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Boutique Fuels

H.R. 2830

Current Regulatory Developments

LEGISLATION & RULES

IRS Taxable Fuel Definitions; Excise Tax Returns, Notice of Proposed Rulemaking, Federal Register July 29, 2008 This proposed rule would revise the definitions of “excluded liquid” so that all biodiesel mixtures of 99.9% or less would be classified as diesel fuel for excise tax purposes. As a result, terminal operators and bulk fuel carriers (pipeline, vessel and barge operators) that handle biodiesel products would be required to file fuel transaction reports. The IRS requires taxable fuel registrants to provide monthly reports detailing the movement of any liquid product into or out of an IRS-approved terminal. The IRS is soliciting comments until October 27, 2008.

IRS Bulletin 2005-46 (a.k.a. IRS Notice 2005-08), November 2005 Clarified that “any means of mechanical injection will be deemed to meet the ‘mechanical injection’ requirements.”

October 25, 2005 The proposed rule is passed. All terminal operators and bulk fuel carriers are to comply with 26 CFR 48.4082 from this point forward. This legislation as recorded in the Code of Federal Regulations (CFR), may be viewed at:

26 CFR 48.4082-1 Sections 1(a), 1(b) and 1 (c)

26 CFR 48.4082-1T Sections 1(d), and Sections 2 through 7

IRS Proposed Rule Federal Register Notice, April 26, 2005 This proposed regulation would ban the manual dyeing of diesel fuel and kerosene at bulk liquid terminals and all other upstream and downstream locations in the distribution system and would require the use of an IRS-approved mechanical dye injection system containing specified features. The proposed regulations would also require terminals with mechanical dye injection systems to maintain detailed records relating to the security features of the system. Reporting requirements were also established.

American Jobs Creation Act (AJCA), Title VIII: Revenue Provisions, Subtitle C: Reduction of Fuel Tax Evasion, sections 854-856, October 22, 2004 AJCA amended 26 CFR 48.4082 to impose changes to the dyeing process for a diesel fuel and kerosene tax exemption from manual to mechanical injection. Specifically, it requires the Secretary to issue regulations on mechanical dye injection systems, including rules for making such systems tamper-resistant. Also, it imposes penalties for: (1) tampering with a mechanical dye injection system (the greater of $25,000 or $10 for each gallon of fuel involved); and (2) failure by an operator of a mechanical dye injection system to maintain security standards ($1,000 for each failure and $1,000 for each day such operator fails to correct a violation).

UPDATES, COMMENTS & OTHER REPORTS

Excise Summary Terminal Activity Reporting System (ExSTARS) The Internal Revenue Service requires “taxable fuel registrants”, and specifically terminal operators and bulk fuel carriers (pipeline, vessel and barge operators), to provide monthly “Fuel Transaction Reports” detailing the movement of ANY liquid product into or out of an IRS approved terminal.

ExSTARS is the electronic fuel reporting system developed with the cooperation of the IRS, Department of Transportation, States and Motor Fuel Industry in efforts to comply with the IR Regulation 48.4101-2. The above link will enable businesses to access Form 637, which provides companies with a valid IRS registration number. Additionally, the site contains a link to its Electronic Data Interchange, which serves as the portal for electronic filing.

ILTA Comments on April 26, 2005 Proposed Rule At a hearing held on July 19, 2005, representatives of the oil industry testified that the proposed regulations were overly burdensome and should allow manual dyeing under certain conditions, such as a breakdown of the mechanical injection system. A number of written comments were subsequently submitted to the IRS, including the ILTA comments filed on July 26, 2005.

RELATED ILTA ARTICLES

ILTA provides a monthly newsletter to its membership. Members may log in to the Member Resources page to access archived newsletters. The following is a list of articles ILTA has published in its newsletter relating to the mechanical dye injection requirement.

· ILTA Clarifies IRS Mechanical Fuel Dyeing Regulations, June 2006 Issue (p.2)

· Mechanical Dye Injection Mandate, November 2005 Issue (p.1)

Oil Industry Criticizes IRS Proposal on Mechanical Dyeing of Diesel Fuel, August 2005 Issue (p.3)
Reminder: Mechanical Dyeing Requirement for Diesel Begins October 24, 2005, July 2005 Issue (p.3)