[Federal Register Volume 73, Number 146 (Tuesday, July 29, 2008)]
[Proposed Rules]
[Pages 43890-43904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-17270]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 40, and 48

[REG-155087-05]
RIN 1545-BF17


Alcohol Fuel and Biodiesel; Renewable Diesel; Alternative Fuel; 
Diesel-Water Fuel Emulsion; Taxable Fuel Definitions; Excise Tax 
Returns

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to 
credits and payments for alcohol mixtures, biodiesel mixtures, 
renewable diesel mixtures, alternative fuel mixtures, and alternative 
fuel sold for use or used as a fuel, as well as proposed regulations 
relating to the definition of gasoline and diesel fuel. These 
regulations reflect changes made by the American Jobs Creation Act of 
2004, the Energy Policy Act of 2005, the Safe, Accountable, Flexible, 
Efficient Transportation Equity Act: A Legacy for Users, and the Tax 
Technical Corrections Act of 2007. These regulations affect producers 
of alcohol, biodiesel, and renewable diesel; producers of alcohol, 
biodiesel, renewable diesel, and alternative fuel mixtures; sellers and 
users of alternative fuel; and certain persons liable for the tax on 
removals, entries, or sales of gasoline or diesel fuel.

DATES: Written or electronic comments and requests for a public hearing 
must be received by October 27, 2008.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-155087-05), room 5203, 
Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
155087-05), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically, via the Federal 
eRulemaking Portal at http://www.regulations.gov (IRS REG-155087-05).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Stephanie Bland, Taylor Cortright, or DeAnn Malone, all of whom can be 
reached at (202) 622-3130 (not a toll-free call); concerning the 
submission of comments or requests for a public hearing, Oluwafunmilayo 
Taylor at (202) 622-7180 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent 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, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, 
Washington, DC 20224. Comments on the collection of information should 
be received by September 29, 2008. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    The collection of information in this proposed regulation is in 
Sec.  48.6426-3(e), describing the certificate the biodiesel producer 
must give to the claimant of a biodiesel mixture credit or biodiesel 
credit; Sec.  48.6426-3(f), describing the statement a biodiesel 
reseller must give to the claimant of a biodiesel mixture credit or 
biodiesel credit; Sec.  48.6426-4(e), describing the certificate the 
renewable diesel producer must give to the claimant of a renewable 
diesel mixture credit or renewable diesel credit; Sec.  48.6426-4(f), 
describing the statement a renewable diesel reseller must give to the 
claimant of a renewable diesel mixture credit or renewable diesel 
credit; and Sec.  48.6426-6(c), describing the statement given to a 
seller of liquefied natural gas. This information is required to obtain 
a tax benefit. This information will be used by the IRS to substantiate 
claims for the tax benefits. The likely recordkeepers are business or 
other for-profit institutions and small businesses or organizations.
    Estimated total annual reporting burden: 17,710 hours.
    Estimated average annual burden hours per respondent varies from 
2.5 hours to 25 hours, depending on individual circumstances, with an 
estimated average of 22 hours.
    Estimated number of respondents: 756.
    Estimated annual frequency of responses: On occasion.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    The Internal Revenue Code (Code) provides incentives for certain 
renewable and alternative fuels. Before January 1, 2005, a reduced rate 
of tax applied to most alcohol-blended fuels. The American Jobs 
Creation Act of 2004 (Pub. L. 108-357) replaced the reduced rate of tax 
for alcohol-blended fuels with credits or payments for alcohol and 
alcohol mixtures that are sold for use or used as a fuel. The Act also 
added credits and payments for biodiesel and biodiesel mixtures sold 
for use or used as a fuel. Credit and payment provisions for renewable 
diesel, renewable diesel mixtures, alternative fuel, alternative fuel 
mixtures, and diesel-water fuel emulsions were added to the Code by the 
Energy Policy Act of 2005 (Pub. L. 109-58) and the Safe, Accountable, 
Flexible, Efficient Transportation Equity Act: A Legacy for Users (Pub. 
L. 109-59) (SAFETEA). Technical corrections to SAFETEA were made by the 
Tax Technical Corrections Act of 2007 (Pub. L. 110-172).
    The incentives include a credit under section 6426 for alcohol fuel 
mixtures, biodiesel mixtures, renewable diesel mixtures (incorporated 
into section

[[Page 43891]]

6426 by section 40A(f)), and alternative fuel mixtures sold for use or 
used as a fuel and alternative fuel sold for use or used as a fuel in a 
motor vehicle or motorboat. The credit under section 6426 is allowed 
against the claimant's fuel tax liability. The incentives for these 
fuels also include a payment under section 6427(e) and a refundable 
income tax credit under section 34. The amount allowed as a payment or 
credit under these provisions is reduced by the claimant's excise tax 
liability against which a credit is allowed under section 6426. Section 
40 provides a nonrefundable income tax credit for alcohol fuel 
mixtures, alcohol that is sold for use or used as a fuel, and for the 
production of alcohol by certain small ethanol producers; section 40A 
provides similar rules relating to biodiesel and renewable diesel. The 
Code includes coordination rules that limit the maximum incentive that 
may be claimed for any particular gallon of alcohol, biodiesel, 
renewable diesel, and alternative fuel. Generally, for alcohol that is 
ethanol, the benefit is $0.51 per gallon; for biodiesel, the incentive 
is $0.50 per gallon ($1.00 per gallon in the case of agri-biodiesel); 
for renewable diesel, the incentive is $1.00 per gallon; and, for 
alternative fuel, the incentive is $0.50 per gallon. In the case of 
small ethanol producers and small agri-biodiesel producers, however, 
the Code allows an additional income tax credit of $0.10 per gallon.
    Notice 2005-4 (2005-1 CB 289) describes the alcohol and biodiesel 
credits and payments and provides general guidance for these 
incentives. Comments received after the publication of Notice 2005-4 
requested additional guidance with regard to the biodiesel producer 
certificates in the case of resale, commingled biodiesel, the 
definition of agri-biodiesel, and the definition of a biodiesel 
mixture. Guidance on these issues was provided in Notice 2005-62 (2005-
2 CB 443). Notice 2005-80 (2005-2 CB 953) describes the registration 
requirements related to diesel-water fuel emulsions. Notice 2006-92, 
(2006-43 IRB. 774) describes the alternative fuel credits and payments. 
Notice 2007-37 (2007-17 IRB 1002) provides guidance on renewable 
diesel. Notice 2007-97 (2007-49 IRB 1092) provides guidance on liquid 
hydrocarbons for purposes of the definition of alternative fuel. 
Comments were received in response to these notices and have been 
considered in the development of this notice of proposed rulemaking.

Renewable and Alternative Fuels; Currently Applicable Rules

    The IRS has received numerous inquiries about the proper steps that 
must be taken to comply with the tax laws and to take full advantage of 
the tax incentives for certain renewable and alternative fuels. The 
following are general rules that are currently applicable and would not 
be changed by these proposed regulations.

Registration

    Registration by the IRS is required for each person that produces 
alcohol, biodiesel, renewable diesel, or blended taxable fuel or claims 
credits or payments with respect to alternative fuel.
    Application for registration is made on Form 637, ``Application for 
Registration (For Certain Excise Tax Activities).'' A person generally 
may not engage in an activity for which registration is required until 
the IRS has approved the person's registration with respect to the 
activity.

Imposition of Tax

    Tax is imposed on the removal of a biodiesel mixture that is diesel 
fuel from the terminal at the terminal rack. In the case of blended 
taxable fuel, tax is imposed on a blender's sale or removal of the fuel 
and the blender is liable for the tax. Blended taxable fuel includes 
diesel fuel or gasoline produced outside of the bulk transfer/terminal 
system by mixing an untaxed liquid, such as biodiesel or alcohol, with 
a taxable fuel, such as diesel fuel or gasoline, that has been 
previously taxed (even if only at the Leaking Underground Storage Tank 
Trust Fund financing rate). Thus, for example, if a person produces, 
outside the bulk transfer/terminal system, a biodiesel mixture that is 
diesel fuel, that person is liable for tax on its removal or sale of 
the mixture. Further, tax generally is imposed on the delivery of fuel 
that has not been taxed into the fuel supply tank of a motor vehicle or 
diesel-powered train and on the delivery of alternative fuel (liquid 
fuel other than gas oil, fuel oil, or taxable fuel) into the fuel 
supply tank of a motorboat unless the delivery of the fuel or 
alternative fuel is for a nontaxable purpose.
    Liability for these excise taxes is reported on Form 720, 
``Quarterly Federal Excise Tax Return.'' Persons that are liable for 
excise taxes may also be required to make semi-monthly deposits. See 
Form 720 for more information on deposits.

Tax Incentives for Mixtures

    The excise tax credits for mixtures containing alcohol, biodiesel, 
renewable diesel, or alternative fuel must be claimed on Form 720, 
Schedule C. These credits are allowed to the extent of certain fuel tax 
liability. The credits are claimed by the person producing the mixture.
    The mixture producer may also claim payments (or refundable income 
tax credits) for incentives that exceed tax liability; that is, for the 
amount by which the maximum incentive allowable for the mixture exceeds 
the credit allowed on the Form 720. Notice 2005-62 contains guidance on 
the computation of payment limitations. Claims for payment are made 
either on Form 8849, ``Claim for Refund of Excise Taxes,'' or Schedule 
C, Form 720, ``Quarterly Federal Excise Tax Return.'' (Thus, claims on 
Form 720 may be for both an excise tax credit and a payment.) Claims 
for the refundable income tax credit are made on Form 4136, ``Credit 
for Federal Tax Paid on Fuel,'' which is attached to the claimant's 
income tax return.

Tax Incentives for Neat Fuels

    A nonrefundable general business tax credit may be claimed for 
alcohol, biodiesel, and renewable diesel fuels that are not in a 
mixture and are used as a fuel. This is the only credit or payment 
allowed with respect to the use of these neat fuels as a fuel. Claims 
for the credit are made by the person using the renewable fuel in a 
trade or business or by the person that sold the fuel at retail and 
delivered it into a vehicle. The small ethanol producer credit and the 
small agri-biodiesel producer credit are also nonrefundable general 
business credits. Claims for nonrefundable general business credits are 
made on Form 6478, ``Credit for Alcohol Used as Fuel,'' and Form 8864, 
``Biodiesel and Renewable Diesel Fuels Credit,'' attached to the 
claimant's income tax return.
    An excise tax credit may be claimed for alternative fuel that is 
not in a mixture and is used as a fuel. The excise tax credit is 
claimed on Form 720, Schedule C. The credit is allowed to the extent of 
certain fuel excise tax liability. The credit is claimed by the 
alternative fueler (unmixed fuel). If the incentive for unmixed 
alternative fuel exceeds the applicable excise tax liability the excess 
may be claimed as a payment on Form 8849 or as a refundable income tax 
credit on Form 4136.

Explanation of Provisions

    The proposed regulations add provisions relating to registration 
requirements and excise tax credits or payments for alcohol, biodiesel, 
renewable diesel and alternative fuel

[[Page 43892]]

mixtures and for alternative fuel and diesel-water fuel emulsions. The 
regulations provide definitions and prescribe rules for claiming a 
credit or payment. Specifically, the regulations prescribe the 
conditions to allowance of a credit or payment, the content of claims 
for credit or payment, and the form of applicable certificates. The 
proposed regulations also remove obsolete regulations relating to 
gasohol and other alcohol fuels.
    The proposed regulations generally adopt the rules of Notices 2005-
4, 2005-62, 2005-80, 2006-92, 2007-37, and 2007-97. Differences between 
the notices and the proposed regulations are described in this 
preamble.

