This notice modifies Notice 2005-4, 2005-2 I.R.B. 289, as modified by Notice 2005-24, 2005-12 I.R.B. 757, by revising the guidance relating to the Certificate for Biodiesel, which is required as a condition for claiming a credit or payment under §§ 6426(c), 6427(e), and 40A of the Internal Revenue Code. This notice also provides guidance on issues related to the biodiesel credit or payment that are not addressed in Notice 2005-4. This notice further modifies Notice 2005-4 relating to the Certificate of Person Buying Aviation-Grade Kerosene for Commercial Aviation or Nontaxable Use, which is required to notify a position holder of certain transactions under §§ 4081 and 4082.

Notice 2005-4 provides guidance on certain excise tax provisions in the Code that were added or affected by the American Jobs Creation Act of 2004 (Pub. L. 108-357) (the Act).

(a) Section 2 of Notice 2005-4 provides guidance on credits and payments allowed for biodiesel fuel. Section 2(h) of that notice describes the Certificate for Biodiesel that, under the Code, the claimant must obtain ”from” the producer of the biodiesel. This notice revises the certificate to clarify that the claimant may obtain the certificate either directly from the producer of the biodiesel or indirectly from a biodiesel reseller.

(b) Section 2(h) of Notice 2005-4 also requires that each claim contain a statement that the claimant has in its possession an unexpired biodiesel certificate. This notice revises that rule so that the claimant generally must submit a copy of the certificate with its claim.

(c) This notice also provides guidance on accounting for commingled biodiesel.

(d) Finally, this notice provides a transitional rule for claims that were made before August 29, 2005.

(e) Accordingly, section 2(h) of Notice 2005-4 is revised to read as follows:

(a) Definition in the Code. Section 6426(c)(3) provides that biodiesel mixture means a mixture of biodiesel and diesel fuel (as defined in § 4083(a)(3)), determined without regard to any use of kerosene, that (1) is sold by the taxpayer producing the mixture to any person for use as a fuel, or (2) is used as a fuel by the taxpayer producing the mixture.

(b) Explanation of terms—(1) The diesel fuel in a biodiesel mixture may be either dyed or undyed. However, taxpayers are reminded of the penalty in § 6715 for the willful alteration of the strength or composition of any dye in dyed fuel. Also see § 48.6715-1 of the Manufacturers and Retailers Excise Tax Regulations.

(2) A biodiesel mixture generally is used as a fuel when it is consumed to produce energy. Thus, for example, a biodiesel mixture that is consumed in a furnace to produce heat is used as a fuel. However, the destruction of a biodiesel mixture in a fire or other casualty loss is not treated as use as a fuel.

(3) A biodiesel mixture is a mixture of biodiesel and diesel fuel containing at least 0.1 percent (by volume) of diesel fuel. Thus, for example, a mixture of 999 gallons of biodiesel and 1 gallon of diesel fuel is a biodiesel mixture.

(4) Kerosene in a mixture of biodiesel and diesel fuel is not included in the volume for purposes of determining whether the biodiesel mixture satisfies the volume requirements set forth in paragraph (b)(3) of this section. Further, the gallons of kerosene in the mixture of biodiesel and diesel fuel are not included in the gallons of biodiesel for which a credit or payment is allowed.

(c) Effective date—(1) In general. Paragraphs (b)(1), (2), and (4) of this section are applicable January 1, 2005, the effective date of Notice 2005-4. Paragraph (b)(3) of this section applies with respect to mixtures produced after August 29, 2005 and, except as provided in paragraph (c)(2) of this section, is not taken into account in determining the tax treatment of any mixture produced on or before that date.

(2) Reliance permitted in certain cases. A taxpayer may rely on paragraph (b)(3) of this section to claim a biodiesel mixture credit for a mixture produced on or before August 29, 2005 if the taxpayer has not taken any action inconsistent with the claim requirements under this notice such as providing a Certificate for Biodiesel or a Statement of Biodiesel Reseller with respect to the biodiesel in the mixture.

(a) In general. Section 40A(d)(2) defines agri-biodiesel as meaning biodiesel derived solely from virgin oils, ”including” esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds, and from animal fats. The language ”including” indicates that this list is not exclusive. Thus, for example, biodiesel derived solely from virgin oils includes esters derived from palm oil and fish oil.

(b) Commingled feedstock. If virgin oils and recycled oils are commingled for use as a feedstock in the production of biodiesel, the biodiesel is not derived solely from virgin oils as required by § 40A(d)(2).

(c) Effective date. Paragraph (a) of this section is applicable January 1, 2005, the effective date of Notice 2005-4. Paragraph (b) of this section applies with respect to biodiesel produced after August 29, 2005.

(a) Background. Section 6426 generally allows a biodiesel mixture credit against any tax imposed by § 4081, including those taxes unrelated to biodiesel mixtures or alcohol mixtures. The § 6426 credit is claimed on a Form 720, Quarterly Federal Excise Tax Return, which is filed at the end of each quarter. Section 6427(e)(1) generally allows a payment relating to a person’s production of a biodiesel mixture. The § 6427(e)(1) payment may be claimed before Form 720 is due and as often as once a week if certain conditions are met. However, § 6427(e)(2) provides that no amount is payable under § 6427(e)(1) for any mixture with respect to which an amount is allowed as a credit under § 6426. If a claim is made under § 6427(e) for an amount that is allowable as a credit under § 6426, section 2(d)(2) of Notice 2005-4 provides that payment under § 6427(e) is treated as an excessive amount under § 6206. Unless this excessive amount is repaid with interest before the due date of the Form 720 on which the credit under § 6426 is allowable, it may be assessed as if it were a tax imposed by § 4081 and a penalty under § 6675 may be imposed.

