DESCRIPTION OF THE CHAIRMAN’S MODIFICATION 

TO THE PROVISIONS OF THE 

“ENERGY POLICY TAX INCENTIVES ACT OF 2005” 

Scheduled for Markup 

By the 

SENATE COMMITTEE ON FINANCE 

on June 16, 2005 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

June 16, 2005 

JCX-46-05
ii

CONTENTS 

Page

INTRODUCTION .......................................................................................................................... 1 

A. Provisions Modifying the Proposals in the Chairman’s Mark........................................ 2 

1. Modifications to item A.1 of the Chairman’s Mark relating to the renewable 

electricity production tax credit ................................................................................. 2 

2. Modification to item A.6 of the Chairman’s Mark relating to the credit for 

investment in clean coal facilities.............................................................................. 2 

3. Modification to item B.2 of the Chairman’s Mark relating to temporary 

expensing for equipment used in the refining of liquid fuels .................................... 2 

4. Modification to item B.4 of the Chairman’s Mark relating to the enhanced oil 

recovery credit for carbon dioxide injections ............................................................ 3 

5. Modification to item C.2 in the Chairman’s Mark relating to energy efficient 

new homes ................................................................................................................. 3 

6. Modification to item C.3 in the Chairman’s Mark relating to business energy 

property...................................................................................................................... 3

7. Modification to item C.4 in the Chairman’s Mark relating to nonbusiness 

energy property .......................................................................................................... 3 

8. Modification to item C.8 in the Chairman’s Mark relating to business investment 

tax credit for fuel cells and microturbines ................................................................. 3 

9. Modification to item C.9 in the Chairman’s Mark relating to business solar 

investment tax credit.................................................................................................. 3 

10. Modification to item D.1 of the Chairman’s Mark relating to the alternative 

vehicle credit.............................................................................................................. 4 

B. Additional Energy Tax Incentives .................................................................................. 5 

1. Ten-year recovery period for underground natural gas storage facilities and 

cushion gas................................................................................................................. 5 

2. Modify research credit for research relating to energy.............................................. 5 

3. Create small agri-biodiesel producer credit ............................................................... 7 

4. Modification to the small ethanol producer credit..................................................... 8 

5. Qualified recycling equipment credit......................................................................... 9 

6. Five-year carryback of net operating losses of certain electric utility companies..... 9 

7. Qualifying pollution control equipment credit ........................................................ 11 

8. Credit for production of Indian country coal ........................................................... 11 

9. Wood stoves for EPA non-attainment areas ............................................................ 12 

10. Exemption of bulk beds for farm crops from the Federal excise tax on heavy 

trucks and trailers..................................................................................................... 12 

11. National Academy of Sciences study ...................................................................... 13 

C. Revenue Raising Provisions ......................................................................................... 14 

1. Treatment of kerosene for use in aviation................................................................ 14 

2. Repeal of ultimate vendor refund claims with respect to diesel and kerosene 

used for farming purposes........................................................................................ 16
Page

ii

3. Refunds of excise taxes on exempt sales of taxable fuel by credit card.................. 17 

4. Recertification of exempt status............................................................................... 20 

5. Reregistration in event of change in ownership....................................................... 22 

6. Registration of operators of deep-draft vessels........................................................ 23 

7. Reconciliation of on-loaded cargo to entered cargo ................................................ 24 

8. Gasoline blend stocks and kerosene ........................................................................ 25 

9. Nonapplication of export exemption to delivery of fuel to motor vehicles 

removed from United States .................................................................................... 30 

10. Impose assessable penalty on dealers of adulterated fuel........................................ 31 

11. Oil Spill Liability Trust Fund .................................................................................. 32 

12. Leaking Underground Storage Tank Trust Fund..................................................... 33 
1 

INTRODUCTION 

This document,1

 prepared by the staff of the Joint Committee on Taxation, provides a 

description of the Chairman’s modification to the provisions of the “Energy Policy Tax 

Incentives Act of 2005,” which is to be marked up by the Senate Committee on Finance on June 

16, 2005. 

 1

 This document may be cited as follows: Joint Committee on Taxation, Description of the 

Chairman’s Modification to the Provisions of the “Energy Policy Tax Incentives Act of 2005” 

(JCX-46-05), June 16, 2005. 
2 

A. Provisions Modifying the Proposals in the Chairman’s Mark 

1. Modifications to item A.1 of the Chairman’s Mark relating to the renewable electricity 

production tax credit 

The Chairman’s modification extends the credit period from five years to 10 years for 

electricity produced from qualifying open-loop biomass facilities (including agricultural 

livestock waste nutrient facilities), geothermal facilities, solar facilities, small irrigation power 

facilities, landfill gas facilities, and trash combustion facilities placed in service after the date of 

enactment. The modification extends the credit period from five years to 10 years for electricity 

produced from qualifying fuel cell facilities placed in service after December 31, 2005. 

The Chairman’s modification clarifies that a qualifying trash combustion facility includes 

a new unit that increases electricity production capacity placed in service after October 22, 2004, 

at an existing trash combustion facility. 

The Chairman’s modification also includes hydropower as a qualified energy resource 

and permits taxpayers to claim a credit at one-half the 1.5 cents-per-kilowatt-hour (indexed for 

inflation rate) for electricity attributable to “incremental hydropower” produced at qualified 

hydroelectric facilities during the 10-year period commencing when the facility is placed in 

service. A qualified hydroelectric facility is a facility that produces incremental hydropower 

placed in service after the date of enactment and before January 1, 2009. “Incremental 

hydropower” is additional electricity generation achieved from increased efficiency or additions 

of capacity at an existing hydroelectric facility. A “qualified hydroelectric facility” is a FERClicensed minor diversion structure less than 10 feet in height or an existing non-hydro dam to 

which turbines or other generating devices are added to produce energy and that does not require 

enlargement of the impoundment or diversion structures in connection with the installation of the 

turbine or other generating device. All such facilities are subject to all applicable environmental 

laws and licensing and regulatory requirements. 

2. Modification to item A.6 of the Chairman’s Mark relating to the credit for investment in 

clean coal facilities 

The Chairman’s modification increases to 7,500 megawatts the amount of power 

generation capacity the Secretary of Treasury, in consultation with the Secretary of Energy, is 

authorized to allocate to qualified clean coal projects. The Secretary of Treasury must allocate 

55 percent of the total power generation capacity to credit-eligible projects that use an integrated 

gasification combined cycle technology and 45 percent to credit-eligible projects that use other 

advanced coal-based technologies. The Chairman’s modification also clarifies that lignite is a 

qualifying coal for a clean coal facility under the proposal. 

3. Modification to item B.2 of the Chairman’s Mark relating to temporary expensing for 

equipment used in the refining of liquid fuels 

The Chairman’s modification requires that as a condition of eligibility for the expensing 

of equipment used in the refining of liquid fuels, a refinery must report to the IRS concerning its 

refinery operations (e.g., production and output). 
3 

4. Modification to item B.4 of the Chairman’s Mark relating to the enhanced oil recovery 

credit for carbon dioxide injections 

The Chairman’s modification expands the definition of qualified enhanced oil recovery 

project to include “deep gas” well projects. Deep gas is natural gas produced from onshore 

formations deeper than 20,000 feet. Under the modified proposal, the credit phases out using a 

barrel of oil equivalent for natural gas calculated based on Btu content. The modified proposal 

also requires that other conforming modifications to the credit be made. The credit for enhanced 

oil recovery with respect to deep gas wells expires after December 31, 2009. 

5. Modification to item C.2 in the Chairman’s Mark relating to energy efficient new homes 

 The modification clarifies that duct sealing and infiltration reduction measures qualify 

as an energy-efficient building envelope component. 

6. Modification to item C.3 in the Chairman’s Mark relating to business energy property 

 The modification clarifies that an oil, natural gas, or propane furnace or hot water boiler 

that achieves at least 95 percent annual fuel utilization efficiency is eligible for a deduction of 

$450. The modification further clarifies that a natural gas, propane, or oil water heater must 

have an energy factor of at least 0.80 to qualify for any deduction. 

7. Modification to item C.4 in the Chairman’s Mark relating to nonbusiness energy 

property 

 The modification clarifies that an oil, natural gas, or propane furnace or hot water boiler 

that achieves at least 95 percent annual fuel utilization efficiency is eligible for a credit of $150. 

The modification further clarifies that a natural gas, propane, or oil water heater must have an 

energy factor of at least 0.80 to qualify for any credit. 

The modification also allows certified home inspectors to be eligible to provide 

certifications of the energy efficiency performance of principal residences. 

8. Modification to item C.8 in the Chairman’s Mark relating to business investment tax 

credit for fuel cells and microturbines 

For purposes of the fuel cell and microturbine investment tax credit, the modification 

removes the restriction that prohibits telecommunication utilities from claiming the credit. 

9. Modification to item C.9 in the Chairman’s Mark relating to business solar investment 

tax credit 

 The modification makes hybrid solar lighting systems eligible solar energy property for 

purposes of the section 48 energy credit. 
4 

10. Modification to item D.1 of the Chairman’s Mark relating to the alternative vehicle 

credit 

The Chairman’s modification changes the applicable emissions standards for a hybrid 

vehicle with a gross vehicle weight rating greater than 6,000 pounds and less than or equal to 

8,500 pounds from Bin 8 Tier II to Bin 5 Tier II. 
5 

B. Additional Energy Tax Incentives 

1. Ten-year recovery period for underground natural gas storage facilities and cushion gas 

Present Law

Under present law, depreciation allowances for property used in a trade or business 

generally are determined under the Modified Accelerated Cost Recovery System (“MACRS”). 

