Diesel-Water Fuel Emulsion — Publication 510

A claim for credit or refund may be made for the nontaxable use of a diesel-water fuel emulsion and for undyed diesel fuel used to produce a diesel-water fuel emulsion. The claim rate for nontaxable use of a diesel-water fuel emulsion taxed at $0.198 per gallon is $0.197 (if exported, the claim rate is $0.198). The following are the nontaxable uses for a diesel-water fuel emulsion for which a credit or refund may be allowable to an ultimate purchaser.

On a farm for farming purposes.
Off-highway business use.
Export.
In a qualified local bus.
In a school bus.
Other than as fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway use).
Exclusive use by a qualified blood collector organization.
In a highway vehicle owned by the United States that isn't used on a highway.
A nonprofit educational organization for its exclusive use.

The registered ultimate vendor may make the claim if the ultimate purchaser didn’t use a credit card and waives its right to the credit or refund by providing the registered ultimate vendor with a certificate. A sample certificate is included as Model Certificate M in the Appendix. The registered ultimate vendor must have the certificate at the time the credit or refund is claimed.

The ultimate vendor must be registered by the IRS. See Registration Requirements , earlier.

Credit card purchases. If gasoline and aviation gasoline are purchased with a credit card issued to a state or local government for its exclusive use (including essential government use by an Indian tribal government), or a nonprofit educational organization for its exclusive use, the person who extended credit to the ultimate purchaser (the credit card issuer) is treated as the person that paid the tax and makes the claim if the credit card issuer:

Is registered by the IRS;
Has established that the amount of tax hasn’t been collected from the person who purchased the gasoline or has obtained written consent from the ultimate purchaser to the allowance of the credit or refund; and
Has repaid or agreed to repay the amount of the tax to the ultimate vendor, has obtained the written consent of the ultimate vendor to the allowance of the credit or refund, or has made arrangements that provide the ultimate vendor with reimbursement of the tax.

If the requirements above aren’t met by the credit card issuer, the credit card issuer must collect the tax from the ultimate purchaser and only the ultimate purchaser may make the claim.

How to make the claim. If the claim is made by the credit card issuer, see Form 720, Schedule C; or Schedule 8 (Form 8849).