Chapter 4 Alcohol Fuel Credit If you sell or use alcohol as a fuel, you may be eligible for anincome tax credit. The alcohol fuel credit applies to straightalcohol, certain alcohol mixtures and eligible small ethanolproducers. Each of these components of the credit is discussed later. Alcohol covered by the credit includes methanol and ethanol. But itdoes not include alcohol produced from petroleum, natural gas, or coal(including peat). It also does not include alcohol with a proof ofless than 150 or ethanol produced as a by-product from manufacturingethylcellulose derived from ethane. Methanol produced from methane gasformed in waste disposal sites is not "alcohol produced from naturalgas." Straight alcohol.You can claim the credit for any alcohol not mixed with any otherfuel. You do not produce a mixture by adding denaturants to alcohol. You are eligible for the credit for straight alcohol only if youtook one of the following actions during the tax year. You used it as a fuel in your trade or business. You sold it at retail and placed it in the fuel tank of thebuyer's vehicle. The buyer cannot claim the credit for the alcohol bought at retail,even if the buyer uses it as a fuel in a trade or business. Mixing or failure to use as fuel.If the credit applied to alcohol that you bought and you later mixthe alcohol or do not use it as a fuel, you must pay a tax equal tothe credit. Report this tax on Form 720, Quarterly Federal ExciseTax Return. Alcohol mixture.You can take the credit for alcohol you use to produce a qualifiedmixture. A qualified mixture is a mixture of alcohol with gasoline orwith a special fuel. You do not treat adding denaturants to alcohol asthe production of a mixture. You can take the credit only for a mixture you produce. You mustsell the mixture for use as a fuel, not merely as an octane enhancer,or use it as a fuel in your trade or business. You can claim thecredit whether you sell the fuels directly to the user or to a buyerfor resale to the user. Take into account alcohol you use to produce aqualified mixture only if the sale or use is in your trade or businessand only for the tax year in which the sale or use occurs. A special fuel is any liquid fuel, other than gasoline, that issuitable for use in an internal combustion engine. You cannot take a credit for the casual off-farm production of aqualified mixture. If you combine alcohol eligible for the credit with alcohol that isnot eligible and use the combined alcohol in a way that qualifies forthe credit, you figure the credit based on the proportionate amount ofeligible alcohol contained in the combined alcohol. Separation or failure to use as fuel.If the credit applied to alcohol used in the production of aqualified mixture, and you later separate the alcohol from the mixtureor do not use the mixture as fuel, you must pay a tax equal to thecredit. Report this tax on Form 720. Amount of credit.The alcohol fuel credit for straight alcohol or an alcohol mixtureis based on the proof content of the alcohol. You figure the proofwithout considering denaturants added to the alcohol. The credit is 60 cents a gallon for alcohol (other than ethanol)that is at least 190 proof. The credit is 45 cents a gallon foralcohol (other than ethanol) that is at least 150 proof but less than190 proof. For ethanol the rates are 54 cents a gallon if at least 190 proof,and 40 cents a gallon if at least 150 proof but less than 190 proof. You may have been entitled to a reduced rate or an exemption forthe federal excise tax on certain fuel-alcohol mixtures. You mustreduce the amount of credit allowable on these mixtures (such asgasohol) by any benefit provided by the reduced rate or exemptionavailable for the alcohol mixtures. luxury hotels in Saint MaloWhen figuring the number of gallons of alcohol sold or used,include the volume of any denaturant (including gasoline) added underformulas approved by the Secretary of the Treasury. Also include thedenaturant when you figure the percentage of any mixture that isalcohol. However, denaturants can be counted only up to 5% of thetotal volume of alcohol. Eligible small ethanol producer.If you are an eligible small ethanol producer, you qualify for acredit on up to 15 million gallons of your qualified ethanol fuelproduction for any tax year. This additional alcohol fuel credit is 10cents for each gallon. You are an eligible producer if, at all times during the tax year,you have an annual productive capacity of not more than 30 milliongallons of any type of alcohol. For a partnership, trust, or S corporation, the gallon limits applyat both the entity level and the partner, beneficiary, or shareholderlevel. Qualified ethanol fuel production.Your qualified ethanol fuel production is any ethanol you produceand which during the tax year you sell to another person for any ofthe following purposes. Chambre VilamouraUse in the production of a qualified mixture in thatperson's trade or business (except casual off-farm production). Use as a fuel in that person's trade or business. keno regelnSale at retail to another person if the ethanol is put inthe fuel tank of the buyer's vehicle. It also includes your use or sale of the ethanol for thesepurposes. Qualified ethanol fuel production does not include any alcoholbought by a producer who then increases the proof of the alcohol byadditional distillation. hôtels VéroneFailure to use for qualifying purposes.If the credit applied to an eligible small ethanol producer and youdo not use the ethanol for a qualified purpose, you must pay a taxequal to the credit. Report this tax on Form 720. ERROR MSGHow to claim the credit.You take the alcohol fuel credit by completing Form6478, Credit for Alcohol Used as Fuel, and attachingit to your income tax return. All individuals and corporations takingthe credit use Form 6478. Partnerships (including electing largepartnerships), S corporations, estates, and trusts figure the crediton Form 6478 but divide the credit among their partners, shareholders,or beneficiaries. If you take the alcohol fuel credit, you must include the creditfor the tax year in your gross income for that year. You may choose not to take the alcohol fuel credit for any tax yeareven though you qualify to take it. You make this choice by notclaiming the credit on an original return or amended return at anytime within 3 years after the last day (without regard to extensions)for filing your return for the tax year. You may revoke this choicewithin the three-year period by filing an amended return and claimingthe credit on the amended return. General business credit.You combine the alcohol fuel credit with other credits to figureyour general business credit for the year. See the Form 6478instructions for a list of these credits and when you must file Form3800, General Business Credit.