Wednesday, February 23, 2005

Left Out of the Mix: B100 Biodiesel Producers Fight For Tax Incentive

Earlier this year we posted an article on IRS Bulletin 2005-2, which provides proposed guidelines for implementing the new "Biodiesel Mixture Credit" - part of a package of tax incentives added to the American Jobs Creation Act of 2004. The New Rules Project now reports that, in response to the guidelines, a group of biodiesel producers has filed comments requesting that the IRS expand its interpretation of the term "mixture" to ensure that producers of 100 percent biodiesel (otherwise known as B100) are not left out of the mix.

The current IRS guidelines interpret the tax incentive to apply only to "mixtures" of biodiesel, and according to the IRS, that means producers of B100 are not eligible because the final product is not blended with regular diesel fuel. Thus, while B99 would qualify for the credit, B100, remarkably, would not.

As the group's comment letter points out, "the common terminology in the industry is to refer to blends of biodiesel – B20, B50, B100; similar to grades of gasoline – regular, unleaded, premium. Since biodiesel is inherently a blended mixture, it seems appropriate that the Service broadly interpret "mixture" to include all biodiesel blends including B100."

Excluding B100 from the incentive, would, according to the group, be inconsistent with the spirit of the tax incentive included in the American Job Creation Act of 2004, and would lead to perverse results. The group's comments call on the IRS to adopt an expansive interpretation of the term "mixture" that would apply to all biodiesel products from B1-B100.

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