Regs on Diesel Fuel Dyeing Requirements

 [4830-01-u]

 ACTION: Temporary regulations.

 SUMMARY: This document contains temporary regulations relating to the tax on diesel fuel and registration requirements for the gasoline and diesel fuel excise taxes. The temporary regulations reflect and implement certain changes made by the Omnibus Budget Reconciliation Act of 1990 (the 1990 Act) and the Omnibus Budget Reconciliation Act of 1993 (the 1993 Act). The temporary regulations affect certain blenders, enterers, refiners, terminal operators, throughputters and persons that sell, buy, or use diesel fuel for a nontaxable use. The text of these temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject in the Proposed Rules section of this issue of the Federal Register.

 EFFECTIVE DATE: These regulations are effective January 1, 1994.

 ADDRESSES: Send comments to: CC:DOM:CORP:T:R (PS-52-93), room 5228, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, washington, DC 20044. In the alternative, comments may be hand delivered to: CC:DOM:CORP:T:R (PS-52-93), room 5228, Internal Revenue Service, 1111 Constitution Avenue NW, washington, DC 20224.

 FOR FURTHER INFORMATION CONTACT: Frank Boland (202) 622-3130 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

PAPERWORK REDUCTION ACT

These regulations are being issued without prior notice and public procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). For this reason, the collections of information contained in these regulations have been reviewed and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget under control number 1545-1418. The estimated annual burden per respondent or recordkeeper varies from 2 hours to .1 hour, depending on individual circumstances, with an estimated average of .1 hour.

 These estimates are an approximation of the average time expected to be necessary for a collection of information. They are based on such information as is available to the IRS. Individual respondents or recordkeepers may require more or less time, depending on their particular circumstances.

 For further information concerning this collection of information, and where to submit comments on this collection of information, the accuracy of the estimated burden, and suggestions for reducing this burden, please refer to the preamble to the cross- referencing notice of proposed rulemaking published in the Proposed Rules section of this issue of the Federal Register.

BACKGROUND

 On August 26, 1993, the IRS published in the Federal Register (58 FR 45081) an advance notice of proposed rulemaking (ANPRM) that invited comments from the public on any issue that should be addressed in regulations relating to the 1993 Act's changes to the diesel fuel tax. The IRS received a number of comments in response to the ANPRM that were considered in drafting these temporary regulations.

 This document contains temporary regulations that are effective January 1, 1994. It provides rules relating to the imposition of, and liability for, the diesel fuel tax under section 4081; the exemption for dyed diesel fuel; the back-up tax on dyed fuel used for a taxable purpose; credits and payments relating to taxed diesel fuel used for a nontaxable purpose; and registration requirements relating to both the diesel fuel and gasoline taxes. A future notice of proposed rulemaking will propose conforming amendments to the gasoline tax regulations (sections 48.4081-1 through 48.4081-8) so that those rules will also generally apply to diesel fuel.

FUEL DISTRIBUTION SYSTEM AND STRUCTURE OF THE DIESEL FUEL TAX UNDER THE INTERNAL REVENUE CODE (CODE)

 Diesel fuel and gasoline generally are distributed from refineries and points of entry into the United States through the "bulk transfer/terminal system" to wholesale distributors and then to retailers. For a further description of this distribution system, see the preamble to the proposed gasoline regulations that were published in the Federal Register on August 27, 1991 (56 FR 42287).

 PRE-1994. Before January 1, 1994, the federal diesel fuel tax is imposed by section 4091. Tax is imposed on the sale of diesel fuel by the producer or importer thereof. A producer is defined in section 4092 to include a registered wholesale distributor. Thus, in practice, tax is not imposed until a registered wholesale distributor sells the diesel fuel to a retailer or at the wholesaler's own retail pumps.

