Update on the Mixture Credit Exclusion from Income – Court Challenges Begin

Oct 28, 2014


A recent petition filed in U.S. Tax Court seeks to argue that the alcohol and biodiesel excise tax mixture credits claimed under § 6426 of the Internal Revenue Code as an offset against federal excise tax are not includible in taxable income. Filed as an affirmative allegation to a broader challenge to an IRS denial on another issue (relating to the Domestic Production Activity Deduction under § 199 of the Internal Revenue Code) the petitioner argues that it erroneously overstated its taxable income for the tax years at issue. While the basis for the claim that income was erroneously overstated is not spelled out in the petition, we understand that the petitioner is arguing that the IRS guidance in CCA 201342010 entitles it to make this claim and that the subsequent guidance in CCA 201406001 is incorrect.

That this issue is now before the courts increases the likelihood that the IRS will deny all claims based on § 6426 and instead allow the courts to make the decision. In an interesting twist, taxpayers may file claims in U.S. Tax Court, District Court or the Federal Court of Claims. This means that depending on the specific facts, there may be cases filed in other courts before this matter is resolved by the Tax Court. Filings in different courts lead to the potential for different outcomes with the matter ultimately being resolved in the Court of Appeals.