Gasoline and Diesel Fuel Excise Tax; Registration Requirements

Federal RegisterMar 14, 1996

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DEPARTMENT OF THE TREASURY

26 CFR Parts 40, 42, 48, and 602

[TD 8659]

RIN 1545-AR92

Gasoline and Diesel Fuel Excise Tax; Registration Requirements

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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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

[[Page 10451]]

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) 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) cross-referencing the temporary regulations (58

FR 63131). Amendments to these temporary regulations (TD 8512) 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) 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) 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) 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) 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 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.

Removal From Certain Refineries

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.

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 readily

determine whether the fuel may be used for a taxable use.

Back-Up Tax; Trains

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.

[[Page 10452]]

Credits and Payments

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).

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

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.

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.

List of Subjects

26 CFR Parts 40, 42, and 48

Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, under the authority of 26 U.S.C. 7805, chapter I 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:

Sec. 40.6011(a)-1 Returns.

* * * * *

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

[[Page 10453]]

(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 Sec. 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 Sec. 48.4101-1(f)(3) of

this chapter by reason of Sec. 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

Sec. 48.4101-1(h) of this chapter (relating to the terms and conditions

of registration);

(v) Is liable for tax under Sec. 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.

* * * * *

Sec. 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.

Sec. 48.4041-0T [Removed]

Par. 7. Section 48.4041-0T is removed.

Par. 8. Section 48.4041-0 is added to read as follows:

Sec. 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

Sec. 48.4082-4.

Secs. 48.4041-1 and 48.4041-2 [Removed]

Par. 9. Sections 48.4041-1 and 48.4041-2 are removed.

Sec. 48.4041-2T [Removed]

Par. 10. Section 48.4041-2T is removed.

Sec. 48.4041-21 [Amended]

Secs. 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.

Sec. 48.4041-21 [Amended]

Par. 12. In the first sentence of Sec. 48.4041-21(c)(1), the

language ``Sec. 48.4082-4T(c)(1) through (5)(A) or (c) (6) through

(11)'' is removed and ``Sec. 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:

Sec. 48.4042-1 Tax on fuel used in commercial waterway transportation.

* * * * *

(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:

Subpart H--Motor Vehicles, Tires, Tubes, Tread Rubber, and Taxable

Fuel

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 Sec. 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:

Sec. 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 Sec. 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.

[[Page 10454]]

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; or

(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 Sec. 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.

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 Sec. 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 Sec. 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.

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 Sec. 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

Sec. 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 diesel-powered highway

vehicle, diesel-powered 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 diesel-powered 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.

[[Page 10455]]

(iii) Cross reference. For the tax on blended taxable fuel, see

Sec. 48.4081-3(g). For the back-up tax on certain uses of liquids other

than diesel fuel, see Sec. 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;

(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.

Sec. 48.4081-2 Taxable fuel; tax on removal at a terminal rack.

(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 Sec. 48.4081-4

(relating to gasoline blendstocks) and Sec. 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.

respect to the taxable fuel is liable for the tax imposed under

paragraph (b) of this section.

(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

Sec. 48.4081-5) from the position holder; and

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 Sec. 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

Sec. 48.4082-1.

(4) Example. The following example illustrates this paragraph (c)

and Sec. 48.4082-1:

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 Sec. 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 Sec. 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 Sec. 48.4081-6.

(e) Effective date. This section is effective January 1, 1994.

Sec. 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 back-up tax on the use of

dyed diesel fuel, see Sec. 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), Sec. 48.4081-4 (relating to gasoline

blendstocks), and Sec. 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 Sec. 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 Sec. 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--

(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

[[Page 10456]]

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.

Except as provided in Sec. 48.4081-4 (relating to gasoline blendstocks)

and Sec. 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

Sec. 48.4081-5) from the position holder; and

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 Sec. 48.4081-4

(relating to gasoline blendstocks) and Sec. 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

Sec. 48.4081-5) from the operator of the terminal or refinery where the

taxable fuel is received; and

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 Sec. 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

Sec. 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

Sec. 48.4081-5) from the buyer; and

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 Sec. 48.4081-1:

Example. PH owns one million gallons of untaxed gasoline that is

stored in TO's terminal. 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 Sec. 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

Sec. 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

[[Page 10457]]

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 Sec. 48.4081-1 because

X has produced blended taxable fuel, as defined in Sec. 48.4081-1,

by mixing the 9,500 gallons of gasoline on which tax has been

imposed under Sec. 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 Sec. 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 Sec. 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 Sec. 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

Sec. 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:

Sec. 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 Sec. 48.4081-5 is revised to read as follows:

Sec. 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 Sec. 48.4081-6 is revised to read as

follows:

Sec. 48.4081-6 Gasoline; gasohol.

Sec. 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 ``Sec. 48.4081-1(r))'' is removed and

``Sec. 48.4081-1))'' is added in its place.

Par. 23. Section 48.4081-8 is revised to read as follows:

Sec. 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.

Secs. 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:

Sec. 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; or

(2) Any dye of a type and in a concentration that has been approved

by the Commissioner.

