Alternative Fuels Credit for CNG and LNG

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Alternative Fuels Creditfor CNG and LNG

• Frank Boland
• IRS Chief Counsel
• 202-622-3130
• Frank.K.Boland_at_irscounsel.treas.gov

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Overview

• The tax
• Filing returns
• The credit
• Whos eligible
• How to claim
• Recordkeeping
• Resources

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The Tax
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• 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

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How the CNG LNGtaxes work
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When tax imposed

• Tax imposed on taxable sale or taxable use

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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

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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

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Taxable use

• Used as fuel in motor vehicle or motorboat
• Bought in bulk
• No written statement given to seller
• User liable for tax

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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

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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
  

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Motor vehicles cont.

• 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

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Rate of tax CNG

• Before 10/1/06
• 48.54 per MCF
• After 9/30/06
• 18.3 per 126.67 CF

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Rate of tax LNG

• Before 10/1/06
• 11.9 per gallon
• After 9/30/06
• 24.3 per gallon

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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)
  

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Form 720

• 4th Quarter 2006 Form 720 will reflect new tax
  rates
  
• Dont forget to file!!
• Even if credit exceeds liability!!

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Alternative Fuels CreditSAFETEA
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Alternative fuels credit

• Effective October 1, 2006
• Amount of credit
• CNG 50 per 121 cubic feet
• LNG 50 per gallon

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What do I do?
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• Be the proper claimant
• Be registered by the IRS
• Claim the credit
• Maintain books records

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The proper claimant

• Two requirements
• Is the alternative fueler (unmixed fuel)
• Is registered as alternative fueler, or
• - For claims before 7/1/07, is registered for any
  fuel purpose

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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
  

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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

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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

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Activity letters for alternative fuelers

• AL Alternative fueler (not in a mixture)
• Propane, CNG, LNG
• AM Alternative fuel mixture

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Claiming the credit
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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

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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
  

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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

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Oops! SAFETEA has a glitch

• Law doesnt have mechanism now to refund CNG/LNG
  benefit in excess of excise tax liability
  
• unless state or local govt or 501(a) entity

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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

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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)

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