 A producer or importer that is registered by the IRS can sell diesel fuel tax free to (1) other registered producers, (2) registered heating oil retailers for resale for use as heating oil, and (3) a buyer for any of the following uses by the buyer: (a) use other than as a fuel in a diesel-powered highway vehicle or diesel- powered train, (b) an off-highway business use, (c) use on a farm for farming purposes, (d) the exclusive use of a State or local government, (e) export, (f) the exclusive use of a nonprofit educational organization, (g) in certain aircraft museum uses, and (h) use in certain school buses and qualified local buses. A reduced rate of tax applies to a producer's sale for use by the buyer in trains and certain intercity buses.

 Congress has found that considerable evasion may be occurring under the pre-1994 taxing structure. See Shortfall in Highway Trust Fund Collections: Hearing before the Subcommittee on Investigations and Oversight of the House Committee on Public Works and Transportation, 102d Cong., 2d Sess. (1992). Congress sought to correct the weaknesses of pre-1994 law by amendments made to the Code by section 13242 of the 1993 Act.

 AFTER 1993. Effective January 1, 1994, the 1993 Act amends section 4081 to impose the diesel fuel tax in the same matter as the gasoline tax. Thus, tax will be imposed on (1) the removal of gasoline and diesel fuel (collectively taxable fuels) from any refinery, (2) the removal of taxable fuel from any terminal, (3) the entry of taxable fuel into the United States for consumption, use, or warehousing, end (4) the sale of taxable fuel to an unregistered person unless there was a prior taxable removal, entry, or sale of the taxable fuel. However, the tax will not apply to any entry or removal of taxable fuel transferred in bulk to a refinery or terminal if the persons involved (including the terminal operator) are registered.

 Under section 4081, there are no nonbulk removals or entries of gasoline that are exempt from tax. However, under section 4082, as amended by the 1993 Act, the tax under section 4081 does not apply to diesel fuel that (1) the IRS determines is destined for a nontaxable use (such as use on a farm for farming purposes), (2) is indelibly dyed in accordance with IRS regulations, and (3) meets any marking requirements that may be prescribed in regulations. For this purpose, nontaxable use generally includes the same uses that are exempt from tax under pre-1994 law, plus certain uses that are taxed at a reduced rate (use in any train and in certain buses). However, under section 6421, as amended by section 13163 of the 1993 Act, diesel fuel used in non-commercial boats is no longer exempt from tax. The pre-1994 exemption continues, however, for diesel fuel used in boats for commercial fishing, transportation of persons or property for compensation or hire, or for business use other that use predominantly for entertainment, amusement, or recreation.

 If diesel fuel that was exempt from tax under section 4082 is later sold for use or used for a purpose that is not a nontaxable use (for example, use as a fuel in a registered diesel-powered highway vehicle), revised section 4041(a)(1) imposes a tax on such sale or use. A reduced rate of tax applies to diesel fuel sold for use or used as a fuel in trains and certain intercity buses.

 New section 6714 imposes an assessable penalty if (1) any dyed fuel is sold or held for sale by any person for any use that such person knows or has reason to know is not a nontaxable use of such fuel, (2) any dyed fuel is held for use or used by any person for a use other than a nontaxable use and such person knew, or had reason to know, that such fuel was so dyed, or (3) any person willfully alters, or attempts to alter, the strength or composition of any dye or marker in any dyed fuel. Under this section, dyed fuel means any dyed diesel fuel, whether or not dyed pursuant to section 4082.

 The amount of the penalty is $10 for every gallon of fuel involved or $1,000, whichever is greater. The penalty increases with subsequent violations by multiplying the penalty amount by the number of prior violations. Also, if the penalty is imposed on any business entity, each officer, employee, agent of the entity who willfully participated in any act giving rise to the penalty is jointly and severally liable with the entity for the penalty.

 As under pre-1994 law, a credit or payment may be allowed if diesel fuel on which tax has been imposed is used in a nontaxable use. Under pre-1994 law, only the ultimate purchaser of the fuel (that is, the person that bought the fuel for consumption or export and not for resale) is eligible to claim the credit or payment. If at least $750 is payable to a purchaser at the end of any of the first three quarters of its income tax year, the purchaser may make a quarterly claim for that payment if the claim is filed during the first quarter following the last quarter included in the claim. Any amounts not claimed for these quarters and any amounts for the fourth quarter of the claimant's income tax year generally must be claimed as a credit against the claimant's income tax.

