[Federal Register Volume 60, Number 151 (Monday, August 7, 1995)]
[Rules and Regulations]
[Pages 40079-40086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19284]



-----------------------------------------------------------------------


DEPARTMENT OF THE TREASURY
26 CFR Parts 40, 48, and 602

[TD 8609]
RIN 1545-AS10


Gasohol; Compressed Natural Gas

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations relating to gasohol 
blending and the tax on compressed natural gas (CNG). The regulations 
reflect and implement certain changes made by the Energy Policy Act of 
1992 (the Energy Act) and the Omnibus Budget Reconciliation Act of 1993 
(the 1993 Act). The regulations relating to gasohol blending affect 
certain blenders, enterers, refiners, and throughputters. The 
regulations relating to CNG affect persons that sell or buy CNG for use 
as a fuel in a motor vehicle or motorboat.

EFFECTIVE DATE: These regulations are effective October 1, 1995.

FOR FURTHER INFORMATION CONTACT: Frank Boland (202) 622-3130 (not a 
toll-free call).

[[Page 40080]]


SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in these final regulations 
have been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act (44 U.S.C. 3504(h)) 
under control number 1545-1270. The estimated average annual reporting 
burden per respondent is .2 hour.
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be sent to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, PC:FP, 
Washington, DC 20224, and to the Office of Management and Budget, Attn: 
Desk Officer for the Department of the Treasury, Office of Information 
and Regulatory Affairs, Washington, DC 20503.

Background

    On October 19, 1994, the IRS published in the Federal Register (59 
FR 52735) proposed regulations (PS-66-93) that generally consolidate 
the rules relating to the gasoline tax and the diesel fuel tax into a 
single set of rules applicable to both fuels. These regulations also 
proposed rules relating to gasohol and CNG.
    Written comments regarding these regulations were received and a 
public hearing was held on January 11, 1995. After consideration of the 
comments relating to gasohol and CNG, the proposed regulations on these 
topics are adopted as revised by this Treasury decision. Final 
regulations relating to the consolidation provisions contained in the 
proposed regulations will be issued later.

Explanation of Provisions

CNG; Treatment of Liquefied Natural Gas (LNG)

    Section 4041(a)(2) imposes a special motor fuels tax on any liquid 
(other than kerosene, gas oil, fuel oil, gasoline, or diesel fuel) that 
is sold for use or used as a fuel in a motor vehicle or motorboat. The 
rate of this tax is 18.4 cents per gallon (18.3 cents per gallon in the 
case of liquefied petroleum gas).
    Effective October 1, 1993, section 4041(a)(3) (as added by the 1993 
Act) imposes a tax of 48.54 cents per MCF (thousand cubic feet) on CNG 
that is sold for use or used in a motor vehicle or motorboat.
    CNG is a gas at the time it is delivered into the fuel supply tank 
of a motor vehicle or motorboat and when it is actually combusted in 
the engine. LNG, which is produced by compressing pipeline natural gas 
and cooling it to -260 degrees Fahrenheit, is a liquid when it is 
delivered into the fuel supply tank of a motor vehicle or motorboat, 
but is vaporized into a gas when it is actually combusted in the 
engine.
    Several commentators suggested that the CNG rate, rather than the 
rate on special motor fuels, should apply to LNG because (1) Both 
products have the same chemical composition, (2) both products are 
gases when they are actually combusted in an engine, and (3) LNG would 
be at a competitive disadvantage if taxed at the liquid rate.
    The final regulations do not adopt this suggestion. Before the 1993 
Act, the section 4041 special fuels tax applied to liquids sold for use 
or used as a fuel in motor vehicles or motorboats. Thus, LNG was 
subject to tax at the special fuels rate of 18.4 cents per gallon when 
the 1993 Act imposed a tax at a lower rate on CNG. The 1993 Act 
contained no provision that would change the treatment of LNG, nor is 
there any suggestion in the legislative history that Congress intended 
to do so.

CNG; Gasoline Gallon Equivalent

    The CNG industry has recently begun to sell CNG on the basis of 
CNG's Gasoline Gallon Equivalent (GGE). Generally, a GGE represents a 
particular fuel's energy content relative to the energy content of 
gasoline; thus, vehicles can travel approximately the same distance 
with a GGE of CNG as with a gallon of gasoline.
    Several commentators suggested that the final regulations should 
express the CNG tax rate in terms of GGE instead of in terms of MCF as 
provided in the Code. The final regulations do not adopt this 
suggestion. However, there is no restriction on taxpayers engaging in 
sales on the basis of GGE provided that the tax is actually paid at the 
rate of 48.54 cents per MCF.