Under MACRS, natural gas storage facilities and related equipment have a class life of 22 years 

and a recovery period of 15 years. 

Cushion gas is the minimum volume of natural gas necessary to provide the pressure to 

facilitate the flow of gas from a storage reservoir to a pipeline. Recoverable cushion gas will be 

available for sale or other use upon abandonment of the storage reservoir, while nonrecoverable 

cushion gas will become obsolete with that abandonment. Under present law, the tax treatment 

of cushion gas depends on whether such gas is recoverable. The quantity of cushion gas that is 

recoverable is not subject to depreciation because it is not subject to exhaustion, wear, tear, or 

obsolescence. Conversely, non-recoverable cushion gas is subject to obsolescence and is 

therefore subject to tax depreciation. The depreciable life of non-recoverable cushion gas is also 

15 years. 

Description of Proposal

The proposal reclassifies underground natural gas storage facilities and nonrecoverable 

cushion gas as ten-year MACRS property. The present law treatment of recoverable cushion gas 

remains unchanged. 

Effective Date

The proposal applies to property placed in service after the date of enactment, the original 

use of which commences with the taxpayer. 

2. Modify research credit for research relating to energy 

Present Law

General rule

Section 41 provides for a research tax credit equal to 20 percent of the amount by which a 

taxpayer’s qualified research expenses for a taxable year exceed its base amount for that year. 

The research tax credit is scheduled to expire and generally will not apply to amounts paid or 

incurred after December 31, 2005. 

A 20-percent research tax credit also applies to the excess of (1) 100 percent of corporate 

cash expenses (including grants or contributions) paid for basic research conducted by 

universities (and certain nonprofit scientific research organizations) over (2) the sum of (a) the 

greater of two minimum basic research floors plus (b) an amount reflecting any decrease in 

nonresearch giving to universities by the corporation as compared to such giving during a fixed-
6 

base period, as adjusted for inflation. This separate credit computation is commonly referred to 

as the university basic research credit (see sec. 41(e)). 

Alternative incremental research credit regime

Taxpayers are allowed to elect an alternative incremental research credit regime. If a 

taxpayer elects to be subject to this alternative regime, the taxpayer is assigned a three-tiered 

fixed-base percentage (that is lower than the fixed-base percentage otherwise applicable under 

present law) and the credit rate likewise is reduced. Under the alternative credit regime, a credit 

rate of 2.65 percent applies to the extent that a taxpayer’s current-year research expenses exceed 

a base amount computed by using a fixed-base percentage of one percent (i.e., the base amount 

equals one percent of the taxpayer’s average gross receipts for the four preceding years) but do 

not exceed a base amount computed by using a fixed-base percentage of 1.5 percent. A credit 

rate of 3.2 percent applies to the extent that a taxpayer’s current-year research expenses exceed a 

base amount computed by using a fixed-base percentage of 1.5 percent but do not exceed a base 

amount computed by using a fixed-base percentage of two percent. A credit rate of 3.75 percent 

applies to the extent that a taxpayer’s current-year research expenses exceed a base amount 

computed by using a fixed-base percentage of two percent. An election to be subject to this 

alternative incremental credit regime may be made for any taxable year beginning after June 30, 

1996, and such an election applies to that taxable year and all subsequent years unless revoked 

with the consent of the Secretary of the Treasury. 

Eligible expenses

Qualified research expenses eligible for the research tax credit consist of: (1) in-house 

expenses of the taxpayer for wages and supplies attributable to qualified research; (2) certain 

time-sharing costs for computer use in qualified research; and (3) 65 percent of amounts paid or 

incurred by the taxpayer to certain other persons for qualified research conducted on the 

taxpayer’s behalf (so-called contract research expenses). In the case of amounts paid to a 

research consortium, 75 percent of amounts paid for qualified research is treated as qualified 

research expenses eligible for the research credit (rather than 65 percent under the general rule) if 

(1) such research consortium is a tax-exempt organization that is described in section 501(c)(3) 

(other than a private foundation) or section 501(c)(6) and is organized and operated primarily to 

conduct scientific research, and (2) such qualified research is conducted by the consortium on 

behalf of the taxpayer and one or more persons not related to the taxpayer. 

To be eligible for the credit, the research must not only satisfy the requirements of 

present-law section 174 for the deduction for research expenses, but must be undertaken for the 

purpose of discovering information that is technological in nature, the application of which is 

intended to be useful in the development of a new or improved business component of the 

taxpayer, and substantially all of the activities of which must constitute elements of a process of 

experimentation for functional aspects, performance, reliability, or quality of a business 

component. 
7 

Description of Proposal

The proposal modifies the present-law research credit as it applies to qualified energy 

research. In particular, the proposal provides that the taxpayer may claim a credit equal to 20 

percent of the taxpayer’s expenditures on qualified energy research undertaken by an energy 

research consortium. The amount of credit claimed is determined only by regard to such 

expenditures by the taxpayer within the taxable year. Unlike the general rule for the research 

credit, the 20-percent credit for research by an energy research consortium applies to all such 

expenditures, not only those in excess of a base amount however determined. An energy 

research consortium is a qualified research consortium as under present law that also is organized 

and operated primarily to conduct energy research and development in the public interest and to 

which at least five unrelated persons paid, or incurred amounts, to such organization within the 

calendar year. In addition, to be a qualified energy research consortium, no single person shall 

pay or incur more than 50 percent of the total amounts received by the research consortium 

during the calendar year. 

The proposal also provides that 100 percent of amounts paid or incurred by the taxpayer 

to eligible small businesses, universities, and the Federal government for qualified energy 

research would constitute qualified research expenses as contract research expenses, rather than 

65 percent of qualified research expenditures allowed under present law. An eligible small 

business for this purpose is a business in which the taxpayer does not own a 50 percent or greater 

interest and the business has employed, on average, 500 or fewer employees in the two preceding 

calendar years. 

Qualified energy research expenditures are expenditures that would otherwise qualify for 

the research credit under present law and relate to the production, supply, and conservation of 

energy, including otherwise qualifying research expenditures related to alternative energy 

sources or the use of alternative energy sources. For example, research relating to hydrogen fuel 

cell vehicles would qualify under this proposal, if the research expenditures otherwise satisfy the 

criteria of present-law section 41. Likewise, otherwise qualifying research undertaken to 

improve the energy-efficiency of lighting would qualify under this proposal. 

Effective Date

The proposal is effective for amounts paid or incurred after the date of enactment in 

taxable years ending after such date. 

3. Create small agri-biodiesel producer credit 

Present Law

Biodiesel income tax credit 

The Code provides an income tax credit for biodiesel and qualified biodiesel mixtures, 

the biodiesel fuels credit. The biodiesel fuels credit is the sum of the biodiesel mixture credit 

plus the biodiesel credit and is treated as a general business credit. The amount of the biodiesel 

fuels credit is includible in gross income. The biodiesel fuels credit is coordinated to take into 

account benefits from the biodiesel excise tax credit and payment provisions created by the Act. 
8 

The credit may not be carried back to a taxable year ending before or on December 31, 2004. 

The provision does not apply to fuel sold or used after December 31, 2006. 

Biodiesel is monoalkyl esters of long chain fatty acids derived from plant or animal 

matter that meet (1) the registration requirements established by the EPA under section 211 of 

the Clean Air Act and (2) the requirements of the American Society of Testing and Materials 

D6751. Agri-biodiesel is biodiesel derived solely from virgin oils including oils from corn, 

soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice 

bran, mustard seeds, or animal fats. 

Biodiesel may be taken into account for purposes of the credit only if the taxpayer 

obtains a certification (in such form and manner as prescribed by the Secretary) from the 

producer or importer of the biodiesel which identifies the product produced and the percentage of 

the biodiesel and agri-biodiesel in the product. 

The biodiesel income tax credit does not contain any incentives for small producers. 

Small ethanol producer credit

Present law provides several tax benefits for ethanol and methanol produced from 

renewable sources that are used as a motor fuel or that are blended with other fuels (e.g., 

gasoline) for such a use. In the case of ethanol, a separate 10-cents-per-gallon credit for up to 15 

million gallons per year for small producers, defined generally as persons whose production does 

not exceed 15 million gallons per year and whose production capacity does not exceed 30 

million gallons per year. The alcohol fuels tax credits are includible in income. The alcohol 

fuels tax credit is scheduled to expire after December 31, 2010. 

Description of Proposal

The proposal adds to the biodiesel fuels credit a small agri-biodiesel producer credit. The 

credit is a 10-cents-per-gallon credit for up to 15 million gallons of biodiesel produced by small 

producers, defined generally as persons whose production capacity does not exceed 60 million 

gallons per year. 

Effective Date

The proposal is effective for taxable years ending after the date of enactment. 

4. Modification to the small ethanol producer credit 

Present Law

Present law provides several tax benefits for ethanol and methanol that are used as a fuel 

or that are blended with other fuels (e.g., gasoline) for such a use. For example, the Code 

provides an income tax credit for alcohol and alcohol-blended fuels. In the case of ethanol, the 
9 

Code provides an additional 10-cents-per-gallon credit for small producers, defined generally as 

persons whose production capacity does not exceed 30 million gallons per year.2

 

Description of Proposal

The proposal increases the limit on production capacity for small ethanol producers from 

30 million gallons to 60 million gallons per year. 

Effective Date

The proposal is effective for taxable years ending after the date of enactment. 

5. Qualified recycling equipment credit 

Present Law

There is no present law credit for qualified recycling equipment. 

