Publication 378 (04/2005), Fuel Tax Credits and Refunds

7. Biodiesel (Including Agri-biodiesel) Fuel Credit

Table of Contents

If you sell or use biodiesel (not in a mixture) as a fuel, you may be eligible for a general business credit on your income tax return. The biodiesel fuel credit consists of a straight biodiesel fuel credit and a biodiesel mixture credit. The biodiesel mixture credit was discussed in Chapter 5 earlier. See Chapter 5 for the definitions of biodiesel and agri-biodiesel.

Certification. You must obtain and keep as part of your records a certification to you from the producer or importer of the biodiesel. The certificate is required for any biodiesel fuel credit claimed. The certificate must identify the product produced and the percentage of biodiesel and agri-biodiesel in the product. If the producer or importer of the biodiesel is also the taxpayer claiming the biodiesel credit, the certificate is required. See Model Certificate F on page 20.

Straight biodiesel credit. You can claim the credit for any biodiesel not mixed with diesel fuel.

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

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

The credit is not allowed for biodiesel (or agri-biodiesel) you used as a fuel in a trade or business if that biodiesel (or agri-biodiesel) was sold to you in a retail sale described above.

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

How to claim the credit. You take the biodiesel fuel credit by completing Form 8864 and attaching it to your income tax return. All individuals and corporations taking the credit use Form 8864. Partnerships (including electing large partnerships), S corporations, estates, and trusts figure the credit on Form 8864 but divide the credit among their partners, shareholders, or beneficiaries.

If you take the biodiesel fuel credit, you must include the credit for the tax year in your gross income for that year.

Form 8864 is the only form on which you can claim the straight biodiesel fuel credit.

General business credit. You combine the biodiesel fuel credit with other credits on Form 3800, General Business Credit, to figure your general business credit for the year. See the Form 3800 instructions for a list of these credits and whether you must file Form 3800.