Gasohol; Tolerance Rule

    The gasoline tax rate on most removals and entries is 18.4 cents 
per gallon (the regular tax rate). However, a reduction from the 
regular tax rate is allowed for gasohol (a gasoline/alcohol mixture 
containing a specified amount of alcohol) and gasoline removed or 
entered for the production of gasohol.
    Prior to its amendment by the Energy Act, section 4081(c) treated a 
mixture of gasoline and alcohol as gasohol only if at least 10 percent 
of the mixture was alcohol. Regulations allow a tolerance for mixtures 
that contain less than 10 percent alcohol but at least 9.8 percent 
alcohol. Under the tolerance rule, a portion of the mixture equal to 
the number of gallons of alcohol in the mixture multiplied by 10 is 
considered to be gasohol. Any excess liquid in the mixture is taxed at 
the regular rate.
    This tolerance rule accommodates operational problems associated 
with the blending of gasohol. For example, blenders may fail to attain 
the required 10-percent alcohol level because the device used to meter 
the amount of gasoline or alcohol delivered into a tank truck is 
imprecise or because the high-speed gasoline or alcohol pump used does 
not shut off at the proper moment. As noted in the preamble to an 
earlier regulation relating to gasohol tolerances (published in the 
Federal Register on August 21, 1987 (52 FR 31614)), this 2 percent 
tolerance is based upon a standard industry tolerance specification for 
wholesale measuring devices.
    Effective January 1, 1993, section 4081(c) was amended to allow a 
reduction from the regular rate for mixtures containing at least 5.7 
percent alcohol but less than 7.7 percent alcohol (5.7 percent gasohol) 
and mixtures containing at least 7.7 percent alcohol but less than 10 
percent alcohol (7.7 percent gasohol).
    The proposed regulations did not extend the tolerance rule to 
mixtures that contain less than 7.7 or 5.7 percent alcohol. Several 
commentators suggested that the tolerance rule be so extended. They 
noted that the same operational problems that occur with the blending 
of 10 percent gasohol also occur with the blending of 7.7 or 5.7 
percent gasohol.
    The final regulations adopt this suggestion and allow a tolerance 
for 7.7 and 5.7 percent gasohol in approximately the same percentage as 
that allowed for 10 percent gasohol. Any excess liquid in a mixture 
that qualifies as 5.7 percent gasohol or 7.7 percent gasohol because of 
the tolerance rule is taxed at the regular rate.

Gasohol; Alcohol-Based Ethers

    The proposed regulations provide that alcohol (that is, alcohol 
that is not produced from petroleum, natural gas, or coal (including 
peat)) used to produce ethers such as ethyl tertiary butyl ether (ETBE) 
or methyl tertiary butyl ether (MTBE) is treated as alcohol for 
purposes of the reduced tax rates for gasohol. Some commentators 
suggested that, with respect to gasohol produced by blending gasoline 
made with alcohol-based ether at a refinery, the regulations should 
also provide (1) An allocation rule and (2) guidance regarding the 
application of the income tax credit allowable by section 40.
    Allocation rule. Traditionally, gasohol has been produced by 
delivering the requisite amount of alcohol into a 

[[Page 40081]]
transport trailer that contains gasoline while the trailer is at a 
terminal rack. The two components are blended together by the motion of 
the trailer as it moves on the highway.
    Now, however, gasohol may be produced at the refinery with alcohol-
based ether. This type of gasohol does not absorb water, which means it 
can be transported through a pipeline. However, after shipment from the 
refinery and before its removal at the terminal rack, much of this 
gasohol may have been diluted with non-qualifying blends because of the 
use of common-carrier pipelines, barges, and non-segregated storage 
facilities. As a result, the blend removed at the terminal rack may not 
qualify for the reduction from the regular rate due to commingling 
between the refinery and terminal rack. To address this issue, several 
commentators suggested an allocation system for gasohol that is 
produced before it reaches the terminal that would not depend on the 
actual existence of a qualified mixture at the taxing point. For 
example, a refiner that removes one million gallons of gasohol from its 
refinery for bulk shipment to a terminal could designate any one 
million gallons of gasoline that is removed at the terminal rack as 
gasohol, regardless of the actual alcohol-based ether content of the 
gasoline.
    Other commentators, by contrast, opposed expanding the benefit for 
gasohol made with ether-based alcohol by allowing such an allocation 
rule. Rather, these commentators argued that a batch of mixture should 
not be taxed at the reduced rate unless the mixture actually contains 
the requisite amount of alcohol at the taxing point.
    The final regulations do not adopt the suggested allocation rule. 
Under section 4081(c), a reduction from the regular tax rate is 
allowable in the case of a taxable removal or entry of gasohol. Thus, a 
taxable removal or entry of gasoline that does not contain the 
requisite amount of alcohol at the time of the taxable removal or entry 
is not a removal of gasohol and is subject to tax at the regular rate.
    However, the final regulations do address concerns arising from 
this relatively recent development of producing gasohol at the refinery 
rather than at the terminal rack. Specifically, section 4101 provides 
that every person required to be registered with respect to the 
gasoline tax must register at such time, in such form and manner, and 
subject to such terms and conditions as the Secretary may prescribe by 
regulations. Pursuant to that provision, the final regulations provide 
that a refiner registered by the IRS that produces a batch of gasohol 
may treat itself as not registered with respect to a bulk removal of 
that gasohol. If the refiner treats itself in this manner, the removal 
would not be exempt from the tax under section 4081(a)(1)(B), which 
provides that the bulk removal by a registered refiner for delivery to 
a terminal operated by a registered terminal operator is not subject to 
the tax. However, because the mixture would qualify as gasohol at the 
time of removal from the refinery, it would be subject to tax at the 
reduced rate. The final regulations also provide that the refiner is 
not required to deposit this tax before filing the return relating to 
that tax.
    If a refiner chooses this option, tax also will be imposed under 
Sec. 48.4081-2(b) at the full rate when the fuel is removed at the 
terminal rack, but a refund of this second tax may then be allowable to 
the position holder under section 4081(e).
    Application of section 40. Section 40 allows an income tax credit 
to the producer of certain mixtures of alcohol and gasoline. Under 
section 40(c), the amount of this credit with respect to any alcohol is 
reduced to take into account any benefit provided with respect to such 
alcohol solely by reason of the application of section 4081(c).
    One commentator suggested that the final regulations provide that a 
refiner that produces a mixture of gasoline with an alcohol-based ether 
always is eligible for the section 40 credit, without reduction under 
section 40(c).
    The final regulations do not adopt this suggestion because it is 
inconsistent with section 40(c), which requires a reduction in the 
credit whenever a mixture is taxed at a reduced rate for gasohol under 
section 4081(c).

