4. Alcohol Fuel Mixture Credit
Beginning January 1, 2005, the procedures for making a claim for most alcohol-blended fuels have been changed. Special rules
determine the order in
which these claims can be made. Only one claim may be made for any amount of alcohol used to make an alcohol fuel mixture.
Alcohol fuel mixture credit.
You can take a credit for the alcohol you use to produce a qualified mixture. A qualified mixture is a mixture of
alcohol with gasoline, diesel
fuel, or kerosene. You do not treat adding denaturants to alcohol as the production of a mixture.
You, as the producer of the mixture, must either sell the mixture for use as a fuel to another person or use the mixture
as a fuel in your trade or
business. Take into account alcohol you use to produce a qualified mixture only if the sale or use is in your trade or business.
Alcohol.
For purposes of the alcohol fuel mixture credit, alcohol includes methanol and ethanol. It also includes an alcohol
gallon of ethyl tertiary butyl
ether (ETBE) or other ethers produced from such alcohol and methanol produced from methane gas formed in waste disposal sites.
But it does not include
any of the following.
-
Alcohol produced from petroleum, natural gas, or coal (including peat).
-
Alcohol with a proof of less than 190 (150 proof for purposes of a mixture credit taken under section 40 on Form 6478). In
figuring the
proof of any alcohol, disregard any denaturants (additives that make the alcohol unfit for human consumption).
Volume of alcohol.
When figuring the number of gallons of alcohol sold or used, include the volume of any denaturant (including gasoline)
added under formulas
approved by the Secretary of the Treasury. Also include the denaturant when you figure the percentage of any mixture that
is alcohol. However,
denaturants can be counted only up to 5% of the total volume of alcohol and denaturant combined.
Separation or failure to use as fuel.
If the credit applied to alcohol used in the production of a qualified mixture, and you later separate the alcohol
from the mixture or do not use
the mixture as fuel, you must pay a tax equal to the credit. Report this tax on Form 720.
Gasoline tax on the alcohol in an alcohol fuel mixture.
Persons who blend alcohol with gasoline, diesel fuel, or kerosene to produce an alcohol fuel mixture outside the bulk
transfer terminal system must
pay must pay the gasoline tax on the volume of alcohol in the mixture. See Form 720 to report this tax. You also must be registered
with the IRS as a
blender. See
Form 637.
How to claim the credit.
Any alcohol mixture credit must first be taken against your taxable fuel liability on Form 720. Any excess credit
may be taken on Schedule C (Form
720), Form 8849, Form 4136, or Form 6478. See Notice 2005-4 for more information.
Claiming the excess credit.
Instead of waiting until the end of the quarter when you file Form 720 to claim any excess alcohol fuel mixture credit,
you may be able to file
Form 8849 (Schedule 3) during the quarter. For more information, see Form 8849 (Schedule 3) and
Form 720.