Description of Proposal

The proposal provides a 15-percent business tax credit for the cost of qualified recycling 

equipment placed in service or leased by the taxpayer. Qualified recycling equipment means 

equipment, including connecting piping, employed in sorting or processing residential and 

commercial qualified recyclable materials for the purpose of converting such materials for use in 

manufacturing tangible consumer products, including packaging. Such term includes equipment 

that is utilized at commercial or public venues, including recycling collection centers, where the 

equipment is utilized to sort or process qualified recyclable materials for such purpose. Such 

term does not include rolling stock or other equipment used to transport recyclable materials. 

Qualified recyclable materials are any packaging or printed material which is glass, 

paper, plastic, steel, or aluminum generated by an individual or business and which has been 

separated from solid waste for the purposes of collection and recycling. 

Effective Date

The proposal is effective for taxable years beginning after December 31, 2005. 

6. Five-year carryback of net operating losses of certain electric utility companies 

Present Law

A net operating loss (“NOL”) is, generally, the amount by which a taxpayer’s allowable 

deductions exceed the taxpayer’s gross income. A carryback of an NOL generally results in the 

 2

 Secs. 40(b)(4) and (g)(1). The alcohol fuels tax credit (which is comprised of the small ethanol 

producer credit, the alcohol mixture credit, and the alcohol credit) is scheduled to expire after December 

31, 2010 (sec. 40(e)(1)). 
10 

refund of Federal income tax for the carryback year. A carryforward of an NOL reduces Federal 

income tax for the carryforward year. 

In general, an NOL may be carried back two years and carried forward 20 years to offset 

taxable income in such years.3

 Different rules apply with respect to NOLs arising in certain 

circumstances. For example, a three-year carryback applies with respect to NOLs (1) arising 

from casualty or theft losses of individuals, or (2) attributable to Presidentially declared disasters 

for taxpayers engaged in a farming business or a small business. A five-year carryback period 

applies to NOLs from a farming loss (regardless of whether the loss was incurred in a 

Presidentially declared disaster area). Special rules also apply to real estate investment trusts (no 

carryback), specified liability losses (10-year carryback), and excess interest losses (no carryback 

to any year preceding a corporate equity reduction transaction). 

Section 202 of the Job Creation and Worker Assistance Act of 20024

 (“JCWAA”) 

provided a temporary extension of the general NOL carryback period to five years (from two 

years) for NOLs arising in taxable years ending in 2001 and 2002. In addition, the five-year 

carryback period applies to NOLs from these years that qualify under present law for a threeyear carryback period (i.e., NOLs arising from casualty or theft losses of individuals or 

attributable to certain Presidentially declared disaster areas). 

A taxpayer can elect to forgo the five-year carryback period. The election to forgo the 

five-year carryback period is made in the manner prescribed by the Secretary of the Treasury and 

must be made by the due date of the return (including extensions) for the year of the loss. The 

election is irrevocable. If a taxpayer elects to forgo the five-year carryback period, then the 

losses are subject to the rules that otherwise would apply under section 172 absent the provision. 

Description of Proposal

The proposal provides a temporary extension of the NOL carryback period to five years 

for NOLs of certain electric utility companies arising in taxable years ending in 2003, 2004, and 

2005 (“eligible NOLs”). Regardless of the taxable year in which an eligible NOL arose, refund 

claims resulting from the extended carryback period can be made during any taxable year ending 

after December 31, 2005, and before December 31, 2008. However, the amount of the refund 

claimed during any one taxable year may not exceed the electric utility company’s investment in 

electric transmission property and pollution control facilities in the preceding taxable year. 

Taxpayers may elect to forgo the five-year carryback period provided under the proposal if an 

election is filed before December 31, 2008. 

Effective Date

The proposal is effective for refund claims resulting from net operating losses generated 

in taxable years ending in 2003, 2004, and 2005. 

 3

 Sec. 172. 

4

 Pub. Law No. 107-147. 
11 

7. Qualifying pollution control equipment credit 

Present Law

The investment credit is the sum of the rehabilitation credit, and the energy credit. The 

investment credit is part of the general business credit. 

Description of Proposal

The proposal adds a credit for qualifying pollution control equipment to the investment 

credit. The qualifying pollution control equipment credit provides a 15-percent tax credit for 

qualifying pollution control equipment placed in service at a qualifying facility during the 

taxable year. Qualifying pollution control equipment means any technology that is installed in or 

on a qualifying facility to reduce air emissions of any pollutant regulated by the EPA under the 

Clean Air Act, including thermal oxidizers, scrubber systems, vapor recovery systems, low nitric 

oxide burners, flare systems, bag houses, cyclones, and continuous emission monitoring systems. 

A qualifying facility is a facility that produces not less than 1 million gallons of ethanol during 

the taxable year. For depreciation purposes, the basis of qualifying pollution control equipment 

would be reduced by 50 percent of the value of the credit. 

Effective Date

The credit is available for property placed in service after date of enactment. 

8. Credit for production of Indian country coal 

Present Law

Present law provides two income tax incentives for businesses operating within Indian 

reservations: (1) accelerated depreciation with respect to certain non-gaming property used in a 

trade or business within an Indian reservation (sec. 168(j)); and (2) a nonrefundable income tax 

credit to employers on the first $20,000 of qualified wages and health care costs paid to certain 

members of Indian tribes (or their spouses) who work on or near an Indian reservation and who 

earn less than $30,000 per year (adjusted for inflation beginning in 1993) (sec. 45A). Both 

credits expire after December 31, 2005. 

Present law does not provide a credit for the production of coal from coal reserves owned 

by an Indian tribe. 

Description of Proposal

The proposal establishes a nontransferable credit (indexed for inflation after 2006) for 

“Indian Country Coal” sold to a utility or other entity that operates a utility unit. Indian Country 

Coal is defined as coal delivered to a purchaser by common carrier railroad or highway truck, 

that is produced from coal reserves owned by a Federally recognized tribe of Indians, including 

coal held in trust by the United States for the tribe or its members. The amount of the credit 

equals $1.50 per ton for coal sold in 2006 through 2010 and $2.00 per ton for coal sold after 
12 

2010. No credit is allowed for sales after 2012. The credit is allowed against the alternative 

minimum tax. 

Effective Date

The proposal applies to Indian Country Coal sold to a utility or utility unit after 

December 31, 2005. 

9. Wood stoves for EPA non-attainment areas 

Present Law

There is no present-law tax credit related to wood stoves. 

Description of Proposal

The proposal provides a $500 credit for the replacement of a non-compliant wood stove 

with a stove that complies with Environmental Protection Agency (“EPA”) emission 

performance standards. In general, a non-compliant wood stove is any wood stove purchased 

prior to June 30, 1992. Stoves produced after June 30, 1992 must comply with EPA’s 

“Standards of Performance for Residential Wood Heaters.” The credit is only available for 

replacements that occur in areas designated by the EPA as non-attainment areas for particulate 

matter less than 2.5 micrometers in diameter or non-attainment areas for particulate matter less 

than 10 micrometers in diameter. 

Effective Date

The credit applies to wood stoves purchased after the date of enactment and before 

January 1, 2009. 

10. Exemption of bulk beds for farm crops from the Federal excise tax on heavy trucks and 

trailers 

The Code imposes a 12-percent excise tax on the first retail sale of heavy trucks and 

trailers (chassis and bodies.5

 Under present law, the tax on the first retail sale of automobile 

truck bodies does not apply to any body primarily designed (1) to process or prepare seed, feed, 

or fertilizer for use on farms, (2) to haul feed, seed, or fertilizer to and on farms, (3) to spread 

feed, seed, or fertilizer on farms, (4) to load or unload feed, seed, or fertilizer on farms, or (5) for 

any combination of the foregoing.6

 5

 Sec. 4051(a). 

6

 Sec. 4053(2). 
13 

Description of Proposal

The proposal exempts bulk beds used for transporting farm crops to and on farms from 

the excise tax on the retail sale heavy trucks and trailers if sold to a person who certifies to the 

seller that such person is actively engaged in the trade or business of farming and the primary use 

of the bulk bed is to haul to and on farms farm crops grown in connection with such trade or 

business. The proposal provides for the recapture of the tax from the purchaser upon resale of 

within two years of the first retail sale, or if such purchaser makes substantial nonexempt use of 

the article. 

Effective Date

The proposal is effective for sales after September 30, 2005. 

11. National Academy of Sciences study 

Present Law

Present law does not provide for a study of the health, environmental, security, and 

infrastructure external costs that may be associated with the use and production of energy. 

Description of Proposal

The proposal requires the Secretary of Treasury to enter into an agreement, within 60 

days, with the National Academy of Sciences to conduct a study to define and evaluate the 

health, environmental, security, and infrastructure external costs and benefits associated with 

energy activities that are not or may not be fully incorporated into the price of such activities, or 

into the Federal tax or fee or other applicable revenue measure related to such activities. The 

results of the study are to be submitted to Congress within two years of the agreement. 

