26 USC 40 - Alcohol, etc., used as fuel

View all text of Subpart D [§ 38 - § 45AA]

§ 40. Alcohol, etc., used as fuel

(a) General ruleFor purposes of section 38, the alcohol fuels credit determined under this section for the taxable year is an amount equal to the sum of—

(1) the alcohol mixture credit,

(2) the alcohol credit,

(3) in the case of an eligible small ethanol producer, the small ethanol producer credit, plus

(4) the second generation biofuel producer credit.

(b) Definition of alcohol mixture credit, alcohol credit, and small ethanol producer creditFor purposes of this section, and except as provided in subsection (h)—

(1) Alcohol mixture credit

(A) In general

(B) Qualified mixtureThe term “qualified mixture” means a mixture of alcohol and gasoline or of alcohol and a special fuel which—

(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or

(ii) is used as a fuel by the taxpayer producing such mixture.

(C) Sale or use must be in trade or business, etc.Alcohol used in the production of a qualified mixture shall be taken into account—

(i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and

(ii) for the taxable year in which such sale or use occurs.

(D) Casual off-farm production not eligible

(2) Alcohol credit

(A) In generalThe alcohol credit of any taxpayer for any taxable year is 60 cents for each gallon of alcohol which is not in a mixture with gasoline or a special fuel (other than any denaturant) and which during the taxable year—

(i) is used by the taxpayer as a fuel in a trade or business, or

(ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such person’s vehicle.

(B) User credit not to apply to alcohol sold at retail

(3) Smaller credit for lower proof alcohol

(4) Small ethanol producer credit

(A) In general

(B) Qualified ethanol fuel productionFor purposes of this paragraph, the term “qualified ethanol fuel production” means any alcohol which is ethanol which is produced by an eligible small ethanol producer, and which during the taxable year—

(i) is sold by such producer to another person—(I) for use by such other person in the production of a qualified mixture in such other person’s trade or business (other than casual off-farm production),(II) for use by such other person as a fuel in a trade or business, or(III) who sells such ethanol at retail to another person and places such ethanol in the fuel tank of such other person, or

(ii) is used or sold by such producer for any purpose described in clause (i).

(D) Additional distillation excluded

(5) Adding of denaturants not treated as mixture

(6) Second generation biofuel producer credit

(A) In general

(B) Applicable amountFor purposes of subparagraph (A), the applicable amount means $1.01, except that such amount shall, in the case of second generation biofuel which is alcohol, be reduced by the sum of—

(i) the amount of the credit in effect for such alcohol under subsection (b)(1) (without regard to subsection (b)(3)) at the time of the qualified second generation biofuel production, plus

(ii) in the case of ethanol, the amount of the credit in effect under subsection (b)(4) at the time of such production.

(C) Qualified second generation biofuel productionFor purposes of this section, the term “qualified second generation biofuel production” means any second generation biofuel which is produced by the taxpayer, and which during the taxable year—

(i) is sold by the taxpayer to another person—(I) for use by such other person in the production of a qualified second generation biofuel mixture in such other person’s trade or business (other than casual off-farm production),(II) for use by such other person as a fuel in a trade or business, or(III) who sells such second generation biofuel at retail to another person and places such second generation biofuel in the fuel tank of such other person, or

(ii) is used or sold by the taxpayer for any purpose described in clause (i).

The qualified second generation biofuel production of any taxpayer for any taxable year shall not include any alcohol which is purchased by the taxpayer and with respect to which such producer increases the proof of the alcohol by additional distillation.

(D) Qualified second generation biofuel mixtureFor purposes of this paragraph, the term “qualified second generation biofuel mixture” means a mixture of second generation biofuel and gasoline or of second generation biofuel and a special fuel which—

(i) is sold by the person producing such mixture to any person for use as a fuel, or

(ii) is used as a fuel by the person producing such mixture.

(E) Second generation biofuelFor purposes of this paragraph—

(i) In generalThe term “second generation biofuel” means any liquid fuel which—(I) is derived by, or from, qualified feedstocks, and(II) meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545).

(ii) Exclusion of low-proof alcohol

(iii) Exclusion of certain fuelsThe term “second generation biofuel” shall not include any fuel if—(I) more than 4 percent of such fuel (determined by weight) is any combination of water and sediment,(II) the ash span of such fuel is more than 1 percent (determined by weight), or(III) such fuel has an acid number greater than 25.