(d) Time for adding the dye and marker. [Reserved]

(e) Effective date. This section is effective March 14, 1996.

Secs. 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:

Sec. 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 Sec. 48.4101-1(h)(3) (relating to terms and conditions of

registration for terminal operators).

[[Page 10458]]

Sec. 48.4082-3 Diesel fuel; visual inspection devices. [Reserved]

Sec. 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 diesel-powered 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 Sec. 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 Sec. 48.4101-1(c)(2).

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 Sec. 48.6420-4 (a) through (g);

(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 Sec. 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 Sec. 48.4221-4(b)(5).

(d) Effective date. This section is effective January 1, 1994.

Sec. 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.

physically inspect, examine or otherwise 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

[[Page 10459]]

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 Sec. 48.4101-1

is removed.

Par. 29. Section 48.4101-1 is revised to read as follows:

Sec. 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 Sec. 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

(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

Sec. 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 Sec. 1.52-1(b) of this chapter) that would be treated as

a group of trades or businesses under common control for purposes of

Sec. 1.52-1 of this chapter; or

(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

Sec. 48.4082-4(b)(3)(i)) or the train rate (as described in

Sec. 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.

[[Page 10460]]

(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.

(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; or

(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 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.

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 Sec. 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 Sec. 48.4081-5(b)); or

(B) A certificate of a registered gasohol blender (as described in

Sec. 48.4081-6(c)(2)).

(3) Additional terms and conditions for terminal operators--(i)

Notice

[[Page 10461]]

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 similar documents that are

provided by the terminal operator to accompany the removal of the fuel.

(ii) Records to be maintained relating to removals of diesel fuel.

Each terminal operator must keep the following information with respect

to each rack removal of diesel fuel at each terminal it operates:

(A) The bill of lading or other shipping document.

(B) The record of whether the fuel was dyed and marked in

accordance with Sec. 48.4082-1.

(D) The identity of the person, such as a common carrier, that

physically received the fuel.

(E) Any other information required by the Commissioner.

(iii) Records to be maintained relating to dye. With respect to

each of its terminals, a terminal operator must keep records relating

to dye inventories and usage.

(iv) Retention of information. In addition to any other requirement

relating to the retention of records, the terminal operator must--

(A) Maintain the information described in paragraph (h)(3)(ii) of

this section at the terminal from which the removal occurred for at

least 3 months after the removal to which it relates; and

(B) Maintain the information described in paragraph (h)(3)(iii) of

this section at the terminal where the dye was received for at least 3

months after the receipt.

(v) Prohibition on providing incorrect information. In connection

with the removal of diesel fuel that is not dyed and marked in

accordance with Sec. 48.4082-1, a terminal operator may not provide any

person (including the position holder with respect to the fuel) with

any bill of lading, shipping paper, or similar document indicating that

the diesel fuel is dyed and marked in accordance with Sec. 48.4082-1.

(i) Adverse actions by the district director against a registrant--

(1) Mandatory revocation or suspension. The district director must

revoke or suspend the registration of any registrant if the district

director determines that the registrant, at any time--

(i) Does not meet one or more of the applicable registration tests

under paragraph (f) of this section and has not corrected the

deficiency within a reasonable period of time after notification by the

district director;

(ii) Has used its registration to evade, or attempt to evade, the

payment of any tax imposed by section 4041(a)(1) or 4081, or to

postpone or in any manner to interfere with the collection of any such

tax, or to make a fraudulent claim for a credit or payment;

(iii) Has aided or abetted another person in evading, or attempting

to evade, payment of any tax imposed by section 4041(a)(1) or 4081, or

in making a fraudulent claim for a credit or payment; or

(iv) Has sold, leased, or otherwise allowed another person to use

its registration.

(2) Remedial action permitted in other cases. If the district

director determines that a registrant has, at any time, failed to

comply with the terms and conditions of registration under paragraph

(h) of this section, made a false statement to the district director in

connection with its application for registration or retention of

registration, or otherwise used its registration in a manner that

creates a significant risk of nonpayment or late payment of tax, then

the district director may--

(i) Revoke or suspend the registrant's registration;

(ii) In the case of a registrant other than an ultimate vendor,

require the registrant to give a bond under the provisions of paragraph

(j) of this section as a condition of retaining its registration; and

(iii) In the case of a registrant other than an ultimate vendor,

require the registrant to file monthly or semimonthly returns under

Sec. 40.6011(a)-1(b) of this chapter as a condition of retaining its

registration.

(3) Action by the district director to revoke or suspend a

registration. If the district director revokes or suspends a

registration, the district director must so notify the registrant in

writing and state the basis for the revocation or suspension. The

effective date of the revocation or suspension may not be earlier than

the date on which the district director notifies the registrant.

(j) Bonds--(1) Form. Each bond given to the district director as a

condition of registration under paragraph (f)(4)(i) or (i)(2)(ii) of

this section must be executed in the form prescribed by the district

director. Each bond must be--

(i) A public debt obligation of the United States Government;

(ii) An obligation the principal and interest of which are

unconditionally guaranteed by the United States Government;

(iii) A bond executed by a surety company listed in Department of

the Treasury Circular 570 as an acceptable surety or reinsurer of

federal bonds (a surety bond); or

(iv) Any other bond with security (including liens under section

4101(b)(1)(B)) considered acceptable by the district director.

