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Bulletin No. 1996–16

April 15, 1996

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

EMPLOYEE PLANS

the Code relating to the gasoline and diesel fuel excise

taxes. A public hearing will be held on June 20, 1996.

Notice 96–24, page 23.

Guidelines are set forth for determining for April 1996,

the weighted average interest rate and the resulting

permissible range of interest rates used to calculate

current liability for purposes of the full funding

limitation of section 412(c)(7) of the Code as amended

by the Omnibus Budget Reconciliation Act of 1987 and

by the Uruguay Round Agreements Act (GATT).

ADMINISTRATIVE

Notice 96–23, page 23.

The Service requests comments regarding the proper

accounting for loans that are subject to both the

principal-reduction method of accounting and the markto-market rules.

Rev. Proc. 96–29, page 24.

VCR and Walk-in CAP compliance programs; eligibility.

This procedure describes changes to the eligibility

requirements for the Voluntary Compliance Resolution

Program and the Walk-in Closing Agreement Program.

Rev. Proc. 94–16 and Rev. Proc. 94–62 modified.

EXCISE TAXES

T.D. 8659, page 4.

Final regulations under section 6011 of the Code

relating to the gasoline and diesel fuel excise taxes.

Announcement 96–24, page 30.

Proposed examination guidelines for rural electric

cooperatives are published for public comment.

PS–6–95, page 27.

Proposed regulations under sections 4081 and 4082 of

Finding Lists begin on page 54.

Announcement of Disbarments and Suspensions begins on page 51.

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Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

With this in mind, it is the duty of the Service to

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of

view.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

law, to try to find the true meaning of the statutory

provision and not to adopt a strained construction in

the belief that he or she is ‘‘protecting the revenue.’’

The revenue is properly protected only when we ascertain and apply the true meaning of the statute.

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining officers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great courtesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

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Introduction

The Internal Revenue Bulletin is the authoritative

instrument of the Commissioner of Internal Revenue for

announcing official rulings and procedures of the

Internal Revenue Service and for publishing Treasury

Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general

interest. It is published weekly and may be obtained

from the Superintendent of Documents on a subscription basis. Bulletin contents of a permanent nature are

consolidated semiannually into Cumulative Bulletins,

which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin

all substantive rulings necessary to promote a uniform

application of the tax laws, including all rulings that

supersede, revoke, modify, or amend any of those

previously published in the Bulletin. All published

rulings apply retroactively unless otherwise indicated.

Procedures relating solely to matters of internal

management are not published; however, statements of

internal practices and procedures that affect the rights

and duties of taxpayers are published.

Revenue rulings represent the conclusions of the

Service on the application of the law to the pivotal facts

stated in the revenue ruling. In those based on

positions taken in rulings to taxpayers or technical

advice to Service field offices, identifying details and

information of a confidential nature are deleted to

prevent unwarranted invasions of privacy and to comply

with statutory requirements.

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

Unpublished rulings will not be relied on, used, or cited

as precedents by Service personnel in the disposition of

other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be

considered, and Service personnel and others concerned are cautioned against reaching the same

conclusions in other cases unless the facts and

circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on

provisions of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows:

Subpart A, Tax Conventions, and Subpart B, Legislation

and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and

Subparts. Also included in this part are Bank Secrecy

Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the

Treasury’s Office of the Assistant Secretary

(Enforcement).

Part IV.—Items of General Interest.

With the exception of the Notice of Proposed Rulemaking and the disbarment and suspension list included in

this part, none of these announcements are consolidated in the Cumulative Bulletins.

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly

and semiannual basis, and are published in the first

Bulletin of the succeeding quarterly and semi-annual

period, respectively.

The Bulletin Index-Digest System, a research and

reference service supplementing the Bulletin, may be

obtained from the Superintendent of Documents on a

subscription basis. It consists of four Services: Service

No. 1, Income Tax; Service No. 2, Estate and Gift

Taxes; Service No. 3, Employment Taxes; Service No.

4, Excise Taxes. Each Service consists of a basic

volume and a cumulative supplement that provides (1)

finding lists of items published in the Bulletin, (2)

digests of revenue rulings, revenue procedures, and

other published items, and (3) indexes of Public Laws,

Treasury Decisions, and Tax Conventions.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 6011.—General Requirement

of Return, Statement, or List

26 CFR 40.6011(a)–1: Returns

T.D. 8659

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 40, 42, 48, and 602

Gasoline and Diesel Fuel Excise Tax;

Registration Requirements

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations relating to the taxes on

gasoline and diesel fuel. This document

also removes obsolete excise tax regulations. The regulations reflect and

implement certain changes made by the

Omnibus Budget Reconciliation Act of

1990 and the Omnibus Budget Reconciliation Act of 1993 (the 1993 Act).

The regulations affect certain blenders,

enterers, industrial users, refiners, terminal operators, and throughputters.

The regulations also affect certain

persons that sell, buy, or use diesel fuel

for a nontaxable use.

EFFECTIVE DATE: These regulations

are effective March 14, 1996.

FOR FURTHER INFORMATION

CONTACT: Frank Boland (202)

622-3130 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in these final regulations have

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under

control number 1545–1418. Responses

to this collection of information are

mandatory and are required to obtain

certain credits or payments.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

The estimated average annual reporting burden per respondent is .1 hour.

Comments concerning the accuracy

of this burden estimate and suggestions

for reducing this burden should be sent

to the Internal Revenue Service, Attn:

IRS Reports Clearance Officer, PC:FP,

Washington, DC 20224, and to the

Office of Management and Budget,

Attn: Desk Officer for the Department

of the Treasury, Office of Information

and Regulatory Affairs, Washington,

DC 20503.

Books and records relating to this

collection of information must be retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

The diesel fuel regulations. Before

1994, the diesel fuel tax applied to

sales of diesel fuel by importers or

producers (including registered wholesale distributors). Because of concerns

that this system fostered considerable

tax evasion, Congress made significant

changes to the tax in the 1993 Act.

Effective January 1, 1994, tax is

imposed on diesel fuel when it is

removed at the terminal rack, and

diesel fuel may be removed tax free

only if the fuel contains a prescribed

type and amount of dye. These changes

made the taxing point readily identifiable, required untaxed fuel to be physically identified (that is, dyed), and

reduced the number of taxpayers.

Temporary regulations (TD 8496

[1993–2 C.B. 281]) relating to these

changes (the diesel fuel regulations)

were published in the Federal Register

on November 30, 1993 (58 FR 63069),

along with a notice of proposed

rulemaking (PS–52–93 [1993–2 C.B.

639]) cross-referencing the temporary

regulations (58 FR 63131). Amendments to these temporary regulations

(TD 8512 [1994–1 C.B. 273]) relating

to dye color and concentration were

published in the Federal Register on

December 27, 1993 (58 FR 68304),

along with a notice of proposed

rulemaking (PS–76–93 [1994–1 C.B.

832]) cross-referencing those amendments (58 FR 68338). Written comments responding to the proposed

diesel fuel regulations were received

and a public hearing was held on

March 22, 1994. Final regulations (TD

8550 [1994–2 C.B. 243]) relating to

dye color and concentration were published in the Federal Register on June

30, 1994 (59 FR 33656).

The conforming regulations. On October 19, 1994, the IRS published in

the Federal Register (59 FR 52735)

proposed regulations (PS–66–93 [1994–

2 C.B. 907]) that generally consolidate

the rules relating to the gasoline tax

and the diesel fuel tax into a single set

of rules applicable to both fuels (the

conforming regulations). The conforming regulations also proposed rules

relating to gasohol and compressed

natural gas.

Written comments regarding the proposed conforming regulations were received and a public hearing was held

on January 11, 1995.

Final regulations (TD 8609 [1995–37

I.R.B. 5]) relating to gasohol and

compressed natural gas were published

in the Federal Register on August 7,

1995 (60 FR 40079).

The final regulations. After consideration of written comments and comments made at the public hearings, the

proposed diesel fuel regulations and the

proposed conforming regulations are

adopted as revised by this Treasury

decision. Comments and revisions are

discussed below.

Significant Issues Raised in

Comments and Changes Made in the

Final Regulations

Treatment of kerosene

The temporary diesel fuel regulations

provide that kerosene would not be

treated as diesel fuel before July 1,

1994, and invited comments on the

treatment of kerosene after June 30,

1994. Notice 94–72 (1994–2 C.B. 553)

informed taxpayers that the IRS was

reviewing this issue and would not

change the treatment of kerosene until

the issuance of further guidance. The

IRS is continuing its review of this

issue. Accordingly, the final regulations

do not treat kerosene as diesel fuel.