Effective Date

The proposal is effective on the date of enactment. 
14 

C. Revenue Raising Provisions 

1. Treatment of kerosene for use in aviation 

Present Law

In general, aviation-grade kerosene is taxed at a rate of 21.8 cents per gallon upon 

removal of such fuel from a refinery or terminal (or entry into the United States).7

 Aviationgrade kerosene may be removed at a reduced rate, either 4.3 or zero cents per gallon, if the 

aviation fuel is removed directly into the fuel tank of an aircraft for use in commercial aviation8

or for a use that is exempt from the tax imposed by section 4041(c) (other than by reason of a 

prior imposition of tax),9

 or is removed or entered as part of an exempt bulk transfer.10 These 

taxes are credited to the Airport and Airway Trust Fund.11 If taxed aviation-grade kerosene is 

used for a nontaxable use, a claim for credit or refund may be made.12 Such claims are paid from 

the Airport and Airway Trust Fund to the general fund of the Treasury.13 All other removals and 

entries of kerosene used for surface transportation are taxed at the diesel tax rate of 24.3 cents 

per gallon,14 and these taxes are credited to the Highway Trust Fund.15 If aviation-grade 

 7

 Sec. 4081(a)(2)(A)(iv). (An additional 0.1 cent is imposed on aviation-grade kerosene and 

credited to the Leaking Underground Storage Tank (“LUST” Trust Fund). Sec. 4081(a)(2)(B). The 

LUST Trust Fund tax is set to expire after September 30, 2005. Sec. 4081(d)(3). 

8

 Sec. 4081(a)(2)(C). 

9

 Sec. 4082(e). Exempt uses include use in commercial aviation as supplies for vessels or 

aircraft, which includes use by certain foreign air carriers and for the international flights of domestic 

carriers. Secs. 4082(e), 6427(l)(2), and 4221(d)(3), 

10 Sec. 4081(a)(1)(B). 

11 Sec. 9502(b)(1)(C). 

12 Sec. 6427(l)(4). Nontaxable uses include: (1) use other than as fuel in an aircraft (such as use 

in heating oil); (2) use on a farm for farming purposes; (3) use in a military aircraft owned by the United 

States or a foreign country; (4) use in a domestic air carrier engaged in foreign trade or trade between the 

United States and any of its possessions; (5) use in a foreign air carrier engaged in foreign trade or trade 

between the United States and any of its possessions (but only if the foreign carrier’s country of 

registration provides similar privileges to United States carriers); (6) exclusive use of a State or local 

government; (7) sales for export, or shipment to a United States possession; (8) exclusive use by a 

nonprofit educational organization; (9) use by an aircraft museum exclusively for the procurement, care, 

or exhibition of aircraft of the type used for combat or transport in World War II; and (10) use as a fuel in 

a helicopter or a fixed-wing aircraft for purposes of providing transportation with respect to which certain 

requirements are met. Secs. 4041(f)(2), 4041(g), 4041(h), 4041(l), and 6427(l)(2)(B)(i). 

13 Sec. 9502(d)(2). 

14 Sec. 4081(a)(2)(iii). 

15 Sec. 9503(b)(1)(D). 
15 

kerosene is taxed upon removal or entry but used for surface transportation, the taxes remain in 

the Airport and Airway Trust Fund, and the Highway Trust Fund is not credited for the taxes on 

such fuel. 

Description of Proposal

The proposal imposes the diesel tax rate of 24.3 cents per gallon upon the entry or 

removal of aviation-grade kerosene. The present law reduced-rates for removals of aviationgrade kerosene directly into the fuel tank of an aircraft apply,16 except that in addition, under the 

proposal, if kerosene is removed directly into the fuel tank of an aircraft for use in aviation other 

than commercial aviation, the rate of tax is 21.8 cents per gallon. The rate is also 21.8 cents per 

gallon for the removal of aviation-grade kerosene at the following airports: Miami International 

Airport (T-65-FL-2159), LaGuardia (T-11-NY-1335), and Cleveland North (T-34-OH-3175). 

The proposal provides that amounts may be claimed as credits or refunds for kerosene 

that is used for aviation purposes. If kerosene is used for noncommercial aviation, the amount is 

2.5 cents; if kerosene is used for commercial aviation, the amount is 20 cents; if kerosene is used 

for a use that is exempt from tax (as determined under present law), the amount is 24.3 cents. 

Present law rules with respect to claims apply, except for claims with respect to kerosene used in 

noncommercial aviation, which are payable to the ultimate vendor only. To be eligible to 

receive a payment, a vendor must be registered and must show either that the price of the fuel did 

not include the tax and the tax was not collected from the purchaser, the amount of tax was 

repaid to the ultimate purchaser, or the written consent of the purchaser to the making of the 

claim was filed with the Secretary. 

Under the proposal, all taxes collected at the 24.3 cents per gallon rate (under section 

4081) initially are credited to the Highway Trust Fund. The proposal requires the Secretary to 

transfer at least monthly from the Highway Trust Fund into the Airport and Airway Trust Fund 

amounts equivalent to 21.8 cents per gallon for claims made with respect to kerosene used for 

noncommercial aviation purposes and 4.3 cents per gallon for claims made with respect to 

kerosene used for commercial aviation purposes. The proposal requires that transfers be made 

on the basis of estimates by the Secretary, with proper adjustments to be made subsequently to 

the extent prior estimates were in excess of or less than the amounts required to be transferred. 

Transfers are required to be made with respect to taxes received on or after October 1, 2005, and 

before October 1, 2011. 

 16 For example, for kerosene removed directly into the fuel tank of an aircraft for use in 

commercial aviation by a person registered for such use, the rate of tax is 4.3 cents per gallon. Kerosene 

removed directly into the fuel tank of an aircraft for an exempt use is not taxed. For purposes of these 

reduced rates, it is intended that the following airports be included on the Secretary’s expanded list of 

airports that include a secured area in which a terminal is located: Los Angeles International Airport 

(T-95-CA-4812) and Federal Express Corporation Memphis (T-62-TN-2220).
16 

Effective Date

The provision is effective for fuels or liquids removed, entered, or sold after September 

30, 2005. 

2. Repeal of ultimate vendor refund claims with respect to diesel and kerosene used for 

farming purposes 

Present Law

Ultimate purchaser refunds for nontaxable uses 

In general, the Code provides that if diesel fuel or kerosene on which tax has been 

imposed is used by any person in a nontaxable use, the Secretary is to refund (without interest) to 

the ultimate purchaser the amount of tax imposed.17 The refund is made to the ultimate 

purchaser of the taxed fuel by either income tax credit or refund payment.18 Not more than one 

claim may be filed by any person with respect to fuel used during its taxable year. However, 

there are exceptions to this rule. 

An ultimate purchaser may make a claim for a refund payment for any quarter of a 

taxable year for which the purchaser can claim at least $750.19 If the purchaser cannot claim at 

least $750 at the end of quarter, the amount can be carried over to the next quarter to determine if 

the purchaser can claim at least $750. If the purchaser cannot claim at least $750 at the end of 

the taxable year, the purchaser must claim a credit on the person’s income tax return. 

As discussed below, these ultimate purchaser refund rules do not apply to diesel fuel or 

kerosene used on a farm. The Code precludes the ultimate purchaser from claiming a refund for 

such use. Instead, the refund claims are made by registered ultimate vendors as described below. 

Special ultimate vendor rule for fuel used on a farm for farming purposes

In the case of diesel fuel or kerosene used on a farm for farming purposes refund 

payments are paid to the ultimate, registered vendors (“registered ultimate vendor”) of such 

fuels. Thus a registered ultimate vendor that sells undyed diesel fuel or undyed kerosene to any 

of the following may make a claim for refund: (1) the owner, tenant, operator of a farm for use 

by that person on a farm for farming purposes; and (2) a person other than the owner, tenant, or 

operator of a farm for use by that person on a farm in connection with cultivating, raising or 

harvesting. The registered ultimate vendor is the only person who may make the claim with 

 17 Sec. 6427(l)(1). 

18 Generally, refund payments are only made to governmental units and tax-exempt 

organizations. Sec. 6427(k). The quarterly payment claim rules for ultimate purchasers are an exception 

to this rule. 

19 Sec. 6427(i)(2). 
17 

respect to diesel fuel or kerosene used on a farm for farming purposes. The purchaser of the fuel 

cannot make the claim for refund. 

Registered ultimate vendors may make weekly claims if the claim is at least $200 ($100 

or more in the case of kerosene).20 If not paid within 45 days (20 days for an electronic claim), 

the Secretary is to pay interest on the claim. 

Description of Proposal 

The proposal repeals ultimate vendor refund claims in the case of diesel fuel or kerosene 

used on a farm for farming purposes. Thus, refunds for taxed diesel fuel or kerosene used on a 

farm for farming purposes are paid to the ultimate purchaser under the rules applicable to 

nontaxable uses of diesel fuel or kerosene. 

Effective Date

The proposal is effective for sales after September 30, 2005. 

3. Refunds of excise taxes on exempt sales of taxable fuel by credit card 

Present Law

Under the rules in effect prior to 2005, in the case of gasoline on which tax had been paid 

and sold to a State or local government, to a nonprofit educational organization, for supplies for 

vessels or aircraft, for export, or for the production of special fuels, the wholesale distributor that 

sold such gasoline was treated as the only person who paid the tax and thereby was the proper 

claimant for a credit or refund of the tax paid. A “wholesale distributor” included any person, 

other than an importer or producer, who sold gasoline to producers, retailers, or to users who 

purchased in bulk quantities and accepted delivery into bulk storage tanks. A wholesale 

distributor also included any person who made retail sales of gasoline at 10 or more retail motor 

fuel outlets. 

Under a special administrative exception to these rules, a sale of gasoline charged on an 

oil company credit card issued to an exempt person described above is not considered a direct 

sale by the person actually selling the gasoline to the ultimate purchaser if the seller receives a 

reimbursement of the tax from the oil company (or indirectly from an intermediate vendor). 