 The 1993 Act continues these rules after 1993 except for taxed fuel used on a farm for farming purposes or by a State or local government. In these two cases, revised section 642-(1) provides that only the registered ultimate vendor of diesel fuel (rather than the farmer or governmental unit) may obtain the credit or payment. The ultimate vendor may file a claim for any period for which $200 or more is payable and which is not less than one week. The claim must be filed by the and of the quarter following the earliest quarter included in the claim. If the claim is not paid within 20 days after it is filed, interest will be paid on the claim.

 The 1993 Act gives the IRS additional authority to enforce the diesel fuel tax. For example, new section 4083(c) provides that the IRS has the authority to inspect terminals, dyes and dyeing equipment, and fuel storage facilities; to stop, detain and inspect vehicles; and to establish inspection sites. Also, new section 4082(c) provides that the IRS may require conspicuous labeling of retail diesel fuel pumps and other delivery facilities where dyed diesel fuel is dispensed.

EXPLANATION OF THE TEMPORARY REGULATIONS; DIESEL FUEL TAX

 DEFINITION OF DIESEL FUEL. The temporary regulations define diesel fuel as any liquid 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 vehicle, train, or boat.

 Kerosene is not treated as diesel fuel before July 1, 1994. Thus, the dyeing requirements of the temporary regulations do not apply to kerosene. However, a person that blends previously-taxed diesel fuel with kerosene outside the bulk transfer/terminal system is liable for tax on its removal or sale of the resulting blend. Only the untaxed portion of the mixture (that is, the added kerosene) is subject to tax.

 Comments are requested on the treatment of kerosene after June 30, 1994.

 IMPOSITION OF TAX; THE POSITION HOLDER RULE. As under the gasoline tax regulations, these temporary regulations provide that tax is imposed on diesel fuel removed from the terminal at the rack. The position holder is liable for this tax and the terminal operator may be jointly and severally liable for the tax if the position holder is not registered under section 4101. Also, tax is imposed on the nonbulk removal of diesel fuel from a refinery, on the entry of diesel fuel into the United States, and on the sale or removal of blended diesel fuel by the blender thereof.

 EXEMPTION FOR DYED DIESEL FUEL. Under the temporary regulations, tax is not imposed on the removal, entry, or sale of diesel fuel if (1) the person otherwise liable for tax (for example, the position holder) is a taxable fuel registrant, (2) in the case of removal from a terminal, the terminal is operated by a taxable fuel registrant, and (3) the fuel contains either a blue dye (if high sulfur fuel) or red dye (if low sulfur fuel) of a prescribed type and concentration. Other dyes may be used in low sulfur fuel but only if they are approved by the Commissioner.

 The blue dye described in the temporary regulations is the same dye prescribed by the Environmental Protection Agency (EPA) as an identifier of high sulfur diesel fuel, which, under EPA rules, is not to be used in diesel motor vehicles. However, the EPA does not require the blue dye to be of a specific concentration. The temporary regulations, although requiring a specific concentration, provide a transitional rule permitting a lower concentration for stocks of fuel previously dyed for EPA purposes. Comments are requested on these standards.

 The temporary regulations do not require that dyed fuel also contain a colorless marker. A colorless marker is a material that does not reveal its presence until the fuel into which it is introduced is subjected to a special test. The IRS believes, however, that the use of markers is a valuable enforcement tool and will require markers beginning July 1, 1994. Further comment is requested on the type and concentration of marker to be required. Ideally, any required marker should be economical to use, easy to detect in diesel fuel by use of a roadside test, difficult and expensive to remove from the fuel, and capable of manufacture by different producers.

 The person receiving dyed fuel at the terminal rack is required to be registered by the IRS and is not required to give the terminal operator or position holder an exemption certificate. However, under the temporary regulations, each terminal operator must keep records sufficient to identify each person that receives dyed diesel fuel at the rack of each terminal it operates. If the terminal operator provides any person with any bill of lading, shipping paper, or similar document that indicates that diesel fuel removed at the rack is dyed when in fact it is not dyed, then the terminal operator is jointly and severally liable for tax on the removal.