Biodiesel Mixtures and Liability for Tax

    Notice 2005-62 provides that biodiesel mixture means a mixture of 
biodiesel and diesel fuel that contains at least 0.1 percent (by 
volume) of diesel fuel. That rule is unchanged by these proposed 
regulations.
    Under existing regulations, diesel fuel does not include ``excluded 
liquid''; biodiesel mixtures with a high concentration of biodiesel 
typically are classified as an excluded liquid. The definition of 
``excluded liquid'' predates the biodiesel incentives and was intended 
to ensure that the diesel fuel tax was not imposed on certain liquids 
typically not used as fuel. The proposed regulations revise the 
definition of ``excluded liquid'' so that all biodiesel mixtures, which 
are generally used as a substitute for diesel fuel, will be classified 
as diesel fuel for tax purposes. As a result, under the proposed 
regulations, tax is imposed on a biodiesel mixture when it is removed 
from the bulk transfer/terminal system. If a biodiesel mixture is 
produced outside the bulk transfer/terminal system, tax is imposed on 
the sale or removal of the mixture by the mixture producer. The mixture 
producer is liable for the tax and must be registered as a blender of 
taxable fuel. The tax incentive for the biodiesel mixture generally 
must be taken as a credit against the producer's fuel tax liability and 
any excess over the fuel tax liability is allowable as either a payment 
or an income tax credit.
    Also, the de minimis exception to the definition of ``blended 
taxable fuel'' is removed. Under this exception, a mixture is not 
blended fuel if the person creating the mixture adds less than 400 
gallons of untaxed liquid to previously taxed fuel during the quarter 
and the operator of the vehicle using the mixture is liable for the tax 
on the untaxed liquid. Thus, in cases in which the untaxed liquid is 
alcohol, biodiesel, or alternative fuel, the exception prevents the 
credit for which the mixture producer is eligible from being used to 
offset the tax. With the removal of this exception, the same person 
(the producer of the mixture) will be liable for the tax and eligible 
for the credit that can be used to offset the tax.

Biodiesel and EPA Registration Requirements

    The Code defines biodiesel as monoalkyl esters of long chain fatty 
acids derived from plant or animal matter that meet (1) the 
registration requirements of the Environmental Protection Agency (EPA) 
for fuel and fuel additives and, (2) ASTM D6751. Under the proposed 
regulations, a product meets the EPA registration requirements if the 
EPA does not require the product to be registered. Thus, for example, 
if a biodiesel mixture is to be sold only at a marina for use in boats, 
the biodiesel in the mixture meets the EPA registration requirement 
because EPA registration requirements do not apply to fuels or fuel 
additives sold for use in boats.

Biodiesel Certificates

    The Code provides that a claim relating to a biodiesel mixture is 
not allowed unless, among other conditions, the claimant obtains the 
prescribed certificate from the biodiesel producer. Under existing 
rules, as well as the proposed regulations, this certificate must be 
attached to the claim that is filed with the IRS. However, the proposed 
regulations do not require a separate certificate to accompany the 
claim filed by a mixture producer that is also the producer of the 
biodiesel in the mixture. Further, the proposed regulations require, as 
a condition to allowance of an excise tax credit or a payment, that the 
claimant obtain the certificate from a registered biodiesel producer. 
If the claim is for a nonrefundable general business credit, the 
certificate may be from the registered producer or importer.

Erroneous Biodiesel Certificates

    Under the Code, a claim relating to a biodiesel mixture is not 
allowed if the mixture does not actually contain biodiesel. Guidance 
was requested on whether a claim would be allowed if the claimant 
attached a certificate for biodiesel and the information on the 
certificate proved to be incorrect. The proposed regulations make clear 
that such a claim is not allowed even if the claim is based on a 
biodiesel certificate that the claimant accepted in good faith. In such 
a case, however, the proposed regulations generally provide that 
reliance on the certificate will be treated as reasonable cause for 
purposes of the penalties imposed by sections 6651 (relating to failure 
to pay) and 6675 (relating to excessive claims).

Alternative Fuel

    The Code allows a credit or payment for alternative fuel that is 
not in a mixture if the alternative fuel is sold for use or used as a 
fuel in a motor vehicle or motorboat. If the claim is based on a sale, 
the claimant must deliver the fuel into the fuel supply tank of the 
motor vehicle or motorboat or, in the case of a bulk sale, obtain the 
statement described in Sec.  48.4041-5(a)(2), Sec.  48.4041-21(b), or 
proposed Sec.  48.6426-6(c).

Registration of Alternative Fuelers

    A person must be registered by the IRS before claiming the 
alternative fuel or alternative fuel mixture credit or payment. Section 
34 allows a refundable income tax credit with respect to alternative 
fuel or an alternative fuel mixture. This credit is claimed on Form 
4136 filed with the claimant's Federal income tax return. Because 
partnerships do not file Federal income tax returns, the refundable 
income tax credit allowable with respect to a partnership's sale or use 
of alternative fuel is made by its partners. The partners may file Form 
4136 with their income tax returns to claim a credit based on the 
information provided them on the partnership's Schedule K-1.
    The proposed regulations provide that a partner in a partnership is 
treated as a registered alternative fueler for purposes of claims on 
Form 4136 if the partnership is registered for purposes of claims for 
an excise tax credit or payment. A partner that is treated as 
registered under this rule is to provide the partnership's registration 
number on Form 4136. These rules also apply for purposes of ultimate 
vendor claims by partners in partnerships that are ultimate vendors of 
diesel fuel or kerosene.

Small Ethanol Producer Credit

    Section 40(a)(3) provides an income tax credit for ethanol produced 
by eligible small ethanol producers. The amount of ethanol that is 
eligible for the credit during any taxable year cannot exceed 
15,000,000 gallons for any producer. A small ethanol producer generally 
means a person whose productive capacity for all alcohol, including 
alcohol for which a credit is not allowable under section 40, does not 
exceed 60,000,000 gallons at any time during the taxable year. Section 
40(g)(5) authorizes the Secretary to prescribe

[[Page 43893]]

regulations to prevent the credit from benefiting a person that 
directly or indirectly has a productive capacity for alcohol in excess 
of 60,000,000 gallons and to prevent any person from directly or 
indirectly benefiting with respect to more than 15,000,000 gallons 
during the taxable year. Section 40A provides similar rules with 
respect to the small agri-biodiesel producer credit.
    The proposed regulations provide that producer means the person 
that has title to the ethanol immediately after the ethanol is created. 
Also, the producer must use a feedstock other than ethanol to produce 
the ethanol. The proposed regulations do not allow the credit for 
ethanol produced at the facilities of a contract manufacturer if the 
contract manufacturer has a direct or indirect productive capacity of 
more than 60,000,000 gallons of alcohol during the taxable year. 
Similarly, if the manufacturer does not have a productive capacity of 
more than 60,000,000 gallons but more than 15,000,000 gallons of 
ethanol is produced at the manufacturer's facilities during the taxable 
year, the proposed regulations allow the credit with respect to only 
the first 15,000,000 gallons of ethanol produced at the facilities 
during the taxable year. These rules apply to small agri-biodiesel 
producers also.

Gasoline and Gasoline Blends

    The Code defines gasoline as including gasoline blends. The 
proposed regulations generally define a gasoline blend as any liquid 
that contains at least 0.1 percent (by volume) of finished gasoline and 
that is suitable for use as a fuel in a motor vehicle or motorboat. 
Thus, for example, E-85 (a mixture of 85 percent ethanol made from corn 
or other agricultural products and 15 percent gasoline) is treated as a 
gasoline blend. Tax is imposed on the gasoline blend when it is removed 
from the bulk transfer/terminal system or, if it is blended taxable 
fuel, when it is sold or removed by the blender. The proposed 
regulations also classify leaded gasoline as gasoline. Thus, for 
example, gasoline products that are sold as ``racing gasoline'' 
generally are treated as gasoline even though their lead content make 
them unsuitable for highway use.

Excise Tax Returns

    The privilege to file consolidated returns under section 1501 
applies only to income tax returns and not to excise tax returns. The 
proposed regulations note this rule and also reflect the rules of Sec.  
301.7701-2(c)(2)(v), which was added by TD 9356 (72 FR 45891, August 
16, 2007), relating to the excise tax treatment of certain business 
entities that are treated as separate from their owner for income tax 
purposes.

Proposed Effective/Applicability Date

    The amendments to the regulations generally are proposed to be 
effective on the date they are published as final regulations in the 
Federal Register.

Future Regulations Projects

    Future proposed regulations will address other fuel-related 
provisions in the American Jobs Creation Act, the Energy Policy Act, 
and SAFETEA. These include provisions related to kerosene used in 
aviation, the Leaking Underground Storage Tank Trust Fund tax, the tax 
on alternative fuel, and two-party exchanges.

Availability of IRS Documents

    IRS notices cited in this preamble are published in the Internal 
Revenue Bulletin or Cumulative Bulletin and are available at IRS.gov.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
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) does not apply to these proposed regulations. It 
is hereby certified that this regulation will not have a significant 
economic impact on a substantial number of small entities. This 
certification is based on IRS estimates that less than 700 small 
entities will be required to provide certificates each year, such 
certificates will be provided only on occasion, and the average annual 
burden per respondent will be 22 hours. The economic impact of the 
collection of information is limited to completing a certificate in the 
form prescribed by the regulations. The certificate can be completed by 
filling in a small number of fields with information that is readily 
available to the taxpayer, and completion of a certificate should 
generally take less than 15 minutes. Accordingly, the time and 
resources required to prepare and provide these certificates is minimal 
and will not have a significant effect on those entities providing 
them. Therefore, an analysis under the Regulatory Flexibility Act (5 
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the 
Internal Revenue Code, this notice of proposed rulemaking has been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and the Treasury Department request comments on the 
clarity of the proposed regulations and how they may be made easier to 
understand. All comments will be available for public inspection and 
copying. A public hearing will be scheduled if requested in writing by 
any person that timely submits written comments. If a public hearing is 
scheduled, notice of the date, time, and place for the hearing will be 
published in the Federal Register.

Drafting Information

    The principal authors of these regulations are Taylor Cortright and 
Frank Boland, Office of Associate Chief Counsel (Passthroughs and 
Special Industries). However, other personnel from the IRS and the 
Treasury Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Parts 40 and 48

    Excise taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1, 40, and 48 are proposed to be amended 
as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.40-2 also issued under 26 U.S.C. 40(g)(5); Section 
1.40A-1 also issued under 26 U.S.C. 40A(e)(5); * * *

    Par. 2. Section 1.40-1 is revised to read as follows:


Sec.  1.40-1  Alcohol used as a fuel.

    For the definition of ``alcohol'' for purposes of the credits 
allowed by section 40, see Sec.  48.6426-1(c) of this chapter.
    Par. 3. Sections 1.40-2 and 1.40A-1 are added to read as follows:

[[Page 43894]]

Sec.  1.40-2  Small ethanol producer credit.