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in EO 12866. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to 
these regulations, and, therefore, a Regulatory Flexibility Analysis is 
not required. Pursuant to section 7805(f) of the Internal Revenue Code, 
the notice of proposed rulemaking preceding these regulations was 
submitted to the Small Business Administration for comment on its 
impact on small business.

Drafting Information

    The principal author of these regulations is Frank Boland, Office 
of Assistant Chief Counsel (Passthroughs and Special Industries). 
However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects

26 CFR Parts 40 and 48

    Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 40, 48, and 602 are amended as follows:

PART 40--EXCISE TAX PROCEDURAL REGULATIONS

    Paragraph 1. The authority citation for part 40 continues to read 
in part as follows:

    Authority: 26 U.S.C. 7805 * * *


Sec. 40.6302(c)-0  [Removed]

    Par. 2. Section 40.6302(c)-0 is removed.
    Par. 3. In Sec. 40.6302(c)-1, paragraph (e)(4) is added to read as 
follows:


Sec. 40.6302(c)-1  Use of Government depositaries.

* * * * *
    (e) * * *
    (4) Taxes excluded; certain removals of gasohol from refineries. No 
deposit is required in the case of the tax imposed under Sec. 48.4081-
3(b)(1)(iii) of this chapter.
* * * * *

PART 48--MANUFACTURERS AND RETAILERS EXCISE TAXES

    Par. 4. The authority citation for part 48 is amended by removing 
the entries for Sections 48.4041.21 and 48.4081-2 to read in part as 
follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 5. In Sec. 48.4041-8, paragraph (f) is amended by:
    1. Revising the introductory text of paragraph (f)(1).
    2. Revising paragraph (f)(1)(i).
    3. Redesignating paragraph (f)(1)(ii) as paragraph (f)(1)(iii) and 
adding a new paragraph (f)(1)(ii).
    4. Removing from paragraph (f)(2) the language ``diesel fuel or''.
    The revisions and additions read as follows: 

[[Page 40082]]



Sec. 48.4041-8  Definitions.

* * * * *
    (f) Special motor fuel. (1) Except as provided in paragraph (f)(2) 
of this section, special motor fuel means any liquid fuel, including--
    (i) Any liquefied petroleum gas (such as propane, butane, pentane, 
or mixtures of the same);
    (ii) Liquefied natural gas; or
* * * * *
    Par. 6. Section 48.4041-21 is revised to read as follows:


Sec. 48.4041-21  Compressed natural gas (CNG).

    (a) Delivery of CNG into the fuel supply tank of a motor vehicle or 
motorboat--(1) Imposition of tax. Tax is imposed on the delivery of 
compressed natural gas (CNG) into the fuel supply tank of the 
propulsion engine of a motor vehicle or motorboat unless tax was 
previously imposed on the CNG under paragraph (b) of this section.
    (2) Liability for tax. If the delivery of the CNG is in connection 
with a sale, the seller of the CNG is liable for the tax imposed under 
paragraph (a)(1) of this section. If the delivery of the CNG is not in 
connection with a sale, the operator of the motor vehicle or motorboat, 
as the case may be, is liable for the tax imposed under paragraph 
(a)(1) of this section.
    (b) Bulk sales of CNG--(1) In general. Tax is imposed on the sale 
of CNG that is not in connection with the delivery of the CNG into the 
fuel supply tank of the propulsion engine of a motor vehicle or 
motorboat if, by the time of the sale--
    (i) The buyer has given the seller a written statement stating that 
the entire quantity of the CNG covered by the statement is for use as a 
fuel in a motor vehicle or motorboat; and
    (ii) The seller has given the buyer a written acknowledgement of 
receipt of the statement described in paragraph (b)(1)(i) of this 
section.
    (2) Liability for tax. The seller of the CNG is liable for the tax 
imposed under this paragraph (b).
    (c) Exemptions--(1) In general. The taxes imposed under this 
section do not apply to a delivery or sale of CNG for a use described 
in Sec. 48.4082-4T(c)(1) through (5)(A) or (c)(6) through (11). 
However, if the person otherwise liable for tax under this section is 
the seller of the CNG, the exemption under this section applies only 
if, by the time of sale, the seller receives an unexpired certificate 
(as described in this paragraph (c)) from the buyer and has no reason 
to believe any information in the certificate is false.
    (2) Certificate; in general. The certificate to be provided by a 
buyer of CNG is to consist of a statement that is signed under 
penalties of perjury by a person with authority to bind the buyer, 
should be in substantially the same form as the model certificate 
provided in paragraph (c)(4) of this section, and should contain all 
information necessary to complete the model certificate. A new 
certificate must be given if any information in the current certificate 
changes. The certificate may be included as part of any business 
records normally used to document a sale. The certificate expires on 
the earliest of the following dates:
    (i) The date one year after the effective date of the certificate 
(which may be no earlier than the date it is signed).
    (ii) The date a new certificate is provided to the seller.
    (iii) The date the seller is notified by the Internal Revenue 
Service or the buyer that the buyer's right to provide a certificate 
has been withdrawn.
    (3) Withdrawal of the right to provide a certificate. The Internal 
Revenue Service may withdraw the right of a buyer of CNG to provide a 
certificate under this paragraph (c) if the buyer uses CNG to which a 
certificate applies in a taxable use. The Internal Revenue Service may 
notify any seller to whom the buyer has provided a certificate that the 
buyer's right to provide a certificate has been withdrawn.
    (4) Model certificate.

