Insights and Resources
Court denies company's claim for refund of alternative fuel payments
IRS may re-evaluate Form 637 registration decision during examination
TAX ALERT |
Authored by RSM US LLP
On March 29, 2021, the U.S. District Court for the Middle District of Florida (Orlando division) ruled that the plaintiffs, Affordable Bio Feedstock, Inc. and Affordable Bio Feedstock of Port Charlotte, LLC, could not recover $50,000 in refunds from the IRS that they paid under protest after the IRS found it erroneously allowed them $465,000 in alternative fuel tax credits.
Plaintiffs were in the business of acquiring oil and food waste (brown grease) from restaurants to be processed into alternative fuels. Plaintiffs resold the brown grease, which was eventually turned into biodiesel. In 2013, plaintiffs applied for IRS Form 637 registrations as alternative fuelers in order to claim the alternative fuel credit. Registration as an alternative fueler is one of the conditions to allowance of the claim.
An IRS excise tax agent reviewed the applications and it was determined, after an Initial Compliance Review, plaintiffs qualified as alternative fuelers. The IRS issued AL registrations to plaintiffs, and they subsequently claimed alternative fuel credits in 2015 and 2016. The IRS paid the alternative fuel credit claims in 2016. A follow up registration review was conducted in 2016 and the IRS concluded that the plaintiffs continued to qualify as alternative fuelers.
Subsequently, the IRS audited plaintiffs’ alternative fuel claims and disallowed plaintiffs’ claims for the credit, determining they were not engaged in activities that qualified for the alternative fuel credit. In 2018, the IRS revoked the AL registrations and assessed tax in the amount of the claimed credits that it had paid to plaintiffs. Plaintiffs did not claim any additional credits after the IRS examination.
Plaintiffs repaid a divisible portion of the refunds paid by the IRS under protest ($50,000) and filed a claim for refund with the IRS, which was denied. Plaintiffs filed suit for refund in U.S. District Court.
In essence, plaintiffs contended that because the IRS registered them as alternative fuelers, the IRS had made a determination that they were engaged in a qualifying activity, which would essentially pre-approve their alternative fuel credit claims with respect to the element that they were engaged in the activity of being an alternative fueler. The district court disagreed, reasoning that the IRS’s approval of plaintiffs 637 application did not rise to the level of an official agency determination. The district court held plaintiffs were not entitled to a return of the $50,000, as this portion of the alternative fuel credit was erroneously issued in excess to the plaintiffs.
The importance of the district court’s ruling is the fact that despite the IRS’s approval of a Form 637 registration as alternative fuelers (after lengthy review process by a seasoned IRS agent and after a subsequent registration review that concluded the plaintiffs continued to be engaged in the activity), during an IRS examination of the claims filed, the IRS can review the claimant’s activities and may determine that even though a registration had been issued, the claimant may not after all, qualify for the activity upon which the claim is based.
This is significant and has broader implications than just this case. Registration is required in advance of claiming many fuel credits – both conventional and renewable – including alternative fuel credit, alternative fuel mixture credit, second generation biofuel credits and even traditional fuel credits such as those by made by ultimate vendors and credit card issuers. Even though registration may be issued by the IRS, this is not a guarantee to claimants that activity qualifies for the credit. If audited, the IRS can review all elements of the claim, including whether the activities qualifies. In essence, the IRS is permitted a second bite at the apple to review whether the claimant’s activity qualifies for the credit when it is examining a claim for credit. The fact that the IRS previously reviewed the activity in issuance of the registration is not determinative.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Debbie Gordon and originally appeared on 2021-03-31.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.