The IRS has released a chief counsel advice memorandum (CCA 2014-06-001) that takes the position that refundable fuel tax credits reduce the deduction for fuel excise tax when they must first be used to offset excise tax liability. The memorandum follows earlier advice that concluded refundable fuel credits or payments do not need to be included in income or reduce the deduction for fuel expense.
Section 6426 provides various per-gallon credits for many types of fuel, such as alternative fuels (including the natural gas used in forklifts), alternative fuel mixtures, biodiesel and biodiesel mixtures. When the credits exceed fuel excise tax liability (or if there is no fuel excise tax liability), the credits can be claimed as refundable payments under Section 6427(e) or refundable income tax credits under Section 34.
The IRS concluded in an August chief counsel advice memorandum (CCA 2013-42-010) that the biodiesel tax credit did not need to be included in income or reduce fuel expense when taken as a refundable credit or payment. The analysis implied that any refundable fuel tax credit not specifically required to be included in income under the tax code did not need to be included in income or reduce fuel expense.
The new chief counsel advice memorandum (CCA 2014-06-001) takes the position that when excise tax credits under Section 6426 are first used to reduce the fuel excise tax liability under Section 4081 and Section 4041, then the income tax deduction for fuel excise taxes must be reduced by the amount of the credit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
