Important tax implications for petroleum and ethanol industries

On Nov. 4, 2013, the IRS Office of Chief Counsel issued a memorandum providing that claiming section 6426(c) excise tax credits does not result in taxable gross income under section 61. As a result, many in the petroleum and ethanol industries may be eligible for federal income tax refunds for all open tax years in which they reported these credits.

IRS Memorandum No. 201342010 2013-43 states by reporting section 6426(c) excise tax credits and/or the section 6427(e) excise tax payment instead of the section 40A income tax credit, a biodiesel blender is not required to include in its gross income the amount of the excise tax credits and/or the excise tax payments that it claims.

Many of those in the petroleum and ethanol industries have taken advantage of section 6426(c) credits (which allows a credit for the number of gallons of biodiesel used in production of qualified biodiesel mixture), but they may not have been aware of the potential to exclude this credit from gross income.

Because most taxpayers still have open statutes of limitations for 2010, 2011, and 2012, it is important for blenders and their suppliers and retailers to understand procedures for excluding biodiesel blender credits from income in prior years in order to claim any potential tax refund.

If you have questions regarding the memorandum or whether excluding blenders credits from taxable income is an option for you, please contact your Baker Tilly advisor or send an e-mail to tax@bakertilly.com.