Section 3. DEFINITION OF A

BIODIESEL MIXTURE

(a) Definition in the Code . Section 6426(c)(3) provides that biodiesel mix- ture means a mixture of biodiesel and diesel fuel (as defined in § 4083(a)(3)), determined without regard to any use of kerosene, that (1) is sold by the taxpayer producing the mixture to any person for

(4) Commingled biodiesel —(i) In gen- eral . For purposes of this paragraph (h)(4), commingled biodiesel means—

(A) Biodiesel held by its producer in a storage tank that is used to store both agribiodiesel and biodiesel other than agribiodiesel; and

(B) Biodiesel held by a person other than its producer in a storage tank unless a single Certificate for Biodiesel applies to the tank.

(ii) Reasonable methods may be used to identify commingled biodiesel . A person that holds commingled biodiesel may identify the biodiesel it sells or uses by any reasonable method, including a firstin, first-out method applied either on a tank-by-tank basis or on an aggregate ba

sis to all commingled biodiesel the person holds. Thus, for example, a reseller may treat the biodiesel it first purchases as the first biodiesel it resells, and a biodiesel mixture producer may treat the biodiesel it first purchases as the first biodiesel it uses to produce a biodiesel mixture.

(5) Effective date . This paragraph (h) of this section applies with respect to biodiesel sold or used by its producer after August 29, 2005, but taxpayers may rely on it as if it were applicable with respect to biodiesel sold or used by its producer on or before that date. In addition, the Internal Revenue Service may accept claims relating to biodiesel sold or used by its producer on or before August 29, 2005 if the claim evidences a good faith effort

August 29, 2005 446 2005–35 I.R.B.

credit under § 6426 is allowable, it may be assessed as if it were a tax imposed by § 4081 and a penalty under § 6675 may be imposed.

(b) Computation of payment limitation . A person producing biodiesel mixtures outside the bulk transfer/terminal system and liable for tax imposed by § 4081 solely because of the removal or sale of the mixtures can avoid making excessive claims for payment under § 6427(e) by limiting claims filed on a form other than Form 720 to— (1) 75.6 percent of the total credits and payments allowable with respect to agri-biodiesel used to produce the mixtures (24.4 percent of the allowable credits and payments must be claimed on Form 720); and (2) 51.2 percent of the total credits and payments allowable with respect to biodiesel other than agri-biodiesel used to produce the mixtures (48.8 percent of the allowable credits and payment must be claimed on Form 720).

(c) Example . The following example illustrates the application of this section:

(1) P is a biodiesel mixture producer. P produces blended taxable fuel outside of the bulk transfer/terminal system by adding biodiesel to taxed diesel fuel. See §§ 48.4081–1(c)(1) and 48.4081–3(g). P has no § 4081 liability other than its liability as a blender on its sale of the biodiesel mixture. During the period August 1 through August 10, 2005, P uses 5,000 gallons of agri-biodiesel to produce a biodiesel mixture. The total of the credits and payments allowable with respect to the biodiesel used to produce the mixture is $5,000 (5,000 x $1.00).

(2) On August 11, P files Form 8849, Claim for Refund of Excise Taxes, for the period August 1 August 10. To avoid an excessive claim, P limits the claim on Form 8849 to $3,780 (75.6 percent of $5,000) reporting 3,780 gallons of agri-biodiesel.

(3) On Form 720, Quarterly Federal Excise Tax Return, 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 (24.4 percent of $5,000) for the period August 1 – August 10, reporting on Schedule C 1,220 gallons of agri-biodiesel. (d) Effective date . This section is applicable January 1, 2005, the effective date of Notice 2005–4.