Federal Tax Credit Extended for Use and Sale of Alternative Fuels

On December 17, 2019, President Trump signed the Further Consolidated Appropriations Act into law—retroactively restoring the refundable federal tax credit for sale or use of alternative fuels, including propane.

The credit, which originally expired on December 31, 2017, is now extended for fuel sold or used through December 31, 2020.

Claim the Credit

For companies looking to access quick capital during the COVID-19 pandemic, this refundable credit is equal to 50 cents per gallon—or gasoline-gallon equivalent—used or sold by a taxpayer, which could add up to substantial savings for businesses. Unlike refunds for taxes paid on fuel, receipt of this aren’t included in taxable income.

Qualifying Activities

The federal legislation provides this tax incentive for using the following:

  • Propane
  • Biodiesel and biodiesel mixtures
  • Qualified fuel cell vehicles
  • Alternative fuel vehicle refueling property
  • Energy-efficient commercial buildings
  • Certain producers and blenders of alternative fuels

Each incentive has specific documentation, registration, and reporting requirements, so taxpayers should visit the IRS website, or consult a tax advisor before getting started.

Retroactive Application

In response to the Appropriations Act, the IRS issued Notice 2020-8, which allows taxpayers to make a one-time claim of the credits for fuels sold or used during 2018 and 2019, without having to file an amended return.

Per the notice, taxpayers who missed out on receiving the tax credit for those tax years simply need to file a claim for refund via Form 8849 by the prescribed due date of August 11, 2020.

If the IRS doesn’t issue the payment within 60 days after the claim has been filed, it will be required to pay interest in addition to the refund.

Additional Considerations

 Before applying for the credit, there are several additional points taxpayers should note.

  • Registration. To file a claim for refund, taxpayers must be registered to pay excise taxes with the IRS. To register, file Form 637, Application for Registration—for Certain Excise Tax Activities—with the IRS before claiming the credit.
  • Amended returns. If a taxpayer chooses not to register with the IRS, the taxpayer can still claim a refund for 2018 fuel via an amended return.
  • Partnership entities. Under the new centralized audit regime, partnership entities should likely consider filing the claim for refund rather than amending the return.

We're Here to Help

For more information on tax credits and other strategies that may benefit your business as well as regulations to know before claiming the credit, contact your Moss Adams professional.