IRS to require blender registration

By Michael Shirek | January 01, 2008
A new Internal Revenue Service policy will have an impact on the biodiesel industry as requirements for 637 M registration go into effect for blenders using B99 below the terminal rack. Until recently, blenders were able to purchase B99 at the rack with the assumption that all tax obligations had been met, and then go on to blend it with petroleum diesel to arrive at lower blends, such as B2 and B5. The previous IRS policy treated B99 as a blended fuel and allowed upstream blenders to add 0.1 percent petroleum diesel to B100, take the blenders tax credit and then pass along a portion of that savings with the sale of B99.

However, the new policy changes the way the IRS categorizes blended fuels. According to the Petroleum Marketers Association of America, the IRS determined that B99 isn't a taxable motor fuel because it doesn't contain paraffin, and therefore it isn't considered a blended fuel. Marketers blending B99 below the terminal rack are subject to 637 M registration and aren't eligible for the blenders tax credit.

IRS 637 M registration governs the federal excise tax, and a 637 M registration requirement means that parties now handling B99 as a taxable motor fuel will have to change practices and handle it as a nontaxable motor fuel. They will also have to pay the 24.4-cent federal excise tax when it is again blended with petroleum diesel to make lower biodiesel blends.

Although the shift in policy still hasn't been formalized with an IRS rulemaking document that was expected in 2006, the PMAA is advising blenders below the terminal rack to apply for 637 M registration at www.irs.gov.
 
 
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