(F) Qualified feedstockFor purposes of this paragraph, the term “qualified feedstock” means—

(i) any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, and

(ii) any cultivated algae, cyanobacteria, or lemna.

(G) Special rules for algaeIn the case of fuel which is derived by, or from, feedstock described in subparagraph (F)(ii) and which is sold by the taxpayer to another person for refining by such other person into a fuel which meets the requirements of subparagraph (E)(i)(II) and the refined fuel is not excluded under subparagraph (E)(iii)—

(i) such sale shall be treated as described in subparagraph (C)(i),

(ii) such fuel shall be treated as meeting the requirements of subparagraph (E)(i)(II) and as not being excluded under subparagraph (E)(iii) in the hands of such taxpayer, and

(iii) except as provided in this subparagraph, such fuel (and any fuel derived from such fuel) shall not be taken into account under subparagraph (C) with respect to the taxpayer or any other person.

(H) Allocation of second generation biofuel producer credit to patrons of cooperative

(I) Registration requirement

(J) Application of paragraph

(i) In general

(ii) No carryover to certain years after expiration

(d) Definitions and special rulesFor purposes of this section—

(1) Alcohol defined

(A) In generalThe term “alcohol” includes methanol and ethanol but does not include—

(i) alcohol produced from petroleum, natural gas, or coal (including peat), or

(ii) alcohol with a proof of less than 150.

(B) Determination of proof

(2) Special fuel defined

(3) Mixture or alcohol not used as a fuel, etc.

(A) MixturesIf—

(i) any credit was determined under this section with respect to alcohol used in the production of any qualified mixture, and

(ii) any person—(I) separates the alcohol from the mixture, or(II) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to 60 cents a gallon (45 cents in the case of alcohol with a proof less than 190) for each gallon of alcohol in such mixture.

(B) AlcoholIf—

(i) any credit was determined under this section with respect to the retail sale of any alcohol, and

(ii) any person mixes such alcohol or uses such alcohol other than as a fuel,

then there is hereby imposed on such person a tax equal to 60 cents a gallon (45 cents in the case of alcohol with a proof less than 190) for each gallon of such alcohol.

(i) any credit was determined under subsection (a)(3), and

(ii) any person does not use such fuel for a purpose described in subsection (b)(4)(B),

then there is hereby imposed on such person a tax equal to 10 cents a gallon for each gallon of such alcohol.

(D) Second generation biofuel producer creditIf—

(i) any credit is allowed under subsection (a)(4), and

(ii) any person does not use such fuel for a purpose described in subsection (b)(6)(C),

then there is hereby imposed on such person a tax equal to the applicable amount (as defined in subsection (b)(6)(B)) for each gallon of such second generation biofuel.

(E) Applicable laws

(4) Volume of alcohol

(5) Pass-thru in the case of estates and trusts

(6) Special rule for second generation biofuel producer credit

(7) Limitation to alcohol with connection to the United States

(e) Termination

(1) In generalThis section shall not apply to any sale or use—

(A) for any period after December 31, 2011, or

(B) for any period before January 1, 2012, during which the rates of tax under section 4081(a)(2)(A) are 4.3 cents per gallon.

(2) No carryovers to certain years after expiration

(3) Exception for second generation biofuel producer credit

(f) Election to have alcohol fuels credit not apply

(1) In general

(2) Time for making election

(3) Manner of making election

(g) Definitions and special rules for eligible small ethanol producer creditFor purposes of this section—

(1) Eligible small ethanol producer

(2) Aggregation rule

(3) Partnership, S corporations, and other pass-thru entities

(4) Allocation

(5) RegulationsThe Secretary may prescribe such regulations as may be necessary—

(A) to prevent the credit provided for in subsection (a)(3) from directly or indirectly benefiting any person with a direct or indirect productive capacity of more than 60,000,000 gallons of alcohol during the taxable year, or

(B) to prevent any person from directly or indirectly benefiting with respect to more than 15,000,000 gallons during the taxable year.

(6) Allocation of small ethanol producer credit to patrons of cooperative

(A) Election to allocate

(i) In general

(ii) Form and effect of election

(B) Treatment of organizations and patrons

(i) Organizations

(ii) Patrons

(iii) Special rules for decrease in credits for taxable yearIf the amount of the credit of the organization determined under such subsection for a taxable year is less than the amount of such credit shown on the return of the organization for such year, an amount equal to the excess of—(I) such reduction, over(II) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,

shall be treated as an increase in tax imposed by this chapter on the organization. Such increase shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.

