SERVICE PROVIDES GUIDANCE ON SALES OF GASOLINE TO GASOHOL BLENDERS.

Notice 89-101

This notice provides that, effective October 1, 1989, gasoline may be sold at the reduced excise tax rate for gasohol production only to a registered gasohol blender who certifies, among other things, that the blender will use the gasoline to produce gasohol within 24 hours after buying the gasoline. It is expected that the rules of this notice will be adopted in final regulations.

The 24-hour rule described in this notice does not apply to taxable removals of gasoline that are not in connection with sales. In the case of a refiner, throughputter or other gasoline taxpayer that is taxed upon the removal of gasoline, the reduced rate applies only if the gasoline taxpayer actually blends the gasoline into gasohol before the due date of the tax payment for the period in which the removal occurred.

BACKGROUND

Effective January 1, 1988, section 1703 of the Tax Reform Act of 1986, 1986-3 (Vol. 1) C.B. 1, 691 ("1986 Act"), amended section 4081(a) of the Internal Revenue Code to impose a tax on the earlier of the removal or sale of gasoline by the refiner or importer thereof or the terminal operator.

Under section 4081(c) of the Code, as amended by the 1986 Act, reduced-rate sales of gasoline would have been allowed only for gasohol produced at the time of the removal or sale of such gasoline. The legislative history of section 4081(c) interpreted the section to require that the gasohol be produced at the terminal from which the gasoline was sold or removed. See H.R. Conf. Rep. No. 841, 99th Cong., 2d Sess. II-830 (1986), 1986-3 (Vol. 4) C.B. 830. However, as a transitional rule, the Service has allowed reduced-rate removals or sales of gasoline for gasohol production regardless of when or where the gasohol is produced provided that certain registration and recordkeeping requirements are met. See Notice 88-2, 1988-1 C.B. 473 (transitional rule for the first quarter of 1988), Notice 88-34, 1988-1 C.B. 516 (transitional rule for the second quarter of 1988), Notice 88-69, 1988-2 C.B. 369 (transitional rule for the third and fourth quarters of 1988), and Notice 89-2, 1989-2 I.R.B. 13 (transitional rule for the first three quarters of 1989).

Effective October 1, 1989, section 6104(a) of the Technical and Miscellaneous Revenue Act of 1988 (P.L. 100-647) ("1988 Act"), amends section 4081(c) of the Code by allowing sales or removals of gasoline to be made at the reduced rate even if gasohol is not produced until after the time of the taxable removal or sale, subject to such terms and conditions as the Secretary may prescribe. The legislative history of section 6104(a) indicates that Congress intended the reduced rate to be allowed only if the alcohol and gasoline are bought contemporaneously (i.e., within a 24-hour period). See H.R. Conf. Rep. No. 1104, 100th Cong., 2d Sess. II-179 (1988).

Pursuant to section 6104(a) of the 1988 Act, reduced-rate sales of gasoline will be allowed if the following terms and conditions are met.

INSTRUCTIONS FOR GASOLINE TAXPAYERS

A registered gasoline taxpayer may sell gasoline at the reduced rate for gasohol production to a registered gasohol blender only if the blender furnishes that taxpayer, before or at the time of sale, a certificate in the form described below.

Gasoline taxpayers are reminded that they remain liable for tax at the full rate if, at the time of a sale, they have reason to believe that the gasoline sold by them at the reduced rate is not intended for blending into gasohol within 24 hours after the sale of the gasoline, that their buyer has failed to register, or that their buyer's registration has been revoked or suspended.

Gasoline taxpayers also are reminded that the reduced rate for gasoline sold for gasohol production is 3.44 cents a gallon (3.33 cents of which is reported on Form 720, Quarterly Federal Excise Tax Return, IRS No. 58, and .11 cent of which is reported on Form 720, IRS No. 74).

Gasoline taxpayers who use untaxed gasoline to produce gasohol (i.e., who produce gasohol before sale or removal from the terminal) are liable for tax of 3.1 cents a gallon on their taxable sale or removal of the gasohol (3 cents of which is reported on Form 720, IRS No. 59, and .1 cent of which is reported on Form 720, IRS No. 75).

INSTRUCTIONS FOR GASOHOL BLENDERS

Tax will be imposed on sales of gasoline at the reduced excise tax rate for gasoline used to produce gasohol only if the gasohol blender --

(1) holds a valid Certificate of Registry (Form 637) as a gasohol blender,

(2) intends to use all the gasoline bought at the reduced rate for gasohol production within 24 hours after it buys the gasoline, and

(3) provides its gasoline seller with a certificate in the form prescribed below at or before the time of sale.

