IRS agents in the field have been seemingly on the warpath this year about tax credits claimed by owners of coal agglomeration facilities, or plants that add chemical reagents to crushed coal in order to turn it into synfuel. An outside expert hired by the IRS advised the agency that the plants do not make synfuel. The US government offers a tax credit of $1.095 an mmBtu as an inducement to Americans to look in unusual places for fuel. The idea was that this would make the US less dependent on imported oil from the Middle East. The tax credit can be claimed by anyone producing “synthetic fuel” from coal. The issue with the coal agglomeration facilities — at last count there were approximately 53 of them — is whether they do enough to the coal for the output from the plants to qualify as synthetic fuel.

The IRS has issued more than 80 private rulings since 1995 to owners of the plants confirming that they qualify for credits. The IRS field agents who are auditing the tax returns filed by plant owners are considering asking the IRS national office to revoke some or all of the rulings. This is a necessary first step before disallowing the tax credits claimed by the plant owners. The IRS announced a “pause” in any further rulings at the end of April. Plant owners are outraged that the government might consider disallowing tax credits after they spent millions of dollars based on rulings that they qualify for the credits.

As the NewsWire went to press in late September, an announcement was expected from the IRS national office “soon.” Senior government officials have signaled that the announcement will be positive for the industry.