A producer of an alcohol fuel mixture can make a claim for the alcohol used to produce an alcohol fuel mixture. Special rules determine the order in which the claim can be made. An alcohol fuel mixture for this purpose is a mixture of alcohol with gasoline, diesel fuel, or kerosene. You do not treat adding denaturants to alcohol as the production of a mixture.
You, as the producer of the mixture, must either sell the mixture for use as a fuel to another person or use the mixture as a fuel in your trade or business. The credit is allowed for each gallon of alcohol you used to produce a mixture only if the sale or use is in your trade or business. taxmap/pubs/p510-022.htm#en_us_publink1000117026
For purposes of the alcohol fuel mixture credit, alcohol includes methanol and ethanol. It also includes an alcohol gallon equivalent of ethyl tertiary butyl ether (ETBE) or other ethers produced from such alcohol and methanol produced from methane gas formed in waste disposal sites. But it does not include any of the following.
- Alcohol produced from petroleum, natural gas, or coal (including peat).
- Alcohol with a proof of less than 190 (150 proof for purposes of a mixture credit taken under section 40 on Form 6478). In figuring the proof of any alcohol, disregard any denaturants (additives that make the alcohol unfit for human consumption).
When figuring the number of gallons of alcohol used to produce the mixture, include the volume of any denaturant (including gasoline) added under formulas approved by the Secretary of the Treasury. Also include the denaturant when you figure the percentage of any mixture that is alcohol. However, denaturants can be counted only up to 2% of the total volume of alcohol and denaturant combined. See Notice 2009-6 for a temporary safe harbor and transitional rule for the volume of denaturants.taxmap/pubs/p510-022.htm#en_us_publink1000117028
Persons who blend alcohol with gasoline, diesel fuel, or kerosene to produce an alcohol fuel mixture outside the bulk transfer/terminal system must pay tax on the volume of alcohol in the mixture when the mixture is sold or removed. See Form 720 to report this tax. You must be registered by the IRS as a blender. See Form 637.taxmap/pubs/p510-022.htm#en_us_publink1000118033
The alcohol fuel mixture credit may not be claimed for alcohol produced outside the United States for use as a fuel outside the United States. The United States includes any possession of the United States.taxmap/pubs/p510-022.htm#en_us_publink1000117029
Any alcohol fuel mixture credit must first be taken on Schedule C to reduce your taxable fuel liability for gasoline, diesel fuel, and kerosene reported on Form 720. Any excess credit may be taken on Schedule C (Form 720), Schedule 3 (Form 8849), Form 4136, or Form 6478. See Notice 2005-4 for more information.taxmap/pubs/p510-022.htm#en_us_publink1000117030
If the credit is applied to alcohol used in the production of a mixture and you later separate the alcohol from the mixture or do not use the mixture as fuel, you must pay a tax equal to the credit. Report this tax on Form 720.