    (a) In general. Section 40 provides a small ethanol producer credit 
for each gallon of qualified ethanol production of an eligible small 
ethanol producer. Section 40(b)(4)(B) defines ``qualified ethanol 
production''. Section 40(g)(1) defines ``eligible small ethanol 
producer''. Section 40(g)(5) provides authority to prescribe such 
regulations as may be necessary to prevent the credit from directly or 
indirectly benefiting any person with a direct or indirect productive 
capacity of more than 60 million gallons of alcohol during the taxable 
year. A person has produced ethanol if the person has title to the 
ethanol immediately after it is created.
    (b) Qualified ethanol production. Section 40(b)(4)(B) limits 
qualified ethanol production to ethanol that is produced by an eligible 
small ethanol producer. Ethanol is ``produced'' for this purpose only 
when a feedstock other than ethanol is transformed into ethanol.
    (c) Denial of credit for ethanol produced at certain facilities. 
The person at whose facilities ethanol is produced is treated for 
purposes of section 40(g)(5) as an indirect beneficiary of any credit 
allowed with respect to the ethanol. Accordingly, the small ethanol 
producer credit is not allowed with respect to ethanol that is produced 
at the facilities of a contract manufacturer or other person if such 
contract manufacturer or other person has a direct or indirect 
productive capacity of more than 60 million gallons of alcohol during 
the taxable year. Similarly, if the manufacturer does not have a 
productive capacity of more than 60 million gallons but more than 15 
million gallons of ethanol is produced at the manufacturer's facilities 
during the taxable year, the small ethanol producer credit is allowed 
with respect to only the first 15 million gallons of ethanol produced 
at the facilities during the taxable year.
    (d) Examples. The following examples illustrate the application of 
this section:

    Example 1. X purchases hydrous ethanol and processes it into 
anhydrous ethanol. X is not the producer of the ethanol because X 
does not transform a feedstock other than ethanol into ethanol.
    Example 2. Y arranges with contract manufacturer Z to produce 10 
million gallons of ethanol. Y is not related to Z. Y provides the 
raw materials and retains title to them and to the finished ethanol. 
Z has the capacity to produce 100 million gallons of alcohol per 
year. The small producer credit is not allowed with respect to the 
10 million gallons of ethanol because it is produced at the 
facilities of a contract manufacturer that has a productive capacity 
of more than 60 million gallons of alcohol during the taxable year.

    (e) Effective/applicability date. This section is applicable on and 
after the date of publication of these regulations in the Federal 
Register as final regulations.


Sec.  1. 40A-1  Biodiesel.

    (a) In general. Rules similar to the rules of Sec.  1.40-2 apply 
for purposes of the small agri-biodiesel producer credit allowed by 
section 40A.
    (b) Definitions. For the definitions of ``biodiesel'' and 
``renewable diesel'' for purposes of the credits allowed by section 
40A, see Sec.  48.6426-1(b) of this chapter.
    (c) Effective/applicability date. This section is applicable on and 
after the date of publication of these regulations in the Federal 
Register as final regulations.

PART 40--EXCISE TAX PROCEDURAL REGULATIONS

    Par. 4. The authority citation for part 40 is amended by removing 
the entry for section 40.6071(a)-3 to read in part as follows:

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

    Par. 5. Section 40.0-1 is amended by revising paragraph (d) and 
adding paragraph (e) to read as follows:


Sec.  40.0-1  Introduction.

* * * * *
    (d) Person. For purposes of this part, each business unit that has, 
or is required to have, a separate employer identification number is 
treated as a separate person. Thus, business units (for example, a 
parent corporation and a subsidiary corporation, a proprietorship and a 
related partnership, or the various members of a consolidated group), 
each of which has a different employer identification number, are 
separate persons.
    (e) Effective/applicability date. This part is effective for 
returns and deposits that relate to calendar quarters beginning after 
September 30, 2008. For rules applicable to returns and deposits that 
relate to prior periods, see 26 CFR part 40 (revised as of April 1, 
2008).


Sec.  40.6302(c)-1  [Amended]

    Par. 6. Section 40.6302(c)-1 is amended as follows:
    1. Paragraph (e)(1)(ii) is amended by removing the language 
``components);'' and adding ``components); and'' in its place.
    2. Paragraph (e)(1)(iii) is amended by removing the language 
``chemicals); and'' and adding ``chemicals).'' in its place.
    3. Paragraph (e)(1)(iv) is removed.

PART 48--MANUFACTURERS AND RETAILERS EXCISE TAXES

    Par. 7. The authority citation for part 48 is amended by removing 
the entries for Sec. Sec.  48.4081-6, 48.6427-8, 48.6427-9, 48.6427-10, 
and 48.6427-11 and adding entries in numerical order to read in part as 
follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 48.6426-3 also issued under 26 U.S.C. 6426(c). Section 
48.6426-4 also issued under 26 U.S.C. 6426(c). Section 48.6427-8 
also issued under 26 U.S.C. 6427(n). Section 48.6427-9 also issued 
under 26 U.S.C. 6427(n). Section 48.6427-10 also issued under 26 
U.S.C. 6427(n). Section 48.6427-11 also issued under 26 U.S.C. 
6427(n). Section 48.6427-12 also issued under 26 U.S.C. 6427(n).


Sec.  48.0-1  [Amended]

    Par. 8. Section 48.0-1 is amended as follows:
    1. In the second sentence, ``and related credits, refunds, and 
payments'' is added after ``Code''.
    2. In the third sentence, ``certain luxury items,'' is removed.
    3. In the fourth sentence, ``aviation fuel,'' is removed.
    Par. 9. Section 48.0-4 is added to read as follows:


Sec.  48.0-4  Forms.

    Any reference to a form in this part is also a reference to any 
other form designated for the same use by the Commissioner after the 
date these regulations are published in the Federal Register as final 
regulations. All such forms must be completed in accordance with the 
instructions for the forms and contain any additional information 
required by this part.


Sec.  48.4041-0  [Amended]

    Par. 10. Section 48.4041-0 is amended as follows:
    1. In the first sentence, the language ``sales or uses of diesel 
fuel'' is removed and ``any liquid (other than biodiesel) that is sold 
for use or used as a fuel in a diesel-powered highway vehicle or 
diesel-powered train'' is added in its place.
    2. In the second sentence, the language ``diesel fuel tax'' is 
removed and ``tax with respect to these liquids'' is added in its 
place.


Sec.  48.4041-18  [Removed and Reserved]

    Par. 11. Section 48.4041-18 is removed and reserved.
    Par. 12. Section 48.4041-19 is revised to read as follows:

[[Page 43895]]

Sec.  48.4041-19  Reduction in tax for qualified methanol or ethanol 
fuel and partially exempt methanol or ethanol fuel.

    (a) In general. Section 4041(b)(2) provides a reduced rate of tax 
under sections 4041(a)(2) and (d) for qualified methanol or ethanol 
fuel. Section 4041(m) provides a reduced rate of tax under section 
4041(a)(2) for partially exempt methanol or ethanol fuel.
    (b) Qualified methanol or ethanol fuel and partially exempt 
methanol or ethanol fuel defined. For purposes of section 4041(b)(2) 
and this section, qualified methanol or ethanol fuel is liquid motor 
fuel, at least 85 percent of which (by volume) consists of alcohol 
produced from coal (including peat). For purposes of section 4041(m) 
and this section, partially exempt methanol or ethanol fuel is a liquid 
motor fuel, at least 85 percent of which (by volume) consists of 
alcohol produced from natural gas (including ethanol produced through 
the process of thermally cracking ethane that is a constituent of 
natural gas). The actual gallonage of each component of the mixture 
(without adjustment for temperature) shall be used in determining 
whether, at the time of the taxable sale or use, the applicable 85 
percent alcohol requirement has been met. A mixture containing less 
than 85 percent alcohol produced from coal (or less than 85 percent 
alcohol produced from natural gas) may be treated as satisfying the 
applicable percentage requirement. In determining whether a particular 
mixture should be so treated, the Commissioner shall take into account 
the existence of any facts and circumstances establishing that, but for 
the commercial and operational realities of the blending process, it 
may reasonably be concluded that the mixture would have contained at 
least 85 percent alcohol from the appropriate source. The necessary 
facts and circumstances will not be found to exist if over a period of 
time the mixtures blended by a blender show a consistent pattern of 
failing to contain at least 85 percent alcohol from the appropriate 
source.
    (c) Effective/applicablity date. This section is applicable on and 
after the date of publication of these regulations in the Federal 
Register as final regulations. For provisions applicable to prior 
periods, see 26 CFR 48.4041-19 (revised as of April 1, 2008).


Sec.  48.4041-20  [Removed and Reserved]

    Par. 13. Section 48.4041-20 is removed and reserved.
    Par. 14. Section 48.4081-1 is amended as follows:
    1. Paragraph (b) is amended by:
    a. Revising the definition of Blender.
    b. Adding the definition of Diesel-water fuel emulsion in 
alphabetical order.
    c. Adding the language ``(other than a mixture as defined in Sec.  
48.6426-1(b))'' after ``any liquid'' in the introductory text of the 
definition of Excluded liquid.
    d. Revising the definition of Finished gasoline.
    e. Revising the definition of Gasoline.
    f. Adding the definition of Gasoline blend in alphabetical order.
    g. Revising the definition of Refinery.
    h. Removing the language ``effective January 2, 1998,'' from the 
last sentence in the definition of Terminal.
    2. Paragraph (c) is amended by:
    a. In paragraph (c)(1)(i), removing the language ``paragraphs 
(c)(1)(ii) and (c)(1)(iii)'' in the introductory text and adding 
``paragraph (c)(1)(ii)'' in its place.
    b. In paragraph (c)(1)(ii), removing the language ``A mixture'' and 
adding ``In calendar quarters beginning before the date of publication 
of these regulations in the Federal Register as final regulations, a 
mixture'' in its place.
    c. Removing paragraph (c)(1)(iii).
    d. In paragraph (c)(2)(i), first sentence, adding the language 
``any of the following: a mixture (as defined in Sec.  48.6426-1(b)) 
that contains diesel fuel; renewable diesel as defined in section 
40A(f)(3); transmix (as defined in section 4083(a)(3)(B)); and'' after 
``diesel fuel means''.
    e. In paragraph (c)(2)(ii), first sentence, adding the language 
``biodiesel, alternative fuel (as defined in section 6426(d)(2)), 
qualified methanol or ethanol fuel (as defined in section 
4041(b)(2)(B)), partially exempt methanol or ethanol fuel (as defined 
in section 4041(m)(2)),'' after ``kerosene,''.
    f. In paragraph (c)(3)(i)(V) removing the language ``gasoline;'' 
and adding ``gasoline; and'' in its place.
    g. In paragraph (c)(3)(i)(W), removing the language ``Toluene; 
and'' and adding ``Toluene.'' in its place.
    h. Removing paragraph (c)(3)(i)(X).
    3. Paragraph (e) is amended by removing the language ``48.4081-
6(b),'' and by adding the language ``48.6426-1(b)'' after ``48.4101-
1(b),''.
    4. Revising paragraph (f).
    The revisions and additions read as follows:


Sec.  48.4081-1  Taxable fuel; definitions

* * * * *
    (b) * * *
    Blender means the person that has title to blended taxable fuel 
immediately after it is created.
* * * * *
    Diesel-water fuel emulsion means diesel fuel at least 14 percent of 
which is water and with respect to which the emulsion additive is 
registered by a United States manufacturer with the Environmental 
Protection Agency pursuant to section 211 of the Clear Air Act (as in 
effect on March 31, 2003).
* * * * *
    Finished gasoline means all products that are commonly or 
commercially known or sold as gasoline and are suitable for use as a 
motor fuel, other than--
    (1) Products that have an ASTM octane number of less than 75 as 
determined by the motor method; and
    (2) Alternative fuel as defined in section 6426(d)(2).
    Gasoline means aviation gasoline, finished gasoline, gasoline 
blends, gasoline blendstocks, and leaded gasoline.
    Gasoline blend includes any liquid (other than finished gasoline) 
that contains at least 0.1 percent (by volume) of finished gasoline and 
that is suitable for use as a fuel in a motor vehicle or motorboat. 
However, the term does not include qualified methanol or ethanol fuel 
(as defined in section 4041(b)(2)(B)), partially exempt methanol or 
ethanol fuel (as defined in section 4041(m)(2)), or alcohol that is 
denatured under a formula approved by the Secretary.
* * * * *
    Refinery means a facility used to produce taxable fuel and from 
which taxable fuel may be removed by pipeline, by vessel, or at a rack. 
However, the term does not include a facility where only blended 
taxable fuel, and no other type of taxable fuel, is produced.
* * * * *
    (f) Effective/applicability date. This section is applicable on and 
after the date of publication of these regulations in the Federal 
Register as final regulations. For provisions applicable to prior 
periods, see 26 CFR 48.4081-1 (revised as of April 1, 2008).