Because kerosene is not treated as

diesel fuel, a person that adds kerosene

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to diesel fuel outside of the bulk

transfer/terminal system generally must

pay tax on the added kerosene and

must be registered by the IRS.

readily determine whether the fuel may

be used for a taxable use.

Removal from certain refineries

A tax is imposed on the delivery of

dyed diesel fuel into the fuel supply

tank of a diesel-powered train. Under

the temporary diesel fuel regulations,

the operator of the train into which

dyed fuel is delivered is liable for the

tax.

Several commentators noted that a

prevalent practice in the railroad industry is for one railroad’s locomotives to

be used to pull freight on another’s

track and to be fueled by the railroad

that owns the track. In these situations,

the identity of the operator is unclear.

In response to these comments, the

final regulations provide that the person

that delivers dyed diesel fuel into the

fuel supply tank of a train is liable

for the tax under certain prescribed

conditions.

The temporary diesel fuel regulations

provide that tax is not imposed on the

removal of undyed diesel fuel from an

approved refinery for delivery to an

approved terminal if the fuel is removed by rail car, the refinery and the

terminal are operated by the same

taxable fuel registrant, and the refinery

is not served by pipeline or vessel.

One commentator noted that one of

its refineries is not serviced by

pipeline, vessel, or rail. In response to

this comment, the final regulations

expand this rule so that diesel fuel also

may be removed tax free from an approved refinery that is not served by

pipeline, vessel, or rail if the removal

is by a trailer or semi-trailer and additional prescribed conditions are met.

Back-up tax; trains

Credits and payments

Notice relating to sales and removals

of dyed diesel fuel

The temporary diesel fuel regulations

provide that terminal operators and

others who sell dyed diesel fuel are

responsible for informing their

customers that the dyed fuel cannot be

used for a taxable purpose and that a

penalty may be imposed for taxable use

(the notice requirement). Any person

that fails to comply with the notice

requirement is, for purposes of the

penalty for misuse of dyed fuel imposed by section 6714, presumed to

know that the dyed diesel fuel will not

be used for a nontaxable use.

Under the final regulations, only

terminal operators and certain retail

sellers will be subject to the notice

requirement. A terminal operator must

comply with the notice requirement as

one of the terms and conditions of its

registration.

Visual inspection devices

The temporary diesel fuel regulations

do not require the use of visual inspection devices and the final regulations continue this policy. The IRS will

continue to evaluate the need for

regulations addressing this issue. However, the use of visual inspection

devices is encouraged so that the

buyers and sellers of diesel fuel may

Information to be submitted with

claims. If undyed diesel fuel is used in

a nontaxable use, a credit or payment is

allowable to either (1) the ultimate

purchaser or (2) in the case of diesel

fuel used on a farm for farming

purposes or by a State or local

government, the registered ultimate

vendor of the fuel. The temporary

diesel fuel regulations prescribe the

information that must be submitted to

the IRS to support claims for these

credits or payments.

Several commentators asserted that

the information requirements in the

diesel fuel temporary regulations are

too burdensome. In response to these

comments, the final regulations reduce

the paperwork requirements for claimants by eliminating certain items from

the list of required submissions. However, the paperwork requirements may

be changed in the future if the IRS

determines that additional information

is necessary for effective enforcement

of the tax.

Notice 94–61. Notice 94–61 (1994–1

C.B. 371) announced that the temporary diesel fuel regulations would be

revised to clarify that (1) a registered

ultimate vendor is the only person allowed a credit or payment with respect

to diesel fuel used on a farm for

farming purposes or by State or local

governments, and (2) a credit or

payment generally is allowed to a

registered ultimate vendor who sells

undyed diesel fuel to a custom harvester for use on a farm for farming purposes. The final regulations contain

these revisions.

Undyed diesel fuel mixed with dyed

diesel fuel. One condition for the

allowance of a credit or payment under

section 6427 is that tax must have been

imposed on the diesel fuel to which the

claim relates. Because untaxed diesel

fuel is dyed, the temporary diesel fuel

regulations require each claim to be

accompanied by a statement that the

diesel fuel covered by a claim did not

contain visible evidence of dye.

On rare occasions, however, an

amount of taxed diesel fuel may

contain visible evidence of dye. This

may occur, for example, when dyed

diesel fuel and undyed diesel fuel are

mixed together by a fuel marketer or

user who accidentally delivers one type

of fuel into a storage tank that already

contains the other type of fuel.

The final regulations provide that

each claim must be accompanied by a

statement that tax has been imposed on

the diesel fuel covered by a claim.

Generally, this requirement will be met

by a claimant’s statement that the

diesel fuel did not contain visible

evidence of dye. However, for claims

involving taxed fuel that has been

mixed with dyed fuel, the claimant

(that is, the ultimate purchaser or the

registered ultimate vendor) cannot

make such a statement. For these

claims, the claimant must submit other

evidence showing that the diesel fuel

covered by the claim has been subject

to tax. This evidence might include a

statement from the person that produced the undyed/dyed fuel mixture

explaining how the mixing occurred or

a statement from the claimant (if the

claimant did not produce the mixture)

that explains when and from whom the

claimant acquired the mixture. As with

all claims, these claims are subject to

review by the IRS before they are

allowed.

Section 6714 penalty

Section 6714(a)(3) provides that if

any person willfully alters, or attempts

to alter, the strength or composition of

any dye or marking done pursuant to

section 4082 in any dyed fuel, then

such person shall pay a penalty in

addition to the tax (if any).

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Notice 94–21 (1994–1 C.B. 339) describes three situations in which the

section 6714(a)(3) penalty does not

apply. The final regulations incorporate

the substance of the Notice. In addition, the final regulations provide that

the section 6714(a)(3) penalty does not

apply if dyed diesel fuel is blended

with undyed diesel fuel and the blending occurs as part of an exempt or

partially exempt (that is, bus or train)

use. Thus, for example, the section

6714(a)(3) penalty does not apply if

dyed and undyed diesel fuel are

blended together in the fuel supply tank

of a nonhighway vehicle such as a

bulldozer or farm tractor.

Dye injection systems and markers

The final regulations do not require

the use of dye injection systems or

markers. These topics will be addressed

in a future notice of proposed rulemaking.

Effect on other documents

The following publications are obsolete as of March 14, 1996:

Rev. Rul. 72–213, 1972–1 C.B. 328.

Rev. Proc. 73–21, 1973–2 C.B. 471.

Notice 88–26, 1988–1 C.B. 495.

Notice 89–17, 1989–1 C.B. 647.

Notice 94–18, 1994–1 C.B. 338.

Notice 94–21, 1994–1 C.B. 339.

Notice 94–61, 1994–1 C.B. 371.

Notice 94–72, 1994–2 C.B. 553.

Special Analyses

Drafting Information

The principal author of these regulations is Frank Boland, Office of Assistant Chief Counsel (Passthroughs and

Special Industries). However, other

personnel from the IRS and Treasury

Department participated in their development.

Adoption of Amendments to the

Regulations

Accordingly, under the authority of

26 U.S.C. 7805, chapter 1 is amended

as follows:

PART 40—EXCISE TAX

PROCEDURAL REGULATIONS

Paragraph 1. The authority citation

for part 40 is amended by removing the

entry for sections 40.6011(a)–1,

40.6011(a)–2, and 40.6011(a)–3T and

adding entries in numerical order to

read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 40.6011(a)–1 also issued under 26 U.S.C. 6011(a).

Section 40.6011(a)–2 also issued under 26 U.S.C. 6011(a). * * *

Par. 2. Section 40.6011(a)–1(b) is

amended by:

1. Redesignating the text of paragraph (b) following the heading as

paragraph (b)(1) and adding a heading

for newly designated paragraph (b)(1).

2. Adding paragraph (b)(2).

The additions read as follows:

§40.6011(a)–1 Returns.

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It also has been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not

apply to these regulations, and, therefore, a Regulatory Flexibility Analysis

is not required. Pursuant to section

7805(f) of the Internal Revenue Code,

the notices of proposed rulemaking

preceding these regulations were submitted to the Small Business Administration for comment on their impact

on small business.

(b) * * * (1) In general. * * *

(2) Certain persons liable for tax on

taxable fuel. Effective January 1, 1994,

the district director may require a

person to make a return of tax for a

monthly or semimonthly period in the

manner prescribed in paragraph (b)(1)

of this section if the person—

(i) Is a bonded registrant (as defined

in §48.4101–1(b) of this chapter) at any

time during the period;

(ii) Has been registered under section 4101 for less than one year at the

beginning of the period;

(iii) Meets the acceptable risk test of

§48.4101–1(f)(3) of this chapter by

reason of §48.4101–1(f)(3)(i)(B) of this

chapter at any time during the period;

(iv) Has failed to comply with the

applicable provisions of §48.4101–1(h)

of this chapter (relating to the terms

and conditions of registration);

(v) Is liable for tax under §48.4082–

4(a) of this chapter (relating to the

back-up tax on diesel fuel) at any time

during the period; or

(vi) Is liable for tax under section

4081 (relating to the tax on taxable

fuel) at any time during the period and

is not a taxable fuel registrant at that

time.