(2) Amount of bond. A bond given under this paragraph (j) must be

in an amount that the district director determines will ensure timely

collection of the taxes imposed by sections 4041(a)(1) and 4081, taking

into account the applicant's financial capabilities, tax history, and

expected liability under sections 4041(a)(1) and 4081. The district

director may increase or decrease the amount of the required bond to

take into account changes in the applicant's financial capabilities,

tax history, and expected liability under sections 4041(a)(1) and 4081.

However, in no case may the amount of the bond be greater than the

amount that the district director determines is equal to--

(i) The applicant's expected tax liability under sections

4041(a)(1) and 4081 for a representative 6-month period (as determined

by the district director);

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

of persons other than the terminal operator under section 4081 with

respect to taxable fuel removed at the racks of its terminals

(determined as if all removals of taxable fuel were taxable) during a

representative 1-month period (as determined by the district director);

and

(iii) In the case of a gasohol blender, the gasohol bonding amount.

(3) Collection of taxes from a bond. If a bonded registrant does

not pay the amount of tax it incurs under section 4041(a)(1) or 4081 by

the time prescribed in section 6151 for paying that tax, the district

director may collect the amount of the unpaid tax (including penalties

and interest with respect to that tax) from the bonded registrant's

bond.

(4) Termination of bonds--(i) Surety bonds. A surety on a bond may

give written notice to the district director and the bonded registrant

that the surety desires to be relieved of liability under the bond

after a certain date, which date must be at least 60 days after the

receipt of the notice by the district director. The surety will be

relieved of any liability that the bonded registrant incurs after the

date named in the notice. However, the surety remains liable for the

amount

[[Page 10462]]

of tax that the bonded registrant incurred under sections 4041(a)(1)

and 4081 during the term of the bond and for penalties and interest

with respect to that tax.

(ii) Other bonds. A bond (other than a surety bond) given to the

district director may be returned to the bonded registrant only after

the earlier of--

(A) The district director's determination that the bonded

registrant has paid all taxes that the bonded registrant incurred under

sections 4041(a)(1) and 4081 during the period covered by the bond and

any penalties and interest with respect to the taxes;

(B) The expiration of the period for assessment of the taxes that

the bonded registrant incurred under sections 4041(a)(1) and 4081 taxes

during the period covered by the bond, as determined under the

provisions of subchapter A of chapter 66 of the Internal Revenue Code;

registrant a substitute bond given under this paragraph (j).

(5) Determination that bond is no longer required. If the district

director determines that the bonded registrant meets the adequate

security test of paragraph (f)(4) of this section without a bond, the

registrant is to be released from the obligation to give a bond as a

condition of registration under section 4101.

(k) Cross references. For a rule relating to the filing of monthly

and semimonthly returns by certain persons that are registered under

section 4101, see Sec. 40.6011(a)-1(b)(2) of this chapter. For rules

relating to the tax on taxable fuel, see Secs. 48.4081-1 through

48.4083-1. For rules relating to claims by registered ultimate vendors,

see Sec. 48.6427-9.

(l) Effective dates. (1) Except as otherwise provided in this

paragraph (l), this section is applicable as of January 1, 1994.

(2) Paragraph (c)(1) of this section (relating to persons required

to be registered) is applicable as of January 1, 1995.

(3) Paragraph (h)(3)(iii) of this section (relating to certain

recordkeeping requirements) is applicable as of July 1, 1996.

Par. 30. Section 48.4101-2 is added to read as follows:

Sec. 48.4101-2 Information reporting.

(a) In general--(1) Taxable fuel registrants. Each taxable fuel

registrant must make a return showing--

(i) The name and registration number (if any) of each person that

is a position holder at each terminal it operates;

(ii) The amount of taxable fuel received at each terminal it

operates;

(iii) The identity of each position holder with respect to--

(A) All rack removals of taxable fuel from each terminal it

operates, and the volume and dates of the removals; and

(B) In the case of rack removals of diesel fuel, whether the fuel

was dyed and marked at the operator's terminal in accordance with

Sec. 48.4082-1;

(iv) The amount of taxable fuel stored at each terminal it

operates;

(v) The destination (by state) of all taxable fuel removed at a

terminal rack of each terminal it operates, to the extent such

information has been provided to the registrant;

(vi) The name and registration number (if any) of the operator of

each terminal at which it is a position holder;

(vii) The volume and date of the removal with respect to all rack

removals of taxable fuel for which it is the position holder;

(viii) In the case of nonbulk removals and entries of gasoline

blendstocks for which it would be liable for tax but for the special

rule in Sec. 48.4081-4(c), the name and registration number of each

operator of each refinery and terminal where the gasoline blendstocks

are received;

(ix) The name and registration number (if any) of each person to

which it sells (within the meaning of Sec. 48.4081-1) taxable fuel

located in the bulk transfer/terminal system;

(x) The name and registration number of each person from which it

receives a certificate described in Sec. 48.4081-6(c) (relating to

certificate of registered gasohol blender);

(xi) With respect to any liability incurred under Sec. 48.4081-3(e)

(relating to tax on bulk transfers not received at an approved terminal

or refinery)--

(A) The date on which the removal of the taxable fuel from a

pipeline or vessel gave rise to the liability; and

(B) The location of the taxable fuel at the time of the removal;

and

(xii) Any other information required by the Commissioner.

