Biodiesel Tax Incentive Reform and Extension Act of 2016

To amend the Internal Revenue Code of 1986 to modify the incentives for biodiesel. 1. Short title This Act may be cited as the Biodiesel Tax Incentive Reform and Extension Act of 2016 2. Reform of biodiesel tax incentives (a) Income tax credit (1) In general So much of section 40A of the Internal Revenue Code as precedes subsection (c) is amended to read as follows: 40A. Biodiesel fuels credit (a) In general For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is $1.00 for each gallon of biodiesel produced by the taxpayer which during the taxable year— (1) is sold by the taxpayer to another person— (A) for use by such other person’s trade or business as a fuel or in the production of a qualified biodiesel mixture (other than casual off-farm production), or (B) who sells such biodiesel at retail to another person and places such biodiesel in the fuel tank of such other person, or (2) is used by such taxpayer for any purpose described in paragraph (1). (b) Increased credit for small producers (1) In general In the case of any eligible small biodiesel producer, subsection (a) shall be applied by increasing the dollar amount contained therein by 10 cents. (2) Limitation Paragraph (1) shall only apply with respect to the first 15,000,000 gallons of biodiesel produced by any eligible small biodiesel producer during any taxable year. . (2) Definitions and special rules Section 40A(d) of such Code is amended by striking all that follows paragraph (1) and inserting the following: (2) Qualified biodiesel mixture; biodiesel mixture (A) Qualified biodiesel mixture (i) In general The term qualified biodiesel mixture (I) sold by the producer of such mixture to any person for use as a fuel, or (II) used by the producer of such mixture as a fuel. (ii) Sale or use must be in trade or business, etc A biodiesel mixture shall not be treated as a qualified biodiesel mixture unless the sale or use described in clause (i) is in a trade or business of the person producing the biodiesel mixture. (B) Biodiesel mixture The term biodiesel mixture (3) Biodiesel not used for a qualified purpose If— (A) any credit was determined with respect to any biodiesel under this section, and (B) any person uses such biodiesel for a purpose not described in subsection (a), then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (a) and the number of gallons of such biodiesel. (4) Pass-thru in the case of estates and trusts Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply. (5) Limitation to biodiesel with connection to the united states (A) In general No credit shall be determined under subsection (a) with respect to biodiesel unless such biodiesel is produced in the United States from qualified feedstocks. For purposes of this paragraph, the term United States (B) Qualified feedstocks For purposes of subparagraph (A), the term qualified feedstock . (3) Rules for small biodiesel producers (A) In general Section 40A(e) of such Code is amended— (i) by striking agri-biodiesel biodiesel (ii) by striking subsection (b)(4)(C) subsection (b)(2) (iii) by striking subsection (a)(3) subsection (b) (B) The heading for subsection (e) of section 40A of such Code is amended by striking agri-biodiesel biodiesel (C) The headings for paragraphs (1) and (6) of section 40A(e) of such Code are each amended by striking agri-biodiesel biodiesel (4) Renewable diesel (A) In general Paragraph (3) of section 40A(f) of such Code is amended to read as follows: (3) Renewable diesel defined (A) In general The term renewable diesel (i) is not a mono-alkyl ester, (ii) can be used in engines designed to operate on conventional diesel fuel, and (iii) meets the requirements for any Grade No. 1–D fuel or Grade No. 2–D fuel covered under the American Society for Testing and Materials specification D–975–13a. (B) Exceptions Such term shall not include— (i) any liquid with respect to which a credit may be determined under section 40, (ii) any fuel derived from coprocessing biomass with a feedstock which is not biomass, or (iii) any fuel that is not chemically equivalent to petroleum diesel fuels that can meet fuel quality specifications applicable to diesel fuel, gasoline, or aviation fuel. (C) Biomass For purposes of this paragraph, the term biomass . (B) Conforming amendments Section 40A(f) of such Code is amended— (i) by striking Subsection (b)(4) Subsection (b) (ii) by striking paragraph (4) and inserting the following: (4) Certain aviation fuel Except as provided paragraph (3)(B), the term renewable diesel . (5) Extension Subsection (g) of section 40A of such Code is amended by striking December 31, 2016 December 31, 2019 (6) Clerical amendment