§40.6011(a)–3T [Removed]

Par. 3. Section 40.6011(a)–3T is

removed.

PART 42—[REMOVED]

Par. 4. Part 42 is removed.

PART 48—MANUFACTURERS

AND RETAILERS EXCISE TAXES

Par. 5. The authority citation for part

48 is amended by removing the entries

for sections 48.4081–4, 48.4082–1 and

48.4082–2T, 48.4101–3T, 48.4101–4T,

48.6427–8T and 48.6427–9T, and

adding entries in numerical order to

read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 48.4081–4 also issued under

26 U.S.C. 4083(a)(2). * * *

Section 48.4082–1 also issued under

26 U.S.C. 4082.

Section 48.4082–2 also issued under

26 U.S.C. 4082.

Section 48.4101–1 also issued under

26 U.S.C. 4101(a).

Section 48.4101–2 also issued under

26 U.S.C. 4101(d). * * *

Section 48.6427–8 also issued under

26 U.S.C. 6427(n).

Section 48.6427–9 also issued under

26 U.S.C. 6427(n).

Par. 6. Section 48.0–1 is amended by

removing from the fourth sentence the

language ‘‘gasoline, diesel and aviation

fuel,’’ and adding ‘‘taxable fuel, aviation fuel,’’ in its place.

§48.4041–0T [Removed]

Par. 7.

removed.

Section

48.4041–0T

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Par. 8. Section 48.4041–0 is added to

read as follows:

§48.4041–0 Applicability of

regulations relating to diesel fuel

after December 31, 1993.

Sections 48.4041–3 through

48.4041–17 do not apply to sales or

uses of diesel fuel after December 31,

1993. For rules relating to the diesel

fuel tax imposed by section 4041 after

that date, see §48.4082–4.

§§48.4041–1 and 48.4041–2

[Removed]

Par. 9. Sections 48.4041–1 and

48.4041–2 are removed.

(b) Amount of tax. For the amount of

tax, see section 4042(b).

(e) Liquid fuel. For purposes of the

tax imposed under this section, liquid

fuel means any liquid fuel including

gasoline, diesel fuel, special motor fuel,

or Bunker C residual fuel oil.

(g) * * *

(25) Tennessee-Tombigbee Waterway: From its confluence with the

Tennessee River to the Warrior River

at Demopolis, Alabama.

Par. 15. The heading for subpart H is

revised to read as follows:

§48.4041–2T [Removed]

Par. 10. Section 48.4041–2T is

removed.

Subpart H—Motor Vehicles, Tires,

Tubes, Tread Rubber, and Taxable

Fuel

§48.4041–21 [Amended]

§§48.4041–15 through 48.4041–21

[Transferred]

Par. 11. Sections 48.4041–15 through

48.4041–21 are transferred from subpart G to subpart F.

Par. 12. In the first sentence of

§48.4041–21(c)(1), the language

‘‘§48.4082–4T(c)(1) through (5)(A) or

(c)(6) through (11)’’ is removed and

‘‘§48.4082–4(c)(1) through (c)(4)(i) or

(c)(5) through (c)(10)’’ is added in its

place.

Par. 13. The heading for subpart G is

revised to read as follows:

Subpart G—Fuel Used on Inland

Waterways

Par. 14. Section 48.4042–1 is

amended as follows:

1. Paragraphs (b) and (e) are revised.

2. In the introductory text of paragraph (f)(1), the language ‘‘(26)’’ is

removed and ‘‘(27)’’ is added in its

place.

3. Paragraphs (g)(25) and (g)(26) are

redesignated as paragraphs (g)(26) and

(g)(27), respectively, and a new paragraph (g)(25) is added.

The revisions and additions read as

follows:

§48.4042–1 Tax on fuel used in

commercial waterway transportation.

Par. 16. Section 48.4064–1(e)(2) is

amended by removing the language

‘‘Form 843’’ and adding ‘‘Form 8849

(or on such other form as the Commissioner may designate)’’ in its place.

Par. 17. The undesignated center

heading preceding §48.4081–1 is revised to read as follows:

TAXABLE FUEL

Par. 18. Sections 48.4081–1,

48.4081–2 and 48.4081–3 are revised

to read as follows:

§48.4081–1 Taxable fuel; definitions.

(a) Overview. This section provides

definitions for purposes of the tax on

taxable fuel imposed by section 4081.

(b) Definitions.

Approved terminal or refinery means

a terminal or refinery that is operated,

respectively, by a taxable fuel registrant that is a terminal operator, or by a

taxable fuel registrant that is a refiner.

Blender means any person that produces blended taxable fuel.

Bulk transfer means any transfer of

taxable fuel by pipeline or vessel.

Bulk transfer/terminal system means

the taxable fuel distribution system

consisting of refineries, pipelines, vessels, and terminals. Thus, taxable fuel

in a refinery, pipeline, vessel, or

terminal is in the bulk transfer/terminal

system. Taxable fuel in the fuel supply

tank of any engine, or in any tank car,

rail car, trailer, truck, or other equipment suitable for ground transportation

is not in the bulk transfer/terminal

system.

Bus means automobile bus.

Diesel-powered boat means any waterborne vessel of any size or configuration that is propelled, in whole or in

part, by a diesel-powered engine.

Diesel-powered bus means any bus

that is propelled by a diesel-powered

engine.

Diesel-powered highway vehicle

means a highway vehicle, as defined in

§48.4041–8(b), that is propelled by a

diesel-powered engine.

Diesel-powered train means any

diesel-powered equipment or machinery

that rides on rails. Thus, for example,

the term includes a locomotive, work

train, switching engine, and track maintenance machine.

Enterer generally means the importer

of record (under customs law) with

respect to the taxable fuel. However, if

the importer of record is acting as an

agent (for example, the importer of

record is a customs broker engaged by

the owner of the taxable fuel), the

person for whom the agent is acting is

the enterer. If there is no importer of

record for taxable fuel entered into the

United States, the owner of the taxable

fuel at the time it is brought into the

United States is the enterer.

Entry of taxable fuel into the United

States occurs when—

(1) The taxable fuel is brought into

the United States and applicable

customs law requires that the taxable

fuel be entered into the United States

for consumption, use, or warehousing;

(2) The taxable fuel is brought into

the United States from Puerto Rico and

applicable customs law would require

that the taxable fuel be entered into the

United States for consumption, use, or

warehousing if the taxable fuel were

brought into the United States from

somewhere other than Puerto Rico.

Finished gasoline means all products

(including gasohol (as defined in

§48.4081–6(b)(2))) that are commonly

or commercially known or sold as

gasoline and are suitable for use as a

motor fuel, other than products that

have an ASTM octane number of less

than 75 as determined by the motor

method.

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Gasoline means finished gasoline

and gasoline blendstocks.

Industrial user means any person

that receives gasoline blendstocks by

bulk transfer for its own use in the

manufacture of any product other than

finished gasoline.

Position holder means, with respect

to taxable fuel in a terminal, the person

that holds the inventory position in the

taxable fuel, as reflected on the records

of the terminal operator. A person

holds the inventory position in taxable

fuel when that person has a contractual

agreement with the terminal operator

for the use of storage facilities and

terminaling services at a terminal with

respect to the taxable fuel. The term

also includes a terminal operator that

owns taxable fuel in its terminal.

Rack means a mechanism for delivering taxable fuel from a refinery or

terminal into a truck, trailer, railroad

car, or other means of nonbulk transfer.

Refiner means any person that owns,

operates, or otherwise controls a

refinery.

Refinery means a facility used to

produce taxable fuel from crude oil,

unfinished oils, natural gas liquids, or

other hydrocarbons and from which

taxable fuel may be removed by pipeline, by vessel, or at a rack. However,

the term does not include a facility

where only blended fuel or gasohol (as

defined in §48.4081–6(b)(2)), and no

other type of taxable fuel, is produced.

For this purpose blended fuel is any

mixture that, if produced outside the

bulk transfer/terminal system, would be

blended taxable fuel.

Removal means any physical transfer

of taxable fuel, and any use of taxable

fuel other than as a material in the

production of taxable fuel or special

fuels (as defined in §48.4041–8(f)).

However, taxable fuel is not removed

when it evaporates or is otherwise lost

or destroyed.

