Biodiesel blenders do not have to report refunds of excess excise tax credits as income, the IRS concluded in an internal memo in October.
The US government encourages biodiesel to be mixed into diesel fuel to produce a blend for use in trucks. Refineries and distributors doing the blending have a choice of claiming an income tax credit of 50¢ per gallon of biodiesel used ($1 for “renewable biodiesel” from agricultural sources) or alternatively of claiming a tax credit of $1 per gallon of biodiesel against the federal excise taxes on the blended fuel. The excise taxes are 24.3¢ a gallon.
Many blenders who claim the excise tax credit and then get a refund for the excess credit have been reporting the refunds as income, but they have been filing amended tax returns lately asking to get back the taxes they paid on the refunds. Section 87 of the US tax code requires anyone claiming the income tax credit for blending biodiesel must report the tax credit as income, but it says nothing about the excise tax credit or refunds of the excise tax credit. The IRS personnel handling the refund claims asked the IRS national office for guidance.
The national office said refunds of excess excise tax credits do not have to be reported as income. The advice is in Chief Counsel Advice 201342010.