Sec.  48.4081-2  [Amended]

    Par. 15. Section 48.4081-2 is amended by removing the last sentence 
of paragraph (d).


Sec.  48.4081-3  [Amended]

    Par. 16. Section 48.4081-3 is amended as follows:
    1. Paragraph (b)(1)(iii) is removed.
    2. Removing the last sentence in paragraphs (g)(1) and (h).


Sec.  48.4081-6  [Removed and Reserved]

    Par. 17. Section 48.4081-6 is removed and reserved.

[[Page 43896]]

Sec.  48.4082-4  [Amended]

    Par. 18. Section 48.4082-4, is amended by adding the language ``or 
biodiesel'' after ``taxable fuel'' in paragraphs (a)(1)(iii) and 
(b)(1)(iii).
    Par. 19. Section 48.4101-1 is amended as follows:
    1. Paragraph (a)(1) is amended by removing the language ``4081 
and'' and adding ``4081, for certain producers and importers of 
alcohol, biodiesel, and renewable diesel, and alternative fuelers under 
sections 6426 and 6427, and for purposes of'' in its place.
    2. Revising paragraphs (a)(2), (c)(1)(vi), (c)(1)(vii), and adding 
paragraph (c)(1)(viii).
    3. Paragraphs (a)(3) and (b)(3) are removed and reserved.
    4. Paragraph (b)(9) is amended by removing the language ``48.4081-
6(b), 48.4082-5(b), 48.4082-6(b), 48.4082-7(b)'' and adding ``48.4082-
5(b), 48.4082-7(b), 48.6426-1(b),'' in its place.
    5. Revising paragraph (d)(2) and adding paragraph (d)(7).
    6. Paragraph (d)(5) is amended by, removing the language ``vendor; 
or'' and adding ``vendor;'' in its place.
    7. Paragraph (d)(6) is amended by removing the language ``pump).'' 
and adding ``pump); or'' in its place.
    8. Paragraph (f)(1)(i) is amended by removing from the heading the 
language ``and vessel operators.'' and adding ``vessel operators, 
alternative fuelers, producers or importers of alcohol, biodiesel, or 
renewable diesel, and diesel-water fuel emulsion producers.'' in its 
place.
    9. Paragraph (f)(1)(ii) is amended by removing the language in the 
heading ``and vessel operators'' and adding ``vessel operators, 
alternative fuelers, producers or importers of alcohol, biodiesel, or 
renewable diesel, and diesel-water fuel emulsion producers'' in its 
place.
    10. Paragraph (f)(1)(ii) is amended by removing the language in the 
introductory text ``or vessel operator'' and adding ``vessel operator, 
alternative fueler, producer or importer of alcohol, biodiesel, or 
renewable diesel, or diesel-water fuel emulsion producer'' in its 
place.
    11. Paragraph (f)(1)(ii)(B) is amended by adding the language 
``reporting,'' after ``payment,''.
    12. Paragraph (f)(4)(ii)(A) is amended by removing the language in 
the introductory text ``district director'' and adding ``Commissioner'' 
in its place.
    13. Paragraph (f)(4)(ii)(A)(1) is amended by removing the language 
``district director);'' and adding ``Commissioner); and'' in its place.
    14. Paragraph (f)(4)(ii)(A)(2) is amended by removing the language 
``district director); and'' and adding ``Commissioner.'' in its place.
    15. Removing paragraph (f)(4)(i)(A)(3).
    16. Paragraph (f)(4)(iii) is amended by removing the language 
``deposit, and payment'' and adding ``deposit, payment, reporting, and 
claim'' in its place.
    17. Revising paragraph (h)(2)(iii).
    18. Paragraph (j)(2) is amended by removing the language in the 
introductory text ``district director'' and adding ``Commissioner'' in 
its place.
    19. Paragraph (j)(2)(i), is amended by removing the language 
``district director);'' and adding ``Commissioner); and'' in its place.
    20. Paragraph (j)(2)(ii) is amended by removing the language 
``district director); and'' and adding ``Commissioner).'' in its place.
    21. Removing paragraph (j)(2)(iii).
    22. Paragraph (k) is amended by adding a new sentence between the 
existing second and third sentences.
    23. Paragraph (l)(5) is added.
    The revisions and additions read as follows:


Sec.  48.4101-1  Taxable fuel; registration.

    (a) * * *
    (2) A person is registered under section 4101 only if the 
Commissioner has issued a registration letter to the person and the 
registration has not been revoked or suspended or the person is treated 
under this paragraph (a)(2) as registered under section 4101. The 
following persons are treated as registered under section 4101:
    (i) The United States is treated as registered under section 4101 
for all purposes.
    (ii) A partner in a partnership is treated as registered under 
section 4101 for purposes of claims filed under section 34 if the 
partnership is registered under section 4101 for purposes of filing 
claims under section 6426 or 6427.
    (iii) A taxable fuel registrant is treated as registered under 
section 4101 as a diesel-water fuel emulsion producer.
    (iv) A foreign person is treated as registered under section 4101 
as a producer of alcohol, biodiesel, or renewable diesel if--
    (A) The person produces alcohol, biodiesel, or renewable diesel 
outside the United States and does not produce alcohol, biodiesel, or 
renewable diesel within the United States; and
    (B) The alcohol, biodiesel, or renewable diesel is imported into 
the United States by a person registered under section 4101 as a 
producer or importer of alcohol, biodiesel, or renewable diesel.
* * * * *
    (c) * * *
    (1) * * *
    (vi) A terminal operator;
    (vii) A vessel operator; or
    (viii) A producer or importer of alcohol, biodiesel, or renewable 
diesel.
* * * * *
    (d) * * *
    (2) An alternative fueler;
* * * * *
    (7) A diesel-water fuel emulsion producer.
* * * * *
    (h) * * *
    (2) * * *
    (iii) Make any false statement on, or violate the terms of, any 
certificate given to another person to support--
    (A) Any claim for credit, refund, or payment; or
    (B) An exemption from, or reduced rate of, tax imposed by section 
4081; or
* * * * *
    (k) * * * For rules relating to claims with respect to alcohol, 
biodiesel, renewable diesel and alternative fuel, see Sec. Sec.  
48.6426-1 through 48.6426-7. * * *
    (l) * * *
    (5) References in this section to biodiesel and alcohol are 
applicable after December 31, 2004. References in this section to 
renewable diesel and diesel-water fuel emulsion are applicable after 
December 31, 2005. References in this section to alternative fuel are 
applicable after September 30, 2006.
    Par. 20. Sections 48.6426-1 through 48.6426-7 are added to read as 
follows:


Sec.  48.6426-1  Renewable and alternative fuels; explanation of terms.

    (a) Overview. This section provides an explanation of terms for 
purposes of the credits allowed by sections 34 and 6426 and the 
payments allowed by section 6427(e). The definition of alcohol in 
paragraph (c) of this section is also applicable for purposes of the 
credits allowed by section 40. The definitions of biodiesel and 
renewable diesel in paragraph (b) of this section are also applicable 
for purposes of the credits allowed by section 40A.
    (b) Explanation of terms.
    Agri-biodiesel means biodiesel derived solely from virgin oils. 
Virgin oils include virgin vegetable oils from the sources listed in 
section 40A(d)(2), as well as virgin oils not listed, such as palm oil 
and fish oil. Biodiesel produced from a feedstock that includes any 
recycled oils (such as recycled cooking oils) is not agri-biodiesel

[[Page 43897]]