Certificate of Person Buying Compressed Natural Gas (CNG) for a 
Nontaxable Use

(To support tax-free sales of CNG under section 4041 of the Internal 
Revenue Code.)

----------------------------------------------------------------------
----------------------------------------------------------------------

Name, address, and employer identification number of seller

    ____________________ ``Buyer'') certifies the following under 
penalties of perjury:
    The CNG to which this certificate relates will be used in a 
nontaxable use.
    This certificate applies to the following (complete as 
applicable):
    If this is a single purchase certificate, check here ______ and 
enter:
    1. Invoice or delivery ticket number ________________
    2. ________ (number of MCFs) ________
    If this is a certificate covering all purchases under a 
specified account or order number, check here ______ and enter:
    1. Effective date ________________
    2. Expiration date ________________ (period not to exceed 1 year 
after the effective date)
    3. Buyer account or order number ________________
    Buyer will not claim a credit or refund under section 6427 of 
the Internal Revenue Code for any CNG to which this certificate 
relates.
    Buyer will provide a new certificate to the seller if any 
information in this certificate changes.
    Buyer understands that if Buyer violates the terms of this 
certificate, the Internal Revenue Service may withdraw Buyer's right 
to provide a certificate.
    Buyer has not been notified by the Internal Revenue Service that 
its right to provide a certificate has been withdrawn. In addition, 
the Internal Revenue Service has not notified Buyer that the right 
to provide a certificate has been withdrawn from a purchaser to 
which Buyer sells CNG tax free.
    Buyer understands that the fraudulent use of this certificate 
may subject Buyer and all parties making any fraudulent use of this 
certificate to a fine or imprisonment, or both, together with the 
costs of prosecution.
----------------------------------------------------------------------
Printed or typed name of person signing

----------------------------------------------------------------------
Title of person signing

----------------------------------------------------------------------
Employer identification number

----------------------------------------------------------------------
Address of Buyer

----------------------------------------------------------------------
Signature and date signed

    (d) Rate of tax. The rate of the tax imposed under this section is 
the rate prescribed by section 4041(a)(3).
    (e) Effective date. This section is effective October 1, 1995.


Sec. 48.4081-0  [Removed]

    Par. 7. Section 48.4081-0 is removed.
    Par. 8. In Sec. 48.4081-3, paragraph (b)(1) is revised to read as 
follows:


Sec. 48.4081-3  Gasoline tax; taxable events other than removal at the 
terminal rack.

* * * * *
    (b) * * * (1) In general. Except as provided in Sec. 48.4081-4 
(relating to gasoline blendstocks) and paragraph (b)(2) of this section 
(relating to an exception for certain refineries), tax is imposed on 
the following removals of gasoline from a refinery:
    (i) The removal is by bulk transfer and the refiner or the owner of 
the gasoline immediately before the removal is not a gasoline 
registrant.
    (ii) The removal is at the rack.
    (iii) After September 30, 1995, the removal is of a batch of 
gasohol from an approved refinery by bulk transfer and the refiner 
treats itself with respect to the removal as a person that is not 
registered under section 4101. See Sec. 48.4101-3. For the rule 
providing that no deposit is required in the case of the tax imposed 
under this paragraph (b)(1)(iii), see Sec. 40.6302(c)-1(e)(4) of this 
chapter. For the rule allowing inspections of facilities where gasohol 
is produced, see section 4083.
    Par. 9. Section 48.4081-6 is revised to read as follows:


Sec. 48.4081-6  Gasoline tax; gasohol.

