Some Paper Companies

Some Paper Companies

May 31, 2012

Some paper companies may be filing amended tax returns to get back large refunds from the US government.

All of the companies claimed alternative fuel credits of 50ยข a gallon for mixing black liquor, a by-product of paper making, with waste wood or diesel fuel before using the fuel. International Paper Company said in its 2011 annual report that that it amended its 2009 tax return to take the position that $1.7 billion it claimed that year in alternative fuel credits did not have to be reported as taxable income. The company could receive as much as a $580 million refund from the US Treasury, according to Tax Notes magazine.

The magazine said KapStone Paper and Packaging Corp. disclosed in its 2011 annual report that it recognized a deferred tax benefit of $63 million after closing a 2009 IRS audit. The company had set aside a reserve for that amount in case it had to pay tax on $178.3 million in black liquor credits it claimed in 2009.

Several other paper companies took the position from the start that they did not have to pay income taxes on the tax credits. These companies included Rock-Tenn Co. and Temple-Inland. In all, 19 companies disclosed claiming black liquor credits worth more than $6.4 billion. The credits were claimed in 2008 and 2009. Congress barred any further tax credits for mixing black liquor in 2010.

Section 87 of the US tax code requires that income tax credits for blending ethanol and biodiesel with other fuels must be reported as income. The tax is a way of taking back some of the benefit and reducing the revenue loss.

The paper companies claimed excise tax credits. Since the credits exceed any excise taxes owed on the fuel, the companies had the option to convert them into income tax credits or receive a refund. The IRS must have decided on audit that the refunds do not have to be reported as income.

Keith Martin