Sale means—

(1) The transfer of title to, or substantial incidents of ownership in,

taxable fuel (other than taxable fuel in

a terminal) to the buyer for a consideration, which may consist of money,

services, or other property; or

(2) The transfer of the inventory

position in the taxable fuel in a

terminal if the transferee becomes the

position holder with respect to the

taxable fuel.

State includes any State, any political

subdivision of a State, the District of

Columbia, the American Red Cross,

and, subject to the limitations of

section 7871, any Indian tribal

government.

Taxable fuel means gasoline and

diesel fuel.

Taxable fuel registrant means an

enterer, industrial user, refiner, terminal

operator, or throughputter that is registered under section 4101.

Terminal means a taxable fuel storage and distribution facility that is

supplied by pipeline or vessel, and

from which taxable fuel may be removed at a rack. However, the term

does not include any facility at which

gasoline blendstocks are used in the

manufacture of products other than

finished gasoline and from which no

gasoline is removed.

Terminal operator means any person

that owns, operates, or otherwise controls a terminal.

Throughputter means any person

that—

(1) Owns taxable fuel within the

bulk transfer/terminal system (other

than in a terminal); or

(2) Is a position holder.

Vessel means a waterborne taxable

fuel transporting vessel.

and gasoline blendstocks; definitions—

(1) Blended taxable fuel—(i) In general. Except as provided in paragraphs

(c)(1)(ii) and (c)(iii) of this section,

blended taxable fuel means any mixture

that is produced outside the bulk

transfer/terminal system and that consists of—

(A) Taxable fuel with respect to

which tax has been imposed under

section 4041(a)(1) or 4081(a); and

(B) Any other liquid on which tax

has not been imposed under section

4081.

(ii) Exclusion; minor blending. A

mixture described in paragraph (c)(1)(i)

of this section is not blended taxable

fuel if, during the calendar quarter in

which the blender removes or sells the

mixture, all such mixtures removed or

sold by the blender contain, in the

aggregate, less than 400 gallons of

liquid described in paragraph (c)(1)(i)(B) of this section.

(iii) Exclusion; gasohol. Blended

taxable fuel does not include any

gasohol (as defined in §48.4081–6(b)(2)) if, disregarding the alcohol, the

gasohol is not blended taxable fuel and

contains, in addition to permitted

amounts of liquids described in paragraph (c)(1)(i)(B) of this section, only

gasoline with respect to which—

(A) Tax was imposed under section

4081(a) at a rate described in

§48.4081–6(e) (relating to the gasohol

production tax rate and the gasohol tax

rate); or

(B) A valid claim is made under

section 6427(f).

(2) Diesel fuel. (i) Effective April 1,

1996, diesel fuel means any liquid

(other than gasoline) that, without

further processing or blending, is suitable for use as a fuel in a dieselpowered highway vehicle, dieselpowered train, or diesel-powered boat.

However, diesel fuel does not include

kerosene, No. 5 and No. 6 fuel oils (as

described in ASTM Specification D

396, which may be obtained from the

American Society for Testing and

Materials, 100 Barr Harbor Drive, West

Conshohocken, PA 19428), or F–76

(Fuel Naval Distillate MIL–F–16884,

which may be obtained from Standardization Document Order Desk, Building

4, Section D, 700 Robbins Avenue,

Philadelphia, PA 19111).

(ii) Before April 1, 1996, diesel fuel

means any liquid (other than kerosene)

that is commonly or commercially

known or sold as a fuel that is suitable

for use in a diesel-powered highway

vehicle, diesel-powered train, or dieselpowered boat. A liquid meets this requirement if, without further processing

or blending, the liquid has practical and

commercial fitness for use in the

propulsion engine of the highway vehicle, train, or boat. A liquid may possess

this practical and commercial fitness

even though the specified use is not the

liquid’s predominant use. However, a

liquid does not possess this practical

and commercial fitness solely by reason of its possible or rare use as a fuel

in the propulsion engine of a highway

vehicle, train, or boat.

(iii) Cross reference. For the tax on

blended taxable fuel, see §48.4081–

3(g). For the back-up tax on certain

uses of liquids other than diesel fuel,

see §48.4082–4.

(3) Gasoline blendstocks—(i) In

general. Except as provided in paragraph (c)(3)(ii) of this section, gasoline

blendstocks means—

(A) Alkylate;

(B) Butane;

(D) Catalytically cracked gasoline;

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(E) Coker gasoline;

(F) Ethyl tertiary butyl ether

(ETBE);

(G) Hexane;

(H) Hydrocrackate;

(I) Isomerate;

(J) Methyl tertiary butyl ether

(MTBE);

(K) Mixed xylene (not including any

separated isomer of xylene);

(L) Natural gasoline;

(M) Pentane;

(N) Pentane mixture;

(O) Polymer gasoline;

(P) Raffinate;

(Q) Reformate;

(R) Straight-run gasoline;

(S) Straight-run naphtha;

(T) Tertiary amyl methyl ether

(TAME);

(U) Tertiary butyl alcohol (gasoline

grade) (TBA);

(V) Thermally cracked gasoline;

(W) Toluene; and

(X) Transmix containing gasoline.

(ii) Exclusion. Gasoline blendstocks

does not include any product that cannot, without further processing, be used

in the production of finished gasoline.

For example, a mixed hydrocarbon

stream that is produced in a natural gas

processing plant is not a gasoline

blendstock if the stream cannot be used

to produce finished gasoline without

further processing.

(d) Effective date. This section is

effective January 1, 1994.

§48.4081–2 Taxable fuel; tax on

removal at a terminal rack.

(2) Joint and several liability of

terminal operator; unregistered position holder—(i) In general. The terminal operator is jointly and severally

liable for the tax imposed under

paragraph (b) of this section if—

(A) The position holder with respect

to the taxable fuel is a person other

than the terminal operator and is not a

taxable fuel registrant; and

(B) The terminal operator has not

met the conditions of paragraph

(c)(2)(ii) of this section.

(ii) Conditions for avoidance of liability. A terminal operator is not liable

for tax under this paragraph (c)(2) if, at

the time of the removal, the terminal

operator—

(A) Is a taxable fuel registrant;

(B) Has an unexpired notification

certificate (as described in §48.4081–5)

from the position holder; and

any information in the notification

certificate is false.

(3) Joint and several liability of

terminal operator; incorrect information provided. The terminal operator is

jointly and severally liable for the tax

imposed under paragraph (b) of this

section if, in connection with the

removal of diesel fuel that is not dyed

and marked in accordance with

§48.4082–1, the terminal operator

provides any person (including the

position holder with respect to the fuel)

with any bill of lading, shipping paper,

record, or similar document indicating

that the diesel fuel is dyed and marked

in accordance with §48.4082–1.

(4) Example. The following example

illustrates this paragraph (c) and

§48.4082–1:

(a) Overview. This section provides

the general rule that all removals of

taxable fuel at a terminal rack are

subject to tax and the position holder

with respect to the fuel is liable for the

tax.

(b) Imposition of tax. Except as

provided in §48.4081–4 (relating to

gasoline blendstocks) and §48.4082–1

(relating to dyed diesel fuel), tax is

imposed on the removal of taxable fuel

from a terminal if the taxable fuel is

removed at the rack.

The position holder with respect to the

taxable fuel is liable for the tax

imposed under paragraph (b) of this

section.

Example. (i) TO is a terminal operator and PH

is the position holder with respect to, and owner

of, 8,000 gallons of diesel fuel stored in TO’s

terminal. TO and PH are taxable fuel registrants.

When the fuel is removed from the terminal at

the rack, the fuel is not dyed and marked in

accordance with §48.4082–1, and TO does not

provide any person with any paperwork indicating that the fuel is dyed and marked. After the

removal from the terminal, PH sells the fuel to

individuals for use as heating oil, a nontaxable

use.

(ii) Because PH is the position holder of the

fuel at the time of the removal from the terminal,

PH is liable for the tax imposed by section 4081.

The removal is subject to tax because the fuel is

not dyed and marked in accordance with

§48.4082–1, and later use of the fuel in a

nontaxable use does not make the removal from

the terminal exempt from tax.

(iii) Because PH is a taxable fuel registrant

and TO did not provide any person with any

paperwork indicating that the fuel is dyed and

marked, TO is not jointly and severally liable for

tax under paragraph (c)(2) or (3) of this section.

(d) Rate of tax. For the rate of tax

generally, see section 4081(a). For the

rate of tax on gasohol and on gasoline

removed for gasohol production, see

§48.4081–6.

(e) Effective date. This section is

effective January 1, 1994.

§48.4081–3 Taxable fuel; taxable

events other than removal at the

terminal rack.

