CCA 200906045: Tax treatment of a diesel and chicken-parts fuel depended on the final blend

Plain-English summary

A taxpayer blended equal parts dyed diesel and material described as chicken parts. If the finished liquid was suitable for use without further processing or blending in a diesel-powered highway vehicle or train, it was diesel fuel. In that case, the taxpayer had to register as a blender, use mechanical injection because the blend did not meet Notice 2005-80's 80 percent rule, and pay LUST on the increased volume, with no credit. If the resulting liquid could not work in a diesel engine or met an excluded-liquid definition, those requirements did not apply.

Ruling snapshot

• Question: What fuel-tax requirements applied to a blend of dyed diesel and chicken parts?
• Outcome: Advice given: the requirements depended on whether the finished blend met the definition of diesel fuel.
• Key authorities: IRC § 4081; Notice 2005-80.

Full text (IRS public release)

ID: CCA-931344-08 Number: 200906045
Release Date: 2/6/2009
Office: ------------
UILC: 4081-00.00

From: --------------------
Sent: 9/3/2008
To: ---------------
Cc:
Subject: re: fuel mix

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The taxpayer is blending 50% dyed diesel and 50% "chicken parts". If the resulting fuel is diesel fuel (any liquid that without further processing or blending is suitable for use as a fuel in a diesel-powered highway vehicle or train), then they should (1) register as a blender because they are producing blended taxable fuel, (2) use mechanical injection (because don't meet the 80% rule of Notice 2005-80), and (3) pay LUST on the increased volume. They are not entitled to a credit.

If the resulting fuel is not diesel fuel (either because the "chicken parts" wouldn't work with the diesel-powered highway vehicle engine or the resulting fuel meets one of the definitions of "excluded liquid"), then they don't need to do any of the above.

Hope this answers your question.

Thanks,
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