Biodiesel mixture credit.   You can take the credit for biodiesel you use to produce a qualified mixture. A qualified mixture is a mixture of biodiesel with diesel fuel without regard to kerosene.

  You can take the credit only for a mixture you produce. You must sell the mixture to any person for use as a fuel, or use it as a fuel in your trade or business. Take into account biodiesel you use to produce a qualified mixture only if the sale or use is in your trade or business.

  You cannot take a credit for the casual off-farm production of a qualified biodiesel mixture.

Biodiesel.   Biodiesel means the monoalkyl esters of long chain fatty acids derived from plant or animal matter which meet the registration requirements for fuels and fuel additives established by the Environmental Protection Agency (EPA) under section 211 of the Clean Air Act, and the requirements of the American Society of Testing Materials D6751.

Agri-biodiesel.   Agri-biodiesel means 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.

Certification.   You must obtain and keep as part of your records a certification to you from the producer or importer of the biodiesel. The certificate is required for any biodiesel fuel credit claimed. The certificate must identify the product produced and the percentage of biodiesel and agri-biodiesel in the product. If the producer or importer of the biodiesel is also the taxpayer claiming the biodiesel credit, the certificate is required. See Model Certificate F on page 20.

Separation or failure to use as fuel.   If the credit applied to biodiesel used in the production of a qualified mixture, and you later separate the biodiesel from the mixture or do not use the mixture as fuel, you must pay a tax equal to the credit. Report this tax on Form 720.

Diesel fuel tax on the biodiesel in a biodiesel fuel mixture.   Persons who blend biodiesel with undyed diesel fuel to produce a biodiesel mixture outside the bulk transfer terminal system must pay the diesel fuel tax on the volume of biodiesel in the mixture. See Form 720 to report this tax. You also must be registered with the IRS as a blender. See Form 637.

How to claim the credit.   Any biodiesel mixture credit must first be taken against your taxable fuel liability on Form 720. Any excess credit may be taken on Schedule C (Form 720), Form 8849, Form 4136, or Form 8864. See Notice 2005-4 for more information.

Claiming the excess credit.   Instead of waiting until the end of the quarter when you file Form 720 to claim any excess biodiesel mixture credit, you may be able to file Form 8849 (Schedule 3) during the quarter. For more information, see Form 8849 (Schedule 3) and
Form 720.