[Code of Federal Regulations]
[Title 26, Volume 16]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR48.4041-20]

[Page 70-71]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 48_MANUFACTURERS AND RETAILERS EXCISE TAXES--Table of Contents
 
                         Subpart F_Special Fuels
 
Sec. 48.4041-20  Partially exempt methanol and ethanol fuel.

    (a) In general. Under section 4041(m), the sale or use of partially 
exempt methanol or ethanol fuel is taxed at the rate of 4\1/2\ cents per 
gallon of fuel sold or used. The amount of tax is based upon the total 
volume of fuel and not merely upon the nonalcohol portion of the fuel.
    (b) Partially exempt methanol or ethanol fuel defined. For purposes 
of section 4041(m) and this section, partially exempt methanol or 
ethanol fuel is liquid motor fuel, 85% of which by volume consists of 
alcohol, as defined in section 4081 and Sec. 48.4081-2(a)(4) of the 
regulations, as modified by the following sentence. For purposes of 
section 4041(m) and this section, the alcohol contained in partially 
exempt methanol or ethanol fuel must be produced from natural gas. The 
actual gallonage of each component of the mixture (without adjustment 
for temperature) shall be used in determining whether the 85 percent 
alcohol requirement has been met. Further, in determining whether a 
particular mixture containing less than 85 percent alcohol satisfies 
this percentage requirement, the District Director shall take into 
account the existence of any facts and circumstances that establish that 
but for the commercial and operational realities of the blending 
process, it may reasonably be concluded that the mixture would have 
contained at least 85 percent alcohol. The necessary facts and 
circumstances will not be found to exist if over a period of time the 
mixtures blended by a blender show a consistent pattern of failing to 
contain 85

[[Page 71]]

percent alcohol. See paragraph (f) of this section for rules relating to 
information required to be attached to the taxpayer's return of the tax 
imposed by chapter 31 relating to the alcohol content of the partially 
exempt methanol or ethanol fuel for which tax is paid.
    (c) Mixtures which do not qualify as partially exempt methanol or 
ethanol fuel. If methanol or ethanol fuel does not qualify as partially 
exempt methanol or ethanol fuel under this section, the entire mixture 
is taxed at the rate of tax applicable under section 4041(a)(2) of the 
Code.
    (d) Refunds relating to fuels. See section 6427 for rules which 
relate to the allowance of a refund or credit to a person who uses tax-
paid diesel, special motor or noncommercial aviation fuel to produce a 
partially exempt methanol or ethanol fuel and section 6416 for rules 
which relate to the allowance of a refund or credit to a person who uses 
tax-paid gasoline to produce a partially exempt methanol or ethanol 
fuel.
    (e) Later blending. If a partially exempt methanol or ethanol fuel 
is blended with other motor fuel in a mixture less than 85 percent of 
which consists of alcohol, the subsequent sale or use of such blended 
motor fuel is taxable under the provisions of section 4041(a) or section 
4081(a), subject to the requirements, limitations and exemptions of 
those sections.
    (f) Records required to be furnished by the taxpayer. A taxpayer 
making a return of the tax imposed by chapter 31 indicating payment of 
the tax under section 4041(m) and Sec. 48.4041-20 at the reduced rate 
must attach a statement to the return indicating the total number of 
gallons of partially exempt methanol or ethanol fuel containing at least 
85 percent alcohol and the total number of gallons of partially exempt 
methanol or ethanol fuel containing less than 85 percent alcohol, but 
qualifying for taxation at the reduced rate under the rules of paragraph 
(b) of this section. However, the taxpayer does not have to specify the 
precise mixture ratio of every mixture blended for which tax is being 
paid.
    (g) Effective date. Section 4041(m) applies to sales and uses after 
July 31, 1984. If methanol or ethanol fuel meeting the requirements of 
paragraph (b) of this section was put into the tank of a vehicle prior 
to August 1, 1984, the fuel is considered used prior to that date and is 
subject to the tax described in paragraph (a) of section 4041.

[T.D. 8152, 52 FR 31617, Aug. 21, 1987]