because it is not derived solely from virgin oils.
    Alcohol is defined in paragraph (c) of this section.
    Alcohol fuel mixture means a mixture of alcohol and taxable fuel 
that contains at least 0.1 percent (by volume) of taxable fuel.
    Alternative fuel means, except as otherwise provided in the 
following sentence, liquefied petroleum gas, P Series Fuels (as defined 
by the Secretary of Energy under 42 U.S.C. 13211(2)), compressed or 
liquefied natural gas, liquefied hydrogen, any liquid fuel derived from 
coal (including peat) through the Fischer-Tropsch process, and liquid 
fuel derived from biomass (as defined in section 45K(c)(3)). The term 
does not include ethanol, methanol, biodiesel, or renewable diesel.
    Alternative fuel mixture means a mixture of alternative fuel and 
taxable fuel that contains at least 0.1 percent (by volume) of taxable 
fuel.
    Alternative fueler means a person that--
    (1) Is an alternative fueler (unmixed fuel); or
    (2) Produces alternative fuel mixtures for sale or use in its trade 
or business.
    Alternative fueler (unmixed fuel) with respect to any alternative 
fuel that is sold for use or used as a fuel in a motor vehicle or 
motorboat is--
    (1) In the case of alternative fuel on which tax is imposed by 
section 4041(a)(2) or (3), the person liable for such tax (determined 
in the case of compressed natural gas after the application of Sec.  
48.4041-21 and in the case of any other alternative fuel after the 
application of rules similar to the rules of Sec. Sec.  48.4041-3 and 
48.4041-5);
    (2) In the case of alternative fuel that is not described in 
paragraph (1) or (3) of this definition, the person that would be so 
liable for such tax but for the application of an exemption provided by 
section 4041(a)(3)(B), (b), (f), (g), or (h); and
    (3) In the case of liquefied natural gas (LNG) that is sold in bulk 
for the exclusive use of a State that provides the written waiver 
described in Sec.  48.6426-6(c)(4) and is delivered into a bulk supply 
tank that can only fuel motor vehicles and motorboats of the State, the 
person that sells the alternative fuel to the State.
    Biodiesel means biodiesel as defined in section 40A(d)(1). 
Biodiesel may be produced either within or outside the United States. 
Fuel meets the Environmental Protection Agency (EPA) registration 
requirements described in section 40A(d)(1)(A) if the EPA does not 
require the fuel to be registered.
    Biodiesel mixture means a mixture of biodiesel and diesel fuel that 
contains at least at least 0.1 percent (by volume) of diesel fuel. The 
kerosene in a biodiesel mixture is not included in either the overall 
volume of the mixture or the volume of diesel fuel in the mixture for 
purposes of determining whether the biodiesel mixture satisfies the 0.1 
percent requirement. The diesel fuel in a biodiesel mixture may be dyed 
or undyed. See, however, section 6715 for the penalty for willful 
alteration of the strength or composition of any dye in dyed fuel and 
Sec.  48.6715-1 for related rules.
    Commingled biodiesel means biodiesel that is held by--
    (1) Its producer in a storage tank at a time when the tank is used 
only for the storage of biodiesel and is used to store both biodiesel 
(other than agri-biodiesel) and agri-biodiesel; or
    (2) A person other than its producer in a storage tank at a time 
when the tank is used only for the storage of biodiesel and is used to 
store biodiesel to which more than a single Certificate for Biodiesel 
applies.
    Commingled renewable diesel means renewable diesel held by a person 
other than its producer in a storage tank at a time when the tank is 
used only for the storage of renewable diesel and is used to store 
renewable diesel to which more than a single Certificate for Renewable 
Diesel applies.
    Mixture means an alcohol fuel mixture, a biodiesel mixture, a 
renewable diesel mixture, or an alternative fuel mixture.
    Mixture producer is the person that has title to the mixture 
immediately after it is created.
    Motor vehicle has the meaning given to the term by Sec.  48.4041-
8(c). Thus, for example, the term includes forklift trucks used to 
carry loads at industrial plants and warehouses.
    Producer means the person that produces alcohol, biodiesel, or 
renewable diesel.
    Registered biodiesel producer means a biodiesel producer that is 
registered under section 4101 as a producer of biodiesel.
    Registered renewable diesel producer means a renewable diesel 
producer that is registered under section 4101 as a producer of 
renewable diesel.
    Renewable diesel means renewable diesel as defined in section 
40A(f)(3). For this purpose, a fuel meets the Environmental Protection 
Agency's (EPA's) registration requirements described in section 
40A(f)(3)(A) if the EPA does not require the fuel to be registered or 
if diesel fuel coproduced from renewable diesel and petroleum 
feedstocks is registered. Renewable diesel may be produced either 
within or outside the United States.
    Renewable diesel mixture is defined in paragraph (d) of this 
section.
    Reseller means, with respect to any biodiesel or renewable diesel, 
a person that buys and subsequently sells such fuel without using the 
fuel to produce a biodiesel or renewable diesel mixture.
    Thermal depolymerization process means, for purposes of the 
definition of renewable diesel in section 40A(f)(3), a process for the 
reduction of complex organic materials through the use of pressure and 
heat to decompose long chain polymers of hydrogen, oxygen, and carbon 
into short-chain petroleum hydrocarbons with a maximum length of around 
18 carbons. A process may qualify as thermal depolymerization even if 
catalysts are used in the process.
    Use as a fuel is defined in paragraph (e) of this section.
    (c) Alcohol; definition--(1) In general. Except as otherwise 
provided in this paragraph (c), alcohol means any alcohol, including 
methanol and ethanol, that is not a derivative product of petroleum, 
natural gas, or coal (including peat). Thus, for example, the term does 
not include an ethanol by-product produced from a derivative of 
petroleum or natural gas. However, the term does include alcohol made 
from renewable resources, such as agricultural or forestry products. 
The term also includes alcohol made from urban wastes, such as methanol 
made from methane gas formed at waste disposal sites.
    (2) Source of the alcohol. Alcohol may be produced either within or 
outside the United States.
    (3) Proof and denaturants. Except for purposes of section 40, 
alcohol does not include alcohol with a proof of less than 190 degrees 
(determined without regard to added denaturants). For purposes of 
section 40, alcohol does not include alcohol with a proof of less than 
150 degrees (determined without regard to added denaturants). If 
alcohol includes impurities or denaturants, the volume of alcohol is 
determined under the following rules:
    (i) Except for purposes of section 40, the volume of alcohol 
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 
alcohol to not less than 190 proof (determined without regard to added 
denaturants and any fuel with which the alcohol is mixed).
    (ii) For purposes of section 40, the volume of alcohol includes the 
volume of any impurities (other than added denaturants and any fuel 
with which

[[Page 43898]]

the alcohol is mixed) that reduce the purity of the alcohol to not less 
than 150 proof (determined without regard to added denaturants and any 
fuel with which the alcohol is mixed).
    (iii) The volume of alcohol includes the volume of any approved 
denaturants that reduce the purity of the alcohol, but only to the 
extent that the volume of the approved denaturants does not exceed five 
percent of the unadjusted volume of the alcohol. The unadjusted volume 
of the alcohol is determined for this purpose by including in 
unadjusted volume the approved denaturants and the impurities included 
in volume under paragraph (c)(3)(i) or (ii) of this section. If the 
volume of the approved denaturants exceeds five percent of the 
unadjusted volume of the alcohol, the excess over five percent is not 
considered alcohol.
    (iv) For purposes of this paragraph (c)(3), approved denaturants 
are any denaturants (including gasoline and other nonalcohol fuel 
denaturants) that reduce the purity of the alcohol and are added to 
such alcohol under a formula approved by the Secretary.
    (4) ETBE. Ethyl tertiary butyl ether (ETBE) and other ethers 
produced from alcohol are treated as alcohol. The ether is treated as 
alcohol of the same type as the alcohol used to produce the ether and 
the volume of alcohol resulting from such treatment is the volume of 
alcohol of such type with an energy content equal to the energy content 
of the ether.
    (d) Renewable diesel mixture; definition--(1) In general. Renewable 
diesel mixture means--
    (i) A mixture of renewable diesel and diesel fuel (other than 
renewable diesel) that contains at least 0.1 percent (by volume) of 
diesel fuel (other than renewable diesel); and
    (ii) Fuel produced from biomass (as defined in section 45K(c)(3)) 
and petroleum feedstocks using a thermal depolymerization process if 
such fuel has been registered by the Environmental Protection Agency 
(EPA) under section 211 of the Clean Air Act (42 U.S.C. 7545) and meets 
the requirements of ASTM D975 or D396.
    (2) Special rules. The kerosene in a renewable diesel mixture is 
not included in either the overall volume of the mixture or the volume 
of diesel fuel in the mixture for purposes of determining whether the 
renewable diesel mixture satisfies the 0.1 percent requirement. The 
diesel fuel in the renewable diesel mixture may be dyed or undyed. See, 
however, section 6715 for the penalty for willful alteration of the 
strength or composition of any dye in dyed fuel and Sec.  48.6715-1 for 
related rules. For availability for ASTM specifications, see Sec.  
48.4081-1(d).
    (e) Use as a fuel; definitions--(1) A mixture is used as a fuel 
when it is consumed in the production of energy. Thus, for example, a 
mixture is used as a fuel when it is consumed in an internal combustion 
engine to power a vehicle or in a furnace to produce heat. However, a 
mixture that is destroyed in a fire or other casualty loss is not used 
as a fuel.
    (2) A mixture is sold for use as a fuel if the producer sells the 
fuel and has reason to believe that the mixture will be used as a fuel 
by either the producer's buyer or any later buyer of the mixture.
    (3) Alternative fuel (not in a mixture) is sold for use or used as 
a fuel in a motor vehicle or motorboat when the alternative fueler 
(unmixed fuel) with respect to the fuel delivers it into the fuel 
supply tank of a motor vehicle or motorboat or sells it in bulk for use 
by the buyer as a fuel in a motor vehicle or motorboat.
    (f) Other definitions. For the definitions of taxable fuel and 
diesel fuel, see Sec.  48.4081-1.
    (g) Effective/applicability date. This section is applicable on and 
after the date these regulations are published as final regulations in 
the Federal Register.


Sec.  48.6426-2  Alcohol fuel mixtures.

    (a) Overview. This section provides rules under which an alcohol 
fuel mixture producer may claim an excise tax credit under section 
6426, a payment under section 6427, or an income tax credit under 
section 34. These claims relate to the mixture producer's sale or use 
of an alcohol fuel mixture and are based on the amount of alcohol used 
to produce the alcohol fuel mixture. For the applicable claim rate, see 
section 6426.
    (b) Conditions to allowance--(1) Excise tax credit. A claim for the 
alcohol fuel mixture credit with respect to an alcohol fuel mixture is 
allowed under section 6426 only if each of the following conditions is 
satisfied:
    (i) The claimant produced the alcohol fuel mixture for sale or use 
in the trade or business of the claimant.
    (ii) The claimant sold the alcohol fuel mixture for use as a fuel 
or used the alcohol fuel mixture as a fuel.
    (iii) The claimant has made no other claim with respect to the 
alcohol in the mixture or, if another claim has been made, such other 
claim is disregarded under this paragraph (b)(1)(iii). A claim is 
disregarded under this paragraph (b)(1)(iii) if it is--
    (A) A claim for the small ethanol producer credit under section 40; 
or
    (B) An erroneous claim under section 6427 and either the claim has 
been disallowed or the claimant has repaid the government the amount 
received under section 6427 with interest.
    (iv) The claimant has filed a timely claim on Form 720, ``Quarterly 
Federal Excise Tax Return,'' that contains all the information required 
in paragraph (c) of this section.
    (2) Payment or income tax credit. A claim for an alcohol fuel 
mixture payment under section 6427 or an income tax credit under 
section 34 is allowed only if--
    (i) The conditions of paragraphs (b)(1)(i) and (ii) of this section 
are met; and
    (ii) The claimant has filed a timely claim for payment on Form 720 
or Form 8849, ``Claim for Refund of Excise Taxes,'' or for a credit on 
Form 4136, ``Credit for Federal Tax Paid on Fuels,'' that contains all 
the information required by paragraph (c) of this section.
    (3) ETBE; sold for use or used as a fuel. An alcohol fuel mixture 
that is produced at a refinery and that includes ethyl tertiary butyl 
ether or other ethers produced from alcohol is treated as meeting the 
requirement of paragraph (b)(1)(ii) of this section when the mixture is 
removed from the refinery and any subsequent sale or use of the mixture 
is disregarded for purposes of this section.
    (4) Overall limitations on credits and payments. See Sec.  48.6426-
7(a) for overall limitations on credits and payments allowed with 
respect to mixtures under sections 34, 6426, and 6427.
    (c) Content of claim. Each claim for an alcohol fuel mixture credit 
or payment must contain the following information with respect to the 
mixture covered by the claim:
    (1) The amount of alcohol in the alcohol fuel mixture.
    (2) A statement that the conditions to allowance described in 
paragraph (b) of this section have been met.
    (3) A statement that the claimant either--
    (i) Produced the alcohol it used in the mixture; or
    (ii) Has in its possession a record of the name, address, and 
employer identification number of the person(s) that sold the alcohol 
to the claimant and the date of purchase.
    (d) Effective/applicability date. This section is applicable on and 
after the date these regulations are published as final regulations in 
the Federal Register.


Sec.  48.6426-3  Biodiesel mixtures.