In addition, gasohol blenders are reminded that --

(1) they must maintain sufficient records to establish to the satisfaction of the district director that the gasoline bought at the reduced rate actually was used for the production of gasohol within 24 hours after the purchase of the gasoline,

(2) their Certificate of Registry may be revoked or suspended if they buy gasoline at the reduced rate and then fail to use such gasoline in the production of gasohol,

(3) they are liable for tax of 5.66 cents a gallon on gasoline that they buy at the reduced rate but use or sell without blending into gasohol, and

(4) they must file a Quarterly Federal Excise Tax Return (Form 720) each quarter and report the total volume of gasoline bought at the reduced rate and the total volume of gasohol produced by the blender during the period covered by the return.

CERTIFICATION

The gasohol blender's certification should take the following form:

"Date ____________

"The undersigned buyer ("Buyer") hereby certifies under penalties of perjury that --

(1) the Buyer holds a valid Certificate of Registry as a gasohol blender with a registration number of ______________,

(2) either (check one)

______ (a) all the gasoline specified in the accompanying order, or on the reverse side hereof, or

______ (b) all of the gasoline to be bought by the Buyer for a period beginning on (Date) _____ and ending ________ (period not to exceed one year)

will be used by the Buyer in the production of gasohol within 24 hours after it buys the gasoline, and

(3) the Buyer will not claim a credit or refund of tax under section 6427(f) of the Internal Revenue Code for gasoline it buys at the reduced rate of tax.

"The Buyer understands that any fraudulent use of this certification to buy any gasoline at the reduced rate of tax will subject the Buyer to penalties of perjury, which may include fine and/or imprisonment. Furthermore, the Buyer will pay a tax of 5.66 cents a gallon on gasoline it buys at the reduced rate but does not use to produce gasohol.

     "Signature ________________

If a gasohol blender (1) buys gasoline at the reduced rate for gasohol production, and (2) uses such gasoline for gasohol production, but the blending occurs during a period other than the 24-hour period after which it bought the gasoline, then the gasohol blender's Certificate of Registry may be revoked or suspended by the district director if the district director determines that the blender shows a consistent pattern of failing to produce gasohol within the 24-hour period or that the revocation or suspension is necessary to protect the revenue. A blender's Certificate of Registry will not be revoked merely because of occasional failures to blend within the 24-hour period resulting from occurrences beyond the reasonable control of the blender (e.g., breakdown of a truck between the terminal and the place at which alcohol is bought).

EXAMPLES

The following examples illustrate the rules of this notice.

EXAMPLE 1. X, a registered terminal operator, sells gasoline to A, a registered gasohol blender. At the time of sale, A provides X with a proper gasohol blender's certification. X is liable for tax on its sale of gasoline to A at the rate of 3.44 cents a gallon.

EXAMPLE 2. B, a registered gasohol blender, buys gasoline at the reduced rate for gasohol production for delivery into the tank body of its vehicle. As evidenced by documentation from the terminal where the gasoline is bought, this sale occurs at 2:00 p.m. on October 24, 1989. B then takes the gasoline to an alcohol seller and buys alcohol that is added to B's tank of gasoline to produce gasohol. As evidenced by documentation from the alcohol seller, this sale of alcohol, which is simultaneous with the production of the gasohol, occurs after 2:00 p.m. on October 25, 1989. Although B is not liable for any tax, it may have its Certificate of Registry suspended or revoked by the district director with respect to future purchases of gasoline for gasohol production if the district director determines that the failure to blend within the 24-hour period is part of a consistent pattern, or that revocation or suspension is necessary to protect the revenue.

EXAMPLE 3. C, a registered gasohol blender, buys gasoline at the reduced rate for gasohol production. However, instead of using the gasoline for gasohol production, C resells the gasoline. C is liable for tax at the rate of 5.66 cents a gallon of gasoline and it may have its Certificate of Registry suspended or revoked by the district director with respect to future purchases for gasohol production.

EFFECTIVE DATE

The rules of this notice are effective with respect to sales and removals of gasoline after September 30, 1989.

ADMINISTRATIVE PRONOUNCEMENT

This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the Income Tax Regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure.

DRAFTING INFORMATION

The principal author of this notice is Frank Boland of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information, contact Mr. Boland on (202) 566- 4077 (not a toll-free call).