(2) Gasohol blenders. Each registered gasohol blender must make a

return showing, with respect to each batch of gasohol it produced from

gasoline it bought at the gasohol production tax rate--

(i) The name and registration number of the person that sold it the

gasoline;

(ii) The date and location of the purchase of the gasoline;

(iii) The volume of the gasoline;

(iv) The name, address, and employer identification number of the

person that sold it the alcohol;

(v) The date and location of the purchase of the alcohol;

(vi) The volume and type of the alcohol; and

(vii) Any other information required by the Commissioner.

(3) Pipeline and vessel operators. Each operator of a pipeline or

vessel that makes a bulk transfer of taxable fuel to a terminal or

refinery must make a return showing--

(i) The location of the terminal or refinery where the taxable fuel

was delivered;

(ii) The date of the delivery; and

(iii) Any other information required by the Commissioner.

(b) Form and time of return. Each return required under this

section must be made at the time and in the form required by the

Commissioner.

for failing to make an information return required by this section, see

Sec. 48.4101-1(i) (relating to adverse actions against a registrant)

and section 6721 (relating to a penalty for failure to file an

information return).

(d) Effective date. This section is applicable as of April 1, 1996.

Secs. 48.4101-2T, 48.4101-3, 48.4101-3T, and 48.4101-4T [Removed]

Par. 31. Sections 48.4101-2T, 48.4101-3, 48.4101-3T, and 48.4101-4T

are removed.

Par. 32. Section 48.4102-1 is amended as follows:

1. Paragraph (a) is revised.

2. Paragraph (b)(1) is amended by removing the language ``on the

sale or use of gasoline or lubricating oil, respectively,''.

3. Paragraph (b)(2) is amended by removing ``gasoline or

lubricating oil'' each place it appears and adding ``taxable fuel or

aviation fuel'' in its place.

The revision reads as follows:

Sec. 48.4102-1 Inspection of records by State or local tax officers.

(a) Inspection of records maintained by taxpayer. The records that

a taxpayer is required to keep with respect to the taxes imposed by

section 4081 or 4091 must be open to inspection by any officer of any

State or political subdivision thereof, or of the District of Columbia,

who is charged with the enforcement or collection of any tax on taxable

fuel or aviation fuel.

* * * * *

Sec. 48.4221 [Removed]

Par. 33. Section 48.4221 is removed.

Par. 34. Section 48.4221-1 is amended as follows:

1. Paragraph (a) is revised.

2. Paragraph (b)(2)(iv) is amended by adding ``and'' at the end.

3. Paragraph (b)(2)(v) is revised.

[[Page 10463]]

4. Paragraphs (b)(2)(vi) through (b)(2)(xii) are removed.

5. Paragraph (b)(3) is removed and paragraphs (b)(4) and (b)(5) are

redesignated as paragraphs (b)(3) and (b)(4), respectively.

The revised provisions read as follows:

Sec. 48.4221-1 Tax-free sales; general rule.

(a) Application of regulations under section 4221--(1) In general.

The regulations under section 4221 provide rules under which the

manufacturer, producer, or importer of an article subject to tax under

chapter 32 (or the retailer of an article subject to tax under

subchapter A or C of chapter 31) may sell the article tax free under

section 4221.

(2) Limitations. The following restrictions must be taken into

account in applying the regulations under section 4221:

(i) The exemptions under section 4221 (a)(4) and (a)(5) do not

apply to the tax imposed by section 4064 (gas guzzler tax).

(ii) The exemptions under section 4221 do not apply to the tax

imposed by section 4081 (gasoline and diesel fuel tax).

(iii) The exemptions under section 4221 do not apply to the tax

imposed by section 4091 (aviation fuel tax). For rules relating to tax-

free sales of aviation fuel, see section 4092 and the regulations

thereunder.

(iv) The exemptions under section 4221 do not apply to the tax

imposed by section 4121 (coal tax).

(v) The exemptions under section 4221 (a)(3) through (a)(5) do not

apply to the tax imposed by section 4131 (vaccine tax). In addition,

the exemption under section 4221(a)(2) applies to the vaccine tax only

to the extent provided in Sec. 48.4221-3(e) (relating to tax-free sales

of vaccine for export).

(vi) The exemptions under section 4221(a) apply only in those cases

where the exportation or use referred to is to occur before any other

use.

(b) * * *

(2) * * *

(v) Section 4221(e)(3) relating to the sale of tires used on

intercity, local, or school buses (see Sec. 48.4221-8).