    (a) Overview. This section provides rules under which a biodiesel 
mixture producer may claim an excise tax credit

[[Page 43899]]

under section 6426, a payment under section 6427, or an income tax 
credit under section 34. These claims relate to the mixture producer's 
sale or use of a biodiesel mixture and are based on the amount of 
biodiesel used to produce the biodiesel mixture. For the applicable 
claim rate, see section 6426.
    (b) Conditions to allowance--(1) Excise tax credit. A claim for the 
biodiesel mixture credit with respect to a biodiesel mixture is allowed 
under section 6426 only if each of the following conditions is 
satisfied:
    (i) The claimant produced the biodiesel mixture for sale or use in 
the trade or business of the claimant.
    (ii) The claimant sold the biodiesel mixture for use as a fuel or 
used the biodiesel mixture as a fuel.
    (iii) The claimant--
    (A) Produced the biodiesel in the mixture; or
    (B) Has obtained a certificate from the registered biodiesel 
producer as described in paragraph (e) of this section and, if 
applicable, a statement described in paragraph (f) of this section, for 
such biodiesel and has no reason to believe any information in the 
certificate and statement is false.
    (iv) The claimant has made no other claim with respect to the 
biodiesel in the mixture or, if another claim has been made, such other 
claim is disregarded under this paragraph (b)(1)(iv). A claim is 
disregarded under this paragraph (b)(1)(iv) if it is--
    (A) A claim for the small agri-biodiesel producer credit under 
section 40A; or
    (B) An erroneous claim under section 6427 and either the claim has 
been disallowed or the claimant has repaid the government the amount 
received under section 6427 with interest.
    (v) The claimant has filed a timely claim on Form 720, ``Quarterly 
Federal Excise Tax Return,'' that contains all the information required 
in paragraph (c) of this section.
    (2) Payment or income tax credit. A claim for a biodiesel mixture 
payment under section 6427 or an income tax credit under section 34 is 
allowed only if--
    (i) The conditions of paragraphs (b)(1)(i), (ii), and (iii) of this 
section are met; and
    (ii) The claimant has filed a timely claim for payment on Form 720 
or Form 8849, ``Claim for Refund of Excise Tax,'' or for a credit on 
Form 4136, ``Credit for Federal Tax Paid on Fuels,'' that contains all 
the information required by paragraph (c) of this section.
    (3) Overall limitations on credits and payments. See Sec.  48.6426-
7(a) for overall limitations on credits and payments allowed with 
respect to mixtures under sections 34, 6426, and 6427.
    (c) Content of claim. Each claim for a biodiesel mixture credit or 
payment must contain the following information with respect to the 
mixture covered by the claim:
    (1) The amount of agri-biodiesel and biodiesel other than agri-
biodiesel in the biodiesel mixture.
    (2) Unless the claimant is the producer of the biodiesel in the 
biodiesel mixture, a copy of the applicable Certificate for Biodiesel 
described in paragraph (e) of this section and Statement(s) of 
Biodiesel Reseller described in paragraph (f) of this section. In the 
case of a certificate and statement that support a claim made on more 
than one claim form, the certificate and statement are to be included 
with the first claim and the claimant is to provide information related 
to the certificate and statement on any subsequent claim in accordance 
with the instructions applicable to the claim form.
    (3) A statement that the conditions to allowance described in 
paragraph (b) of this section have been met.
    (4) A statement that the claimant either--
    (i) Is a registered biodiesel producer and produced the biodiesel 
it used in the mixture; or
    (ii) Has in its possession a record of the name, address, and 
employer identification number of the person(s) that sold the biodiesel 
to the claimant and the date of purchase.
    (d) Commingled biodiesel; accounting method. For purposes of 
determining the certificate applicable to commingled biodiesel, a 
person that holds commingled biodiesel may identify the biodiesel it 
sells or uses by any reasonable method, including the first-in, first-
out method applied either on a tank-by-tank basis or on an aggregate 
basis to all commingled biodiesel the person holds.
    (e) Certificate for Biodiesel--(1) In general. The certificate to 
be obtained by the claimant is a statement that is signed under 
penalties of perjury by a person with authority to bind the registered 
biodiesel producer, is in substantially the same form as the model 
certificate in paragraph (e)(4) of this section, and contains all the 
information necessary to complete such model certificate.
    (2) Certificate identification number. The certificate 
identification number is determined by the producer and must be unique 
to each certificate.
    (3) Multiple certificates for single sale. A registered biodiesel 
producer may, with respect to a particular sale of biodiesel, provide 
multiple separate certificates, each applicable to a portion of the 
total volume of biodiesel sold. Thus, for example, a biodiesel producer 
that sells 5,000 gallons of biodiesel may provide its buyer with five 
certificates for 1,000 gallons each. The multiple certificates may be 
provided either to the buyer at or after the time of sale or to a 
reseller in the circumstances described in paragraph (f)(2) of this 
section.
    (4) Model certificate.

CERTIFICATE FOR BIODIESEL

Certificate Identification Number: --------------------

(To support a claim related to biodiesel or a biodiesel mixture 
under the Internal Revenue Code)

    The undersigned biodiesel producer (``Producer'') hereby 
certifies the following under penalties of perjury:

1.---------------------------------------------------------------------

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

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

Producer's name, address, and employer identification number

2.---------------------------------------------------------------------

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

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

Name, address, and employer identification number of person buying 
the biodiesel from Producer

3.---------------------------------------------------------------------

Date and location of sale to buyer
4. This certificate applies to -------- gallons of biodiesel.

5. Producer certifies that the biodiesel to which this certificate 
relates is:

--------% Agri-biodiesel (derived solely from virgin oils)

-------- % Biodiesel other than agri-biodiesel

6. This certificate applies to the following sale:
-------- Invoice or delivery ticket number
-------- Total number of gallons of biodiesel sold under that 
invoice or delivery ticket number (including biodiesel not covered 
by this certificate)
7. -------- Total number of certificates issued for that invoice or 
delivery ticket number
8.---------------------------------------------------------------------
-----------------------------------------------------------------------

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

Name, address, and employer identification number of reseller to 
whom certificate is issued (only in the case of certificates 
reissued to a reseller after the return of the original certificate)

9. -------- Original Certificate Identification Number (only in the 
case of certificates reissued to a reseller after return of the 
original certificate)

10. Producer is registered as a biodiesel producer with registration 
number --------. Producer's registration has not been suspended or 
revoked by the Internal Revenue Service.

    Producer certifies that the biodiesel to which this certificate 
relates is monoalkyl

[[Page 43900]]

esters of long chain fatty acids derived from plant or animal matter 
and that it meets the requirements of the American Society of 
Testing and Materials D6751 and the registration requirements for 
fuels and fuel additives established by EPA under section 211 of the 
Clean Air Act (42 U.S.C. 7545).

    Producer understands that the fraudulent use of this certificate 
may subject Producer 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 this certificate
-----------------------------------------------------------------------

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

Signature and date signed

    (f) Statement of Biodiesel Reseller--(1) In general. A person that 
receives a Certificate for Biodiesel, and subsequently sells the 
biodiesel without producing a biodiesel mixture, is to give the 
certificate and a statement that satisfies the requirements of this 
paragraph (f) to its buyer. The statement must contain all of the 
information necessary to complete the model statement in paragraph 
(f)(4) of this section and be attached to the Certificate for 
Biodiesel. A reseller cannot make multiple copies of a Certificate for 
Biodiesel to divide the certificate between multiple buyers.
    (2) Multiple resales. If a single Certificate for Biodiesel applies 
to biodiesel that a reseller expects to sell to multiple buyers, the 
reseller should return the certificate (together with any statements 
provided by intervening resellers) to the producer who may reissue to 
the reseller multiple Certificates for Biodiesel in the appropriate 
volumes. The reissued certificates must include the Certificate 
Identification Number from the certificate that has been returned.
    (3) Withdrawal of the right to provide a certificate. The Internal 
Revenue Service may withdraw the right of a reseller of biodiesel to 
provide the certificate and a statement under this section if the 
Internal Revenue Service cannot verify the accuracy of the reseller's 
statements. The Internal Revenue Service may notify any person to whom 
the buyer has provided a statement that the reseller's right to provide 
the certificate and a statement has been withdrawn.
    (4) Model statement of biodiesel reseller.

STATEMENT OF BIODIESEL RESELLER

(To support a claim related to biodiesel or a biodiesel mixture 
under the Internal Revenue Code)

    The undersigned biodiesel reseller (``Reseller'') hereby 
certifies the following under penalties of perjury:
1.---------------------------------------------------------------------

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

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

Reseller's name, address, and employer identification number

2.---------------------------------------------------------------------

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

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

Name, address, and employer identification number of Reseller's 
buyer

3.---------------------------------------------------------------------

Date and location of sale to buyer

4.---------------------------------------------------------------------

Volume of biodiesel sold

5.---------------------------------------------------------------------

Certificate Identification Number on the Certificate for Biodiesel
    Reseller has bought the biodiesel described in the accompanying 
Certificate for Biodiesel and Reseller has no reason to believe that 
any information in the certificate is false.
    Reseller has not been notified by the Internal Revenue Service 
that its right to provide a certificate and a statement has been 
withdrawn.
    Reseller understands that the fraudulent use of this statement 
may subject Reseller and all parties making any fraudulent use of 
this statement to a fine or imprisonment, or both, together with the 
costs of prosecution.

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

Printed or typed name of person signing this certificate

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

Title of person signing

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

Signature and date signed

    (g) Erroneous certificates; reasonable cause. If a claim for credit 
or payment described in this section is based on erroneous information 
in a certificate or statement described in paragraph (e)(4) or (f)(4) 
of this section, the claim is not allowed. Thus, for example, if a 
producer identifies a product as agri-biodiesel on a Certificate for 
Biodiesel and the product does not meet the registration requirements 
established by EPA, a claim for a biodiesel mixture credit based on the 
certificate is not allowed. However, if the claimant has met the 
conditions of paragraph (b)(1)(iii)(B) of this section with respect to 
the certificate or statement, reliance on the certificate or statement 
will be treated as reasonable cause for purposes of the penalties 
imposed by sections 6651 (relating to failure to pay) and 6675 
(relating to excessive claims).
    (h) Effective/applicability date. This section is applicable on and 
after the date of publication of these regulations as final regulations 
in the Federal Register.


Sec.  48.6426-4  Renewable diesel mixtures.

    (a) Overview. This section provides rules under which a renewable 
diesel mixture producer may claim an excise tax credit under section 
6426, a payment under section 6427, or an income tax credit under 
section 34. These claims relate to the mixture producer's sale or use 
of a renewable diesel mixture and are based on the amount of renewable 
diesel used to produce the renewable diesel mixture. For the applicable 
claim rate, see section 40A(f)(2).
    (b) Conditions to allowance--(1) Excise tax credit. A claim for the 
renewable diesel mixture credit with respect to a renewable diesel 
mixture is allowed under section 6426 only if each of the following 
conditions is satisfied:
    (i) The claimant produced the renewable diesel mixture for sale or 
use in the trade or business of the claimant.
    (ii) The claimant sold the renewable diesel mixture for use as a 
fuel or used the renewable diesel mixture as a fuel.
    (iii) The claimant--
    (A) Produced the renewable diesel in the mixture; or
    (B) Has obtained a certificate from the registered renewable diesel 
producer as described in paragraph (e) of this section and, if 
applicable, a statement described in paragraph (f) of this section, for 
such renewable diesel and has no reason to believe any information in 
the certificate and statement is false.
    (iv) The claimant has made no other claim with respect to the 
renewable diesel in the mixture or, if another claim has been made, 
such other claim is disregarded under this paragraph (b)(1)(iv). A 
claim is disregarded under this paragraph (b)(1)(iv) if it is an 
erroneous claim under section 6427 and either the claim has been 
disallowed or the claimant has repaid the government the amount 
received under section 6427 with interest.
    (v) The claimant has filed a timely claim on Form 720, ``Quarterly 
Federal Excise Tax Return,'' that contains all the information required 
in paragraph (c) of this section.
    (2) Payment or income tax credit. A claim for a renewable diesel 
mixture payment under section 6427 or an income tax credit under 
section 34 is allowed only if--
    (i) The conditions of paragraphs (b)(1)(i), (ii), and (iii) of this 
section are met; and
    (ii) The claimant has filed a timely claim for payment on Form 720 
or Form 8849, ``Claim for Refund of Excise

