SERVICE POSTPONES TAX ON GASOHOL BLENDERS FOR THREE MONTHS.

Notice 88-2

The purpose of this notice is to notify taxpayers and other affected persons that for the first quarter of 1988, the Internal Revenue Service ("Service") will provide a transitional rule that under certain conditions will allow all registered gasohol blenders to purchase gasoline and pay the reduced rate of tax on the gasohol mixture under section 4081(c) of the Internal Revenue Code of 1986 ("Code"). The transition period will allow the Service to consider and address the concerns of the industry and others as to the manner in which the refund procedure provided by the Tax Reform Act of 1986 in Section 6427(i)(3) of the Code, when fully implemented, should apply when gasoline used in producing gasohol is purchased at 9.1 cents a gallon.

For now, in lieu of using the refund procedure provided in sections 6427(f) and (i)(3) of the Code and section 48.6427-3(f) of the proposed regulations that were published in the Federal Register on November 18, 1987 (52 FR 44141), any registered blender of gasohol is allowed to purchase gasoline at the reduced rate of tax (3-1/3 cents a gallon plus the Leaking Underground Storage Tank Trust Fund financing rate), provided the registered gasohol blender files a Quarterly Federal Excise Tax Return (Form 720) for the first quarter of 1988, in accordance with the instructions for that Form. Those instructions will provide that such return must report the total volume of gasoline purchased at the reduced rate and the total volume of gasohol produced by the blender for the first quarter of 1988, in addition to any excise tax liability.

Under section 4081(c)(2) of the Code, gasohol blenders that purchase gasoline at the reduced rate of tax will be liable for an excise tax liability of 5-2/3 cents for each gallon, in addition to the 3-1/3 cents tax already imposed on each gallon of gasoline under section 4081(c)(1) of the Code, if they (1) fail to blend such gasoline with alcohol to produce gasohol, or (2) having blended the gasoline to produce gasohol, separate such gasoline.

In addition, all gasohol blenders purchasing gasoline at the reduced rate during the first quarter of 1988, must maintain records as provided in regulation section 48.4081-2(h)(3) (relating to records of producer of gasohol).

The Service announced on December 9, 1987 (I.R.S. Notice 87-83), that when the proposed regulations on the gasoline excise tax are issued in temporary or final form, they will provide that Certificates of Registry issued under section 4101 of the Code as in effect prior to January 1, 1988, will be revoked on March 31, 1988, rather than on December 31, 1987. In addition, the bond requirements in the regulations will be effective April 1, 1988, instead of January 1, 1988. Therefore, until April 1, 1988, taxpayers may rely on registrations currently in effect for all purposes for which registration is relevant under the proposed regulations, including determination of whether a gasohol blender is registered for purposes of proposed regulation section 48.4081-1(a)(3). A gasohol blender that wishes to qualify for the reduced rate of tax on purchases of gasoline to be used in the production of gasohol, but that does not currently hold a Certificate of Registry, will be required to register. Application for registration by a gasohol blender should be made on new Form 637 (Rev. October 1987), if that form is available at the appropriate IRS district office. If that form is unavailable, application for registration should be made as a producer of gasohol on Form 637 as in use under section 4101 of the Code as in effect prior to January 1, 1988 ("old Form 637"). In either case, the applicant must mark "Priority -- new gasoline excise tax registrant" on the top of the Form 637 and on any envelope used for mailing the Form. Due to the time constraints in processing new Certificates of Registry, new registrants are encouraged to submit a Form 637 to the appropriate district director as soon as possible. No bond (Form 928) is required for these registrations (until the new registration and bond requirements take effect). Any registration on the old Form 637 will be revoked as of the close of business on March 31, 1988. Any registrant using the new Form 637 to register as a gasohol blender may be required to provide the Service with additional information to maintain a valid registration effective April 1, 1988, if different procedures are provided by the Service for purchasing gasoline at the reduced tax rate.