 NOTICE RELATING TO SALES AND REMOVALS OF DYED DIESEL FUEL. Under section 4082, dyed diesel fuel may only be used for nontaxable purposes; tax and a penalty may be imposed on any other use. The temporary regulations provide that terminal operators and others who sell dyed fuel are responsible for informing their customers of this restriction on the use of dyed diesel fuel. Any person that falls to provide this information as required by the temporary regulations will, for purposes of the penalty imposed by section 6714, be presumed to know that the dyed diesel fuel will be used for a taxable use.

 DYE INJECTION SYSTEMS. The temporary regulations do not require the use of dye injection systems or visual inspection devices. The IRS believes, however, that such systems and devices can contribute to effective tax enforcement. Thus, a future notice of proposed rulemaking will propose rules regarding these systems and devices. These rules will be proposed to be effective July 1, 1994. Until specific dye injection systems are required, any means of dyeing, including "splash" dyeing at the terminal, is acceptable.

 BACK-UP TAX. Under section 4041, a back-up tax applies to dyed diesel fuel or diesel fuel on which a credit or payment has been allowed under section 6427 if the fuel is delivered into the fuel supply tank of a diesel-powered highway vehicle, diesel-powered train, or diesel-powered boat for a taxable use. The operator of the vehicle, boat, or train is liable for the tax. In addition, the seller of the diesel fuel generally is jointly and severally liable for the tax if the seller knows or has reason to know that the fuel will be used for a taxable use. However, a seller of diesel fuel is not jointly and severally liable for tax on fuel delivered into the fuel supply tank of a bus or train.

 Because the back-up tax is imposed only on the delivery of diesel fuel into the fuel supply tank of a vehicle, boat, or train, tax is not imposed on the use of diesel fuel as heating oil or in stationary engines. In addition, the tax does not apply to a delivery of diesel fuel for several enumerated uses.

 EXEMPTION FOR USE IN CERTAIN BOATS. Generally, the pre-1994 exemption for diesel fuel used in a boat continues for a beat employed in (1) the business of commercial fishing or transporting persons or property for compensation or hire, or (2) any other trade or business unless the boat is used in any activity of a type generally considered to constitute entertainment, amusement, or recreation. This limitation on entertainment, amusement, or recreation activities does not apply to a boat used in a trade or business of commercial fishing or transporting persons or property for compensation or hire. Thus, diesel fuel used in a boat in the conduct of a trade or business of transporting passengers for compensation or hire (such as a cruise ship, sightseeing boat, or any charter vessel that includes a captain who is responsible for operating the boat) is exempt from tax even if the passengers engage in activities that could be considered entertainment, amusement, or recreation.

 ADMINISTRATIVE AUTHORITY. The temporary regulations provide rules relating to inspections of terminals, dyes and dyeing equipment, fuel storage facilities, and vehicles.

 CREDITS AND PAYMENTS. The temporary regulations set forth the conditions that must be met before a claim for credit or payment is allowed with respect to taxed diesel fuel that has been used for nontaxable uses. Only the ultimate purchaser may make the claim with respect to taxed fuel used in nontaxable uses other than use on a farm for farming purposes or by a State or local government.

 Only a registered ultimate vendor may make the claim with respect to taxed diesel fuel sold for use on a farm for farming purposes or by a State or local government. Generally, a person becomes registered for this purpose only if it meets the tests set forth in the temporary regulations. As a transitional rule, however, a person that is registered as a diesel fuel producer on December 31, 1993, generally will be considered to be a registered ultimate vendor during 1994.

 As a condition to making a claim, a registered ultimate vendor must have received a prescribed certificate from the farmer or State or local government to whom it sold the fuel. As a transitional rule, however, claims relating to sales before April 1, 1994, may be supported with certain exemption certificates used to support tax- free sales of diesel fuel under pre-1994 law.

REGISTRATION AND REPORTING PROVISIONS OF THE CODE

 The Code provisions relating to registration with respect to the gasoline and diesel fuel taxes are sections 4101, 4222, 7232, and 7272.

