REVENUE RULE 93-67

1993-2 C.B. 4, 1993-33 I.R.B. 4.

Internal Revenue Service
Revenue Ruling

EXCISE TAXES; ALCOHOL USED IN FUELS

Published: October 25, 1993

§ 40. Alcohol Used as Fuel

(See Also Sections 4041, 4081, 4091, 6427; 48.4041-18, 48.4041-19, 48.4081-6.)

Excise taxes; alcohol used in fuels. Methanol produced from methane gas formed in waste disposal sites is not "alcohol produced from natural gas" for purposes of the alcohol fuel provisions of sections 40, 4041, 4081, 4091, and 6427 of the Code.

ISSUE

Is methanol produced from methane gas formed in waste disposal sites "alcohol produced from natural gas" for purposes of the alcohol fuel provisions of sections 40, 4041, 4081, 4091, and 6427 of the Internal Revenue Code?

FACTS

Natural gas is found in underground reservoirs of porous sedimentary rocks, either alone or in association with crude oil. Natural gas is formed over millions of years by the decay of plants and animals. Waste disposal sites are accumulations of urban and agricultural debris. Waste disposal sites include landfills and sewage treatment plants. Gas in waste disposal sites is formed in a few years by the decay of the organic materials in those waste sites. Methane is a component of both natural gas and gas formed in waste disposal sites. Methanol, an alcohol produced from methane, can be blended with diesel fuel, aviation fuel, special motor fuels, and gasoline.

LAW AND ANALYSIS

§ 40 of the Code provides an income tax credit for alcohol used as a fuel or in certain fuel mixtures. Sections 4041, 4081, 4091, and 6427 reduce the rate of excise tax on diesel fuel, aviation fuel, special motor fuels, and gasoline, if those fuels are mixed with alcohol. For purposes of these provisions, the term "alcohol" includes ethanol and methanol but does not include alcohol produced from petroleum, natural gas, or coal (including peat). (However, the exclusion of alcohol made from coal does not apply to qualified methanol or ethanol fuel under § 4041(b)(2).)

Congress has recognized the importance of encouraging the development of non- petroleum products for use in motor fuels. Thus, the tax benefit for fuels containing alcohol applies when the alcohol is made from renewable resources, such as agricultural products, forestry products, and urban wastes, but not when the alcohol is made from nonrenewable resources, such as petroleum and natural gas. S. Rep. No. 394, 96th Cong., 1st Sess. 91 (1979), 1980 3 C.B. 131, 209; and S. Rep. No. 1324, 95th Cong., 2d Sess. 48 (1978), 1978-3 (Vol. 2) C.B. 309, 320. Accordingly, methane gas formed at waste disposal sites is a renewable source of energy and is not natural gas for purposes of sections 40, 4041, 4081, 4091, and 6427 of the Code.

HOLDING

Methanol produced from methane gas formed in waste disposal sites is not "alcohol produced from natural gas" for purposes of the alcohol fuel provisions of sections 40, 4041, 4081, 4091, and 6427 of the Code.

DRAFTING INFORMATION

The principal author of this revenue ruling is Tyrone J. Montague of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling contact Tyrone J. Montague on (202) 622-3130 (not a toll-free call).

Rev. Rul. 93-67, 1993-2 C.B. 4, 1993-33 I.R.B. 4.