[[Page 43901]]

Taxes,'' or for a credit on Form 4136, ``Credit for Federal Tax Paid on 
Fuels,'' that contains all the information required by paragraph (c) of 
this section.
    (3) Overall limitations on credits and payments. See Sec.  48.6426-
7(a) for overall limitations on credits and payments allowed with 
respect to mixtures under sections 34, 6426, and 6427.
    (c) Content of claim. Each claim for a renewable diesel mixture 
credit or payment must contain the following information with respect 
to the mixture covered by the claim:
    (1) The amount of renewable diesel in the renewable diesel mixture.
    (2) Unless the claimant is the producer of the renewable diesel in 
the renewable diesel mixture, a copy of the applicable Certificate for 
Renewable Diesel described in paragraph (e) of this section and 
Statement(s) of Renewable Diesel Reseller described in paragraph (f) of 
this section. In the case of a certificate and statement that support a 
claim made on more than one claim form, the certificate and statement 
are to be included with the first claim and the claimant is to provide 
information related to the certificate and statement on any subsequent 
claim in accordance with the instructions applicable to the claim form.
    (3) A statement that the conditions to allowance described in 
paragraph (b) of this section have been met.
    (4) A statement that the claimant either--
    (i) Is a registered renewable diesel producer and produced the 
renewable diesel it used in the mixture; or
    (ii) Has in its possession a record of the name, address, and 
employer identification number of the person(s) that sold the renewable 
diesel to the claimant and the date of purchase.
    (d) Commingled renewable diesel; accounting method. For purposes of 
determining the certificate applicable to commingled renewable diesel, 
a person that holds commingled renewable diesel may identify the 
renewable diesel it sells or uses by any reasonable method, including 
the first-in, first-out method applied either on a tank-by-tank basis 
or on an aggregate basis to all commingled renewable diesel the person 
holds.
    (e) Certificate for Renewable Diesel--(1) In general. The 
certificate to be obtained by the claimant is a statement that is 
signed under penalties of perjury by a person with authority to bind 
the registered renewable diesel producer, is substantially in the same 
form as the model certificate in paragraph (e)(4) of this section, and 
contains all the information necessary to complete such model 
certificate.
    (2) Certificate identification number. The certificate 
identification number is determined by the producer and must be unique 
to each certificate.
    (3) Multiple certificates for single sale. A registered renewable 
diesel producer may, with respect to a particular sale of renewable 
diesel, provide multiple separate certificates, each applicable to a 
portion of the total volume of renewable diesel sold. Thus, for 
example, a renewable diesel producer that sells 5,000 gallons of 
renewable diesel may provide its buyer with five certificates for 1,000 
gallons each. The multiple certificates may be provided either to the 
buyer at or after the time of sale or to a reseller in the 
circumstances described in paragraph (f)(2) of this section.
    (4) Model certificate.

CERTIFICATE FOR RENEWABLE DIESEL

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

Certificate Identification Number:

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

(To support a claim related to renewable diesel or a renewable 
diesel mixture under the Internal Revenue Code)

    The undersigned renewable diesel producer (``Producer'') hereby 
certifies the following under penalties of perjury:
1.---------------------------------------------------------------------

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

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

Producer's name, address, and employer identification number

2.---------------------------------------------------------------------

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

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

Name, address, and employer identification number of person buying 
the renewable diesel from Producer

3.---------------------------------------------------------------------

Date and location of sale to buyer

4. This certificate applies to -------- gallons of renewable diesel.

5. This certificate applies to the following sale:

    -------- Invoice or delivery ticket number
    -------- Total number of gallons of renewable diesel sold under 
that invoice or delivery ticket number (including renewable diesel 
not covered by this certificate)

6. -------- Total number of certificates issued for that invoice or 
delivery ticket number

7.---------------------------------------------------------------------

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

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

Name, address, and employer identification number of reseller to 
whom certificate is issued (only in the case of certificates 
reissued to a reseller after the return of the original certificate)
8. ------------ Original Certificate Identification Number (only in 
the case of certificates reissued to a reseller after return of the 
original certificate)
9. Producer is registered as a renewable diesel producer with 
registration number --------. Producer's registration has not been 
suspended or revoked by the Internal Revenue Service.
    Producer certifies that the renewable diesel to which this 
certificate relates is diesel fuel derived from biomass (as defined 
in section 45K(c)(3) of the Internal Revenue Code) using a thermal 
depolymerization process and that it meets the requirements of the 
American Society of Testing and Materials D975 or D396 and the 
registration requirements for fuels and fuel additives established 
by EPA under section 211 of the Clean Air Act (42 U.S.C. 7545).
    Producer understands that the fraudulent use of this certificate 
may subject Producer 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 this certificate

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

Title of person signing

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

Signature and date signed

    (f) Statement of Renewable Diesel Reseller--(1) In general. A 
person that receives a Certificate for Renewable Diesel, and 
subsequently sells the renewable diesel without producing a renewable 
diesel mixture, is to give the certificate and a statement that 
satisfies the requirements of this paragraph (f) to its buyer. The 
statement must contain all of the information necessary to complete the 
model statement in paragraph (f)(4) of this section and be attached to 
the Certificate for Renewable Diesel. A reseller cannot make multiple 
copies of a Certificate for Renewable Diesel to divide the certificate 
between multiple buyers.
    (2) Multiple resales. If a single Certificate for Renewable Diesel 
applies to renewable diesel that a reseller expects to sell to multiple 
buyers, the reseller should return the certificate (together with any 
statements provided by intervening resellers) to the producer who may 
reissue to the reseller multiple Certificates for Renewable Diesel in 
the appropriate volumes. The reissued certificates must include the 
Certificate Identification Number from the certificate that has been 
returned.
    (3) Withdrawal of the right to provide a certificate. The Internal 
Revenue Service may withdraw the right of a reseller of renewable 
diesel to provide the certificate and a statement under this section if 
the Internal Revenue Service cannot verify the accuracy of the 
reseller's statements. The Internal Revenue Service may notify any 
person to whom the buyer has provided a statement that the reseller's 
right to

[[Page 43902]]

provide the certificate and a statement has been withdrawn.
    (4) Model statement of renewable diesel reseller.

STATEMENT OF RENEWABLE DIESEL RESELLER

(To support a claim related to renewable diesel or a renewable 
diesel mixture under the Internal Revenue Code)

    The undersigned renewable diesel reseller (``Reseller'') hereby 
certifies the following under penalties of perjury:

1.---------------------------------------------------------------------

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

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

Reseller's name, address, and employer identification number
2.---------------------------------------------------------------------

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

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

Name, address, and employer identification number of Reseller's 
buyer
3.---------------------------------------------------------------------

Date and location of sale to buyer

4.---------------------------------------------------------------------

Volume of renewable diesel sold

5.---------------------------------------------------------------------

Certificate Identification Number on the Certificate for Renewable 
Diesel
    Reseller has bought the renewable diesel described in the 
accompanying Certificate for Renewable Diesel and Reseller has no 
reason to believe that any information in the certificate is false.
    Reseller has not been notified by the Internal Revenue Service 
that its right to provide a certificate and a statement has been 
withdrawn.
    Reseller understands that the fraudulent use of this statement 
may subject Reseller and all parties making any fraudulent use of 
this statement to a fine or imprisonment, or both, together with the 
costs of prosecution.
-----------------------------------------------------------------------

Printed or typed name of person signing this certificate

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

Title of person signing

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

Signature and date signed

    (g) Erroneous certificates; reasonable cause. If a claim for credit 
or payment described in this section is based on erroneous information 
in a certificate or statement described in paragraph (e)(4) or (f)(4) 
of this section, the claim is not allowed. Thus, for example, if a 
producer identifies a product as renewable diesel on a Certificate for 
Renewable Diesel and the product does not meet the registration 
requirements established by EPA, a claim for a renewable diesel mixture 
credit based on the certificate is not allowed. However, if the 
claimant has met the conditions of paragraph (b)(1)(iii)(B) of this 
section with respect to the certificate or statement, reliance on the 
certificate or statement will be treated as reasonable cause for 
purposes of the penalties imposed by sections 6651 (relating to failure 
to pay) and 6675 (relating to excessive claims).
    (h) Effective/applicability date. This section is applicable on and 
after the date these regulations are published as final regulations in 
the Federal Register.


Sec.  48.6426-5  Alternative fuel mixtures.

    (a) Overview. This section provides rules under which an 
alternative fueler that produces an alternative fuel mixture may claim 
an excise tax credit under section 6426, a payment under section 6427, 
or an income tax credit under section 34. These claims relate to the 
mixture producer's sale or use of an alternative fuel mixture and are 
based on the amount of alternative fuel used to produce the alternative 
fuel mixture. For the applicable claim rate, see section 6426.
    (b) Conditions to allowance--(1) Excise tax credit. A claim for the 
alternative fuel mixture credit with respect to an alternative fuel 
mixture is allowed under section 6426 only if each of the following 
conditions is satisfied:
    (i) The claimant produced the alternative fuel mixture for sale or 
use in the trade or business of the claimant.
    (ii) The claimant sold the alternative fuel mixture for use as a 
fuel or used the alternative fuel mixture as a fuel.
    (iii) The claimant is registered under section 4101 as an 
alternative fueler.
    (iv) The claimant has made no other claim with respect to the 
alternative fuel in the mixture or, if another claim has been made, 
such other claim is disregarded under this paragraph (b)(1)(iv). A 
claim is disregarded under this paragraph (b)(1)(iv) if it is an 
erroneous claim under section 6427 and either the claim has been 
disallowed or the claimant has repaid the government the amount 
received under section 6427 with interest.
    (v) The claimant has filed a timely claim on Form 720, ``Quarterly 
Federal Excise Tax Return,'' that contains all the information required 
by the claim form described in paragraph (c) of this section.
    (2) Payment or income tax credit. A claim for an alternative fuel 
mixture payment under section 6427 or an alternative fuel mixture 
credit under sections 34 and 6427 is allowed only if--
    (i) The conditions of paragraphs (b)(1)(i), (ii), and (iii) of this 
section are met; and
    (ii) The claimant has filed a timely claim for payment on Form 720 
or Form 8849, ``Claim for Refund of Excise Taxes,'' or for a credit on 
Form 4136, ``Credit for Fuel Tax Paid on Fuels,'' that contains all the 
information required by the claim form described in paragraph (c) of 
this section.
    (3) Overall limitations on credits and payments. See Sec.  48.6426-
7(a) for overall limitations on credits and payments allowed with 
respect to mixtures under sections 34, 6426, and 6427.
    (c) Content of claim. Each claim for an alternative fuel mixture 
credit or payment must contain the following information with respect 
to the mixture covered by the claim:
    (1) The amount of alternative fuel in the alternative fuel mixture.
    (2) A statement that the conditions to allowance described in 
paragraph (b) of this section have been met.
    (3) A statement that the claimant either--
    (i) Produced the alternative fuel it used in the mixture; or
    (ii) Has in its possession--
    (A) A record of the name, address, and employer identification 
number of the person(s) that sold the alternative fuel to the claimant 
and the date of purchase; and
    (B) An invoice or other purchase documentation identifying the 
alternative fuel.
    (d) Effective/applicability date. This section is applicable on and 
after the date these regulations are published as final regulations in 
the Federal Register.