* * * * *

Par. 35. Section 48.4221-2 is amended by:

1. Removing from the first sentence of paragraph (a)(1) the

language ``(other than a tire or inner tube taxable under section 4071,

which are given special treatment under sections 4221(e) (2) and (4),

and Secs. 48.4221-7 and 48.4221-8)'' and adding ``(other than a tire

taxable under section 4071, which is given special treatment under

section 4221(e)(2) and Sec. 48.4221-7)'' in its place.

2. Removing paragraph (a)(2) and redesignating paragraph (a)(3) as

paragraph (a)(2).

3. Revising paragraph (b).

The revision reads as follows:

Sec. 48.4221-2 Tax-free sale of articles to be used for, or resold

for, further manufacture.

* * * * *

(b) Circumstances under which an article is considered to have been

sold for use in further manufacture. (1) An article shall be treated as

sold for use in further manufacture if the article is sold for use by

the buyer as material in the manufacture or production of, or as a

component part of, another article taxable under chapter 32 of the

Internal Revenue Code.

(2) An article is used as material in the manufacture or production

of, or as a component of, another article if it is incorporated in, or

is a part or accessory of, the other article when the other article is

sold by the manufacturer. In addition, an article is considered to be

used as material in the manufacture of another article if it is

consumed in whole or in part in testing such other article. However, an

article that is consumed in the manufacturing process other than in

testing, so that it is not a physical part of the manufactured article,

is not considered to have been used as material in the manufacture of,

or as a component part of, another article.

* * * * *

Par. 36. Section 48.4221-5 is amended as follows:

1. Paragraph (c)(1) is amended by:

a. Removing the first sentence.

b. Removing the language ``If a State or local government is not

registered, the'' and adding ``The'' in its place in the new first

sentence.

2. In paragraph (d), the first sentence is amended by:

a. Removing the language ``(whether on the basis of a registration

number or an exemption certificate)''.

b. Removing the language ``(such as gasoline that is'' and adding

``(such as tires that are'' in its place.

Secs. 48.4221-8, 48.4221-9, 48.4221-10 [Removed]

Par. 37. Sections 48.4221-8, 48.4221-9, and 48.4221-10 are removed.

Sec. 48.4221-11 [Redesignated as Sec. 48.4221-8]

Par. 38. Section 48.4221-11 is redesignated as Sec. 48.4221-8.

Sec. 48.4221-12 [Removed]

Par. 39. Section 48.4221-12 is removed.

Par. 40. In Sec. 48.4222(a)-1, paragraphs (a) and (b) are revised

to read as follows:

Sec. 48.4222(a)-1 Registration.

(a) General rule. Except as provided in Sec. 48.4222(b)-1, tax-free

sales under section 4221 may be made only if the manufacturer, first

purchaser, and second purchaser, as the case may be, have been

registered by the Internal Revenue Service.

(b) Application instructions. Application for registration under

section 4222 must be made in accordance with instructions for Form 637

(or such other form as the Commissioner may designate).

* * * * *

Par. 41. In Sec. 48.4222(b)-1, paragraph (a) is revised to read as

follows:

Sec. 48.4222(b)-1 Exceptions to the requirement for registration.

(a) State and local governments. The Internal Revenue Service will

not register State or local governments under section 4222. To

establish the right to sell articles tax free to a State or local

government, the manufacturer must obtain the information described in

Sec. 48.4221-5(c).

* * * * *

Sec. 48.4222(d)-1 [Amended]

Par. 42. Section 48.4222(d)-1 is amended by:

1. Removing paragraphs (a), (b), and (c).

2. Redesignating paragraph (d) as paragraph (a).

3. Removing paragraphs (e) and (f).

4. Redesignating paragraph (g) as paragraph (b).

Sec. 48.6206-1 [Removed]

Par. 43. Section 48.6206-1 is removed.

Sec. 48.6416(b)(2)-2 [Amended]

Par. 44. In Sec. 48.6416(b)(2)-2, paragraphs (g) through (k) are

removed.

Sec. 48.6416(g)-1 [Removed]

Par. 45. Section 48.6416(g)-1 is removed.

Sec. 48.6421-3 [Amended]

Par. 46. In Sec. 48.6421-3, paragraph (d)(2) is amended by removing

from the first sentence the language ``Form 843'' and adding ``Form

8849 (or on such other form as the Commissioner may designate)'' in its

place.

Secs. 6424-0 through 48.6424-6 [Removed]

Par. 47. Sections 48.6424-0 through 48.6424-6 are removed.

[[Page 10464]]

Sec. 48.6427-3 [Amended]

Par. 48. In Sec. 48.6427-3, paragraph (d)(2) is amended by removing

from the first sentence the language ``Form 843'' and adding ``Form

8849 (or on such other form as the Commissioner may designate)'' in its

place.

Sec. 48.6427-7 [Amended]

Par. 49. In Sec. 48.6427-7, paragraph (g)(4) is amended by removing

the language ``Form 843 (Claim)'' and adding ``Form 8849 (or such other

form as the Commissioner may designate)'' in its place.

