Source: http://olgarza.com/Mixture-Credit-Exclusion-From-Income-Update.html
Timestamp: 2019-04-24 14:01:08+00:00

Document:
Following the issuance of CCA201342010, the IRS has provided a clarification to its position regarding the exclusion of the alcohol, biodiesel and alternative fuel tax mixture excise tax credits from gross income. In recent correspondence with a client, the IRS denied a claim for refund of income tax that is based on mixture credits claimed under 26 U.S.C. § 6426 – those that are offset against the §§ 4041 and 4081 excise tax liability on IRS Form 720. In explaining its position, the IRS stated that credits claimed under § 6426 are simply a reduction in excise taxes due (or a reduction in excise tax expense). Taking a position that appears to distinguish between the §§ 6426 and 6427 credits simply out of convenience, the IRS acknowledges that “[C]ase law has not addressed the federal tax treatment of refundable excise tax credits, and the Service and the Treasury Department have not issued published guidance addressing the treatment of such credits,” but “[T]he Service believes that the better approach for federal income tax purposes is to treat so much of the credit that is applied against the excise tax liability as a reduction in excise taxes….” and not an item of gross income.
The IRS also claims that Congress would not have intended an outcome whereby income taxes would be reduced by the amount of the § 6426 credits. This assertion by the IRS is not supported by any legislative or judicial history. Legislative history supports that Congress intended to provide two benefits for producing an eligible mixture: (1) a cash incentive for producing an eligible mixture, and (2) an exclusion from gross income resulting in a tax free incentive. Chief Counsel agrees with this position as noted in the “Black Liquor” credits which have widely been reported to be excluded from gross income and as recently reported in a biodiesel company’s third quarter 10‐Q filed with the Securities Exchange Commission (“SEC”). The SEC filing states this position has been approved by the Joint Committee on Taxation.
Congress enacted the excise tax mixture credit with the Jobs Creation Act of 2004. Prior to this enactment and continuing today, taxpayers may elect to claim a non‐refundable income tax credit for mixing ethanol and biodiesel with a taxable fuel. The IRS and the Joint Committee on Taxation have both affirmed the mixture credit not taken as a non‐refundable income tax credit is excluded from gross income. The § 6426 credit provision is nothing more than a means to provide cash to the taxpayer for producing a mixture subject to the incentive. To interpret this means of monetizing the § 6427 credit as an exclusion from the character of the credit as defined in § 6427 goes against the intent of Congress to treat all taxpayers who produce an eligible mixture the same.
2. Mixture credits claimed pursuant to §§ 6427 and 34 need not be included in gross income under §§ 87 or 61.

References: § 6426
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 § 6427
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