(a) Overview. Although tax is imposed when taxable fuel is removed

from the terminal at the rack, tax also

is imposed in certain other situations

described in this section. For the backup tax on the use of dyed diesel fuel,

see §48.4082–4.

(b) Tax on removal from a refinery—(1) Imposition of tax. Except as

provided in paragraph (b)(2) of this

section (relating to an exemption for

certain refineries), §48.4081–4 (relating

to gasoline blendstocks), and

§48.4082–1 (relating to dyed diesel

fuel), tax is imposed on the following

removals from a refinery:

(i) A removal by bulk transfer if the

refiner or the owner of the taxable fuel

immediately before the removal is not

a taxable fuel registrant.

(ii) A removal at the rack.

(iii) After September 30, 1995, a

removal of a batch of gasohol from an

approved refinery by bulk transfer if

the refiner treats itself with respect to

the removal as a person that is not

registered under section 4101. See

§48.4101–1(a). For the rule providing

that no deposit is required in the case

of the tax imposed under this paragraph

(b)(1)(iii), see §40.6302(c)–1(e)(4) of

this chapter. For the rule allowing

inspections of facilities where gasohol

is produced, see section 4083.

(2) Exception for certain refineries.

The tax imposed under paragraph (b)(1)(ii) of this section does not apply to

a removal of taxable fuel if—

(i) The taxable fuel is removed from

an approved refinery that is not served

by pipeline (other than a pipeline for

the receipt of crude oil) or vessel;

(ii) The taxable fuel is received at a

facility that is operated by a taxable

fuel registrant and is located within the

bulk transfer/terminal system;

(iii) The removal from the refinery

is by—

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(A) Rail car; or

(B) In the case of diesel fuel, a

trailer or semi-trailer that is used

exclusively for the transport service

described in paragraphs (b)(2)(i) and

(b)(2)(ii) of this section;

(iv) In the case of taxable fuel

removed by rail car, the facility at

which the fuel is received is operated

by the same person that operates the

refinery from which the fuel was

removed; and

(v) In the case of diesel fuel removed by a trailer or semi-trailer, the

facility at which the fuel is received is

less than 20 miles from the refinery

from which the diesel fuel was

removed.

(3) Liability for tax. The refiner is

liable for the tax imposed under paragraph (b)(1) of this section.

States—(1) Imposition of tax. Except as

provided in §48.4081–4 (relating to

gasoline blendstocks) and §48.4082–1

(relating to dyed diesel fuel), a tax is

imposed on the entry of taxable fuel

into the United States if—

(i) The entry is by bulk transfer and

the enterer is not a taxable fuel

registrant; or

(ii) The entry is not by bulk transfer.

(2) Liability for tax. The enterer is

liable for the tax imposed under paragraph (c)(1) of this section.

(d) Tax on bulk transfers from a

terminal by an unregistered position

holder—(1) Imposition of tax. A tax is

imposed on the removal by bulk transfer of taxable fuel from a terminal if

the position holder with respect to the

taxable fuel is not a taxable fuel

registrant.

(2) Liability for tax—(i) In general.

The position holder with respect to the

taxable fuel is liable for the tax

imposed under paragraph (d)(1) of this

section.

(ii) Joint and several liability of

terminal operator. The terminal operator is jointly and severally liable for the

tax imposed under paragraph (d)(1) of

this section if—

(A) The position holder with respect

to the taxable fuel is a person other

than the terminal operator; and

(B) The terminal operator has not

met the conditions of paragraph

(d)(2)(iii) of this section.

(iii) Conditions for avoidance of liability. A terminal operator is not liable

for tax under this paragraph (d)(2) if, at

the time of the bulk transfer, the

terminal operator—

(A) Is a taxable fuel registrant;

(B) Has an unexpired notification

certificate (described in §48.4081–5)

from the position holder; and

any information in the notification

certificate is false.

(e) Tax on bulk transfers not received at an approved terminal or refinery—(1) Imposition of tax. Except as

provided in §48.4081–4 (relating to

gasoline blendstocks) and §48.4082–1

(relating to dyed diesel fuel), a tax on

taxable fuel is imposed if—

(i) Taxable fuel is removed by bulk

transfer from a refinery or terminal, or

entered by bulk transfer into the United

States;

(ii) No tax was imposed on such

removal or entry under paragraph (b),

(c), or (d) of this section; and

(iii) Upon removal from the pipeline

or vessel, the taxable fuel is not

received at an approved terminal or

refinery (or at another pipeline or

vessel).

(2) Liability for tax—(i) In general.

The owner of the taxable fuel when it

is removed from the pipeline or vessel

is liable for the tax imposed under

paragraph (e)(1) of this section if the

owner has not met the conditions of

paragraph (e)(2)(ii) of this section.

(ii) Conditions for avoidance of liability. An owner of taxable fuel is not

liable for tax under paragraph (e)(2)(i)

of this section if, at the time the

taxable fuel is removed from the pipeline or vessel, the owner of the taxable

fuel—

(A) Is a taxable fuel registrant;

(B) Has an unexpired notification

certificate (described in §48.4081–5)

from the operator of the terminal or

refinery where the taxable fuel is

received; and

any information in the notification

certificate is false.

(iii) Liability of the operator of the

facility where the taxable fuel is

received. The operator of the facility

where the taxable fuel is received is

liable for the tax imposed under

paragraph (e)(1) of this section if the

owner of the taxable fuel has met the

conditions of paragraph (e)(2)(ii) of

this section and is jointly and severally

liable for the tax if the owner has not

met such conditions.

(f) Tax on sales within the bulk

transfer/terminal system—(1) Imposition of tax. Except as provided in

paragraph (f)(2) of this section and

§48.4082–1 (relating to dyed diesel

fuel), a tax is imposed on the sale of

taxable fuel located within the bulk

transfer/terminal system if the sale is to

a person that is not a taxable fuel

registrant and tax has not been imposed

on such taxable fuel under §48.4081–2,

or paragraph (b), (c), (d), or (e) of this

section.

(2) Exception for certain sales of

taxable fuel for export. The tax imposed under paragraph (f)(1) of this

section does not apply to a sale of

taxable fuel if—

(i) The buyer’s principal place of

business is not within the United

States;

(ii) The sale of the fuel occurs as the

fuel is delivered into a transport vessel;

(iii) The vessel has a capacity of at

least 20,000 barrels of fuel;

(iv) The seller is a taxable fuel

registrant and the exporter of record of

the fuel; and

(v) The fuel was exported in due

course.

(3) Liability for tax—(i) In general.

The seller of the taxable fuel is liable

for the tax imposed under paragraph

(f)(1) of this section if the seller has

not met the conditions of paragraph

(f)(3)(ii) of this section.

(ii) Conditions for avoidance of liability. A seller is not liable for tax

under paragraph (f)(3)(i) of this section

if, at the time of the sale, the seller—

(A) Is a taxable fuel registrant;

(B) Has an unexpired notification

certificate (described in §48.4081–5)

from the buyer; and

any information in the certificate is

false.

(iii) Liability of the buyer. The buyer

of the taxable fuel is liable for the tax

imposed under paragraph (f)(1) of this

section if the seller of the taxable fuel

has met the conditions of paragraph

(f)(3)(ii) of this section and is jointly

and severally liable for the tax if the

seller has not met such conditions.

(4) Example. The following example

illustrates this paragraph (f) and the

definition of the term sale in §48.4081–

Example. PH owns one million gallons of untaxed gasoline that is stored in TO’s terminal.

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PH also is the position holder with respect to the

gasoline. While the gasoline remains stored in

the terminal, PH transfers title to 200,000 gallons

of the gasoline to A, a person that is not a taxable fuel registrant. PH continues to hold the

inventory position on TO’s records with respect

to the one million gallons. Because PH continues

as the position holder with respect to the gasoline, the transfer of title to the gasoline from PH

to A is not a sale of gasoline. Because this

transfer of title from PH to A is not a sale of

gasoline, the tax imposed under paragraph (f) of

this section does not apply to the transfer.

(g) Tax on removal or sale of

blended taxable fuel by the blender—

(1) Imposition of tax. A tax is imposed

on the removal or sale of blended

taxable fuel by the blender thereof. Tax

is computed on the difference between

the total number of gallons of blended

taxable fuel removed or sold and the

number of gallons of previously taxed

taxable fuel used to produce the

blended taxable fuel. For this purpose,

the alcohol in gasohol is treated as

previously taxed taxable fuel.

(2) Liability for tax. The blender is

liable for the tax imposed under

paragraph (g)(1) of this section.