 Section 4101(a), as amended by the 1990 Act, provides that every person required by the IRS to register with respect to the tax imposed by section 4081 must register with the IRS at the time, in the form and manner, and subject to the terms and conditions, as may be prescribed by regulations.

 Section 4101(b) provides that the IRS may require, as a condition of permitting any person to be registered, that the person give the IRS a bond in a sum that the IRS deems appropriate and agree to the imposition of a lien on property of such person used in the trade or business for which the registration is sought.

 Section 4101(c) provides that, with regard to the denial, revocation, or suspension of registration, rules similar to the rules of section 4222(c) apply. Section 4222(c) provides that the registration of any person can be denied, revoked, or suspended if the IRS determines that (1) the person has used its registration to avoid payment of tax, or to postpone or in any manner to interfere with the collection of tax, or (2) denial, revocation, or suspension is necessary to protect the revenue.

 Section 4101(d) provides that the IRS may require information reporting by persons registered under section 4101.

 Section 7232 imposes a criminal penalty on any person that fails to register as required by section 4101, falsely represents itself to be registered, or willfully makes and false statement in an application for registration. Section 7272 imposes a civil penalty on any person that fails to register as required by section 4101.

EXPLANATION OF THE TEMPORARY REGULATIONS; REGISTRATION AND REPORTING

 OVERVIEW. The temporary regulations update and clarify the rules under section 4101 relating to registration for purposes of the taxable fuel excise tax imposed under section 4081. The temporary regulations describe persons that must be or are allowed to be registered for these purposes, the standards for qualification to be registered, and the terms and conditions of registration. Submission of an application for registration does not make the applicant a registrant; a person becomes a registrant only if the district director approves the application and issues the person a registration letter.

 REGISTRATION STANDARDS. The district director will register an applicant only if the district director determines that the applicant meets certain prescribed tests: the activity test, the acceptable risk test, and the adequate security test. However, a district director will register an applicant as an ultimate vendor of diesel fuel if the applicant meets only the activity test and the district director is satisfied with the tax history of the applicant and any person related to the applicant.

 ACTION ON THE APPLICATION BY THE DISTRICT DIRECTOR. If the district director determines that an applicant meets all of the applicable registration tests, the district director is to register the applicant and issue the applicant a letter of registration containing the effective date of the registration. The effective date will be no earlier than the date on which the letter of registration is signed by the district director.

 The letter of registration replaces the certificate of registry that is issued by the district director under present practice. Unlike present practice, the letter of registration will not be a copy of the applicant's approved application for registration.

 TERMS AND CONDITIONS OF REGISTRATION. After an applicant has been registered, it must follow certain rules to retain its registration and avoid certain other adverse consequences. For example, a registrant must make deposits, file returns, and pay taxes as required, and must notify the district director that issued its letter of registration of any changes in the information it has submitted in connection with its application. In addition, a registrant may not make any false statement on, or violate the terms of, a notification certificate, or allow another person to use its registration. It is expected that the district director will regularly review each registration to ensure that each registrant has followed these rules.

 Effective July 1, 1994, additional conditions apply to terminal operators, throughputters, and gasohol blenders. Under the temporary regulations, these registrants must report specified information at the time, place, and in the manner prescribed by the IRS.

 The district director must revoke or suspend a registration if the district director determines that a registrant has used its registration to evade the taxable fuel tax or interfere with the collection of the tax. Revocation or suspension also is required if the district director determines that the registrant does not meet one or more of the registration tests and the deficiency has not been corrected within a reasonable period of time after notification by the district director.

 If the district director determines that a registrant has failed to comply with other terms and conditions of its registration, has made a false statement in its application, or otherwise has used its registration in a manner that creates a significant threat to the revenue, the district director may revoke or suspend registration. Alternatively, the district director may require the registrant to give a bond as a condition of retaining its registration, require the registrant to file monthly or semimonthly returns, or both.

