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Alternative Fuels Credit for CNG and LNG Frank Boland IRS Chief Counsel 202-622-3130

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Presentation on theme: "Alternative Fuels Credit for CNG and LNG Frank Boland IRS Chief Counsel 202-622-3130"— Presentation transcript:

1 Alternative Fuels Credit for CNG and LNG Frank Boland IRS Chief Counsel 202-622-3130

2 Overview The tax –Filing returns The credit –Whos eligible –How to claim Recordkeeping Resources

3 The Tax

4 Federal taxing regime –Title 26 United States Code – Internal Revenue Code Federal fuel taxes –Gasoline, diesel fuel, kerosene –Alternative liquid fuels (including propane & LNG) –CNG

5 How the CNG & LNG taxes work

6 When tax imposed Tax imposed on taxable sale or taxable use

7 Taxable sale: direct delivery Sale of CNG/LNG considered taxable sale if – –fuel delivered by seller into fuel supply tank of motor vehicle or motorboat Seller liable for tax on these sales

8 Taxable sale: certain bulk sales Tax imposed on sale of CNG/LNG not delivered into fuel supply tank if – –Buyer gives seller written statement that entire quantity of CNG/LNG will be used for taxable purpose - For CNG, seller gives buyer written acknowledgment –Informal statements ok – BUT must be written Seller liable for tax on these bulk sales

9 Taxable use Used as fuel in motor vehicle or motorboat Bought in bulk –No written statement given to seller User liable for tax

10 Nontaxable uses of CNG/LNG On farm for farming purposes Off-highway business use Boat engaged in commercial fishing Exclusive use by nonprofit education organization Exclusive use by state & local governments

11 Motor vehicles All types of vehicles propelled by motor designed for carrying or towing loads from one place to another, regardless of type of load or material carried or towed Regardless of whether vehicle registered for highway use

12 Motor vehicles cont. Term does NOT include farm tractors, trench diggers, power shovels, bulldozers, road graders or rollers, and similar equipment which does not carry or tow a load; nor does it include any vehicle which moves exclusively on rails

13 Rate of tax; CNG Before 10/1/06 –48.54¢ per MCF After 9/30/06 –18.3¢ per 126.67 CF

14 Rate of tax; LNG Before 10/1/06 –11.9¢ per gallon After 9/30/06 –24.3¢ per gallon

15 Returns & Deposits Return required if you have excise tax liability Form 720, Quarterly Federal Excise Tax Return Due for each quarter 4 th Quarter of 2006 – October, November & December 2006 4 th quarter return due January 31, 2007 Deposits due 6 times during quarter if meet $2500 threshold (tax less credits)

16 Form 720 4 th Quarter 2006 Form 720 will reflect new tax rates Dont forget to file!! –Even if credit exceeds liability!!

17 Alternative Fuels Credit SAFETEA

18 Alternative fuels credit Effective October 1, 2006 Amount of credit: –CNG: 50¢ per 121 cubic feet –LNG: 50¢ per gallon

19 What do I do?

20 Be the proper claimant Be registered by the IRS Claim the credit Maintain books & records

21 The proper claimant Two requirements 1.Is the alternative fueler (unmixed fuel) 2.Is registered as alternative fueler, or - For claims before 7/1/07, is registered for any fuel purpose

22 Alternative fueler Alternative fueler (unmixed fuel) –Liable for tax on CNG/LNG sold for use or used as fuel in motor vehicle or motorboat OR –Would be liable for tax on delivery into fuel supply tank of vehicle or boat but for application of exemption

23 Registration Is an alternative fueler or will be within reasonable time after registration Has good tax history –IRS satisfied with filing, deposit, payment, reporting & claim history

24 Registration Form 637, Application for Registration (For Certain Excise Tax Activities) Available on line – Revised form available in a few weeks OK to use existing form

25 Activity letters for alternative fuelers AL: Alternative fueler (not in a mixture) –Propane, CNG, LNG AM: Alternative fuel mixture

26 Claiming the credit

27 How it works – step 1 Any CNG/LNG credit must first be taken against all of your alternative fuel/CNG tax liability on Form 720 (Schedule C) –NOT gasoline tax liability & usually not diesel fuel tax liability State and local govts. claim everything on Form 8849

28 How it works -- step 2 Any excess credit claimed on your income tax return on Form 4136 50¢ credit for any 121 CF of CNG or one gallon of LNG

29 Claiming the credit -- Form 4136 Allows you to claim credit against your income tax liability Filed at the end of your tax year If your income tax liability less than credit – IRS sends check Since credit is refundable – factor in computing estimated tax payments during year

30 Oops! SAFETEA has a glitch… Law doesnt have mechanism now to refund CNG/LNG benefit in excess of excise tax liability –unless state or local govt or § 501(a) entity

31 Recordkeeping! Maintain files with –Tax returns –Records –Who sold you the CNG/LNG (include EIN) For at least 4 years after taxes became due OR you filed claim

32 Resources Publication 510, Excise Taxes for 2006 Notice 2006-92 Forms 720, 637 and 4136 and Instructions Call us –Excise Tax Branch, Office of Chief Counsel, IRS –202-622-3130 (not a toll free number)


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