Par. 50. Sections 48.6427-8 and 48.6427-9 are added to read as

follows:

Sec. 48.6427-8 Claims by ultimate purchasers with respect to diesel

fuel taxed after December 31, 1993.

(a) Overview. This section provides the rules for obtaining a

credit or payment with respect to undyed diesel fuel that was taxed

after December 31, 1993, and that was used in a nontaxable use (other

than on a farm for farming purposes or by a State). A credit or payment

for undyed diesel fuel used on a farm for farming purposes or by a

State is allowable only to a registered ultimate vendor under the rules

of Sec. 48.6427-9.

(b) Conditions to allowance of credit or payment--(1) In general.

Except as provided in section 6427(l)(5), a claim for credit or payment

with respect to diesel fuel is allowable under section 6427(l) only

if--

(i) Tax was imposed by section 4081 on the diesel fuel to which the

claim relates;

(ii) The claimant produced or bought the fuel and did not resell it

in the United States;

(iii) The claimant has filed a timely claim for a credit or payment

that contains the information required under paragraph (d) of this

section;

(iv) The fuel was not bought under a certificate described in

Sec. 48.6427-9(e)(2) (relating to certificate of farmer or State to

support claim of ultimate vendor);

(v) The fuel was not used on a farm for farming purposes (as

defined in Sec. 48.6420-4) or by a State; and

(vi) The fuel was either--

(A) Used in a use described in Sec. 48.4082-4 (c)(3) through

(c)(10);

(B) Exported;

powered highway vehicle or diesel-powered boat;

(D) Used as a fuel in a propulsion engine of a diesel-powered

train; or

(E) Used as a fuel in the propulsion engine of a diesel-powered bus

if the bus was used in a use described in section 6427(b)(1) (after the

application of section 6427(b)(3)).

(2) Examples. The following examples illustrate this paragraph (b).

Example 1. (i) In September 1996, F bought 250 gallons of undyed

diesel fuel. In October 1996, F used 200 gallons of the fuel in a

farm tractor. This use qualifies as use on a farm for farming

purposes (as defined in Sec. 48.6420-4). The farm tractor is not a

diesel-powered highway vehicle (as defined in Sec. 48.4081-1(h)). F

used the remaining 50 gallons to heat F's residence. F filed a

complete and timely claim for a credit relating to the 250 gallons.

(ii) A credit or payment is not allowable to F with respect to

the 200 gallons of diesel fuel used in the farm tractor. Even though

this fuel was used other than as a fuel in a propulsion engine of a

diesel-powered highway vehicle (thus meeting the condition in

paragraph (b)(1)(vi)(C) of this section), the condition in paragraph

(b)(1)(v) of this section is not satisfied because the fuel was used

on a farm for farming purposes.

(iii) A credit is allowable to F with respect to the 50 gallons

F used for heating purposes because the conditions in paragraph

(b)(1) of this section have been met. F used this fuel other than as

a fuel in a propulsion engine of a diesel-powered highway vehicle

and the use of the fuel for residential heating is not use on a farm

for farming purposes.

Example 2. (i) In September 1996, W, a wholesale distributor,

sold 3,500 gallons of diesel fuel on which tax has been imposed to

C, a construction company located in the United States. W's selling

price to C did not include an amount equal to the federal excise tax

on the fuel. C used the fuel other than as a fuel in a propulsion

engine of a diesel-powered highway vehicle or diesel-powered boat.

Both W and C file a complete and timely claim for a credit relating

to the fuel.

(ii) Because W resold the fuel in the United States, the

condition of paragraph (b)(1)(ii) of this section is not met. Thus,

W is not allowed a credit or payment with respect to the fuel.

(iii) C is eligible for a credit or payment with respect to the

fuel because the conditions to allowance in paragraph (b)(1) of this

section have been met. The conditions to allowance do not include a

requirement that C buy the fuel at a price that includes the amount

of the tax.

section must be made on Form 4136 (or on such other form as the

Commissioner may designate) in accordance with the instructions for

that form. Each claim for a payment under this section must be made on

Form 8849 (or on such other form as the Commissioner may designate) in

accordance with the instructions for that form.

(d) Content of claim. Each claim for a credit or payment under this

section must contain the following information with respect to all the

diesel fuel covered by the claim:

(1) The total number of gallons covered by the claim.

(2) A statement by the claimant that tax has been imposed on the

diesel fuel covered by the claim.

(3) The use made of the diesel fuel covered by the claim described

by reference to specific categories listed in paragraph (b)(1)(vi) of

this section (such as use in a boat employed in commercial fishing or

the exclusive use of a nonprofit educational organization).

(4) If the diesel fuel covered by the claim was exported, a

declaration that the claimant has proof of exportation (as described in

Sec. 48.4221-3(d)(1)).

(5) A declaration that the claimant has in its possession the name

and address of the person(s) that sold the diesel fuel to the claimant

and the date(s) of the purchase(s).

(e) Time and place for filing claim. For rules relating to the time

for filing a claim under section 6427, see section 6427(i). A claim

under this section is not filed unless it contains all the information

required by paragraph (d) of this section and is filed at the place

required by the form.

