IRS offers guidance on accounting for black liquor credit repayments.

• Author: Pflug, Mark

In Program Manager Technical Assistance (PMTA) 2012-017 issued to the chief of the IRS's Excise Tax Program, the IRS Chief Counsel's Office addressed under what circumstances interest must accompany a repayment of the alternative fuel mixture credit (AFMC) received under Sec. 6427, and during what year taxpayers converting the AFMC into the cellulosic biofuel producer credit (CBPC) under Sec. 34 should include that credit in income under Sec. 87. Before 2010, black liquor (defined below) qualified for either the refundable AFMC or the nonrefundable CBPC credit. Taxpayers that chose the refundable AFMC credit were permitted to pay it back and submit a claim for the CBPC credit.

Background

Black liquor is a byproduct of the production of paper pulp using the kraft process and is burned by paper companies to generate steam for the production of electricity. Black liquor comprises 75% organic matter and 25% inorganic matter by weight, but it does not include alcohol or biodiesel.

Sec. 6426(e) allows an excise tax credit for alternative fuel mixtures (the AFMC). The credit extends to seven fuels, including liquid fuel derived from biomass. The credit is 50 cents per gallon for each gallon of alternative fuel directly used or put into the mixture and used in the taxpayer's trade or business. The credit offsets the taxpayer's excise tax liability, and any excess over that amount permits a taxpayer to file for a "refund" of the excess credit amount under Sec. 6427(e). The credit is not available for liquid fuel derived from biomass after Dec. 31, 2009.

Sec. 40(a) creates a nonrefundable "alcohol credit" for ethanol and methanol produced by the taxpayer and (1) used as a fuel by the taxpayer producing the alcohol in its trade or business or (2) blended by a taxpayer (not necessarily the producer) with a taxable fuel (gasoline, diesel, or kerosene) and sold as a fuel. Effective Jan. 1, 2009, cellulosic biofuel (blended and unblended) was added to this credit. Generally, the CBPC is available for any liquid fuel that is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis (Sec. 40(b)(6)(E)).

Sec. 87 states that gross income includes the amount of the Sec. 40(a) alcohol credit for the tax year. Sec. 34(a) states that the amount of the Sec. 6427 excise tax credit payable to a taxpayer is allowed as a credit under the income tax. Under Sec. 6426(h), no unit of fuel may receive both the AFMC and...