October 1, 2008

CC:PA:LPD:PR (REG-155087-05)

Room 5203

Internal Revenue Service

PO Box 7604

Ben Franklin Station

Washington DC 20044

Comments regarding REG-155087-05 Proposed Excise Tax Regulation issued
7/29/2008

The proposed amendment to 48.4081-1 (b) changes the definition of
Blender to "Blender means the person that has title to blended taxable
fuel immediately after it is created." The current definition has been
in use since inception with no discernable issues regarding the blending
credits. In addition, there has been no significant law change to
necessitate a change in the definition.

Should the Treasury feel a change is necessary, given the nature of
blending processes and the quick succession of title transfers common
within the petroleum industry, the definition does not clearly identify
the blender eligible for the ethanol or biodiesel blending credits
allowed. Further clarification of the term "immediately after" is
necessary and examples would allow taxpayers to determine who the
"blender" is in industry situations.

Consider the following:

**[Facts:]{.underline}**

Supplier S is a Form 637 S and M registrant.

Customer C is a Form 637 M registrant.

Exchanger X is a Form 367 S and M registrant.

Ethanol Wholesaler W is not required to hold a Form 637 registration.

In-line blending is the process where separate components are blended in
the supply lines of a terminal prior to the flange. The resulting
product as it leaves the flange contains all of the components being
blended. When ordering products at a terminal that provides in-line
blending, the transport driver enters into the order system the
resulting blended volume, not the components.

Sequential blending is the process where the majority product is first
loaded into the petroleum transport (gas), followed by the blending
component (ethanol). A small amount of the majority product is then
loaded to flush the line of the blending component. The products leave
the flange as separate products, but the terminal software controls the
loading process to ensure proper blending percentages. When ordering
products at a terminal that provides sequential blending, the transport
driver enters into the order system the resulting blended volume, not
the components. **There is no way the driver can intervene with the
loading process without shutting down the entire loading rack.**

Splash blending at a terminal is the process where the majority product
is first loaded into the petroleum transport (gas), followed by the
blending component (ethanol). A separate loading arm may be required for
each product. The products leave the flange as separate products and are
stated separately on the manifest. When ordering products at a terminal
that provides splash blending, the transport driver enters into the
order system the component volumes to be blended.

Examples where Supplier S is the taxpayer from the terminal rack and
**considers itself as the "blender" eligible for the alcohol fuel
mixture credit**:

1.  Supplier S sells gasohol to Customer C containing 10% ethanol from
    an approved IRS terminal where S is the position holder of both the
    ethanol and gasoline. The terminal provides in-line blending. C's
    transport driver selects gasohol from the terminal menu and loads
    the product. Title transfers from S to C as the product leaves the
    flange.

2.  Same facts as 1, except the terminal has sequential blending.

3.  Supplier S sells gasohol to Customer C containing 10% ethanol from
    an approved IRS terminal where S is the position holder of both the
    ethanol and gasoline. The terminal provides splash blending. C's
    transport driver selects gasoline and ethanol from the terminal menu
    and loads the product. S has an agreement with C that title does not
    transfer until both products are loaded into the transport.

4.  Supplier S sells gasohol to Customer C containing 10% ethanol from
    an approved IRS terminal where S has a two-party exchange agreement
    with X and X is the position holder of both the ethanol and
    gasoline. The terminal provides in-line blending. C's transport
    driver selects gasohol from the terminal menu and loads the product.
    Title transfers from simultaneously from X to S to C as the product
    leaves the flange.

5.  Same facts as 4, except the terminal has sequential blending.

6.  Supplier S sells gasohol to Customer C containing 10% ethanol from
    an approved IRS terminal where S has a two-party exchange agreement
    with X and X is the position holder of both the ethanol and
    gasoline. The terminal provides splash blending. C's transport
    driver selects gasoline and ethanol from the terminal menu and loads
    the product. Title transfers from X to S as the products leave the
    flange. S has an agreement with C that title does not transfer until
    both products are loaded into the transport.

7.  Supplier S sells gasohol to Customer C containing 10% ethanol from
    an approved IRS terminal where S has a two-party exchange agreement
    with Exchanger X and X is the position holder of just the gasoline.
    Wholesaler W is the position holder of the ethanol. S has a purchase
    agreement with W for the ethanol. The terminal provides in-line
    blending. C's transport driver selects gasohol from the terminal
    menu and loads the product. Title transfers from simultaneously from
    X and W to S and then to C as the product leaves the flange.

8.  Same facts as 7, except the terminal has sequential blending.

9.  Supplier S sells gasohol to Customer C containing 10% ethanol from
    an approved IRS terminal where S has a two-party exchange agreement
    with X and X is the position holder of just the gasoline. Wholesaler
    W is the position holder of the ethanol. S has a purchase agreement
    with W for the ethanol. The terminal provides splash blending. C's
    transport driver selects gasoline and ethanol from the terminal menu
    and loads the product. Title transfers from X and W to S as the
    products leave the flange. S has an agreement with C that title does
    not transfer until both products are loaded into the transport.

10. Supplier S sells gasohol to Customer C containing 10% ethanol from
    an approved IRS terminal where S has a two-party exchange agreement
    with Exchanger X and X is the position holder of just the gasoline.
    Supplier S is the position holder of the ethanol. The terminal
    provides in-line blending. C's transport driver selects gasohol from
    the terminal menu and loads the product. Title transfers from
    simultaneously from X to S on the gas portion and then to C on the
    gasohol as the product leaves the flange.

11. Same facts as 10, except the terminal has sequential blending.

12. Supplier S sells gasohol to Customer C containing 10% ethanol from
    an approved IRS terminal where S has a two-party exchange agreement
    with X and X is the position holder of just the gasoline. Supplier S
    is the position holder of the ethanol. The terminal provides splash
    blending. C's transport driver selects gasoline and ethanol from the
    terminal menu and loads the product. Title transfers from X to S as
    the gasoline leaves the flange. S has an agreement with C that title
    does not transfer until both products are loaded into the transport.

The above fact situations are a representative sample of actual
transactions that commonly occur within the petroleum industry when
marketing products from a terminal rack. They are not all inclusive and
as the industry continues to comply with the Renewable Fuel Standards,
more and different fact situations will occur.

Below the rack blending situations are not represented here, but are
just as numerous in their situations.

Without further clarification through in-depth explanation or by
providing numerous examples that a taxpayer can equate to their fact
situation, the proposed definition of "blender" does not provide any
additional guidance than the current definition. Both the taxpayers and
the Internal Revenue Service need clear and concise guidance. The
taxpayer must be able to confidently file for refunds in all situations
and the Internal Revenue Service need to be able to consistently apply
the law.

Respectfully submitted,

![](media/image1.jpeg){width="1.5034722222222223in"
height="0.5069444444444444in"}

Timothy A. Turgeon

Excise Tax Manager

CHS Inc.

P.O. Box 64089

St Paul, MN 55164

<tim.turgeon@chsinc.com>

651-355-5107