Sec.  48.6426-6  Alternative fuel.

    (a) Overview. This section provides rules under which an 
alternative fueler (unmixed fuel) may claim an excise tax credit under 
section 6426, a payment under section 6427, or an income tax credit 
under section 34. These claims are based on the amount of alternative 
fuel sold or used. For the applicable claim rate, see section 6426.
    (b) Conditions to allowance--(1) Excise tax credit. A claim for the 
alternative fuel excise tax credit with respect to alternative fuel 
sold for use or used as a fuel in a motor vehicle or motorboat is 
allowed under section 6426 only if each of the following conditions is 
satisfied:
    (i) The claimant is the alternative fueler (unmixed fuel) with 
respect to the fuel.
    (ii) The claimant is registered under section 4101 as an 
alternative fueler (unmixed fuel).
    (iii) The claimant has made no other claim with respect to the 
alternative fuel or, if another claim has been made, such other claim 
is disregarded under this paragraph (b)(1)(iii). A claim is disregarded 
under this paragraph (b)(1)(iii) if it is an erroneous claim under 
section 6427 and either the claim

[[Page 43903]]

has been disallowed or the claimant has repaid the government the 
amount received under section 6427 with interest.
    (iv) The claimant has filed a timely claim on Form 720, ``Quarterly 
Federal Excise Tax Return,'' that contains all the information required 
by the claim form described in paragraph (c) of this section.
    (2) Payment or income tax credit. A claim for an alternative fuel 
payment under section 6427 or an income tax credit under section 34 is 
allowed only if--
    (i) The conditions of paragraphs (b)(1)(i) and (ii) of this section 
are met;
    (ii) The sale or use is in the claimant's trade or business; and
    (iii) The claimant has filed a timely claim for payment on Form 
8849, ``Claim for Refund of Excise Taxes,'' or for a credit on Form 
4136, ``Credit for Fuel Tax Paid on Fuels,'' that contains all the 
information required by paragraph (c) of this section.
    (3) Overall limitations on credits and payments. See Sec.  48.6426-
7(b) for overall limitations on credits and payments allowed with 
respect to alternative fuel under sections 34, 6426, and 6427.
    (c) Content of claim. Each claim for an alternative fuel credit or 
payment must contain the following information with respect to the 
alternative fuel covered by the claim:
    (1) The amount of alternative fuel sold or used.
    (2) A statement that the conditions to allowance described in 
paragraph (b) of this section have been met.
    (3) A statement that the claimant either--
    (i) Produced the alternative fuel it sold or used; or
    (ii) Has in its possession--
    (A) A record of the name, address, and employer identification 
number of the person(s) that sold the alternative fuel to the claimant 
and the date of purchase; and
    (B) An invoice or other purchase documentation identifying the 
alternative fuel.
    (4) In the case of liquefied natural gas (LNG) that the claimant 
sold in bulk for the exclusive use of the State and delivered into a 
bulk supply tank that can only fuel motor vehicles or motorboats of the 
State, a statement that the claimant has in its possession a written 
waiver, signed under penalties of perjury by a person with authority to 
bind the State, stating that the LNG is delivered in bulk for the 
exclusive use of the State in a motor vehicle or motorboat and that the 
State gives up its right to claim any alternative fuel credit for such 
LNG.
    (d) Effective/applicability date. This section is applicable on and 
after the date these regulations are published as final regulations in 
the Federal Register


Sec.  48.6426-7  Overall limitations on credits and payments.

    (a) Limitations applicable to mixtures. In the case of mixtures, 
the following limitations apply:
    (1) The aggregate amount that, but for the coordination rules in 
sections 6426(g) and 6427(e)(3), would be allowable to a claimant 
either as a credit under section 6426 or a payment under section 6427 
with respect to sales and uses of mixtures during a calendar quarter is 
allowed only as a credit under section 6426 to the extent such amount 
does not exceed the claimant's tax liability under section 4081 for the 
calendar quarter.
    (2) The aggregate amount allowed to a claimant as a payment under 
section 6427 or an income tax credit under section 34 with respect to 
sales and uses of mixtures during a calendar quarter shall not exceed 
the amount that, but for the coordination rules in sections 6426(g) and 
6427(e)(3), would be allowable to the claimant with respect to such 
sales and uses reduced by the claimant's tax liability under section 
4081 for the calendar quarter.
    (b) Limitations applicable to alternative fuel. In the case of 
alternative fuel, the following limitations apply:
    (1) The aggregate amount that, but for the coordination rules in 
sections 6426(g) and 6427(e)(3), would be allowable to a claimant 
either as a credit under section 6426 or a payment under section 6427 
with respect to sales and uses of alternative fuel during a calendar 
quarter is allowed only as a credit under section 6426 to the extent 
such amount does not exceed the claimant's tax liability under section 
4041 for the calendar quarter.
    (2) The aggregate amount allowed to a claimant as a payment under 
section 6427 or an income tax credit under section 34 with respect to 
sales and uses of alternative fuel during a calendar quarter shall not 
exceed the amount that, but for the coordination rules in sections 
6426(g) and 6427(e)(3), would be allowable to the claimant with respect 
to such sales and uses reduced by the claimant's tax liability under 
section 4041 for the calendar quarter.
    (c) Effective/applicability dates. This section is applicable on 
and after the date of publication of these regulations as final 
regulations in the Federal Register.
    Par. 21. Section 48.6427-8 is amended as follows:
    1. Revising paragraph (b)(1)(v) and adding (b)(1)(vii)(E).
    2. Paragraph (b)(1)(vii)(C) is amended by removing the language 
``vehicle; or'' and adding ``vehicle;'' in its place.
    3. Paragraph (b)(1)(vii)(D) is amended by removing the language 
``6427(b)(3)).'' and adding ``6427(b)(3)); or'' in its place.
    4. Paragraph (f) is amended by removing the language from the first 
sentence ``1994.'' and adding ``1994, and paragraph (b)(1)(vii)(E), 
which is applicable after the date these regulations are published as 
final regulations in the Federal Register.'' in its place.''
    The revision and addition read as follows:


Sec.  48.6427-8  Diesel fuel and kerosene; claims by ultimate 
purchasers.

* * * * *
    (b) * * *
    (1) * * *
    (v) The diesel fuel or kerosene was not used on a farm for farming 
purposes (as defined in Sec.  48.6420-4) or, except in the case of fuel 
described in paragraph (b)(1)(vii)(E) of the section, by a State;
* * * * *
    (vii) * * *
    (E) For the exclusive use, in the case of blended taxable fuel that 
is produced by a State and is both diesel fuel and a mixture (as 
defined in Sec.  48.6426-1(b)), of the State that produced the blended 
taxable fuel.
* * * * *
    Par. 22. Section 48.6427-12 is added to read as follows:


Sec.  48.6427-12  Alcohol, alternative fuel, biodiesel, and renewable 
diesel.

    (a) In general. This section contains special rules for payments 
related to fuels containing alcohol, alternative fuel, biodiesel, and 
renewable diesel. Other rules for these payments are in Sec. Sec.  
48.6426-1 through 48.6426-7.
    (b) Coordination with excise tax credit. If the aggregate amount a 
person receives as a payment under section 6427(e) with respect to 
sales and uses of mixtures during a calendar quarter exceeds the amount 
allowed under Sec.  48.6426-7(a), the excess constitutes an excessive 
amount for purposes of section 6206 and such amount, as well as the 
civil penalty under section 6675, may be assessed as if it were a tax 
imposed by section 4081. If the excessive amount is repaid to the 
government, with interest from the date of the payment (section 6602), 
on or before the due date of the Form 720, ``Quarterly Federal Excise 
Tax Return,'' for the calendar quarter, the claim for the excessive 
amount will be treated as due to reasonable cause and the penalty

[[Page 43904]]

under section 6675 will not be imposed with respect to the claim. If a 
person claims an income tax credit under section 34 in lieu of a 
payment under section 6427(e) with respect to sales and uses of 
mixtures during a calendar quarter and the aggregate amount claimed as 
an income tax credit with respect to such sales and uses exceeds the 
amount allowed under Sec.  48.6426-7(a)(2), the income tax rules 
related to assessing an underpayment of income tax liability apply. The 
section 6675 penalty for excessive claims with respect to fuels does 
not apply in the case of section 34 income tax credits. Similar rules 
apply to excessive claims under sections 34 or 6427 with respect to 
sales and uses of alternative fuel.
    (c) Payment computation for certain blenders--(1) In general. This 
paragraph (c) applies to a blender for any calendar quarter in which 
the blender's entire tax liability under section 4081 is based solely 
on the volume of alcohol in alcohol fuel mixtures, biodiesel in 
biodiesel mixtures, renewable diesel in renewable diesel mixtures, or 
alternative fuel in alternative fuel mixtures. If this paragraph (c) 
applies for a calendar quarter, the blender may use the following 
procedure to determine the amount it may claim as an income tax credit 
under section 34 or a payment under section 6427(e) with respect to 
each mixture that it sells or uses during the quarter:
    (i) First, determine the amount allowed under section 6426 as a 
credit on Form 720 by multiplying the volume of untaxed liquid used to 
produce the mixture by the tax imposed per gallon on the untaxed 
liquid.
    (ii) Then, determine the total credit and payment allowable by 
multiplying the volume of untaxed liquid used to produce the mixture by 
the tax credit rate per gallon.
    (iii) Then, subtract the amount determined in paragraph (c)(1)(i) 
of this section (the section 6426 credit amount) from the amount 
determined in paragraph (c)(1)(ii) of this section. This difference is 
the amount of the payment or income tax credit that may be claimed with 
respect to that mixture.
    (2) Example. The following example illustrates the provisions of 
this paragraph (c):

    (i) P is a biodiesel mixture producer.
    P produces blended taxable fuel outside of the bulk transfer/
terminal system by adding biodiesel that is agri-biodiesel to taxed 
diesel fuel. See Sec. Sec.  48.4081-1(c)(1) and 48.4081-3(g). P has 
no Sec.  4081 liability other than its liability as a blender on its 
sale of the biodiesel mixture. During the period August 1 through 
August 10 (at which time the tax rate on diesel fuel is $0.244 per 
gallon and the claim amount on agri-biodiesel is $1.00 per gallon), 
P uses 5,000 gallons of agri-biodiesel to produce a biodiesel 
mixture. P determines that it may claim $3,780 as a payment under 
section 6427(e) with respect to this mixture. P computes this amount 
by--
    (A) Multiplying 5,000 (gallons of agri-biodiesel) x $0.244 (tax 
imposed per gallon) = $1,220;
    (B) Multiplying 5,000 (gallons of agri-biodiesel) x $1.00 (tax 
credit rate per gallon) = $5,000; and
    (C) Subtracting $1,220 from $5,000 = $3,780.
    (ii) On August 11, P files Form 8849 for the period August 1-
August 10. To avoid an excessive claim, P limits the claim on Form 
8849 to $3,780 reporting 3,780 gallons of agri-biodiesel.
    (iii) On Form 720 P reports liability for IRS No. 60(c) of 
$1,220 (5,000 gallons x $.244) and claims a credit on Schedule C for 
$1,220 for period August 1-August 10, reporting on Schedule C 1,220 
gallons of agri-biodiesel.

    (d) Effective/applicability date. This section is applicable on and 
after the date these regulations are published as final regulations in 
the Federal Register.

Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
 [FR Doc. E8-17270 Filed 7-28-08; 8:45 am]
BILLING CODE 4830-01-P