Thus, the person that actually paid the tax, in most cases the oil company, is treated as the only 

person eligible to make the refund claim.21

 20 Sec. 6427(i)(4)(A). 

21 Notice 89-29, 1989-1 C.B. 669. 
18 

The American Jobs Creation Act of 2004 (“AJCA”)22 modified the pre-existing statutory 

rules with respect to certain sales. Under AJCA, if a registered ultimate vendor purchases any 

gasoline on which tax has been paid and sells such gasoline to a State or local government or to a 

nonprofit educational organization, for its exclusive use, such ultimate vendor is treated as the 

only person who paid the tax and thereby is the proper claimant for a credit or refund of the tax 

paid.23 However, AJCA did not change the special administrative oil company credit card rule 

described above.24

In addition, under AJCA, refund claims made by such an ultimate vendor may be filed 

for any period of at least one week for which $200 or more is payable. Any such claim must be 

filed on or before the last day of the first quarter following the earliest quarter included in the 

claim. The Secretary must pay interest on refunds unpaid after 45 days. If the refund claim was 

filed by electronic means, and the ultimate vendor has certified to the Secretary for the most 

recent quarter of the taxable year that all ultimate purchasers of the vendor are certified for 

highway exempt use as a State or local government or a nonprofit educational organization, 

refunds unpaid after 20 days must be paid with interest.25

In the case of diesel fuel or kerosene used in a nontaxable use, the ultimate purchaser is 

generally the only person entitled to claim a refund of excise tax.26 However, in the case of 

diesel fuel or kerosene used on a farm for farming purposes or by a State or local government, 

aviation-grade kerosene, and certain nonaviation-grade kerosene, an ultimate vendor may claim 

the refund if the ultimate vendor is registered and bears the tax (or receives the written consent of 

the ultimate purchaser to claim the refund).27

Description of Proposal

The proposal replaces the oil company credit card rule with a new set of rules applicable 

to certain credit card sales. The new rules apply to gasoline, diesel fuel, and kerosene. Under 

the proposal, if a purchase of taxable fuel is made by means of a credit card issued to an ultimate 

purchaser that is either a State or local government or, in the case of gasoline, a nonprofit 

educational organization, for its exclusive use, a credit card issuer who is registered and who 

 22 Pub. L. No. 108-357. 

23 AJCA, sec. 865(a), effective January 1, 2005. See Code sec. 6416(a)(4)(A). 

24 In Notice 2005-4, 2005-2 I.R.B. 289, the Treasury Department confirmed that it would 

continue to apply the oil company credit card rule until March 1, 2005. On February 28, 2005, the 

Treasury Department issued Notice 2005-24, 2005-12 I.R.B. 1, modifying Notice 2005-4. Notice 2005-

24 stated that the oil company credit card rule will remain in effect until it is modified by a statutory 

change or by future guidance. 

25 Sec. 6146(a)(4)(B). 

26 Sec. 6427(l)(1). 

27 See secs. 6427(l)(4)(B), (l)(5)(B), and (l)(5)(C), and sec. 6416(a)(1)(A), (B), and (D). 
19 

extends such credit to the ultimate purchaser with respect to such purchase shall be the only 

person entitled to apply for a credit or refund if the following two conditions are met: (1) such 

registered person has not collected the amount of the tax from the purchaser, or has obtained the 

written consent of the ultimate purchaser to the allowance of the credit or refund; and (2) such 

registered person has either repaid or agreed to repay the amount of the tax to the ultimate 

vendor, has obtained the written consent of the ultimate vendor to the allowance of the credit or 

refund, or has otherwise made arrangements that directly or indirectly assure the ultimate vendor 

of reimbursement of such tax. It is anticipated that such indirect arrangements may consist of the 

contractual undertaking of the relevant oil company to the credit card company that it will cover 

over the tax to the ultimate vendor, and the corresponding contractual undertaking of the oil 

company to the ultimate vendor. 

If a credit card issuer is not registered, or if either condition (1) or (2) above is not met, 

then the credit card issuer must collect an amount equal to the tax from the ultimate purchaser, 

and only the ultimate purchaser may claim a credit or payment from the IRS.28 Thus, tax-paid 

fuel must not be sold tax free to an exempt entity by means of a credit card unless the credit card 

issuer is registered. An unregistered credit card issuer that does not collect an amount equal to 

the tax from the exempt entity is liable for present-law penalties for failure to register.29 It is 

intended that the IRS will review the registration of a registered credit card issuer that has 

engaged in multiple violations of the requirements of the proposal. 

A credit card issuer entitled to claim a refund under the proposal is responsible for 

supplying all the appropriate documentation currently required from ultimate vendors. The 

present-law refund amount and timing rules applicable to ultimate vendors, including the special 

rules for electronic claims, apply to refunds to credit card issuers under the proposal.30

The proposal also conforms present-law penalty provisions to the new rules. 

The proposal does not change the present-law rules applicable to non-credit card 

purchases. 

Effective Date

The proposal is effective for sales after December 31, 2005. 

 28 See sec. 6421(c). 

29 See secs. 6719, 7232, and 7272. 

30 See sec. 6416(a)(4)(B). Present law would continue to apply to the timing of ultimate 

purchaser claims. Under present law, claims by an ultimate purchaser are generally made on an annual 

basis. However, claims aggregating over $750 may be made quarterly. See secs. 6421(d) and 6427(i)(2). 
20 

4. Recertification of exempt status 

Present Law

If gasoline is sold to any person for an exempt use, an ultimate purchaser that has borne 

the tax is entitled to claim a refund.31 However, a registered ultimate vendor is the appropriate 

person to claim a refund of Federal excise taxes on gasoline sold to a State or local government 

or to a nonprofit educational organization.32

In general, in order to claim a refund of Federal excise taxes on gasoline (and on other 

articles subject to manufacturers excise taxes under Chapter 32 of the Code) sold to a State or 

local government or to a nonprofit educational organization, for its exclusive use, a claimant 

must submit a statement indicating that it possesses evidence of the exempt use giving rise to the 

overpayment of tax.33 Such evidence consists of a certificate executed and signed by the 

ultimate purchaser. The ultimate purchaser certificate must be signed by the ultimate purchaser 

and must identify the article, show the name and address of the ultimate purchaser, and state the 

exempt use made or to be made of the article. In the case where the certificate sets forth the use 

to be made of the article, rather than its actual use, it must show that the ultimate purchaser has 

agreed to notify the claimant if the article is not in fact used as specified in the certificate.34 

However, if the article to which the claim relates has passed through a chain of sales from 

the claimant to the ultimate purchaser, a certificate from the ultimate vendor is sufficient. The 

ultimate vendor certificate contains the exempt sales information, and a statement that it 

possesses the ultimate purchaser certificates and will forward them to the claimant within three 

years from the date of the statement. An ultimate vendor statement may be made covering no 

more than 12 consecutive calendar quarters.35

In general, an ultimate purchaser is the proper party to claim a refund of Federal excise 

tax on diesel fuel or kerosene used by any person in a nontaxable use.36 However, in the case of 

diesel or kerosene used by a State or local government, the ultimate vendor is the proper person 

 31 Sec. 6421(c). 

32 Sec. 6416(a)(4)(A). 

33 Treas. Reg. sec. 48.6416(b)(2)-3(a)(5). 

34 Treas. Reg. sec. 48.6416(b)(2)-3(b)(1)(i) and (ii). The certificate must also contain a statement 

that the ultimate purchaser understands that it and any other party may, for fraudulent use of the 

certificate, be subject under section 7201 to a fine of not more than $10,000, or imprisonment for not 

more than five years, or both, together with the costs of prosecution. 

35 Treas. Reg. sec. 48.6416(b)(2)-3(b)(1)(i) and (iii). 

36 Sec. 6427(l)(1). In the case of diesel fuel or kerosene, a nontaxable use is any use which is 

exempt from the tax imposed by section 4041(a)(1) other than by reason of a prior imposition of tax. Sec. 

6427(l)(2). 
21 

if such vendor is registered and has borne the tax.37 A registered ultimate vendor claiming a 

refund under this provision must provide a statement that it has in its possession an unexpired 

exemption certificate of the purchaser and that the claimant has no reason to believe any 

information in the certificate is false.38

A State or local government includes any political subdivision of a State, or the District 

of Columbia.39 A nonprofit educational organization means an educational organization which 

normally maintains a regular faculty and curriculum and normally has a regularly enrolled body 

of pupils or students in attendance at the place where its educational activities are regularly 

carried on, and which is either exempt from income tax under section 501(a) or is a school 

operated as an activity of an organization described in section 501(c)(3) which is exempt from 

income tax under section 501(a).40

Description of Proposal

Under the proposal, additional documentation requirements are imposed with respect to 

purchases of taxable fuel and certain other articles on a nontaxable basis by State or local 

governments and nonprofit educational organizations, and with respect to refunds or credits by 

any person with respect to such purchases. The proposal covers Federal excise taxes on sales of 

gasoline, diesel fuel, kerosene, compressed natural gas (except if sold for use on school buses or 

intracity buses), heavy trucks and trailers, and tires (except for tires sold for use on qualified 

buses). The proposal does not cover Federal excise taxes on sales of coal, recreational 

equipment (bows and arrows, sport fishing equipment and firearms), and vaccines. 

In addition to present-law documentation requirements, in order for a State or local 

governmental entity to claim exemption from tax on sales of such covered articles, or for any 

person to claim a credit or refund based upon the State or local governmental status of the 

purchaser of such articles, the State must certify that the article is sold to a State or local 

government for the exclusive use of a State or local government. In the case of articles sold to a 

qualified volunteer fire department, as defined in section 150(e)(2),41 the State must so certify, 

and the article must be sold for the exclusive use of the qualified volunteer fire department. 