(f) Effective date. This section is effective January 1, 1994,

except for paragraph (b)(1)(v) of this section, which is effective for

diesel fuel bought by ultimate purchasers after June 30, 1994.

Sec. 48.6427-9 Claims by registered ultimate vendors with respect to

diesel fuel taxed after December 31, 1993.

(a) Overview. This section provides the rules for obtaining a

credit or payment with respect to undyed diesel fuel that was taxed

after December 31, 1993, and that was used on a farm for farming

purposes or by a State.

(b) Definitions. (1) An ultimate vendor, as used in this section,

is a person that sells undyed diesel fuel to--

(i) The owner, tenant, or operator of a farm for use by such person

on a farm for farming purposes (as defined in Sec. 48.6420-4);

(ii) A person other than the owner, tenant, or operator of a farm

for use by such person for any of the purposes described in

Sec. 48.6420-4(d) (relating to cultivating, raising, or harvesting); or

(iii) Any State for its exclusive use.

(2) A registered ultimate vendor is--

(i) An ultimate vendor that is registered under section 4101 as an

ultimate vendor; or

(ii) With respect to a claim filed before January 1, 1995, an

ultimate vendor that is registered as a producer of diesel fuel on

December 31, 1993, if the registration has not been revoked or

suspended.

credit or payment with respect to diesel fuel is

[[Page 10465]]

allowable under section 6427(l)(5) only if--

(1) Tax was imposed by section 4081 on the diesel fuel to which the

claim relates;

(2) The claimant sold the diesel fuel to--

(i) The owner, tenant, or operator of a farm for use by such person

on a farm for farming purposes (as defined in Sec. 48.6420-4);

(ii) A person other than the owner, tenant, or operator of a farm

for use by such person for any of the purposes described in

Sec. 48.6420-4(d) (relating to cultivating, raising, or harvesting); or

(iii) Any State for its exclusive use;

(3) The claimant is a registered ultimate vendor; and

(4) The claimant has filed a timely claim for a credit or payment

that contains the information required under paragraph (e) of this

section.

(d) Form of claim. Each claim for an income tax credit under this

section must be made on Form 4136 (or on such other form as the

Commissioner may designate) in accordance with the instructions for

that form. Each claim for a payment under this section must be made on

Form 8849 (or on such other form as the Commissioner may designate) in

accordance with the instructions for that form.

(e) Content of claim--(1) In general. Each claim for credit or

payment under this section must contain the following information with

respect to all the diesel fuel covered by the claim:

(i) The total number of gallons covered by the claim.

(ii) A statement by the claimant that tax has been imposed on the

diesel fuel covered by the claim.

(iii) The claimant's registration number.

(iv) The name and taxpayer identification number of each person

that bought diesel fuel from the claimant in a transaction described in

paragraph (c)(2) of this section and the number of gallons that the

claimant sold to that person.

(v) A statement that the claimant--

(A) Has not included the amount of the tax in its sales price of

the diesel fuel and has not collected the amount of tax from its buyer;

(B) Has repaid the amount of the tax to the ultimate purchaser of

the fuel; or

of the claim.

(vi) For claims relating to sales by the claimant after March 31,

1994, a statement that the claimant has in its possession an unexpired

certificate described in paragraph (e)(2) of this section and the

claimant has no reason to believe any information in the certificate is

false.

(vii) For claims relating to sales by the claimant before April 1,

1994, either the statement described in paragraph (e)(1)(vi) of this

section or a statement that--

(A) The claimant has in its possession an unexpired exemption

certificate relating to tax-free sales of diesel fuel for use on a farm

for farming purposes or for the exclusive use of a State;

(B) The certificate was received from the buyer before January 1,

1994; and

certificate is false.

(2) Certificate--(i) In general. The certificate to be provided to

the ultimate vendor consists of a statement that is signed under

penalties of perjury by a person with authority to bind the buyer, is

in substantially the same form as the model certificate provided in

paragraph (e)(2)(ii) of this section, and contains all information

necessary to complete such model certificate. A new certificate must be

given if any information in the current certificate changes. The

certificate may be included as part of any business records normally

used to document a sale. The certificate expires on the earlier of the

following dates:

(A) The date one year after the effective date of the certificate.

(B) The date a new certificate is provided to the seller.

(ii) Model certificate.

Certificate of Farming Use or State Use

(To support vendor's claim for a credit or payment under section

6427 of the Internal Revenue Code.)

----------------------------------------------------------------------

Name, address, and employer identification number of vendor

The undersigned buyer (``Buyer'') hereby certifies the following

under penalties of perjury:

Buyer will use the diesel fuel to which this certificate

relates--(check one)

______ On a farm for farming purposes (as defined in Sec. 48.6420-

4(c) of the Manufacturers and Retailers Excise Tax Regulations) and

Buyer is the owner, tenant, or operator of the farm on which the

fuel will be used;

______ On a farm (as defined in Sec. 48.6420-4(c)) for any of the

purposes described in paragraph (d) of that section (relating to

cultivating, raising, or harvesting) and Buyer is a person that is

not the owner, tenant, or operator of the farm on which the fuel

will be used; or

______ For the exclusive use of a State or local government, or the

District of Columbia.