(3) Example. The following example

illustrates the provisions of this paragraph (g) and the definition of the term

blended taxable fuel in §48.4081–1(c):

Example. (i) X, a gasoline wholesale distributor, buys 9,500 gallons of gasoline at a terminal

rack. The gasoline is delivered into a tank trailer.

The position holder is liable for tax under

§48.4081–2 when the gasoline is removed at the

rack. X then goes to another location where 500

gallons of alcohol (a substance not subject to tax

under section 4081) are delivered into the tank

trailer already containing the 9,500 gallons of

gasoline. The gasoline and alcohol are splash

blended as X drives to X’s retail service station

where X pumps the blended gasoline into a

storage tank for sale to consumers.

(ii) X is a blender within the meaning of

§48.4081–1 because X has produced blended

taxable fuel, as defined in §48.4081–1, by

mixing the 9,500 gallons of gasoline on which

tax has been imposed under §48.4081–2(b) with

500 gallons of alcohol, a substance not subject to

tax under section 4081. The 10,000 gallon mixture is not gasohol because it does not satisfy the

alcohol-content requirement described in

§48.4081–6(b)(2). X, the blender, is liable for the

tax imposed under this paragraph (g) on the

blended gasoline. The tax is imposed when the

blended gasoline is removed from the tank trailer

at the retail station. Tax on the blended mixture

is computed on 500 gallons, the number of

gallons not previously subject to tax under

section 4081.

(h) Rate of tax. For the rate of tax

generally imposed under this section,

see section 4081(a). For the rate of tax

on gasohol and on gasoline removed or

entered for gasohol production, see

§48.4081–6.

(i) Effective date. This section is

effective January 1, 1994.

Par. 19. Section 48.4081–4 is

amended as follows:

1. The heading for §48.4081–4 is

revised.

2. In paragraph (a), the language ‘‘to

produce gasoline’’ is removed and ‘‘to

produce finished gasoline’’ is added in

its place.

3. In paragraph (b)(1)(i), the language ‘‘gasoline registrant’’ is removed

and ‘‘taxable fuel registrant’’ is added

in its place.

4. In paragraph (b)(1)(ii), the language ‘‘gasoline (as defined in

§48.4081–1(i)(1))’’ is removed and

‘‘finished gasoline’’ is added in its

place.

5. In paragraphs (b)(2)(i) and (c)(1),

the language ‘‘gasoline registrant’’ is

removed each place it appears and

‘‘taxable fuel registrant’’ is added in its

place.

6. The language ‘‘and’’ is added

following the semicolon at the end of

paragraph (c)(2).

7. Paragraph (c)(3) is revised.

8. Paragraph (c)(4) is removed.

9. In paragraph (d), the language

‘‘gasoline registrant’’ is removed and

‘‘taxable fuel registrant’’ is added in its

place.

10. In paragraphs (e)(2) and (e)(3),

the language ‘‘production of gasoline’’

is removed each place it appears and

‘‘production of finished gasoline’’ is

added in its place.

11. In paragraph (e)(3), the language

‘‘to produce gasoline’’ is removed each

place it appears, and ‘‘to produce

finished gasoline’’ is added in its place.

12. In paragraph (f), the language

‘‘1993’’ is removed and ‘‘1994’’ is

added in its place.

The revisions read as follows:

§48.4081–4 Gasoline; special rules

for gasoline blendstocks.

(3) Has no reason to believe that

any information in the certificate is

false.

Par. 20. Section 48.4081–5 is

amended as follows:

1. The heading for §48.4081–5 is

revised to read as follows:

§48.4081–5 Taxable fuel; notification

certificate of taxable fuel registrant.

2. In paragraph (a), the first sentence

in paragraph (b)(1) introductory text,

and paragraph (b)(2), the language

‘‘gasoline’’ is removed each place it

appears and ‘‘taxable fuel’’ is added in

its place.

3. In paragraph (b)(3), the language

‘‘or letter of registration’’ is added

after ‘‘Form 637’’ in the heading and

after ‘‘(Form 637)’’ in the text.

4. In paragraph (c), the language

‘‘1993’’ is removed and ‘‘1994’’ is

added in its place.

Par. 21. The heading for §48.4081–6

is revised to read as follows:

§48.4081–6 Gasoline; gasohol.

§40.4081–7 [Amended]

Par. 22. Section 48.4081–7 is

amended as follows:

1. In paragraph (c)(2), two new

listings are added at the end of the

listings in line 5 of the taxpayer’s

report:

Removal at the

‘‘

terminal rack

Removal or sale by

the blender’’

2. In paragraph (c)(4)(i)(A) and the

first sentence of paragraph (c)(4)(iii),

the language ‘‘§48.4081–1(r))’’ is removed and ‘‘§48.4081–1))’’ is added in

its place.

Par. 23. Section 48.4081–8 is revised

to read as follows:

§48.4081–8 Taxable fuel;

measurement.

(a) In general. For purposes of the

tax imposed by section 4081, gallons of

taxable fuel may be measured on the

basis of—

(1) Actual volumetric gallons;

(2) Gallons adjusted to 60 degrees

Fahrenheit; or

(3) Any other temperature adjustment method approved by the

Commissioner.

(b) Effective date. This section is

effective January 1, 1994.

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§§48.4081–10T, 48.4081–11T, and

48.4081–12T [Removed]

Par. 24. Sections 48.4081–10T

through 48.4081–12T are removed.

Par. 25. Section 48.4082–1 is revised

to read as follows:

§48.4082–1 Diesel fuel tax;

exemption.

(a) Exemption. Tax is not imposed

by section 4081 on the removal, entry,

or sale of any diesel fuel if—

(1) The person otherwise liable for

tax is a taxable fuel registrant;

(2) In the case of a removal from a

terminal, the terminal is an approved

terminal; and

(3) The diesel fuel satisfies the

dyeing and marking requirements of

paragraphs (b), (c), and (d) of this

section.

(b) Dyeing requirements. Diesel fuel

satisfies the dyeing requirement of this

paragraph (b) only if it contains—

(1) The dye Solvent Red 164 (and

no other dye) at a concentration spectrally equivalent to at least 3.9 pounds

of the solid dye standard Solvent Red

26 per thousand barrels of diesel fuel;

(2) Any dye of a type and in a

concentration that has been approved

by the Commissioner.

[Reserved]

(d) Time for adding the dye and

marker. [Reserved]

(e) Effective date. This section is

effective March 14, 1966.

§§48.4082–2T, 48.4082–3T, 48.4082–

4T and 48.4083 [Removed]

Par. 26. Sections 48.4082–2T,

48.4082–3T, 48.4082–4T, and 48.4083

are removed.

Par. 27. Sections 48.4082–2,

48.4082–3, 48.4082–4, and 48.4083–1

are added to read as follows:

§48.4082–2 Diesel fuel tax; notice

required with respect to dyed diesel

fuel.

(a) In general. A legible and conspicuous notice stating: DYED DIESEL

FUEL, NONTAXABLE USE ONLY,

PENALTY FOR TAXABLE USE must

be posted by a seller on any retail

pump or other delivery facility where it

sells dyed diesel fuel for use by its

buyer. Any seller that fails to post the

required notice on any retail pump or

other delivery facility where it sells

dyed diesel fuel is, for purposes of the

penalty imposed by section 6714, presumed to know that the fuel will not be

used for a nontaxable use.

(b) Cross reference; terminal operators. For the requirement that terminal

operators provide a notice with respect

to dyed diesel fuel, see §48.4101–

1(h)(3) (relating to terms and conditions of registration for terminal

operators).

effective January 1, 1994.

§48.4082–3 Diesel fuel; visual

inspection devices. [Reserved]

§48.4082–4 Diesel fuel; back-up tax.

(a) Imposition of tax—(1) In general. Tax is imposed by section 4041

on the delivery into the fuel supply

tank of the propulsion engine of a

diesel-powered highway vehicle (other

than a diesel-powered bus) or dieselpowered boat of—

(i) Any diesel fuel on which tax has

not been imposed by section 4081;

(ii) Any diesel fuel on which a

credit or payment has been allowed

under section 6427; or

(iii) Any liquid other than gasoline

or diesel fuel.

(2) Liability for tax—(i) In general.

The operator of the highway vehicle or

boat into which the fuel is delivered is

liable for the tax imposed under

paragraph (a)(1) of this section.

(ii) Joint and several liability of the

seller. The seller of the fuel is jointly

and severally liable for the tax imposed

under paragraph (a)(1) of this section if

the seller knows or has reason to know

that the fuel will not be used in a

nontaxable use.

(3) Rate of tax. The rate of tax is the

rate imposed on diesel fuel by section

4081(a).