SPECIAL ANALYSES

 It has been determined that this Treasury Decision is not a significant regulatory action as defined in Executive Order 12866. 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, these regulations will be submitted to the Chief Counsel for Advocacy of 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 AND 48

 Excise taxes, Reporting and recordkeeping requirements.

26 CFR PART 602

 Reporting and recordkeeping requirements.

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR parts 40, 48, and 602 are amended as follows:

PART 40 -- EXCISE TAX PROCEDURAL REGULATIONS

Paragraph 1. The authority citation for part 40 is amended by adding an entry in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *

Section 40.6011(a)-3T also issued under 26 U.S.C 6011(a). * * *

Par. 2. Section 40.6011(a)-3T is added to read as follows:

SECTION 40.6011(A)-3T MONTHLY AND SEMIMONTHLY RETURNS FROM CERTAIN PERSONS LIABLE FOR TAX ON TAXABLE FUEL (TEMPORARY)

(a) IN GENERAL. The district director may require a person to make a return of tax for a monthly or semimonthly period in the manner prescribed in section 40.6011(a)-1(b) if the person --

(1) Is a bonded registrant (described in section 48.4101-3T(b)(2) of this chapter) at any time during the period;

(2) Has been registered under section 4101 for less than one year at the beginning of the period;

(3) Meets the acceptable risk test of section 48.4101-3T(f)(3) of this chapter by reason of section 48.4101-3T(f)(3)(i)(B) of this chapter at any time during the period;

(4) Has failed to comply with the applicable provisions of section 48.4101-3T(h) of this chapter (relating to the terms and conditions of registration); or

(5) Is liable for tax under section 48.4082-4T(a) of this chapter (relating to the back-up tax on diesel fuel) at any time during the period.

(b) EFFECTIVE DATE. This section is effective January 1, 1994.

PART 48 -- MANUFACTURERS AND RETAILERS EXCISE TAXES

Par. 3. The authority citation for part 48 is amended by removing the entry for "Section 48.4101-2T" and adding entries in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *

Sections 48.4082-1T and 48.4052-2T also issued under 26 U.S.C. 4082.

Section 48.4101-3T also issued under 26 U.S.C. 4101(a) and (b).

Section 48.4101-4T also issued under 26 U.S.C. 4101(d).

Sections 48.6427-8T and 48.6427-9T also issued under 26 U.S.C. 6427(n).

Par. 4. Section 48.4041-0T is added to read as follows:

SECTION 48.4041-0T APPLICABILITY OF REGULATIONS RELATING TO DIESEL FUEL AFTER DECEMBER 31, 1993 (TEMPORARY).

Sections 48.4041-1 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 December 31, 1993, see section 48.4082-4T.

Par. 5. Sections 48.4081-10T through 48.4081-12T are added to read as follows:

SECTION 48.4081-10T DIESEL FUEL TAX; DEFINITIONS (TEMPORARY).

(a) DEFINITIONS.

DIESEL FUEL means any liquid 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 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 such a vehicle, train, or boat.

(1) KEROSENE; BEFORE JULY 1, 1994. Before July 1, 1994, kerosene is not treated as diesel fuel. For rules relating to the imposition of tax on kerosene that is blended with diesel fuel, see section 48.4081-12T.

(2) KEROSENE; AFTER JUNE 30 1994. [Reserved]

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 HIGHWAY VEHICLE means a highway vehicle, as defined in section 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, including equipment or machinery that transports passengers, freight, or a combination of both passengers and freight, and equipment or machinery that only carries freight or passengers of the operator thereof. Thus, the term includes a locomotive, work train, switching engine, and track maintenance machine.

(b) EFFECTIVE DATE. This section is effective January 1, 1994.

SECTION 48.4081-11T DIESEL FUEL TAX; TAX ON REMOVAL AT A TERMINAL RACK (TEMPORARY).

(a) IMPOSITION OF TAX. Except as provided in section 48.4082-1T (relating to exemption for dyed diesel fuel), tax is imposed on the removal of diesel fuel from a terminal if the diesel fuel is removed at the rack.