 37 Sec. 6427(l)(5)(C). 

38 Treas. Reg. sec. 48.6427-9(e)(1)(vi). 

39 Sec. 4221(d)(4); Treas. Reg. sec. 48.6416(b)(2)-2(d). 

40 Sec. 4221(d)(5); Treas. Reg. sec. 48.6416(b)(2)-2(e). 

41 In general, as defined in section 150(e)(2), a qualified volunteer fire department is any 

organization organized and operated to provide firefighting or emergency medical services for persons in 

an area that is not provided with any other firefighting services, and which is required by written 

agreement with the political subdivision to furnish firefighting services in such area. 
22 

In order for a nonprofit educational organization to claim exemption from tax on such 

articles, or for any person to claim a credit or refund of tax on such articles based upon the 

nonprofit educational status of an organization, the State in which such organization is providing 

educational services must certify that such organization is in good standing. 

The Secretary may prescribe forms for such certifications. 

Effective Date

The proposal is effective for sales after December 31, 2005. 

5. Reregistration in event of change in ownership 

Present Law

Blenders, enterers, pipeline operators, position holders, refiners, terminal operators, and 

vessel operators are required to register with the Secretary with respect to fuels taxes imposed by 

sections 4041(a)(1) and 4081.42 An assessable penalty for failure to register is $10,000 for each 

initial failure, plus $1,000 per day that the failure continues.43 A non-assessable penalty for 

failure to register is $10,000.44 A criminal penalty of $10,000, or imprisonment of not more than 

five years, or both, together with the costs of prosecution also applies to a failure to register and 

to certain false statements made in connection with a registration application.45 Treasury 

regulations require that a registrant notify the Secretary of any change (such as a change in 

ownership) in the information a registrant submitted in connection with its application for 

registration within 10 days of the change.46 The Secretary has the discretion to revoke the 

registration of a noncompliant registrant. 

Description of Proposal

The proposal requires that upon a change in ownership of a registrant, the registrant must 

reregister with the Secretary, as provided by the Secretary. A change in ownership means that 

after a transaction (or series of related transactions), more than 50 percent of the ownership 

interests in, or assets of, a registrant are held by persons other than persons (or persons related 

thereto) who held more than 50 percent of such interests or assets before the transaction (or 

series of related transactions). The proposal does not apply to companies, the stock of which is 

regularly traded on an established securities market. The penalties for failure to reregister are the 

 42 Sec. 4101; Treas. Reg. sec. 48.4101-1(a) and (c)(1). 

43 Sec. 6719. 

44 Sec. 7272(a). 

45 Sec. 7232. 

46 Treas. Reg. sec. 48.4101-1(h)(1)(v). 
23 

same as the present law penalties for failure to register. The proposal applies to changes in 

ownership occurring prior to the date of enactment. 

Effective Date

The proposal is effective for actions or failures to act after the date of enactment. 

6. Registration of operators of deep-draft vessels 

Present Law

Blenders, enterers, pipeline operators, position holders, refiners, terminal operators, and 

vessel operators are required to register with the Secretary with respect to fuels taxes imposed by 

sections 4041(a)(1) and 4081.47 Treasury regulations define a vessel operator as any person that 

operates a vessel within the bulk transfer/terminal system, excluding deep-draft ocean-going 

vessels.48 Accordingly, operators of deep-draft ocean-going vessels are not required to register. 

A deep-draft ocean-going vessel is a vessel that is designed primarily for use on the high seas 

that has a draft of more than 12 feet.49 

An assessable penalty for failure to register is $10,000 for each initial failure, plus $1,000 

per day that the failure continues.50 A non-assessable penalty for failure to register is $10,000.51 

A criminal penalty of $10,000, or imprisonment of not more than five years, or both, together 

with the costs of prosecution also applies to a failure to register and to certain false statements 

made in connection with a registration application.52 

In general, gasoline, diesel fuel, and kerosene (“taxable fuel”) are taxed upon removal 

from a refinery or a terminal.53 Tax also is imposed on the entry into the United States of any 

taxable fuel for consumption, use, or warehousing. The tax does not apply to any removal or 

entry of a taxable fuel transferred in bulk (a “bulk transfer”) by pipeline or vessel to a terminal or 

refinery if the person removing or entering the taxable fuel, the operator of such pipeline or 

 47 Sec. 4101; Treas. Reg. sec. 48.4101-1(a) and (c)(1). 

48 Treas. Reg. sec. 48.4101-1(b)(8). 

49 Sec. 4042(c)(1). 

50 Sec. 6719. 

51 Sec. 7272(a). 

52 Sec. 7232. 

53 Sec. 4081(a)(1)(A). 
24 

vessel, and the operator of such terminal or refinery are registered with the Secretary as required 

by section 4101.54 Transfer to an unregistered party subjects the transfer to tax. 

Description of Proposal

In general, the proposal provides that a deep-draft ocean-going vessel is a vessel for 

purposes of the registration requirements. Under the proposal, operators of deep-draft oceangoing vessels are required to register and, if a deep-draft ocean-going vessel is used as part of a 

bulk transfer, the operator of such vessel must be registered in order for the bulk transfer 

exemption to apply. An operator of a deep-draft ocean-going vessel is not required to register 

under the proposal for purposes of section 4101, including for purposes of the bulk transfer 

exemption, to the extent such vessel is used to enter taxable fuel into the United States for 

consumption, use, or warehousing. 

Effective Date

The proposal is effective on the date of enactment. 

7. Reconciliation of on-loaded cargo to entered cargo 

 Present Law

The Trade Act of 2002 directed the Secretary to promulgate regulations pertaining to the 

electronic transmission to the Bureau of Customs and Border Protection (“Customs”) of 

information pertaining to cargo destined for importation into the United States or exportation 

from the United States, prior to such importation or exportation.55 The Department of the 

Treasury issued final regulations on October 31, 2002. The regulations require the advance and 

accurate presentation of certain manifest information prior to lading at the foreign port and 

encourage the presentation of this information electronically. Customs must receive from the 

carrier the vessel’s Cargo Declaration (Customs Form 1302) or the electronic equivalent within 

24 hours before such cargo is laden aboard the vessel at the foreign port. 56 

Certain carriers of bulk cargo, however, are exempt from these filing requirements. Such 

bulk cargo includes that composed of free flowing articles such as oil, grain, coal, ore and the 

like, which can be pumped or run through a chute or handled by dumping.57 Thus, taxable fuels 

are not required to file the Cargo Declaration within 24 hours before such cargo is laden aboard 

 54 Sec. 4081(a)(1)(B). The sale of a taxable fuel to an unregistered person prior to a taxable 

removal or entry of the fuel is subject to tax. Sec. 4081(a)(1)(A). 

55 Sec. 343(a) of Pub. L. No. 107-210 (2002). 

56 19 CFR sec. 4.7(b)(2). 

57 19 CFR sec. 4.7(b)(4)(i)(A). 
25 

the vessel at the foreign port. Instead the Cargo Declaration must be filed within 24 hours prior 

arrival in the United States. 

Description of Proposal

The proposal provides that not later than one year after the date of enactment of this 

paragraph, the Secretary of Homeland Security, together with the Secretary of the Treasury, is to 

establish an electronic data interchange system through which Customs shall transmit to the 

Internal Revenue Service information pertaining to cargoes of taxable fuels (as defined in section 

4083) that Customs has obtained electronically under its regulations adopted to carry out the 

Trade Act of 2002 requirement. For this purpose, not later than one year after the date of 

enactment, all filers of required cargo information for such taxable fuels, as defined, must 

provide such information to Customs through its approved electronic data interchange system. 

Effective Date

The proposal is effective upon date of enactment. 

8. Gasoline blend stocks and kerosene 

Present Law

Gasoline blend stocks

In general 

A “taxable fuel” is gasoline, diesel fuel (including any liquid, other than gasoline, which 

is suitable for use as a fuel in a diesel-powered highway vehicle or train), and kerosene.58 Under 

the regulations, “gasoline” includes all products commonly or commercially known or sold as 

gasoline and are suitable for use as a motor fuel, and that have an octane rating of 75 or more. 

Gasoline also includes, to the extent provided in regulations, gasoline blend stocks and products 

commonly used as additives in gasoline. By regulation, the Treasury has identified certain 

products as gasoline blend stocks, 59 however, the term “gasoline blend stocks” does not include 

any product that cannot be blended into gasoline without further processing or fractionation 

(“off-spec gasoline”). 

 58 Sec. 4083(a). 

59 Treas. Reg. sec. 48.4081-1(c)(3)(ii). The term “gasoline blend stocks” means alkylate; butane; 

catalytically cracked gasoline; coker gasoline; ethyl tertiary butyl ether (ETBE); hexane; hydrocrackate; 

isomerate; methyl tertiary butyl ether (MTBE); mixed xylene (not including any separated isomer of 

xylene); natural gasoline; pentane; pentane mixture; polymer gasoline; raffinate; reformate; straight-run 

gasoline; straight-run naphtha; tertiary amyl methyl ether (TAME); tertiary butyl alcohol (gasoline grade) 

(TBA); thermally cracked gasoline; and toluene. Treas. Reg. sec. 48.4081-1(c)(3)(i). Effective January 1, 

2005, transmix containing gasoline was removed from the definition of gasoline blend stocks. Internal 

Revenue Service, Notice 2005-4 (December 15, 2004). 
26 

An excise tax is imposed upon (1) the removal of any taxable fuel from a refinery or 

terminal, (2) the entry of any taxable fuel into the United States, or (3) the sale of any taxable 

fuel to any person who is not registered with the IRS to receive untaxed fuel, unless there was a 

prior taxable removal or entry.60 The tax does not apply to any removal or entry of taxable fuel 

transferred in bulk to a terminal or refinery if the person removing or entering the taxable fuel 

the operator of such pipeline or vessel, and the operator of such terminal or refinery are 

registered with the Secretary.61 

Gasoline blend stock exemptions

If certain conditions are met, the removal, entry, or sale of gasoline blend stocks is not 

taxable. Generally, the exemption from tax applies if a gasoline blend stock (1) is not used to 

produce finished gasoline (2) is received at an approved terminal or refinery (3) or in bulk 

transfer to an industrial user.62 

Gasoline blend stocks not used to produce finished gasoline.–Pursuant to Treasury 

regulation, no tax is imposed on nonbulk removals from a terminal or refinery, or nonbulk 

entries into the United States of any gasoline blend stocks if (1) the person liable for the tax is a 

taxable fuel registrant, and (2) such person does not use the gasoline blend stocks to produce 

finished gasoline. In connection with a sale, no tax is imposed on the nonbulk removal or entry 

if (1) the person liable for the tax is a gasoline registrant and (2) at the time of sale such party has 

an unexpired certificate from the buyer, and knows of no false information in the certificate.63 

Any sale (or resale) of a gasoline blend stock that was not subject to tax on nonbulk 

removal or entry is taxable unless the seller has an unexpired certificate from the buyer and has 

no reason to believe that any information in the certificate is false. 