(b) Computation of payment limitation. A person producing biodiesel mixtures outside the bulk transfer/terminal system and liable for tax imposed by § 4081 solely because of the removal or sale of the mixtures can avoid making excessive claims for payment under § 6427(e) by limiting claims filed on a form other than Form 720 to—

(1) 75.6 percent of the total credits and payments allowable with respect to agri-biodiesel used to produce the mixtures (24.4 percent of the allowable credits and payments must be claimed on Form 720); and

(2) 51.2 percent of the total credits and payments allowable with respect to biodiesel other than agri-biodiesel used to produce the mixtures (48.8 percent of the allowable credits and payment must be claimed on Form 720).

(c) Example. The following example illustrates the application of this section:

(1) P is a biodiesel mixture producer. P produces blended taxable fuel outside of the bulk transfer/terminal system by adding biodiesel to taxed diesel fuel. See §§ 48.4081-1(c)(1) and 48.4081-3(g). P has no § 4081 liability other than its liability as a blender on its sale of the biodiesel mixture. During the period August 1 through August 10, 2005, P uses 5,000 gallons of agri-biodiesel to produce a biodiesel mixture. The total of the credits and payments allowable with respect to the biodiesel used to produce the mixture is $5,000 (5,000 x $1.00).

(2) On August 11, P files Form 8849, Claim for Refund of Excise Taxes, for the period August 1 - August 10. To avoid an excessive claim, P limits the claim on Form 8849 to $3,780 (75.6 percent of $5,000) reporting 3,780 gallons of agri-biodiesel.

(3) On Form 720, Quarterly Federal Excise Tax Return, P reports liability for IRS No. 60(c) of $1,220 (5,000 gallons x $.244) and claims a credit on Schedule C for $1,220 (24.4 percent of $5,000) for the period August 1 - August 10, reporting on Schedule C 1,220 gallons of agri-biodiesel.

(d) Effective date. This section is applicable January 1, 2005, the effective date of Notice 2005-4.

(a) In general—(1) Section 4 of Notice 2005-4 provides guidance on the taxation of aviation-grade kerosene under the Act. Under sections 4(d) and 4(e), a position holder is not liable for tax if, among other conditions, it obtains a certificate from the operator of the aircraft into which the aviation-grade kerosene is delivered. This certificate, described in section 4(g), is signed by the aircraft operator and includes the name of the position holder.

(2) In a so-called ”flash title transaction,” the position holder sells (as defined in § 48.0-2(a)(5)) the aviation-grade kerosene to a wholesale distributor (reseller) that in turn sells the kerosene to the aircraft operator as the kerosene is being removed from a terminal into the fuel tank of an aircraft.

(3) For purposes of determining whether the conditions of sections 4(d)(1)(ii) and 4(e)(2) of Notice 2005-4 are met in a case described in paragraph (a)(2) of this section, the position holder will be treated as having a certificate (in the form described in section 4(g)) from the operator of the aircraft if: (i) the aircraft operator puts the reseller’s name, address, and employer identification number on the certificate in place of the position holder’s name, address, and employer identification number; and (ii) the reseller provides the position holder with a statement of aviation-grade kerosene reseller. The reseller statement is a statement that is signed under penalties of perjury by a person with authority to bind the reseller; is provided at the bottom or on the back of the certificate (or in an attached document); and contains the reseller’s name, address, and employer identification number, the position holder’s name, address, and employer identification number, and a statement that the reseller has no reason to believe that any information in the accompanying aircraft operator’s certificate is false.

(b) Effective date. This section is applicable August 29, 2005.

The last sentence of section 2(a) of Notice 2005-4 is revised to read as follows: Under the Code’s coordination rules, the sum of all credits and payments per gallon of alcohol or biodiesel may not exceed the credit rate per gallon prescribed in § 40 or 40A, whichever is applicable.

The collection of information contained in this notice has been reviewed and approved by the office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. § 3507) under control number 1545-1915.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collections of information in this notice are in the following sections.

Section 2 of the notice describes the statement that the biodiesel reseller must give to its buyer with respect to the biodiesel mixture credit or biodiesel credit.

Section 6 of the notice describes the statement that an aviation-grade kerosene reseller must give to the position holder of aviation grade kerosene.

The collections of information are required to obtain a tax benefit. This information will be used to substantiate claims for the tax benefits. The likely respondents are businesses, not-for-profit institutions, and state, local, or tribal governments.

The estimated total annual reporting and or recordkeeping burden is 5,100 hours.

The estimated average annual burden per respondent and/or recordkeeper is approximately is .25 hours.

The estimated number of respondents and recordkeepers is 240.

Books or records relating to a collection of information must be retained as long as their contents may become material to the administration of the internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. § 6103.

Notice 2005-4 is modified as described in sections 2, 6, and 7 of this notice.

The principal authors of this notice are Susan Athy and Deborah Karet of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, please contact Ms. Athy (regarding biodiesel) or Ms. Karet (regarding aviation-grade kerosene) at (202) 622-3130 (not a toll-free call).