    (a) Overview. This section provides rules for determining the 
applicability 

[[Page 40083]]
of reduced rates of tax on a removal or entry of gasohol or of gasoline 
used to produce gasohol. Rules are also provided for the imposition of 
tax on the separation of gasoline from gasohol and the failure to use 
gasoline that has been taxed at a reduced rate to produce gasohol.
    (b) Explanation of terms--(1) Alcohol--(i) In general; source of 
the alcohol. Except as provided in paragraph (b)(1)(ii) of this 
section, alcohol means any alcohol that is not a derivative product of 
petroleum, natural gas, or coal (including peat). Thus, the term 
includes methanol and ethanol that are not derived from petroleum, 
natural gas, or coal (including peat). The term also includes alcohol 
produced either within or outside the United States.
    (ii) Proof and denaturants. Alcohol does not include alcohol with a 
proof of less than 190 degrees (determined without regard to added 
denaturants). If the alcohol added to a fuel/alcohol mixture (the added 
alcohol) includes impurities or denaturants, the volume of alcohol in 
the mixture is determined under the following rules:
    (A) The volume of alcohol in the mixture includes the volume of any 
impurities (other than added denaturants and any fuel with which the 
alcohol is mixed) that reduce the purity of the added alcohol to not 
less than 190 proof (determined without regard to added denaturants).
    (B) The volume of alcohol in the mixture includes the volume of any 
approved denaturants that reduce the purity of the added alcohol, but 
only to the extent that the volume of the approved denaturants does not 
exceed five percent of the volume of the added alcohol (including the 
approved denaturants). If the volume of the approved denaturants 
exceeds five percent of the volume of the added alcohol, the excess 
over five percent is considered part of the nonalcohol content of the 
mixture.
    (C) For purposes of this paragraph (b)(1)(ii), approved denaturants 
are any denaturants (including gasoline and nonalcohol fuel 
denaturants) that reduce the purity of the added alcohol and are added 
to such alcohol under a formula approved by the Secretary.
    (iii) Products derived from alcohol. If alcohol described in 
paragraphs (b)(1)(i) and (ii) of this section has been chemically 
transformed in producing another product (that is, the alcohol is no 
longer present as a separate chemical in the other product) and there 
is no significant loss in the energy content of the alcohol, any 
mixture containing the product includes the volume of alcohol used to 
produce the product. Thus, for example, a mixture of gasoline and ethyl 
tertiary butyl ether (ETBE), or of gasoline and methyl tertiary butyl 
ether (MTBE), includes any alcohol described in paragraphs (b)(1)(i) 
and (ii) of this section that is used to produce the ETBE or MTBE, 
respectively, in a chemical reaction in which there is no significant 
loss in the energy content of the alcohol.
    (2) Gasohol--(i) In general--(A) Gasohol is a mixture of gasoline 
and alcohol that is 10 percent gasohol, 7.7 percent gasohol, or 5.7 
percent gasohol. The determination of whether a particular mixture is 
10 percent gasohol, 7.7 percent gasohol, or 5.7 percent gasohol is made 
on a batch-by-batch basis. A batch of gasohol is a discrete mixture of 
gasoline and alcohol.
    (B) If a particular mixture is produced within the bulk transfer/
terminal system (for example, at a refinery), the determination of 
whether the mixture is gasohol is made at the time of the taxable 
removal or entry of the mixture.
    (C) If a particular mixture is produced outside of the bulk 
transfer/terminal system (for example, by splash blending after the 
gasoline has been removed from the terminal at the rack), the 
determination of whether the mixture is gasohol is made immediately 
after the mixture is produced. In such a case, the contents of the 
batch typically correspond to a gasoline meter delivery ticket and an 
alcohol meter delivery ticket, each of which shows the number of 
gallons of liquid delivered into the mixture. The volume of each 
component in a batch (without adjustment for temperature) ordinarily is 
determined by the number of metered gallons shown on the delivery 
tickets for the gasoline and alcohol delivered. However, if metered 
gallons of gasoline and alcohol are added to a tank already containing 
more than a minor amount of liquid, the determination of whether a 
batch satisfies the alcohol-content requirement will be made by taking 
into account the amount of alcohol and non-alcohol fuel contained in 
the liquid already in the tank. Ordinarily, any amount in excess of 0.5 
percent of the capacity of the tank will not be considered minor.
    (ii) 10 percent gasohol--(A) In general. A batch of gasoline/
alcohol mixture is 10 percent gasohol if it contains at least 9.8 
percent alcohol by volume, without rounding.
    (B) Batches containing less than 10 percent but at least 9.8 
percent alcohol. If a batch of mixture contains less than 10 percent 
alcohol but at least 9.8 percent alcohol, without rounding, only a 
portion of the batch is considered to be 10 percent gasohol. That 
portion equals the number of gallons of alcohol in the batch multiplied 
by 10. Any remaining liquid in the mixture is excess liquid.
    (iii) 7.7 percent gasohol--(A) In general. A batch of gasoline/
alcohol mixture is 7.7 percent gasohol if it contains less than 9.8 
percent alcohol but at least 7.55 percent alcohol by volume, without 
rounding.
    (B) Batches containing less than 7.7 percent but at least 7.55 
percent alcohol. If a batch of mixture contains less than 7.7 percent 
alcohol but at least 7.55 percent alcohol, without rounding, only a 
portion of the batch is considered to be 7.7 percent gasohol. That 
portion equals the number of gallons of alcohol in the batch multiplied 
by 12.987. Any remaining liquid in the mixture is excess liquid.
    (iv) 5.7 percent gasohol--(A) In general. A batch of gasoline/
alcohol mixture is 5.7 percent gasohol if it contains less than 7.55 
percent alcohol but at least 5.59 percent alcohol by volume, without 
rounding.
    (B) Batches containing less than 5.7 percent but at least 5.59 
percent alcohol. If a batch of mixture contains less than 5.7 percent 
alcohol but at least 5.59 percent alcohol, without rounding, only a 
portion of the batch is considered to be 5.7 percent gasohol. That 
portion equals the number of gallons of alcohol in the batch multiplied 
by 17.544. Any remaining liquid in the mixture is excess liquid.
    (v) Tax on excess liquid. If tax was imposed on the excess liquid 
in any gasohol at the gasohol production tax rate (as defined in 
paragraph (e)(1) of this section), the excess liquid in the batch is 
considered to be gasoline with respect to which there is a failure to 
blend into gasohol for purposes of paragraph (f) of this section. If 
tax was imposed on the excess liquid at the rate of tax described in 
section 4081(a), a credit or refund under section 6427(f) is not 
allowed with respect to the excess liquid.
    (vi) Examples. The following examples illustrate this paragraph 
(b)(2). In these examples, a gasohol blender creates a gasoline/alcohol 
mixture by pumping a specified amount of gasoline into an empty tank 
and then adding a specified amount of alcohol.