The certificate to be provided by a buyer of gasoline blend stocks contains a statement 

that the gasoline blend stocks covered by the certificate will not be used to produce finished 

gasoline, identifies the type (or types of blend stocks) covered by the certificate and provides that 

the buyer will not claim a credit or refund for any gasoline covered by the certificate. The 

certificate is signed under penalties of perjury by a person with authority to bind the buyer. The 

certificate expires on the earliest of one year from the effective date of the certificate, the date a 

new certificate is provided to the seller or the date the seller is notified by the IRS or the buyer 

that the buyer’s right to provide a certificate has been withdrawn. 

Gasoline blend stocks received at an approved terminal or refinery.–Treasury regulations 

provide that tax is not imposed on the removal or entry of gasoline blend stocks that are received 

 60 Sec. 4081(a)(1). 

61 Sec. 4081(a)(1)(B). 

62 Treas. Reg. sec. 48.4081-4. 

63 Treas. Reg. sec. 48.4081-4(b)(1) and (2). 
27 

at a terminal or refinery if the person liable for tax is a taxable fuel registrant, has an unexpired 

notification certificate from the operator of the terminal or refinery where the gasoline blend 

stocks are received; and has no reason to believe that any information in the certificate is false.64 

A notification certificate is used to notify another person of the taxable fuel registrant’s 

registration status. 

Bulk transfer to an industrial user.–Tax is not imposed if upon removal of the gasoline 

blend stocks from a pipeline or vessel, the gasoline blend stocks are received by a taxable fuel 

registrant that is an industrial user. 65 An industrial user means any person that receives gasoline 

blend stocks by bulk transfer for its own use in the manufacture of any product other than 

finished gasoline. 

Refunds or credits for tax imposed on gasoline blend stocks not used for producing 

gasoline

If any gasoline blend stock or additive is not used by a person to produce gasoline and 

that person establishes that the ultimate use of the gasoline blend stock or additive is not used to 

produce gasoline, then the Secretary is to pay (without interest) to such person, an amount equal 

to the aggregate amount of tax imposed on such person with respect to such gasoline or blend 

stock.66

If gasoline is used in an off-highway business use, the ultimate purchaser of the gasoline 

is entitled to a credit or refund for the excise taxes imposed on the fuel. “Off-highway business 

use” means any use by a person in a trade or business of such person otherwise than as a fuel in a 

highway vehicle that meets certain requirements.67 Gasoline for this purpose includes gasoline 

blend stocks.68

The Code also provides for a refund of tax for tax-paid fuel sold to a subsequent 

manufacturer or producer if the subsequent manufacturer or producer uses the fuel, for nonfuel 

purposes, as a material in the manufacture or production of any other article manufactured or 

produced by him.69

 64 Treas. Reg. sec. 48.4081-4(b)(1) 

65 Treas. Reg. sec. 48.4081-4(d). 

66 Sec. 6427(h)(1). 

67 Sec. 6421(a) and (e). 

68 Sec. 6421(e)(1) and sec. 4083(a)(2)(B). 

69 Sec. 6416(b)(3)(B). 
28 

Kerosene

Definition of kerosene

By regulation, kerosene is defined as the kerosene described in ASTM Specification D 

3699 (No. 1-K and No. 2-K), ASTM Specification D 1655 (kerosene-type jet fuel), and military 

specifications MIL-DTL-5624T (Grade JP-5) and MIL-DTL-83133E (Grade JP-8). Kerosene 

does not include any liquid that is an excluded liquid.70 

An “excluded liquid” is (1) any liquid that contains less than four percent normal 

paraffins, or (2) any liquid that has a distillation range of 125 degrees Fahrenheit or less, sulfur 

content of 10 ppm or less, and minimum color of +27 Saybolt. These liquids are commonly 

known as “mineral spirits” and are obtained by distillation of crude oil. Mineral spirits are used 

for a wide variety of purposes, such as in dry-cleaning fluids, paint thinners, varnishes, 

photocopy toners, inks, adhesives, and as general purpose cleaners and degreasers. 

Exemptions

Diesel fuel and kerosene that is to be used for a nontaxable purpose will not be taxed 

upon removal from the terminal if it is dyed to indicate its nontaxable purpose. Kerosene 

received by pipeline or vessel to satisfy a feedstock purpose is exempt from the dyeing 

requirement.71 Pursuant to Treasury regulations, nonbulk removals of kerosene for a feedstock 

purpose by a registered feedstock user also are exempt.72 The person receiving the kerosene 

must be registered with the IRS and provide a certificate noting that the kerosene will be used for 

a feedstock purpose in order for the exemption to apply. Pursuant to the Treasury regulations, 

tax also does not apply upon the removal or entry of kerosene if the person otherwise liable for 

tax is a taxable fuel registrant and such person uses the kerosene for a feedstock purpose.73 

 “Feedstock purpose” means the use of kerosene for nonfuel purposes in the manufacture 

or production of any substance (other than gasoline, diesel fuel or special fuels subject to tax).74 

Thus, for example, kerosene is used for a feedstock purpose when it is used as an ingredient in 

the production of paint and is not used for a feedstock purpose when it is used to power 

machinery at a factory where paint is produced. 

 70 Treas. Reg. sec. 48.4081-1(b). 

71 Sec. 4082(d)(1). 

72 Treas. Reg. sec. 48.4082-7(c). 

73 Treas. Reg. sec. 48.4082-7(c). 

74 Treas. Reg. sec. 48.4082-7(b). 
29 

Refunds and payments for nontaxable uses of kerosene

If tax-paid kerosene is used by any person in a nontaxable use, the Secretary is required 

to pay (without interest) to the ultimate purchaser of such fuel an amount equal to the aggregate 

amount of tax imposed on such fuel. For this purpose, a nontaxable use is any use which is 

exempt from the tax imposed by section 4041(a)(1) other than by reason of prior imposition of 

tax. Claims relating to kerosene used on a farm for farming purposes and by a State are made by 

registered ultimate vendors. Claims relating to undyed kerosene sold from a blocked pump75 or 

sold for blending with heating oil to be used during periods of extreme or unseasonable cold are 

also made by registered ultimate vendors. Special rules apply with respect to aviation-grade 

kerosene. 

The Code also provides for a refund of tax for tax-paid fuel sold to a subsequent 

manufacturer or producer if the subsequent manufacturer or producer uses the fuel, for nonfuel 

purposes, as a material in the manufacture or production of any other article manufactured or 

produced by him.76

Description of Proposal

Gasoline blend stocks

The proposal partially repeals exemptions provided in Treas. Reg. sec. 48.4081-4, which, 

under certain conditions, exempts from tax gasoline blend stocks that are not used to produce 

finished gasoline or that are received at an approved terminal or refinery. Under the proposal, 

tax is imposed on all nonbulk entries and removals of gasoline blend stocks, regardless of 

whether they will be used to produce finished gasoline or received at an approved terminal or 

refinery. The proposal does not change the exemption for bulk transfers to registered industrial 

users. 

Kerosene and mineral spirits

The proposal requires that with respect to fuel entered or removed after September 30, 

2005, the Secretary include mineral spirits in the definition of kerosene. Thus, for entries and 

removals after September 30, 2005, mineral spirits are taxed and exempt from tax in the same 

manner as kerosene. 

 75 A blocked pump is a fuel pump that is used to dispense undyed kerosene that is sold at retail 

for use by the buyer in any nontaxable use; is at a fixed location; is identifed with a legible and 

conspicuous notice stating “Undyed Untaxed Kerosene, Nontaxable Use Only,” and cannot reasonably be 

used to dispense fuel directly into the fuel supply tank of a diesel-powered highway vehicle or dieselpowered train; or is locked by the vendor after each sale and unlocked only in response to a request by a 

buyer for undyed kerosene for use other than as a fuel in a diesel-powered highway vehicle or dieselpowered train. 

76 Sec. 6416(b)(3)(B). 
30 

Effective Date

The proposal is effective for fuel removed or entered after September 30, 2005. 

9. Nonapplication of export exemption to delivery of fuel to motor vehicles removed from 

United States 

Present Law

A manufacturer’s excise tax is imposed upon 

1. The removal of any taxable fuel from a refinery or terminal; 

2. The entry of any taxable fuel into the United States for consumption, use or 

warehousing; or 

3. The sale of any taxable fuel to any person who is not registered, unless there was a 

prior taxable removal or entry.77

The term “taxable fuel” means gasoline, diesel fuel and kerosene. 