(b) LIABILITY FOR TAX -- (1) IN GENERAL. The position holder with respect to the diesel fuel is liable for the tax imposed under paragraph (a) 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 (a) of this section if --

(A) The position holder with respect to the diesel 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 (b)(2)(ii) of this section.

(ii) CONDITIONS FOR AVOIDANCE OF LIABILITY. A terminal operator is not liable for tax under paragraph (b)(2)(i) of this section if, at the time of the removal, the terminal operator --

(A) Is a taxable fuel registrant;

(B) Has an unexpired notification certificate (described in section 48.4081-5) from the position holder; and

(C) Has no reason to believe that any information in the certificate is false.

(3) JOINT AND SEVERAL [sic] LIABILITY OF TERMINAL OPERATOR; INCORRECT INFORMATION PROVIDED. The terminal operator is jointly and severally liable for the tax imposed under paragraph (a) of this section if, in connection with the removal of diesel fuel that is not dyed and marked in accordance with section 48.4082-1T, the terminal operator provides any person with any bill of lading, shipping paper, or similar document indicating that the diesel fuel is dyed and marked in accordance with section 48.4082-1T.

(c) RATE OF TAX. For the rate of tax, see section 4081(a).

(d) EFFECTIVE DATE. This section is effective January 1, 1994.

SECTION 48.4081-12T DIESEL FUEL TAX; TAXABLE EVENTS OTHER THAN REMOVAL AT THE TERMINAL RACK (TEMPORARY).

(a) TAX ON REMOVAL FROM A REFINERY -- (1) IN GENERAL. Except as provided in &48.4082-1T (relating to exemption for dyed diesel fuel) and paragraph (a)(2) of this section (relating to an exemption for certain refineries), tax is imposed on the removal of diesel fuel from a refinery if --

(i) The removal is by bulk transfer and the refiner or the owner of the diesel fuel immediately before the removal is net a taxable fuel registrant; or

(ii) The removal is at the refinery rack.

(2) EXEMPTION FOR CERTAIN REFINERIES. The tax imposed under paragraph (a)(1)(ii) of this section does not apply to a removal of diesel fuel if--

(i) The diesel fuel is removed by rail car from an approved refinery and is received at an approved terminal;

(ii) The refinery and the terminal are operated by the same taxable fuel registrant; and

(iii) The refinery is not served by pipeline (other than a pipeline for the receipt of crude oil) or vessel.

(3) LIABILITY FOR TAX. The refiner is liable for the tax imposed under paragraph (a)(1) of this section.

(4) RATE OF TAX. For the rate of tax, see section 4081(a).

(b) TAX ON ENTRY INTO THE UNITED STATES -- (1) IMPOSITION OF TAX. Except as provided in &48.4082-1T (relating to dyed diesel fuel), tax is imposed on the entry of diesel 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 (b)(1) of this section.

(3) RATE OF TAX. For the rate of tax, see section 4081(a).

(c) BLENDED DIESEL FUEL; TAX ON REMOVAL OR SALE BY THE BLENDER -- (1) IMPOSITION OF TAX. Blended diesel fuel is any mixture of diesel fuel with respect to which tax has been, imposed under section 4041(a)(1) or 4081(a), and any other liquid (such as kerosene) on which tax has not been imposed under section 4081 (other than diesel fuel dyed in accordance with section 48.4082-1T(b)). Tax is imposed on the removal or sale of blended diesel fuel by the blender thereof. The number of gallons of blended diesel fuel subject to tax is the difference between the total number of gallons of blended diesel fuel removed or sold and the number of gallons of previously taxed diesel fuel used to produce the blended diesel fuel.

(2) LIABILITY FOR TAX. The person that produces the blended diesel fuel outside the bulk transfer/terminal system (the blender) is liable for the tax imposed under paragraph (c)(1) of this section.

(3) RATE OF TAX. For the rate of tax, see section 4081(a).

(d) EFFECTIVE DATE. This section is effective January 1, 1994.

Par. 6. Sections 48.4082-1T through 48.4083-1T are added to read as follows:

SECTION 48-4082-1T DIESEL FUEL TAX; EXEMPTION (TEMPORARY).