    Example 1. Mixtures containing exactly 10 percent alcohol. The 
applicable delivery tickets show that the mixture is made with 7200 
metered gallons of gasoline and 800 metered gallons of alcohol. 
Accordingly, the mixture contains 10 percent alcohol (as determined 
based on the delivery tickets provided to the blender) and qualifies 
as 10 percent gasohol.
    Example 2. Mixtures containing less than 10 percent alcohol but 
at least 9.8 percent 

[[Page 40084]]
alcohol. The applicable delivery tickets show that the mixture is made 
with 7205 metered gallons of gasoline and 795 metered gallons of 
alcohol. Because the mixture contains less than 10 percent alcohol, 
but more than 9.8 percent alcohol (as determined based on the 
delivery tickets provided to the blender), 7950 gallons of the 
mixture qualify as 10 percent gasohol. If tax was imposed on the 
gasoline in the mixture at the gasohol production rate applicable to 
10 percent gasohol, the remaining 50 gallons of the mixture (the 
excess liquid) are treated as gasoline with respect to which there 
was a failure to blend into gasohol for purposes of paragraph (f) of 
this section. If tax was imposed on the gasoline in the mixture at 
the rate of tax described in section 4081(a), a credit or refund 
under section 6427(f) is allowed only with respect to 7155 gallons 
of gasoline.
    Example 3. Mixtures containing less than 5.59 percent alcohol. 
The applicable delivery tickets show that the mixture is made with 
7568 metered gallons of gasoline and 436 metered gallons of alcohol. 
Because the mixture contains only 5.45 percent alcohol (as 
determined based on the delivery tickets provided to the blender), 
the mixture does not qualify as gasohol.

    (3) Gasohol blender. Gasohol blender means any person that 
regularly buys gasoline and alcohol and produces gasohol for use in its 
trade or business or for resale.
    (4) Registered gasohol blender. Registered gasohol blender means a 
person that is registered under section 4101 as a gasohol blender.
    (c) Rate of tax on gasoline removed or entered for gasohol 
production--(1) In general. The rate of tax imposed on gasoline under 
Sec. 48.4081-2(b) (relating to tax imposed at the terminal rack), 
Sec. 48.4081-3(b)(1) (relating to tax imposed at the refinery), or 
Sec. 48.4081-3(c)(1) (relating to tax imposed on entries) is the 
gasohol production tax rate if--
    (i) The person liable for tax under Sec. 48.4081-2(c)(1) (the 
position holder), Sec. 48.4081-3(b)(3) (the refiner), or Sec. 48.4081-
3(c)(2) (the enterer) is a taxable fuel registrant and a registered 
gasohol blender, and such person produces gasohol with the gasoline 
within 24 hours after removing or entering the gasoline; or
    (ii) The gasoline is sold in connection with the removal or entry, 
the person liable for tax under Sec. 48.4081-2(c)(1) (the position 
holder), Sec. 48.4081-3(b)(3) (the refiner), or Sec. 48.4081-3(c)(2) 
(the enterer) is a taxable fuel registrant and the person, at the time 
of the sale,--
    (A) Has an unexpired certificate (as described in paragraph (c)(2) 
of this section) from the buyer; and
    (B) Has no reason to believe that any information in the 
certificate is false.
    (2) Certificate--(i) In general. The certificate referred to in 
paragraph (c)(1)(ii)(A) of this section is a statement that is to be 
provided by a registered gasohol blender that is signed under penalties 
of perjury by a person with authority to bind the registered gasohol 
blender, is in substantially the same form as the model certificate 
provided in paragraph (c)(2)(ii) of this section, and contains all 
information necessary to complete such model certificate. A new 
certificate must be given if any information in the current certificate 
changes. The certificate may be included as part of any business 
records normally used to document a sale. The certificate expires on 
the earliest of the following dates:
    (A) The date one year after the effective date of the certificate 
(which may be no earlier than the date it is signed).
    (B) The date the registered gasohol blender provides a new 
certificate to the seller.
    (C) The date the seller is notified by the Internal Revenue Service 
or the gasohol blender that the gasohol blender's registration has been 
revoked or suspended.
    (ii) Model certificate.

Certificate of Registered Gasohol Blender

(To support sales of gasoline at the gasohol production tax rate 
under section 4081(c) of the Internal Revenue Code)

----------------------------------------------------------------------
Name, address, and employer identification number of seller
    ____________________ (Buyer) certifies the following under 
penalties of perjury:
    Buyer is registered as a gasohol blender with registration 
number ________________. Buyer's registration has not been suspended 
or revoked by the Internal Revenue Service.
    The gasoline bought under this certificate will be used by Buyer 
to produce gasohol (as defined in Sec. 48.4081-6(b) of the 
Manufacturers and Retailers Excise Tax Regulations) within 24 hours 
after buying the gasoline.
    Type of gasohol Buyer will produce (check one only):

______ 10% gasohol
______ 7.7% gasohol
______ 5.7% gasohol

    If the gasohol the Buyer will produce will contain ethanol, 
check here: ______
    This certificate applies to the following (complete as 
applicable):
    If this is a single purchase certificate, check here ______ and 
enter:
    1. Account number ________________
    2. Number of gallons ________________
    If this is a certificate covering all purchases under a 
specified account or order number, check here ______ and enter:
    1. Effective date ________________
    2. Expiration date ________________ (period not to exceed 1 year 
after the effective date)
    3. Buyer account or order number ________________
    Buyer will not claim a credit or refund under section 6427(f) of 
the Internal Revenue Code for any gasoline covered by this 
certificate.
    Buyer agrees to provide seller with a new certificate if any 
information on this certificate changes.
    Buyer understands that Buyer's registration may be revoked if 
the gasoline covered by this certificate is resold or is used other 
than in Buyer's production of the type of gasohol identified above.
    Buyer will reduce any alcohol mixture credit under section 40(b) 
by an amount equal to the benefit of the gasohol production tax rate 
under section 4081(c) for the gasohol to which this certificate 
relates.
    Buyer understands that the fraudulent use of this certificate 
may subject Buyer and all parties making any fraudulent use of this 
certificate to a fine or imprisonment, or both, together with the 
costs of prosecution.

