Fuel Tax, IRS Errors and Agri-Chemical Security Credits

By: Dave Thomsen, Partner email

E-85 Credit Several changes have been made to some of the Iowa fuel tax credits.  For 2009 (and 2010) the E-85 tax credit amount has been reduced from $.25 per gallon to $.20 per gallon.  This amount will continue to decline until it is eliminated, effective calendar year 2021. Biodiesel Blended Fuel Credit Effective January 1, 2009, the Fifty-Percent-Or-More test for the Biodiesel Blended Fuel Credit will be computed on a site-by-site basis rather than on the entire entity’s fuel operations.  This means that any site meeting the Fifty-Percent-Or-More test will be eligible for the $.03 per gallon credit. This credit expires on January 1, 2012. Ethanol Promotion Credit Effective January 1, 2009 there is a new ethanol promotion tax credit that replaces the current ethanol blended gasoline tax credit. This credit is repealed on January 1, 2021. This credit is quite complex to calculate and depends on the number of gallons of pure ethanol that a retailer sells, based on a 200,000 bio-fuel gallon threshold, and is computed separately for each retail fuel site.  This credit ranges from $.065 per gallon down to zero, based on the % of ethanol sold if the retail dealer misses the threshold by 4% or more. Fuel retailers will be required to keep track of the gallons of each type of fuel sold, by location.  Bio-fuels factor into the equation to determine if the threshold is met – but the credit amount is based on gallons of pure ethanol.  For retail dealers not on a calendar year, the credit may be computed on the gallons of pure ethanol sold during their tax year.  This credit is computed on form IA 137. Late Filing and Underpayment Penalties Because of the change from form 990C to form 1120C, effective with the 2006 tax year, many cooperatives have received penalty notices from the IRS.  I received a letter dated October 24, 2008 from the Internal Revenue Service which confirmed my suspicion that IRS employees were mistakenly processing form 1120C as a form 1120. This letter acknowledged that the IRS was experiencing related systemic errors at their processing campuses and also indicated that IRS employees were being instructed as to the different due dates of forms 1120C and 1120.  Hopefully, the IRS will eliminate these penalty notices and resolve all related issues. Agriculture Chemicals Security Credit Though it was covered in greater detail in December’s Special Edition newsletter, I want to re-visit this brand new credit.  For qualifying expenditures subsequent to May 22, 2008, a 30% credit based on total qualifying expenditures for securing agricultural chemicals, up to a limit of $100,000 per facility, may be claimed on form 8931. This credit will be available until January 1, 2013.