SECTION 2. BACKGROUND

(a) The credits and payments for alternative fuel and alternative fuel mixtures were added to the Code by § 11113(b) of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (Pub. L. 109–59). The credits and payment are allowed beginning October 1, 2006. Notice 2006–92, 2006–43 I.R.B. 774, provides general guidance on these credits and payments.

(b) Section 6426(d)(2) of the Code provides that the term alternative fuel means several specified products including (in § 6426(d)(2)(F)) liquid hydrocarbons derived from biomass (as defined in section 45K(c)(3)). Section 6426(d)(2) also provides that the term alternative fuel does not include ethanol, methanol, or biodiesel. Biodiesel is defined in section 40A(d)(1). Ethanol and methanol are included in the definition of alcohol in section 40(d)(1).

(c) Although the term hydrocarbon is not defined in the Code, the term is commonly defined as an organic compound containing only hydrogen and carbon. Treasury and the IRS have received numerous inquiries asking whether, for purposes of § 6426(d)(2)(F), the term liq- uid hydrocarbons derived from biomass can include liquids that contain oxygen, as well as hydrogen and carbon. Examples of liquids containing hydrogen, carbon, and oxygen include fish oil, liquids derived from other rendered fats, biodiesel, and alcohols such as ethanol and methanol.

(d) The fact that Congress specifically excluded ethanol, methanol, and biodiesel (all of which contain oxygen) from the definition of liquid hydrocarbons derived from biomass indicates that, for purposes of section 6426(d)(2)(F), hydrocarbons include substances that contain oxygen.

(e) The Senate Finance Committee has approved a technical correction that would clarify that any liquid fuel derived from biomass qualifies as an alternative fuel. The technical correction would also clarify that any fuel qualifying for an alcohol, biodiesel, or renewable diesel credit or payment does not qualify for the alternative fuel credit or payment.