----------------------------------------------------------------------
Printed or typed name of person signing

----------------------------------------------------------------------
Title of person signing

----------------------------------------------------------------------
Employer identification number

----------------------------------------------------------------------
Address of Buyer

----------------------------------------------------------------------
Signature and date signed

     (iii) Use of Form 637 or letter of registration as a gasohol 
blender's certificate prohibited. A copy of the certificate of registry 
(Form 637) or letter of registration issued to a gasohol blender by the 
Internal Revenue Service is not a gasohol blender's certificate 
described in paragraph (c)(2)(ii) of this section.
     (d) Rate of tax on gasohol removed or entered. The rate of tax 
imposed on removals or entries of any gasohol under Secs. 48.4081-2(b), 
48.4081-3(b)(1), and 48.4081-3(c)(1) is the gasohol tax rate. The rate 
of tax imposed on removals and entries of excess liquid described in 
paragraph (b)(2) of this section is the rate of tax applicable to 
gasoline under section 4081(a).
     (e) Tax rates--(1) Gasohol production tax rate. The gasohol 
production tax rate is the applicable rate of tax determined under 
section 4081(c)(2)(A).
     (2) Gasohol tax rate. The gasohol tax rate is the applicable 
alcohol mixture rate determined under section 4081(c)(4)(A).
     (f) Later separation and failure to blend--(1) Later separation--
(i) Imposition of tax. A tax is imposed on the removal or sale of 
gasoline separated from gasohol with respect to which tax was imposed 
at a rate described in paragraph (e) of this section or with respect to 
which a credit or payment was allowed or made by reason of section 
6427(f)(1).
     (ii) Liability for tax. The person that owns the gasohol at the 
time gasoline is 

[[Page 40085]]
separated from the gasohol is liable for the tax imposed under 
paragraph (f)(1)(i) of this section.
     (iii) Rate of tax. The rate of tax imposed under paragraph 
(f)(1)(i) of this section is the difference between the rate of tax 
applicable to gasoline not described in this section and the applicable 
gasohol production tax rate.
     (2) Failure to blend--(i) Imposition of tax. Tax is imposed on the 
entry, removal, or sale of gasoline (including excess liquid described 
in paragraph (b)(2) of this section) with respect to which tax was 
imposed at a gasohol production tax rate if--
     (A) The gasoline was not blended into gasohol; or
     (B) The gasoline was blended into gasohol but the gasohol 
production tax rate applicable to the type of gasohol produced is 
greater than the rate of tax originally imposed on the gasoline.
     (ii) Liability for tax. (A) In the case of gasoline with respect 
to which tax was imposed at the gasohol production tax rate under 
paragraph (c)(1)(i) of this section, the person liable for the tax 
imposed by paragraph (f)(2)(i) of this section is the person that was 
liable for tax on the entry or removal.
     (B) In the case of gasoline with respect to which tax was imposed 
at the gasohol production tax rate under paragraph (c)(1)(ii) of this 
section, the person that bought the gasoline in connection with the 
entry or removal is liable for the tax imposed under paragraph 
(f)(2)(i) of this section.
     (iii) Rate of tax. The rate of tax imposed on gasoline described 
in paragraph (f)(2)(i)(A) of this section is the difference between the 
rate of tax applicable to gasoline not described in this section and 
the rate of tax previously imposed on the gasoline. The rate of tax 
imposed on gasoline described in paragraph (f)(2)(i)(B) of this section 
is the difference between the gasohol production tax rate applicable to 
the type of gasohol produced and the rate of tax previously imposed on 
the gasoline.
     (iv) Example. The following example illustrates this paragraph 
(f)(2):

     Example. (i) A registered gasohol blender bought gasoline in 
connection with a removal described in paragraph (c)(1)(ii) of this 
section. Based on the blender's certification (described in 
paragraph (c)(2) of this section) that the blender would produce 10 
percent gasohol with the gasoline, tax at the gasohol production tax 
rate applicable to 10 percent gasohol was imposed on the removal.
     (ii) The blender then produced a mixture by splash blending in 
a tank holding approximately 8000 gallons of mixture. The applicable 
delivery tickets show that the mixture was blended by first pumping 
7220 metered gallons of gasoline into the empty tank, and then 
pumping 780 metered gallons of alcohol into the tank. Because the 
mixture contains 9.75 percent alcohol (as determined based on the 
delivery tickets provided to the blender) the entire mixture 
qualifies as 7.7 percent gasohol, rather than 10 percent gasohol.

     (iii) Because the 7220 gallons of gasoline were taxed at the 
gasohol production tax rate applicable to 10 percent gasohol but the 
gasoline was blended into 7.7 percent gasohol, a failure to blend 
has occurred with respect to the gasoline. As the person that bought 
the gasoline in connection with the taxable removal, the blender is 
liable for the tax imposed under paragraph (f)(2)(i) of this 
section. The amount of tax imposed is the difference between--

     (A) 7220 gallons times the gasohol production tax rate 
applicable to 7.7 percent gasohol; and

     (B) 7220 gallons times the gasohol production tax rate 
applicable to 10 percent gasohol.

     (iv) Because the gasohol does not contain exactly 7.7 percent 
alcohol, the benefit of the gasohol production tax rate with respect 
to the alcohol is less than the amount of the alcohol mixture credit 
under section 40(b) (determined before the application of section 
40(c)). Accordingly, the blender may be entitled to claim an alcohol 
mixture credit for the alcohol used in the gasohol. Under section 
40(c), however, the amount of the alcohol mixture credit must be 
reduced to take into account the benefit provided with respect to 
the alcohol by the gasohol production tax rate.

