credits is discussed later.

Small Ethanol Producer Tax Credit

The small ethanol producer tax credit is an incentive enacted by Congress in 1990 to promote greater participation in ethanol production – so that farmers and other small business interests could compete with larger, more wealthy investors to produce ethanol.

Under present law, small ethanol facilities are provided a production income tax credit of 10 cents per gallon on up to 15 million gallons of ethanol per year. Current law defines a “small ethanol producer” as one whose production does not exceed 15 million gallons annually and whose production capacity does not exceed 30 million gallons annually.

Alcohol eligible for the credit includes methanol and ethanol. This includes methanol produced from methane gas formed in waste disposal sites. But it does not include any of the following.

  • Alcohol produced from petroleum, natural gas, or coal (including peat).
  • Alcohol with a proof of less than 150.
  • Ethanol produced as a by-product from manufacturing ethylcellulose derived from ethane.

In figuring the proof of any alcohol, disregard any denaturants (additives that make the alcohol unfit for human consumption).

Straight alcohol credit. You can claim the credit for any alcohol not mixed with gasoline or a special fuel other than denaturants.

You are eligible for the credit for straight alcohol only if you met one of the following requirements during the tax year.

  • You used it as a fuel in your trade or business.
  • You sold it at retail and placed it in the fuel tank of the buyer's vehicle.

The buyer cannot claim the credit for the alcohol bought at retail, even if the buyer uses it as a fuel in a trade or business.

Mixing or failure to use as fuel. If the credit applied to alcohol you bought and you later mix the alcohol or do not use it as a fuel, you must pay a tax equal to the credit. Report this tax on Form 720.

Table 4-1. How To Figure the Straight Alcohol and Alcohol Mixture Credits

IF the alcohol is...

AND it is...

THEN the credit for each gallon is...

At least 190 proof

Alcohol (other than ethanol) Ethanol

$.60   $.53  

At least 150 proof but less than 190 proof

Alcohol (other than ethanol) Ethanol

$.45   $.3926

E85 Federal Tax Forms

Fuel

IRS Form 8849
Form 8849 is an excise tax refund form. It is used to claim a refund for the lower excise tax on E85 (13 cents per gallon) in situations where the higher excise tax (18.4 cents per gallon) has been paid. This form is filed separately from a company's income tax return, with a separate IRS office that handles excise taxes. http://www.e85fuel.com/pdf/irsf8849.pdf

Schedule 3, (Form 8849)
Alcohol Fuel Mixtures and Biodiesel Mixtures http://www.e85fuel.com/pdf/irsf8849.pdf

IRS Form 6478
Form 6478 to claim the fuel tax credit is filed with the income tax return. So it is very possible that a company would file both Form 8849 and Form 6478 to claim the excise tax refund and the fuel tax credit. http://www.e85fuel.com/pdf/irs_form_6478.pdf

IRS Form 637:
Application for Registration (For Certain Excise Tax Activities) http://www.e85fuel.com/pdf/irsf637.pdf

IRS Publication 378: 
Fuel Tax Credits and Refunds.  You may be able to claim federal fuel tax credits on your income tax return. http://www.e85fuel.com/pdf/IRS%20378.pdf

IRS Form 720
Part I, of Form 720, "Fuel Taxes", has been revised to eliminate the reduced rates of excise tax provided under prior law for three blending levels of gasohol.   http://www.e85fuel.com/pdf/irsf720_2005.pdf

Part I, Item 62, pertaining to fuel taxes on gasoline, has a new tax rate imposed on the sale of an ethanol gasoline blend.