IRS Chief Counsel - Section 6426(c) biodiesel excise tax credits, section 6427(e) payments not includible in gross income 

November 4:  The IRS publicly issued a memorandum of Chief Counsel Advice* concluding that excise tax credits under section 6426(c) and payments under section 6427(e) are not includible in gross income.

CCA 201342010 [PDF 62 KB] addresses the following background information:


  • Blenders that produce and sell qualifying biodiesel mixtures to third parties have claimed section 6426(c) biodiesel mixture credits against their excise tax liability and payments under section 6427(e).
  • Blenders submit these claims to the IRS on Schedule C of Form 720, Quarterly Federal Excise Tax Return.
  • Some blenders have included the section 6426(c) biodiesel mixture credits and the section 6427(e) payments in income through a negative adjustment to their biodiesel mixture cost of goods sold.
  • On amended income tax returns, some blenders have claimed a refund of income tax asserting that the section 6426(c) excise tax credits and the section 6427(e) payments are not includible in gross income.

The question presented to the industry specialist was whether this treatment is correct.

Chief Counsel’s conclusion

The IRS Chief Counsel memo first explains that the biodiesel mixture credit under section 6426(c) is essentially a refundable federal tax credit—i.e., under the payment mechanism of section 6427(e) and the refundable income tax credit of section 34, a blender can receive the full amount of the credit even if the credit amount exceeds the amount of the blender’s excise and income tax liabilities for the year.


After describing the nature of federal tax credits, the IRS Chief Counsel advice memo further explains that a taxpayer whose refundable credits and payments exceed its tax liability is considered to have made an overpayment of tax. As further explained, when Congress has decided that a particular credit itself is to be treated as an additional item of gross income, this treatment is expressly noted in legislation. Thus, the Chief Counsel memo finds that—absent a specific statutory provision or judicial doctrine requiring inclusion in income—federal tax credits are not gross income for purposes of determining a taxpayer’s federal income tax liability.


The Chief Counsel stated that this conclusion is consistent with the intent of Congress when it enacted the biodiesel mixture credit.


  • The American Jobs Creation Act of 2004 added several new provisions regarding biodiesel fuels to the Code, including sections 6426(c), 6427, 40A, and 87.
  • The legislative history provides that the section 40A credit must be included in gross income but is silent regarding the section 6426(c) credit and the section 6427

With these findings, the IRS Chief Counsel stated (1) that the fact that sections 6426(c), 6427, and 40A were enacted together, and (2) that Congress specifically decided that the only credit under section 40A is includible in gross income, indicated that Congress intended to exclude from gross income the section 6426(c) credit and the section 6427 payment.


Lastly, the memo observes that Congress did not structure the biodiesel mixture credit as a refund of a previously deducted expense.


*The memorandum is legal advice, signed by executives in the National Office of the Office of Chief Counsel and issued to IRS personnel who are national program executives and managers. The memo is issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on certain matters, such as industry-wide issues. It is not to be used or cited as precedent.




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