This certificate applies to the following (complete as

applicable):

If this is a single purchase certificate, check here ______ and

enter:

1. Invoice or delivery ticket number ______

2. ______ (number of gallons)

If this is a certificate covering all purchases under a

specified account or order number, check here ______ and enter:

1. Effective date ______

2. Expiration date ______ (period not to exceed 1 year after the

effective date)

3. Buyer account or order number ______

Buyer will provide a new certificate to the vendor if any

information in this certificate changes.

If Buyer uses the diesel fuel to which this certificate relates

for a purpose other than stated in the certificate Buyer will be

liable for tax.

Buyer understands that the fraudulent use of this certificate

may subject Buyer and all parties making such fraudulent use of this

certificate to a fine or imprisonment, or both, together with the

costs of prosecution.

----------------------------------------------------------------------

Printed or typed name of person signing

----------------------------------------------------------------------

Title of person signing

----------------------------------------------------------------------

Name of Buyer

----------------------------------------------------------------------

Employer identification number

----------------------------------------------------------------------

Address of Buyer

----------------------------------------------------------------------

Signature and date signed

(f) Time and place for filing claim. For rules relating to the time

for filing a claim under section 6427, see section 6427(i). A claim

under this section is not filed unless it contains all the information

required by paragraph (e) of this section and is filed at the place

required by the form.

(g) Effective date. This section is effective January 1, 1994.

Secs. 48.6427-8T and 48.6427-9T [Removed]

Par. 51. Sections 48.6427-8T and 48.6427-9T are removed.

Sec. 48.6675-1 [Removed]

Par. 52. Section 48.6675-1 is removed.

Par. 53. Section 48.6714-1 is added to read as follows:

Sec. 48.6714-1 Penalty for misuse of dyed diesel fuel.

(a) In general. If any person willfully alters, or attempts to

alter, the strength or composition of any dye or marking done pursuant

to Sec. 48.4082-1 in any dyed fuel, then section 6714(a)(3) provides

that such person shall pay a penalty in addition to any tax. The

penalty imposed by section 6714(a)(3) will not apply in the following

cases:

(1) Diesel fuel that satisfies the dyeing and marking requirements

of Sec. 48.4082-1 (b) and (c) is blended with any undyed liquid and the

resulting product satisfies the dyeing and marking requirements of

Sec. 48.4082-1 (b) and (c).

[[Page 10466]]

(2) Diesel fuel that satisfies the dyeing and marking requirements

of Sec. 48.4082-1 (b) and (c) is blended with any other liquid (other

than diesel fuel) that contains the type and amount of dye and marker

required for diesel fuel dyed and marked in accordance with

Sec. 48.4082-1 (b) and (c).

(3) Diesel fuel that is dyed one color in accordance with

Sec. 48.4082-1(b) is blended with diesel fuel that is dyed another

color in accordance with Sec. 48.4082-1(b).

(4) Diesel fuel that does not satisfy the dyeing and marking

requirements of Sec. 48.4082-1 (b) and (c) is blended with diesel fuel

that satisfies the dyeing and marking requirements of Sec. 48.4082-1

(b) and (c) and the blending occurs as part of a use described in

Sec. 48.4082-4(c) or Sec. 48.6427-8(b)(vi) (C), (D), or (E).

(b) Effective date. This section is effective January 1, 1994.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 54. The authority citation for part 602 continues to read as

follows:

Authority: 26 U.S.C. 7805.

Par. 55. In Sec. 602.101, paragraph (c) is amended as follows:

1. Removing the following entries from the table:

Sec. 602.101 OMB Control numbers.

* * * * *

------------------------------------------------------------------------

Current OMB

CFR part or section where identified and described control

number

------------------------------------------------------------------------

* * * * *

42.5(b)................................................. 1545-1206

* * * * *

48.4041-2T.............................................. 1545-0143

* * * * *

48.4082-2T.............................................. 1545-1418

48.4101-1............................................... 1545-0023

1545-0725

1545-0014

48.4101-2T.............................................. 1545-0725

48.4101-3T.............................................. 1545-1418

48.4101-4T.............................................. 1545-1418

* * * * *

48.6427-8T.............................................. 1545-1418

48.6427-9T.............................................. 1545-1418

* * * * *

------------------------------------------------------------------------

2. Adding entries in numerical order to the table to read as

follows:

Sec. 602.101 OMB Control numbers.

* * * * *

------------------------------------------------------------------------

Current OMB

CFR part or section where identified and described control

number

------------------------------------------------------------------------

* * * * *

48.4082-2............................................... 1545-1418

48.4101-1............................................... 1545-1418

48.4101-2............................................... 1545-1418

* * * * *

48.6427-8............................................... 1545-1418

48.6427-9............................................... 1545-1418

* * * * *

------------------------------------------------------------------------

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: December 18, 1995.

Leslie Samuels.

Assistant Secretary of the Treasury.

[FR Doc. 96-5586 Filed 3-13-96; 8:45 am]

BILLING CODE 4830-01-P

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.