Special provisions under the Code provide for a refund of tax to any person who sells 

gasoline to another for exportation.78 Section 6421(c) provides “If gasoline is sold to any person 

for any purpose described in paragraph (2), (3), (4), or (5) of section 4221(a), the Secretary shall 

pay (without interest) to such person an amount equal to the product of the number of gallons so 

sold multiplied by the rate at which tax was imposed on such gasoline by section 4081.” Section 

4221 provides, in pertinent part, “Under regulations prescribed by the Secretary, no tax shall be 

imposed under this chapter. . . on the sale by the manufacturer. . . of an article–. . . for export, or 

for resale by the purchaser to a second purchaser for export. . . but only if such exportation or use 

is to occur before any other use . . ..” 

It is the IRS administrative position that the exemption from manufacturers excise tax by 

reason of exportation does not apply to the sale of motor fuel pumped into a fuel tank of a 

vehicle that is to be driven, or shipped, directly out of the United States.79 

A duty-free sales facility that meets certain conditions may sell and deliver for export 

from the customs territory of the United States duty-free merchandise. Duty-free merchandise is 

merchandise sold by a duty-free sales facility on which neither Federal duty nor Federal tax has 

been assessed pending exportation from the customs territory of the United States. The statutes 

covering duty-free facilities do not contain any limitation on what goods may qualify for dutyfree treatment. 

 77 Sec. 4081(a)(1). 

78 Secs. 6421(c) and 4221(a)(2). 

79 Rev. Rul. 69-150, 1969-1 C.B. 286. 
31 

The issue of whether fuel sold from a duty-free facility and placed into the tank of an 

automobile that is then driven out of the country is exported fuel has been litigated in the 

courts.80 The cases involved the same operator of a duty-free facility seeking a refund of excise 

tax. The facility is near the Canadian border and is configured in such a way that anyone leaving 

the facility must depart the United States and enter into Canada. Both the Federal Circuit and the 

Sixth Circuit of Appeals are in accord with the IRS position and ruled that the operator of the 

duty-free facility did not have standing to pursue a claim for refund.81

Description of Proposal

The proposal reaffirms the long-standing IRS position taken in Rev. Rul. 69-150 and 

restates present law by amending the Code definition of export to exclude the delivery of a 

taxable fuel into a fuel tank of a motor vehicle that is shipped or driven out of the United States. 

It also imposes a tax on the sale of taxable fuel at a duty-free sales enterprise unless there was a 

prior taxable removal, or entry of such fuel. 

Effective Date

The proposal applies to sales or deliveries made after the date of enactment. 

10. Impose assessable penalty on dealers of adulterated fuel 

Present Law

Diesel fuel, gasoline, and kerosene are taxable fuels. Diesel fuel is defined as (1) any 

liquid (other than gasoline) which is suitable for use as a fuel in a diesel-powered highway 

vehicle or a diesel powered train, (2) transmix, and (3) diesel fuel blend stocks identified by the 

Secretary.82 As a defense to Federal and State excise tax liability, some taxpayers have 

contended that certain diesel fuel mixtures or additives do not meet the requirements of (1) above 

because they are not approved as additives or mixtures by the EPA. In addition, under present 

law, untaxed fuel additives, including certain contaminants, may displace taxed diesel fuel in a 

mixture. 

 80 See, Ammex Inc. v. United States, 52 Fed. Cl. 303 (2002) (on cross-motions for summary 

judgment, the court found that plaintiff established standing to proceed to trial pursuant to sec. 6421(c) 

respecting its gasoline purchases only); and Ammex Inc. v. United States, 2002 U.S. Dist. LEXIS 25771 

(E.D. Mich. July 31, 2002) (granting defendant’s motion for summary judgment), reconsideration denied, 

Ammex, Inc. v. United States, 2002 U.S. Dist. LEXIS 22893 (E.D. Mich. Oct. 22, 2002). Although the 

Claims Court ruled that Ammex had standing to challenge the excise tax on gasoline, it subsequently held 

that Ammex was not entitled to a payment pursuant to sec. 6421(c) because it failed to prove at trial that it 

did not pass the tax on to its customers. Ammex Inc. v. United States, 2003 U.S. Claims LEXIS 63 (Fed. 

Cl. Mar. 26, 2003). The Claims Court finding that the plaintiff had standing was reversed on appeal. 

81 See, Ammex Inc. v. United States, 384 F.3d 1368 (Fed. Cir. 2004) cert. denied 125 S.Ct. 1697 

(2005); and Ammex Inc. v. United States, 367 F.3d 530 (6th Cir. 2004) cert. denied 125 S.Ct. 1695 (2005). 

82 Sec. 4083(a)(3)(A). 
32 

The Code provides that any person who, in connection with a sale or lease (or offer for 

sale or lease) of an article, knowingly makes any false statement ascribing a particular part of the 

price of the article to a tax imposed by the United States, or intended to lead any person to 

believe that any part of the price consists of such a tax, is guilty of a misdemeanor.83 Another 

Code provision provides that any person who has in his custody or possession any article on 

which taxes are imposed by law, for the purpose of selling the article in fraud of the internal 

revenue laws or with design to avoid payment of the taxes thereon, is liable for “a penalty of 

$500 or not less than double the amount of taxes fraudulently attempted to be evaded.”84

Description of Proposal

The proposal adds a new assessable penalty. Under the proposal, any person other than a 

retailer who knowingly transfers for resale, sells for resale, or holds out for resale for use in a 

diesel-powered highway vehicle (or train) any liquid that does not meet applicable EPA 

regulations (as defined in section 45H(c)(3))85 is subject to a penalty of $10,000 for each such 

transfer, sale or holding out for resale, in addition to the tax on such liquid, if any. Any retailer 

who knowingly holds out for sale (other than for resale) any such liquid, is subject to a $10,000 

penalty for each such holding out for sale, in addition to the tax on such liquid, if any. 

The penalty is dedicated to the Highway Trust Fund. 

Effective Date

The proposal is effective for any transfer, sale, or holding out for sale or resale occurring 

after the date of enactment. 

11. Oil Spill Liability Trust Fund 

Present Law

In general, a five-cent-per-barrel tax was imposed on crude oil received at a United States 

refinery and imported petroleum products received for consumption, use, or warehousing. The 

Fund’s tax applied after December 31, 1989, and before January 1, 1995. The tax was effective 

only if the unobligated balance in the Fund was less than $1 billion. 

Description of Proposal

The proposal reinstates the Oil Spill Liability Trust Fund tax. The tax applies on April 1, 

2007, or if later, the last day of any calendar quarter for which the Secretary estimates that, as of 

 83 Sec. 7211. Such a violation is punishable by a fine not to exceed $1,000, or by imprisonment 

for not more than one year, or both. 

84 Sec. 7268. 

85 Section 45H(c)(3) refers to “the Highway Diesel Fuel Sulfur Control Requirements of the 

Environmental Protection Agency.” 
33 

the close of that quarter, the unobligated balance in the Oil Spill Liability Trust fund is less that 

$2 billion. 

The tax will be suspended during a calendar quarter if the Secretary estimates that, as of 

the close of the preceding calendar quarter, the unobligated balance in the Oil Spill Liability 

Trust Fund exceeds $3 billion. The tax terminates after December 31, 2014. 

Effective Date

The proposal is generally effective on April 1, 2007. 

12. Leaking Underground Storage Tank Trust Fund 

Present Law

The Code imposes an excise tax, generally at a rate of 0.1 cents per gallon, on gasoline, 

diesel, kerosene, and special motor fuels (other than liquefied petroleum gas and liquefied 

natural gas).86 The taxes are deposited in the Leaking Underground Storage Tank (“LUST”) 

Trust Fund. The tax expires on October 1, 2005. 

Diesel fuel and kerosene that is to be used for a nontaxable purpose will not be taxed 

upon removal from the terminal if it is dyed to indicate its nontaxable purpose. 

The Code requires the LUST Trust Fund to reimburse the General Fund for certain refund 

and credit claims related to the nontaxable use of fuel (only to the extent attributable to the 

LUST Trust fund financing rate).87

Description of Proposal

Under the proposal, the LUST Trust Fund tax is extended at the current rate through 

September 30, 2011. Further, dyed fuel is subject to the LUST tax and without refund. Under 

the proposal, the LUST Trust Fund is no longer required to reimburse the General Fund for 

claims and credits related to the nontaxable use of fuel. 

 86 For qualified methanol and ethanol fuel the rate is 0.05 cents per gallon (sec. 4041(b)(2)(A)(ii). 

Qualified methanol or ethanol fuel is any liquid at least 85 percent of which consists of methanol, ethanol 

or other alcohol produced from coal (including peat) (sec. 4041(b)(2)(B)). 

87 Specifically, section 9508(c)(2) requires the LUST Trust Fund to reimburse the General Fund 

from time to time for claims paid pursuant to sections 6420 (relating to amounts paid in respect of 

gasoline used on farms), section 6421 (relating to amounts paid in respect of gasoline used for certain 

nonhighway purposes or by local transit systems), and section 6427 (relating to fuels not used for taxable 

purposes) and income credits allowed under section 34 for the purposes previously mentioned. No 

income tax credit is allowed for any amount payable under section 6421 or 6427 if a claim for such 

amount is timely filed and is payable under such section (sec. 34(b)). 
34 

Effective Date

The extension of the trust fund is effective October 1, 2005. The taxation of dyed fuel is 

effective for fuel entered or removed after December 31, 2005.