[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