The Court of Appeals for the Federal Circuit has held that a taxpayer must first use the Code Sec. 6426 alcohol fuel mixture credit to reduce any excise tax liability before receiving payment for any amount of mixture credit exceeding excise tax liability. The case involved a fuel producer that had brought a refund action, arguing that it was entitled to include its gross excise tax liability in its cost of goods sold. It essentially treated the mixture credit as a tax-free direct payment regardless of its excise tax liability. The government argued that the taxpayer’s interpretation would result in a windfall that Congress did not intend. The Court of Federal Claims agreed with the government, and the Court of Appeals for the Federal Circuit affirmed.
Fuel Mixture Credit
Code Sec. 6426(a)(1) explicitly provides that the “credit,” i.e., the mixture credit, is applied “against” the gasoline excise tax imposed under Code Sec. 4081. In other words, the mixture credit works to reduce the taxpayer’s overall excise tax liability. While the fuel producer argued that a “credit” under Code Sec. 6426 is a “payment” of its Code Sec. 4081 excise tax liability, the Court of Appeals was not persuaded. According to the court, the plain meaning of the statute is clear—the mixture credit is a credit, not a payment, which must first be used to decrease a taxpayer’s Code Sec. 4081 gasoline excise tax liability before receiving any payment under Code Sec. 6427(e).
The fuel producer wished both to pocket the mixture credit as a tax-free refundable payment and to claim an income tax benefit by including in full its gasoline excise tax liability in its cost of goods sold, thereby reducing its total taxable income. Such double dipping was not intended by Congress.
Affirming Court of Federal Claims decision.
Sunoco, Inc., CA-FC
Code Sec. 6426
CCH Reference – ETR ¶49,250.21
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