Section 2. ALCOHOL AND BIODIESEL

FUELS

(a) Overview . Effective January 1, 2005, the Act generally eliminates the reduced rate of excise tax for most alcohol-blended fuels. In place of a reduced rate, the Act allows certain credits or payments related to alcohol and biodiesel fuels under §§ 40, 40A, 6426, and 6427(e). If the alcohol is ethanol with a proof of 190 or greater, the credit or payment amount is $0.51 per gallon. For agri-biodiesel, the credit or payment amount is $1.00 per gallon; for biodiesel other than agri-biodiesel, the credit or payment amount is $0.50 per gallon. Under the Code’s coordination rules, a claim may be taken only once with respect to any particular gallon of alcohol or biodiesel.

(b) Definitions . Alcohol has the meaning given to the term in § 48.4081–6(b)(1) except that, for purposes of the credit allowed by § 40, alcohol also includes alcohol with a proof of at least 150.

Alcohol fuel mixture and biodiesel mix- ture have the meaning given to the terms by § 6426(b)(3) and 6426(c)(3), respectively.

Biodiesel and agri-biodiesel have the meanings given to the terms by § 40A(d)(1) and 40A(d)(2), respectively.

(c) Excise tax credit for alcohol fuel and biodiesel mixtures; § 6426 . Section 6426 allows a credit against the tax imposed by § 4081 on taxable fuel. The credit is equal to the sum of the alcohol fuel mixture credit and the biodiesel mixture credit. The credit is allowable to the person that produces the mixture for sale or use in the producer’s trade or business. The credit is claimed on Form 720, Quarterly Federal Excise Tax Return, in accordance with the instructions for that form. For the requirement that the claimant obtain a certificate from a producer of biodiesel, see section 2(h) of this notice.

(d) Income tax credits or payments for alcohol or biodiesel used to produce alco- hol fuel and biodiesel mixtures; §§ 34 and 6427(e) —(1) In general . To the extent that the sum of the alcohol fuel mixture credit and biodiesel mixture credit described in § 6426 exceeds a person’s § 4081 liability for any particular quarter, an income tax credit or a payment under § 6427(e) is allowable to the producer of the mixture. This credit or payment is claimed on Form 720, Q uarterly Federal Excise Tax Return ; Form 4136, Credit for Federal Tax Paid on Fuels ; or Form 8849, Claim for Refund of Excise Taxes ; in accordance with the instructions for those forms. For the requirement that the claimant obtain a certificate from a producer of biodiesel, see section 2(h) of this notice. (2) Coordination with excise tax credit . If a person receives a payment under § 6427(e) for an amount claimed on Form 8849 with respect to a mixture for which the person is allowed a credit under § 6426, the amount of the payment constitutes an excessive amount for purposes of § 6206 and such amount, as well as the civil penalty under § 6675, may be assessed as if it were a tax imposed by § 4081. If an erroneous refund is repaid to the government, with interest from the date of the payment (§ 6602), on or before the due date of the Form 720, Quarterly Federal Excise Tax Return, on which the credit is allowed with respect to the mixture, the claim for the excessive amount will be treated as due to reasonable cause and the penalty under § 6675 will not be imposed with respect to the claim. If, in lieu of a payment under § 6427(e), a person claims an income tax credit on Form 4136 with respect to a mixture for which the person is allowed a credit under § 6426, the income tax rules related to assessing an underpayment of income tax liability apply. The § 6675 penalty for excessive claims with respect to fuels does not apply in the case of § 34 income tax credits.

(e) Biodiesel used as a fuel; § 40A . Section 40A allows a nonrefundable income tax credit, included in the general business credit, for biodiesel used as a fuel. (See § 38 for limit on the general business credit based on the amount of tax.) The credit is the sum of the biodiesel credit and the biodiesel mixture credit. In the case of biodiesel not in a mixture (100% biodiesel or B100), the credit is allowable to the per

2005–2 I.R.B. 290 January 10, 2005

perjury by a person with authority to bind the biodiesel producer, is substantially in the same form as the model certificate in paragraph (h)(2)(ii) of this section, and contains all the information necessary to complete such model certificate. The claimant must have the certificate at the time the credit or payment is claimed. The certificate may be included as part of the business records normally used to support a claim.