(b) Tax on diesel fuel; buses and

trains—(1) In general. Tax is imposed

by section 4041 on the delivery into

the fuel supply tank of the propulsion

engine of a diesel-powered bus or a

diesel-powered train of—

(i) Any diesel fuel on which tax has

not been imposed by section 4081;

(ii) Any diesel fuel on which a

credit or payment has been allowed

under section 6427; or

(iii) Any liquid other than gasoline

or diesel fuel.

(2) Liability for tax—(i) In general.

Except as provided in paragraph (b)(2)(ii) of this section, the operator of the

bus or train into which the fuel is

delivered is liable for the tax imposed

under paragraph (b)(1) of this section.

(ii) Special rule for certain train

operators. The person that delivers the

fuel into the fuel supply tank of a train,

rather than the train operator, is liable

for the tax imposed under paragraph

(b)(1) of this section if, at the time of

the delivery—

(A) The deliverer of the fuel and the

operator of the train are both registered

as train operators under §48.4101–1;

and

(B) A written agreement between the

deliverer of the fuel and the operator

requires the deliverer to pay the tax

imposed under paragraph (b)(1) of this

section.

(3) Rate of tax—(i) Buses—(A) In

general. The rate of tax under paragraph (b)(1) of this section is the sum

of the rates described in sections

4041(a)(1)(C)(iii)(I) and 4041(d)(1)

(the bus rate) if the bus is used to

furnish (for compensation) passenger

land transportation available to the

general public and either such transportation is scheduled and along regular

routes or the seating capacity of the

bus is at least 20 adults (not including

the driver). A bus is available to the

general public if the bus is available

for hire to more than a limited number

of persons, groups, or organizations.

(B) Other uses. The rate of tax

under paragraph (b)(1) of this section is

the rate of tax imposed on diesel fuel

by section 4081(a) if the bus is used

for a purpose other than that described

in paragraph (b)(3)(i)(A) of this section.

(ii) Trains. The rate of tax under

paragraph (b)(1) of this section is the

rate prescribed in section 4041 for

diesel fuel sold for use in a train (the

train rate).

(4) Cross reference. For the registration requirement relating to certain bus

and train operators, see §48.4101–

1(c)(2).

under paragraphs (a) and (b) of this

section do not apply to a delivery of

any liquid for—

(1) Use on a farm for farming purposes as that term and related terms are

defined in §48.6420–4(a) through (g);

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(2) The exclusive use of a State;

(3) Use described in section 4041(h)

(relating to use in a vehicle owned by

an aircraft museum);

(4) Use in a boat employed in—

(i) The business of commercial

fishing;

(ii) The business of transporting persons or property for compensation or

hire; or

(iii) Any other trade or business,

unless the boat is used in any activity

of a type generally considered to

constitute entertainment, amusement, or

recreation (within the meaning of section 274(a)(1)(A) and the regulations

under that section);

(5) Use in a bus while the bus is

engaged in the transportation of students and employees of schools (as

defined in the last sentence of section

4221(d)(7)(C));

(6) Use in a qualified local bus (as

defined in section 6427(b)(2)(D)) while

the bus is engaged in furnishing (for

compensation) intracity passenger land

transportation that is available to the

general public and is scheduled and

along regular routes;

(7) Use in a highway vehicle that—

(i) Is not registered (and is not

required to be registered) for highway

use under the laws of any State or

foreign country; and

(ii) Is used in the operator’s trade or

business or in an activity of the

operator described in section 212 (relating to the production of income);

(8) The exclusive use of a nonprofit

educational organization, as defined in

§48.4221–6(b);

(9) Use in a highway vehicle that is

owned by the United States and is not

used on the highway; or

(10) Use in any boat operated by the

United States for the exclusive use of

the United States or any vessel of war

of any foreign nation, as described in

§48.4221–4(b)(5).

(d) Effective date. This section is

effective January 1, 1994.

§48.4083–1 Taxable fuel;

administrative authority.

(a) In general—(1) Authority to inspect. Officers or employees of the IRS

designated by the Commissioner, upon

presenting appropriate credentials and a

written notice to the owner, operator,

or agent in charge, are authorized to

enter any place and to conduct inspections in accordance with paragraphs (a)

through (c) of this section.

(2) Reasonableness. Inspections will

be performed in a reasonable manner

and at times that are reasonable under

the circumstances, taking into consideration the normal business hours of

the place to be entered.

(b) Place of inspection—(1) In general. Inspections may be at any place at

which taxable fuel is (or may be) produced or stored or at any inspection

site where evidence of activities described in section 6714(a) may be

discovered. These places may include,

but are not limited to—

(i) Any terminal;

(ii) Any fuel storage facility that is

not a terminal;

(iii) Any retail fuel facility; or

(iv) Any designated inspection site.

(2) Designated inspection sites. A

designated inspection site is any State

highway inspection station, weigh station, agricultural inspection station,

mobile station, or other location designated by the Commissioner to be used

as a fuel inspection site. A designated

inspection site will be identified as a

fuel inspection site.

search any tank, reservoir, or other

container that can or may be used for

the production, storage, or transportation of fuel, fuel dyes, or fuel markers.

Inspection may also be made of any

equipment used for, or in connection

with, production, storage, or transportation of fuel, fuel dyes, or fuel markers.

This includes any equipment used for

the dyeing or marking of fuel. This

also includes books and records, if any,

that are maintained at the place of

inspection and are kept to determine

excise tax liability under section 4081.

(2) Detainment. Officers or

employees may detain any vehicle,

train, or boat for the purpose of

inspecting its fuel tanks and storage

tanks. Detainment will be either on the

premises under inspection or at a

designated inspection site. Detainment

may continue for such reasonable

period of time as is necessary to

determine the amount and composition

of the fuel.

(3) Removal of samples. Officers or

employees may take and remove samples of fuel in such quantities as are

reasonably necessary to determine the

composition of the fuel.

(d) Refusal to submit to inspection—

(1) Imposition of penalty. Any person

that refuses to allow an inspection will

be fined $1,000 for each refusal. This

penalty is in addition to any other

penalty or tax that may be imposed

upon that person or any other person

liable for tax under section 4081 or

penalty under section 6714.

(2) Assessment of penalty. This

penalty is an assessable penalty and is

assessed in accordance with section

6671.

(e) Effective date. This section is

effective January 1, 1994.

Par. 28. The undesignated center

heading preceding §48.4101–1 is

removed.

Par. 29. Section 48.4101–1 is revised

to read as follows:

§48.4101–1 Registration.

(a) In general. (1) This section

provides rules relating to registration

under section 4101 for purposes of the

federal excise tax on taxable fuel

imposed by sections 4041(a)(1) and

4081 and the credit or payment allowed

to registered ultimate vendors of diesel

fuel under section 6427.

(2) A person is registered under

section 4101 only if the district director

has issued a registration letter to the

person and the registration has not been

revoked or suspended.

(3) A refiner that is registered under

section 4101 may, with respect to the

bulk removal of any batch of gasohol

from its refinery, treat itself as a person

that is not registered. See §48.4081–3(b)(1)(iii).

(4) Each business unit that has, or is

required to have, a separate employer

identification number is treated as a

separate person. Thus, two business

units (for example, a parent corporation

and a subsidiary corporation, or a

proprietorship and a related partnership), each of which has a different

employer identification number, are

two persons.

(5) A registration in effect on December 31, 1993, with respect to the

tax on gasoline or diesel fuel is subject

to the district director’s review, and to

revocation or suspension, under the

standards set forth in this section, but

remains in effect until the earlier of—

(i) The effective date of a registration issued under paragraph (g)(3) of

this section; or

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(ii) The effective date of the revocation or suspension of the registration

under paragraph (i) of this section.

(b) Definitions—(1) Applicant. An

applicant is a person that has applied

for registration under paragraph (e) of

this section.

(2) Bonded registrant. A bonded

registrant is a person that has given a

bond to the district director under

paragraph (j) of this section as a

condition of registration.

(3) Gasohol bonding amount. The

gasohol bonding amount is the product

of—

(i) The rate of tax applicable to later

separation, as described in §48.4081–6(f)(1)(iii); and

(ii) The total number of gallons of

gasoline expected to be bought at the

gasohol production tax rate by the

gasohol blender during a representative

6-month period (as determined by the

district director).