     (g) Effective date. This section is effective August 7, 1995.

    Par. 10. Section 48.4081-7 is amended as follows:

     1. The heading for Sec. 48.4081-7 is revised.

     2. In paragraphs (a) and (b), the language ``gasoline'' is removed 
each place it appears and ``taxable fuel'' is added in its place.

     3. Paragraphs (b)(4) and (c)(1) are revised.

     4. In paragraph (c)(2), the language ``gasoline'' is removed each 
place it appears and ``taxable fuel'' is added in its place.

     5. Paragraph (c)(3) is revised.
     6. In paragraphs (c)(4)(i)(A) and (B), (ii)(A) and (B), and (iii), 
the language ``gasoline'' is removed each place it appears and 
``taxable fuel'' is added in its place.
     7. In paragraph (c)(4)(iv)(A), the language ``(or such other model 
statement as the Commissioner may prescribe)'' is added immediately 
after ``paragraph (c)(4)(iv)(B) of this section''.
     8. In paragraph (c)(4)(iv)(B):
     a. The description of line 4 is revised to read: ``Volume and type 
of taxable fuel sold''.
     b. In the first paragraph following line 4 the language 
``gasoline'' is removed and ``taxable fuel'' is added in its place.
     9. Paragraph (c)(5) is removed.
     10. Paragraph (d) is revised.
     11. Paragraph (f), Example 1, paragraph (i), is amended by:
     a. Removing the language ``1993'' in the first and fourth 
sentences and adding ``1996'' in its place.
     b. Removing the language ``paragraph (c)(2)'' and adding 
``paragraph (c)'' in its place.
     12. Paragraph (f), Example 1, paragraph (ii), is amended by 
removing the language ``1993'' in the first and second sentences and 
adding ``1996'' in its place.
     13. Paragraph (g) is revised.
     The revisions read as follows:


Sec. 48.4081-7  Taxable fuel; conditions for refunds of taxable fuel 
tax under section 4081(e).

* * * * *
     (b) * * *
     (4) The person that paid the first tax to the government has met 
the reporting requirements of paragraph (c) of this section.
     (c) * * * (1) Reporting by persons paying the first tax. Except as 
provided in paragraph (c)(3) of this section, the person that paid the 
first tax under Sec. 48.4081-3 (the first taxpayer) must file a report 
that is in substantially the same form as the model report provided in 
paragraph (c)(2) of this section (or such other model report as the 
Commissioner may prescribe) and contains all information necessary to 
complete such model report (the first taxpayer's report). A first 
taxpayer's report must be filed with the return to which the report 
relates (or at such other time, or in such other manner, as prescribed 
by the Commissioner).
* * * * *
     (3) Optional reporting for certain taxable events. Paragraph 
(c)(1) of this section does not apply with respect to a tax imposed 
under Sec. 48.4081-2 (removal at a terminal rack), Sec. 48.4081-
3(c)(1)(ii) (nonbulk entries into the United States), or Sec. 48.4081-
3(g) (removals or sales by blenders). However, if the person liable for 
the tax expects that another tax will be imposed under section 4081 
with respect to the taxable fuel, that person should (but is not 
required to) file a first taxpayer's report.
* * * * *
     (d) Form and content of claim--(1) In general. The following rules 
apply to claims for refund under section 4081(e):
     (i) The claim must be made by the person that paid the second tax 
to the government and must include all the information described in 
paragraph (d)(2) of this section. 

[[Page 40086]]

     (ii) The claim must be made on Form 8849 (or such other form as 
the Commissioner may designate) in accordance with the instructions on 
the form. The form should be marked Section 4081(e) Claim at the top. 
Section 4081(e) claims must not be included with a claim for a refund 
under any other provision of the Internal Revenue Code.
     (2) Information to be included in the claim. Each claim for a 
refund under section 4081(e) must contain the following information 
with respect to the taxable fuel covered by the claim:
     (i) Volume and type of taxable fuel.
     (ii) Date on which the claimant incurred the tax liability to 
which this claim relates (the second tax).
     (iii) Amount of second tax that claimant paid to the government 
and a statement that claimant has not included the amount of this tax 
in the sales price of the taxable fuel to which this claim relates and 
has not collected that amount from the person that bought the taxable 
fuel from claimant.
     (iv) Name, address, and employer identification number of the 
person that paid the first tax to the government.
     (v) A copy of the first taxpayer's report that relates to the 
taxable fuel covered by the claim.
     (vi) If the taxable fuel covered by the claim was bought other 
than from the first taxpayer, a copy of the statement of subsequent 
seller that the claimant received with respect to that taxable fuel.
* * * * *
     (g) Effective date. This section is effective in the case of 
taxable fuel with respect to which the first tax is imposed after 
September 30, 1995.
    Par. 11. Section 48.4101-3 is added to read as follows:


Sec. 48.4101-3  Registration.

     (a) A refiner that is registered under section 4101 may treat 
itself with respect to the bulk removal of any batch of gasohol from 
its refinery as a person that is not registered under section 4101. See 
Sec. 48.4081-3(b)(1)(iii).
     (b) This section is effective October 1, 1995.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 12. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


Sec. 602.101   [Amended]

    Par. 13. In Sec. 602.101, paragraph (c) is amended by removing the 
entry for 48.4041-21 from the table and adding the entry ``48.4041-
21.....1545-1270'' in numerical order to the table.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
    Approved: July 25, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-19284 Filed 8-4-95; 8:45 am]
BILLING CODE 4830-01-U