(ii) Model certificate .

as being registered under Activity Letter “M” for production occurring before July 1, 2005. (g) Conditions to allowance of credit or payment for biodiesel; form of claim . A general description of the conditions to allowance and form of claim are included in sections 2(c), (d), and (e) of this notice.

(h) Content of claim —(1) In gen- eral . Section 6426(c)(4) provides that the biodiesel mixture credit of § 6426 is not allowed unless the producer of the mixture obtains a certificate, in such form and manner as may be prescribed by the Secretary, from the producer of the biodiesel that identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product. Section 40A(b)(4) provides a similar rule for

the biodiesel mixture credit and biodiesel credit allowed by § 40A. Under this notice, this rule will also apply to the credit or payment allowed for biodiesel mixtures by § 6427(e). Accordingly, each claim for a credit or payment under §§ 6426, 6427, and 40A, with respect to a biodiesel mixture must contain a statement that the claimant has in its possession an unexpired certificate (in the form described in section 2(h)(2) of this notice) from the producer of the biodiesel in the mixture and has no reason to believe any information in that certificate is false.

(2) Certificate —(i) In general . The certificate to be obtained by the claimant claiming a credit or payment under §§ 6426(c), 6427(e), and 40A consists of a statement that is signed under penalties of

CERTIFICATE FOR BIODIESEL

(To support a claim under §§ 6426(c), 6427(e), and 40A of the Internal Revenue Code)

Name, address, and employer identification number of claimant.

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

Producer certifies that the biodiesel to which this certificate relates is monoalkyl esters of long chain fatty acids derived from plant or animal matter that 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 § 211 of the Clean Air Act (42 U.S.C. § 7545).

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

% Agri-biodiesel (derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds and from animal fats).

% Biodiesel (other than agri-biodiesel)

This certificate applies to the following:

1. Invoice or delivery ticket number

2. Number of gallons

Producer understands that fraudulent use of this certificate may subject producer, claimant, and parties making such fraudulent use of this certificate to a fine or imprisonment, or both, together with the costs of prosecution.

Printed or typed name of person signing

Title of person signing

Name of Producer

Employer identification number

January 10, 2005 291 2005–2 I.R.B.

Address of Producer

Signature and date signed

(i) Tax on alcohol and biodiesel fuels .—(1) Alcohol fuels . Section 48.4081–1(c)(1)(i) generally defines blended taxable fuel as any taxable fuel that is produced outside the bulk transfer/terminal system by mixing taxable fuel on which tax has been imposed by § 4081 and any other liquid on which tax has not been imposed by § 4081. Section 48.4081–1(c)(1)(iii), however, excludes certain gasohol from the definition of blended taxable fuel. The regulations will be revised so that § 48.4081–1(c)(1)(iii) and the last sentence of § 48.4081–3(g)(1) (treating the alcohol in gasohol as previously taxed fuel) generally will not apply to the removal or sale of gasohol after December 31, 2004. As a result, gasohol produced outside the bulk transfer/terminal system after that date will be taxed as blended taxable fuel taxed under the revised rules of § 48.4081–3(g). However, in the case of gasoline removed or entered before January 1, 2005, if tax is imposed at a reduced rate for the production of gasohol and the gasoline is used to produce gasohol on or after such date, § 48.4081–1(c)(1)(iii) and the last sentence of § 48.4081–3(g)(1) will apply and the benefit allowed by §§ 40, 6426, and 6427(e) will be reduced by the amount of benefit received under former § 4081(c).

(2) Biodiesel . For rules relating to the taxation of biodiesel and blended taxable fuel containing biodiesel, see Rev. Rul. 2002–76, 2002–2 C.B. 840. (j) Information reporting for persons claiming certain tax benefits . Section 4104 requires persons claiming tax benefits under §§ 34, 40, 40A, 4041(b)(2), 6426, and 6427(e) to file certain returns in such manner as may be prescribed by the Secretary. In the case of tax benefits claimed under §§ 34 and 40 for taxable years ending before January 1, 2005, this requirement is satisfied by filing the income tax return for the taxable year. The manner of reporting for other claims to which § 4104 applies is not prescribed in this notice. The reporting requirements for these claims will be prescribed in subsequent guidance.