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Alternative Fuels Credit for CNG and LNG. Frank Boland IRS Chief Counsel 202-622-3130 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

Alternative Fuels Creditfor CNG and LNG

Frank Boland

IRS Chief Counsel



• The tax

    • Filing returns
  • The credit
    • Who’s eligible
    • How to claim
  • Recordkeeping
  • Resources
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
when tax imposed
When tax imposed
  • Tax imposed on taxable sale or taxable use
taxable sale direct delivery
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
taxable sale certain bulk sales
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
taxable use
Taxable use
  • Used as fuel in motor vehicle or motorboat
  • Bought in bulk
    • No written statement given to seller
  • User liable for tax
nontaxable uses of cng lng
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
motor vehicles
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
motor vehicles con t
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
rate of tax cng
Rate of tax; CNG
  • Before 10/1/06
    • 48.54¢ per MCF
  • After 9/30/06
    • 18.3¢ per 126.67 CF
rate of tax lng
Rate of tax; LNG
  • Before 10/1/06
    • 11.9¢ per gallon
  • After 9/30/06
    • 24.3¢ per gallon
returns deposits
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)
form 720
Form 720
  • 4th Quarter 2006 Form 720 will reflect new tax rates
  • Don’t forget to file!!
    • Even if credit exceeds liability!!
alternative fuels credit
Alternative fuels credit
  • Effective October 1, 2006
  • Amount of credit:
    • CNG: 50¢ per 121 cubic feet
    • LNG: 50¢ per gallon
Be the proper claimant
  • Be registered by the IRS
  • Claim the credit
  • Maintain books & records

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

alternative fueler
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
  • 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

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
activity letters for alternative fuelers
Activity letters for alternative fuelers
  • AL: Alternative fueler (not in a mixture)
    • Propane, CNG, LNG
  • AM: Alternative fuel mixture

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


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
claiming the credit form 4136
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
oops safetea has a glitch
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
  • 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
  • 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)