(4) Penalized for a wrongful act. A

person has been penalized for a wrongful act if the person has—

(i) Been assessed any penalty under

chapter 68 of the Internal Revenue

Code (or similar provision of the law

of any State) for fraudulently failing to

file any return or pay any tax, and the

penalty has not been wholly abated,

refunded, or credited;

(ii) Been assessed any penalty under

chapter 68 of the Internal Revenue

Code, such penalty has not been wholly

abated, refunded, or credited, and the

district director determines that the

conduct resulting in the penalty is part

of a consistent pattern of failing to

deposit, pay, or pay over a substantial

amount of tax;

(iii) Been convicted of a crime under

chapter 75 of the Internal Revenue

Code (or similar provision of the law

of any State), or of conspiracy to

commit such a crime, and the conviction has not been wholly reversed by a

court of competent jurisdiction;

(iv) Been convicted, under the laws

of the United States or any State, of a

felony for which an element of the

offense is theft, fraud, or the making of

false statements, and the conviction has

not been wholly reversed by a court of

competent jurisdiction;

(v) Been assessed any tax under

section 4103 and the tax has not been

wholly abated, refunded, or credited; or

(vi) Had its registration under section 4101 or 4222 revoked.

(5) Related person. A related person

is a person that—

(i) Directly or indirectly exercises

control over an activity of the applicant

if the activity is described in paragraph

(c)(1) or (d) of this section;

(ii) Owns, directly or indirectly, five

percent or more of the applicant;

(iii) Is under a duty to assure the

payment of a tax for which the applicant is responsible;

(iv) Is a member, with the applicant,

of a group of organizations (as defined

in §1.52–1(b) of this chapter) that

would be treated as a group of trades

or businesses under common control

for purposes of §1.52–1 of this chapter;

(v) Distributed or transferred assets

to the applicant in a transaction in

which the applicant’s basis in the assets

is determined by reference to the basis

of the assets in the hands of the

distributor or transferor.

(6) Registrant. A registrant is a

person that the district director has, in

accordance with paragraph (g)(3) of

this section, registered under section

4101 and whose registration has not

been revoked or suspended.

required to be registered under section

4101 if the person is a—

(i) Blender;

(ii) Enterer;

(iii) Refiner;

(iv) Terminal operator; or

(v) Position holder.

(2) Bus and train operators. Every

operator of a bus or train is required to

be registered under section 4101 at any

time it incurs any liability for tax under

section 4041 at the bus rate (as described in §48.4082–4(b)(3)(i)) or the

train rate (as described in §48.4082–4(b)(3)(ii)).

(3) Consequences of failing to register. For the criminal penalty imposed

for failure to register, see section 7232.

For the civil penalty imposed for

failure to register, see section 7272.

(d) Persons that may, but are not

required to, be registered. A person

may, but is not required to, be registered under section 4101 if the person

is a—

(1) Gasohol blender;

(2) Industrial user;

(3) Throughputter that is not a position holder; or

(4) Ultimate vendor of diesel fuel.

(e) Application instructions. Application for registration under section

4101 must be made in accordance with

the instructions for Form 637 (or such

other form as the Commissioner may

designate).

(f) Registration tests —(1) In

general—(i) Persons other than ultimate vendors. Except as provided in

paragraph (f)(1)(ii) of this section, the

district director will register an applicant only if the district director determines that the applicant meets the

following three tests (collectively, the

registration tests):

(A) The activity test of paragraph

(f)(2) of this section.

(B) The acceptable risk test of paragraph (f)(3) of this section.

paragraph (f)(4) of this section.

(ii) Ultimate vendors. The district

director will register an applicant as an

ultimate vendor of diesel fuel only if

the district director—

(A) Determines that the applicant

meets the activity test of paragraph

(f)(2) of this section; and

(B) Is satisfied with the filing, deposit, payment, and claim history for

all federal taxes of the applicant and

any related person.

(2) The activity test. An applicant

meets the activity test of this paragraph

(f)(2) only if the district director

determines that the applicant—

(i) Is, in the course of its trade or

business, regularly engaged as an operator of a bus or train or in the characteristic activity of a person described in

paragraph (c)(1) or (d) of this section;

(ii) Is likely to be (because of such

factors as the applicant’s business

experience, financial standing, or trade

connections), in the course of its trade

or business, regularly engaged as an

operator of a bus or train or in the

characteristic activity of a person described in paragraph (c)(1) or (d) of

this section within a reasonable time

after becoming registered under section

4101.

(3) Acceptable risk test—(i) In general. An applicant meets the acceptable

risk test of this paragraph (f)(3) only

if—

(A) Neither the applicant nor a

related person has been penalized for a

wrongful act; or

(B) Even though the applicant or a

related person has been penalized for a

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wrongful act, the district director determines, after review of evidence offered

by the applicant, that the registration of

the applicant does not create a significant risk of nonpayment or late payment of the tax imposed by sections

4041(a)(1) and 4081.

(ii) Significant risk of nonpayment

or late payment of tax. In making the

determination described in paragraph

(f)(3)(i)(B) of this section, the district

director may consider factors such as

the following:

(A) The time elapsed since the applicant or related person was penalized

for a wrongful act.

(B) The present relationship between

the applicant and any related person

that was penalized for any wrongful

act.

the person penalized for any wrongful

act.

(D) The amount of bond given by

the applicant. In this regard, the district

director may accept a bond under

paragraph (j) of this section, without

regard to the limits on the amount of

the bond set by paragraph (j)(2) of this

section.

(4) Adequate security test—(i) In

general. An applicant meets the adequate security test of this paragraph

(f)(4) only if the district director

determines that the applicant has both

adequate financial resources and a

satisfactory tax history, or the applicant

gives the district director a bond (under

the provisions of paragraph (j) of this

section).

(ii) Adequate financial resources—

(A) In general. An applicant has

adequate financial resources only if the

district director determines that the

applicant is financially capable of

paying—

(1) Its expected tax liability under

sections 4041(a)(1) and 4081 for a

representative 6-month period (as determined by the district director);

(2) In the case of a terminal operator, the expected tax liability under

section 4081 of persons other than the

terminal operator with respect to taxable fuel removed at the racks of its

terminals during a representative

1-month period (as determined by the

district director); and

(3) In the case of a gasohol blender,

the gasohol bonding amount.

(B) Basis for determination. The

determination under this paragraph

(f)(4)(ii) must be based on financial

information such as the applicant’s

income statement, balance sheet or

bond ratings, or other information

related to the applicant’s financial

status.

(iii) Satisfactory tax history. An applicant has a satisfactory tax history

only if the district director is satisfied

with the filing, deposit, and payment

history for all federal taxes of the

applicant and any related person.

(g) Action on the application by the

district director—(1) Review of application. The district director may

investigate the accuracy and completeness of any representations made by an

applicant, request any additional relevant information from the applicant,

and inspect the applicant’s premises

during normal business hours without

advance notice.

(2) Denial. If the district director

determines that an applicant does not

meet all of the applicable registration

tests described in paragraph (f) of this

section, the district director must notify

the applicant, in writing, that its

application for registration is denied

and state the basis for the denial.

(3) Approval. If the district director

determines that an applicant meets all

of the applicable registration tests

described in paragraph (f) of this

section, the district director must register the applicant under section 4101

and issue the applicant a letter of

registration containing the effective

date of the registration. The effective

date of the registration must be no

earlier than the date on which the

district director signs the letter of

registration. A copy of an application

for registration (Form 637) is not a

letter of registration.

(h) Terms and conditions of registration—(1) Affirmative duties. Each

registrant must—

(i) Make deposits, file returns, and

pay taxes required by the Internal

Revenue Code and the regulations;

(ii) Keep records sufficient to show

the registrant’s tax liability under sections 4041(a)(1) and 4081 and payments or deposits of such liability;

(iii) Make all information reports

required under section 4101(d) and

§48.4101–2;

(iv) Make available for inspection on

demand by the Internal Revenue Service during normal business hours records relevant to a determination of tax

liability under sections 4041(a)(1) and

4081; and

(v) Notify the district director of any

change (such as a change in ownership)

in the information the registrant submitted in connection with its application for registration, or previously

submitted under this paragraph (h)(1)(v), within 10 days after the change

occurs.

(2) Prohibited actions. A registrant

may not—

(i) Sell, lease or otherwise allow

another person to use its registration;

(ii) Make any false statement to the

district director in connection with a

submission under paragraph (h)(1) or

(h)(3) of this section;

(iii) Make any false statement on, or

violate the terms of—

(A) A notification certificate of a

taxable fuel registrant (as described in

§48.4081–5(b)); or

(B) A certificate of a registered

gasohol blender (as described in

§48.4081–6(c)(2)).

(3) Additional terms and conditions

for terminal operators—(i) Notice required with respect to dyed diesel fuel.

A legible and conspicuous notice stating: DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR

TAXABLE USE must be provided by

each terminal operator to any person

that receives dyed diesel fuel at a

terminal rack of that operator. This

notice must be provided by the time of

the removal and must appear on all

shipping papers, bills of lading, and