(h) Reduced credit for ethanol blenders

(1) In generalIn the case of any alcohol mixture credit or alcohol credit with respect to any sale or use of alcohol which is ethanol during calendar years 2001 through 2011—

(A) subsections (b)(1)(A) and (b)(2)(A) shall be applied by substituting “the blender amount” for “60 cents”,

(B) subsection (b)(3) shall be applied by substituting “the low-proof blender amount” for “45 cents” and “the blender amount” for “60 cents”, and

(C) subparagraphs (A) and (B) of subsection (d)(3) shall be applied by substituting “the blender amount” for “60 cents” and “the low-proof blender amount” for “45 cents”.

(2) Amounts

(3) Reduction delayed until annual production or importation of 7,500,000,000 gallons

(A) In general

(B) Determination

(Added Pub. L. 96–223, title II, § 232(b)(1), Apr. 2, 1980, 94 Stat. 273, § 44E; amended Pub. L. 97–34, title II § 207(c)(3), Aug. 13, 1981, 95 Stat. 225; Pub. L. 97–354, § 5(a)(2), Oct. 19, 1982, 96 Stat. 1692; Pub. L. 97–424, title V, § 511(b)(2), (d)(3), Jan. 6, 1983, 96 Stat. 2170, 2171; renumbered § 40 and amended Pub. L. 98–369, div. A, title IV, §§ 471(c), 474(k), title IX, §§ 912(c), (f), 913(b), July 18, 1984, 98 Stat. 826, 832, 1007, 1008; Pub. L. 100–203, title X, § 10502(d)(1), Dec. 22, 1987, 101 Stat. 1330–444; Pub. L. 101–508, title XI, § 11502(a)–(f), Nov. 5, 1990, 104 Stat. 1388–480 to 1388–482; Pub. L. 104–188, title I, § 1703(j), Aug. 20, 1996, 110 Stat. 1876; Pub. L. 105–178, title IX, § 9003(a)(3), (b)(1), June 9, 1998, 112 Stat. 502; Pub. L. 108–357, title III, §§ 301(c)(1)–(4), 313(a), Oct. 22, 2004, 118 Stat. 1461, 1467; Pub. L. 109–58, title XIII, § 1347(a), (b), Aug. 8, 2005, 119 Stat. 1056; Pub. L. 110–234, title XV, §§ 15321(a)–(b)(2), (3)(B), (c)–(e), 15331(a), 15332(a), May 22, 2008, 122 Stat. 1512–1516; Pub. L. 110–246, § 4(a), title XV, §§ 15321(a)–(b)(2), (3)(B), (c)–(e), 15331(a), 15332(a), June 18, 2008, 122 Stat. 1664, 2274–2278; Pub. L. 110–343, div. B, title II, § 203(a), Oct. 3, 2008, 122 Stat. 3833; Pub. L. 111–152, title I, § 1408(a), Mar. 30, 2010, 124 Stat. 1067; Pub. L. 111–240, title II, § 2121(a), Sept. 27, 2010, 124 Stat. 2567; Pub. L. 111–312, title VII, § 708(a)(1), (2), Dec. 17, 2010, 124 Stat. 3312; Pub. L. 112–240, title IV, § 404(a)(1), (2), (b)(1)–(3)(B), Jan. 2, 2013, 126 Stat. 2338, 2339; Pub. L. 113–295, div. A, title I, § 152(a), Dec. 19, 2014, 128 Stat. 4021; Pub. L. 114–113, div. Q, title I, § 184(a), Dec. 18, 2015, 129 Stat. 3073; Pub. L. 115–123, div. D, title I, § 40406(a), Feb. 9, 2018, 132 Stat. 149; Pub. L. 115–141, div. U, title IV, § 401(a)(9), Mar. 23, 2018, 132 Stat. 1184; Pub. L. 116–94, div. Q, title I, § 122(a), Dec. 20, 2019, 133 Stat. 3231; Pub. L. 116–260, div. EE, title I, § 140(a), Dec. 27, 2020, 134 Stat. 3054; Pub. L. 117–169, title I, § 13202(a), Aug. 16, 2022, 136 Stat. 1932.)