The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by striking the item relating to section 40A and inserting the following new item: Sec. 40A. Biodiesel fuels credit. . (b) Reform of excise tax credit (1) In general Subsection (c) of section 6426 (c) Biodiesel production credit (1) In general For purposes of this section, the biodiesel production credit is $1.00 for each gallon of biodiesel produced by the taxpayer and which— (A) is sold by such taxpayer to another person— (i) for use by such other person’s trade or business as a fuel or in the production of a qualified biodiesel mixture (other than casual off-farm production), or (ii) who sells such biodiesel at retail to another person and places such biodiesel in the fuel tank of such other person, or (B) is used by such taxpayer for any purpose described in subparagraph (A). (2) Definitions Any term used in this subsection which is also used in section 40A shall have the meaning given such term by section 40A. (3) Termination This subsection shall not apply to any sale, use, or removal after December 31, 2019. . (2) Producer registration requirement Subsection (a) of section 6426 of such Code is amended by striking subsections (d) and (e) subsections (c), (d), and (e) (3) Recapture (A) In general Subsection (f) of section 6426 of such Code is amended— (i) by striking or biodiesel (ii) by striking or biodiesel mixture (iii) by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph: (2) Biodiesel If any credit was determined under this section or paid pursuant to section 6427(e) with respect to the production of any biodiesel and any person uses such biodiesel for a purpose not described in subsection (c)(1), then there is hereby imposed on such person a tax equal to $1 for each gallon of such biodiesel. . (B) Conforming amendments (i) Paragraph (3) of section 6426(f) of such Code, as redesignated by subparagraph (A)(iii), is amended by inserting or (2) paragraph (1) (ii) The heading for paragraph (1) of section 6426(f) of such Code is amended by striking Imposition of tax In general (4) Limitation Section 6426(i) of such Code is amended— (A) in paragraph (2)— (i) by striking biodiesel or (ii) by striking Biodiesel and (B) by inserting after paragraph (2) the following new paragraph: (3) Biodiesel No credit shall be determined under subsection (a) with respect to biodiesel unless such biodiesel is produced in the United States from qualified feedstocks (as defined in section 40A(d)(5)(B)). . (5) Clerical amendments (A) The heading of section 6426 of such Code is amended by striking alcohol fuel, biodiesel, and alternative fuel mixtures alcohol fuel mixtures, biodiesel production, and alternative fuel mixtures (B) The item relating to section 6426 in the table of sections for subchapter B of chapter 65 of such Code is amended by striking alcohol fuel, biodiesel, and alternative fuel mixtures alcohol fuel mixtures, biodiesel production, and alternative fuel mixtures (c) Reform of excise payments Subsection (e) of section 6427 (1) by striking or the biodiesel mixture credit (2) by redesignating paragraphs (3) through (6) as paragraphs (4) through (7), respectively, and by inserting after paragraph (2) the following new paragraph: (3) Biodiesel production credit If any person produces biodiesel and sells or uses such biodiesel as provided in section 6426(c)(1), the Secretary shall pay (without interest) to such person an amount equal to the biodiesel production credit with respect to such biodiesel. , (3) by striking paragraph (1) or (2) paragraph (1), (2), or (3) (4) by striking alternative fuel fuel (5) in paragraph (7)(B), as redesignated by paragraph (2)— (A) by striking biodiesel mixture (as defined in section 6426(c)(3)) biodiesel (within the meaning of section 40A) (B) by striking December 31, 2016 December 31, 2019 (d) Guidance Not later than 30 days after the date of the enactment of this Act, the Secretary of the Treasury, or the Secretary's delegate, shall issue preliminary guidance with respect to the amendments made by this subsection. (e) Effective date The amendments made by this section shall apply to fuel sold or used after December 31, 2016.

Summary: Biodiesel Tax Incentive Reform and Extension Act of 2016 This bill amends the Internal Revenue Code to modify and extend: (1) the income tax credit for biodiesel and renewable diesel used as fuel, and (2) the excise tax credit for biodiesel fuel mixtures. The bill: (1) makes the credits available to domestic producers of the fuels rather than the policy under current law of providing a mixture credit to the blender of the fuel, (2) increases the income tax credit for certain small biodiesel producers, and (3) extends the credits through 2019.