alternative fuels credit for cng and lng frank boland irs chief counsel 202-622-3130...

Alternative Fuels Creditfor CNG and LNG

Frank Boland IRS Chief Counsel

202-622-3130Frank.K.Boland@irscounsel.treas.gov

Overview• The tax

– Filing returns

• The credit– Who’s eligible – How to claim

• Recordkeeping

• Resources

The Tax

• Federal taxing regime – Title 26 United States Code – Internal

Revenue Code

• Federal fuel taxes– Gasoline, diesel fuel, kerosene – Alternative liquid fuels (including propane &

LNG)– CNG

How the CNG & LNGtaxes work

When tax imposed

• Tax imposed on taxable sale or taxable use

Taxable sale: direct delivery

• Sale of CNG/LNG considered “taxable sale” if –– fuel delivered by seller into fuel supply tank of

motor vehicle or motorboat

• Seller liable for tax on these sales

Taxable sale: certain bulk sales

• Tax imposed on sale of CNG/LNG not delivered into fuel supply tank if –– Buyer gives seller written statement that entire

quantity of CNG/LNG will be used for taxable purpose

- For CNG, seller gives buyer written acknowledgment

– Informal statements ok – BUT must be written

• Seller liable for tax on these bulk sales

Taxable use

• Used as fuel in motor vehicle or motorboat

• Bought in bulk– No written statement given to seller

• User liable for tax

Nontaxable uses of CNG/LNG

• On farm for farming purposes

• Off-highway business use

• Boat engaged in commercial fishing

• Exclusive use by nonprofit education organization

• Exclusive use by state & local governments

Motor vehicles

• All types of vehicles propelled by motor designed for carrying or towing loads from one place to another, regardless of type of load or material carried or towed

• Regardless of whether vehicle registered for highway use

Motor vehicles con’t.

• Term does NOT include farm tractors, trench diggers, power shovels, bulldozers, road graders or rollers, and similar equipment which does not carry or tow a load; nor does it include any vehicle which moves exclusively on rails

Rate of tax; CNG

• Before 10/1/06– 48.54¢ per MCF

• After 9/30/06 – 18.3¢ per 126.67 CF

Rate of tax; LNG

• Before 10/1/06– 11.9¢ per gallon

• After 9/30/06 – 24.3¢ per gallon

Returns & Deposits• Return required if you have excise tax liability• Form 720, Quarterly Federal Excise Tax Return• Due for each quarter• 4th Quarter of 2006 – October, November &

December 2006• 4th quarter return due January 31, 2007• Deposits due 6 times during quarter if meet

$2500 threshold (tax less credits)

Form 720

• 4th Quarter 2006 Form 720 will reflect new tax rates

• Don’t forget to file!!– Even if credit exceeds liability!!

Alternative Fuels CreditSAFETEA

Alternative fuels credit

• Effective October 1, 2006

• Amount of credit:– CNG: 50¢ per 121 cubic feet – LNG: 50¢ per gallon

What do I do?

• Be the proper claimant

• Be registered by the IRS

• Claim the credit

• Maintain books & records

The proper claimant

Two requirements

1. Is the alternative fueler (unmixed fuel)

2. Is registered as alternative fueler, or- For claims before 7/1/07, is registered for

any fuel purpose

Alternative fueler

• Alternative fueler (unmixed fuel)– Liable for tax on CNG/LNG sold for use or

used as fuel in motor vehicle or motorboat OR– Would be liable for tax on delivery into fuel

supply tank of vehicle or boat but for application of exemption

Registration

• Is an alternative fueler or will be within reasonable time after registration

• Has good tax history– IRS satisfied with filing, deposit, payment,

reporting & claim history

Registration

Form 637, Application for Registration (For Certain Excise Tax Activities)

• Available on line – www.irs.gov

• Revised form available in a few weeks

• OK to use existing form

Activity letters for alternative fuelers

• AL: Alternative fueler (not in a mixture) – Propane, CNG, LNG

• AM: Alternative fuel mixture

Claiming the credit

How it works – step 1

• Any CNG/LNG credit must first be taken against all of your alternative fuel/CNG tax liability on Form 720 (Schedule C)

– NOT gasoline tax liability & usually not diesel fuel tax liability

• State and local govts. claim everything on Form 8849

How it works -- step 2

• Any excess credit claimed on your income tax return on Form 4136

• 50¢ credit for any 121 CF of CNG or one gallon of LNG

Claiming the credit -- Form 4136

• Allows you to claim credit against your income tax liability

• Filed at the end of your tax year

• If your income tax liability less than credit – IRS sends check

• Since credit is refundable – factor in computing estimated tax payments during year

Oops! SAFETEA has a glitch…

• Law doesn’t have mechanism now to refund CNG/LNG benefit in excess of excise tax liability – unless state or local gov’t or § 501(a) entity

Recordkeeping!• Maintain files with

– Tax returns– Records– Who sold you the CNG/LNG (include EIN)

• For at least 4 years after taxes became due OR you filed claim

Resources• www.irs.gov• Publication 510, Excise Taxes for 2006• Notice 2006-92• Forms 720, 637 and 4136 and Instructions• Call us

– Excise Tax Branch, Office of Chief Counsel, IRS

– 202-622-3130 (not a toll free number)