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Alternative Fuels Credit for CNG and LNG. Frank Boland IRS Chief Counsel 202-622-3130 [email protected] Overview. • The t ax Filing returns The credit Who’s eligible How to claim Recordkeeping Resources. The Tax. Federal taxing regime

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Alternative Fuels Credit for CNG and LNG

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Alternative fuels credit for cng and lng l.jpg

Alternative Fuels Creditfor CNG and LNG

Frank Boland

IRS Chief Counsel


[email protected]

Overview l.jpg


• The tax

  • Filing returns

  • The credit

    • Who’s 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 con’t.

    • 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

    • Don’t 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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    • 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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    Form 637, Application for Registration (For Certain Excise Tax Activities)

    • Available on line –

    • 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 doesn’t have mechanism now to refund CNG/LNG benefit in excess of excise tax liability

      • unless state or local gov’t or § 501(a) entity

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    • 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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    • 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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