A recently-published memorandum from the Office of the Chief Counsel of the IRS may provide additional guidance to biofuels producers on their ability to obtain tax credits. (IRS Chief Counsel Advice 200941011).
The memorandum, penned in June but publicly-released in October, 2009, concludes that (1) ‘black liquor’ generated in a kraft mill in the paper manufacturing process may qualify as “liquid fuel derived from biomass” under IRC Section 6426(d)(2)(G), (2) the combination of black liquor with at least 0.1%diesel creates an “alternative fuel mixture” for purposes of determining the alternative fuel mixture credit under Section 6426(e) and (3) black liquor may also qualify for the cellulosic biofuel producer credit under IRC Section 40(b)(6) but a producer may not utilize both the mixture tax credit (under 6426(e)) and the producer tax credit (under 40(b)(6).
The analysis is important because the mixture credit amounts to only $0.50 per gallon (and requires the addition of diesel or another taxable fuel) while the cellulosic biofuel credit amounts to $1.01 per gallon and does not require any fuel mixing.
Even more importantly, the mixture credit program expires at the end of 2009, while the cellulosic biofuel credit continues until the end of 2012, so producers who are contemplating a sunset of their mixture credits at the end of the year could have three more years of credit under the cellulosic biofuel program.
Most pulp and paper producers are currently receiving the 50 cent alternative fuel mixture credit. In order to receive the $1.01 cellulosic biofuel credit, producers will have to take the additional step of registering under the EPA Renewable Fuel Standard Program.