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IRS.gov Website
Publication 510
taxmap/pubs/p510-007.htm#en_us_publink1000116903

Diesel-Water Fuel Emulsion(p10)

rule
Diesel-water fuel emulsion means diesel fuel at least 14% of which is water and for which the emulsion additive is registered by a United States manufacturer with the EPA under section 211 of the Clean Air Act as in effect on March 31, 2003.
A reduced tax rate of $.198 per gallon is imposed on a diesel-water fuel emulsion. To be eligible for the reduced rate, the person who sells, removes, or uses the diesel-water fuel emulsion must be registered by the IRS. If the diesel-water fuel emulsion does not meet the requirements above, or if the person who sells, removes, or uses the fuel is not registered, the diesel-water fuel emulsion is taxed at $.244 per gallon.
taxmap/pubs/p510-007.htm#en_us_publink1000116904

Credits or refunds.(p10)

rule
The allowance for a credit or refund on a diesel-water fuel emulsion is discussed in chapter 2.