(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 paragraph (b) of this section.

(b) DYEING AND MARKING REQUIREMENTS -- (1) DYEING; HIGH SULFUR FUEL. Diesel fuel that is required to be dyed blue pursuant to the Environmental Protection Agency's high sulfur diesel fuel requirement (40 CFR 80.29) satisfies the dyeing requirement of this paragraph (b) only if it contains the blue dye 1,4 dialkyamino-anthraquinone in a concentration of at least 10 pounds (3 pounds before April 1, 1994) of active liquid Solvent Blue 98 per thousand barrels of diesel fuel.

(2) DYEING; LOW SULFUR FUEL. Diesel fuel that is not described in paragraph (b)(1) of this section satisfies the dyeing requirement of this paragraph (b) only if it contains --

(i) The red dye red disazo in a concentration of at least 5.6 pounds of active liquid Solvent Red 164 per thousand barrels of diesel fuel; or

(ii) Any other dye of a type and in a concentration that is approved by the Commissioner.

(3) MARKING. [Reserved]

(c) EFFECTIVE DATE. This section is effective January 1, 1994.

SECTION 48.4082-2T DIESEL FUEL TAX; NOTICE REQUIRED WITH RESPECT TO DYED DIESEL FUEL (TEMPORARY).

(a) IN GENERAL. A notice stating: DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE must be --

(1) Provided by the terminal operator to any person that receives dyed diesel fuel at a terminal rack of that operator;

(2) Provided by any seller of dyed diesel fuel to its buyer if the fuel is located outside the bulk transfer/terminal system and is not sold from a retail pump posted in accordance with the requirements of paragraph (a)(3) of this section; and

(3) Posted by a seller on any retail pump where it sells dyed diesel fuel for use by its buyer.

(b) FORM. The notice required under paragraph (a)(l) or (2) of this section must be provided by the time of the removal or sale and must appear on shipping papers, bills of lading, and invoices accompanying the sale or removal of the fuel.

(c) PENALTY. Any person that fails to provide or post the required notice with respect to any dyed diesel fuel is, for purposes of the penalty imposed by section 6714, presumed to know that the fuel will be used for a taxable use.

(d) EFFECTIVE DATE. This section is effective January 1, 1994.

SECTION 48.4082-3T DIESEL FUEL; DYE INJECTION SYSTEMS AND VISUAL INSPECTION DEVICES (TEMPORARY). [RESERVED]

SECTION 46.4082-4T DIESEL FUEL; BACK-UP TAX (TEMPORARY).

(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 an automobile bus) or diesel-powered boat of --

(i) Any diesel fuel that contains a dye;

(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 on which tax has not been imposed by section 4081.

(2) LIABILITY FOR TAX -- (i) IN GENERAL. The operator of the 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 diesel 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 an automobile bus or a diesel-powered train of --

(i) Any diesel fuel that contains a dye;

(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 on which tax has not been imposed by section 4081.

(2) LIABILITY FOR TAX. 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.

(3) RATE OF TAX -- (i) BUSES -- (A) IN GENERAL. The rate of tax on the delivery of diesel fuel into an automobile bus 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 on the delivery of diesel fuel into an automobile bus is the rate of tax imposed 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 on the delivery of diesel fuel into a diesel-powered train 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 section 48.4101-3T(c)(2).

(c) EXEMPTIONS. The taxes imposed under paragraphs (a) and (b) of this section do not apply to a delivery of diesel fuel for --

(1) Use on a farm for farming purposes as that term and related terms are defined in section 48.6420-4(a) through (g);

(2) The exclusive use of a State, any political subdivision of a State, or the District of Columbia;

(3) Use described in section 4041(h) (relating to use in a vehicle owned by an aircraft museum);

(4) The exclusive use of the American Red Cross;

(5) Use in a boat employed in --

(A) The business of commercial fishing;

(B) The business of transporting persons or property for compensation or hire; or

(C) 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);

(6) Use in an automobile 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));

(7) Use in a qualified local bus (described 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;

(8) Use in a highway vehicle that is not registered (and is not required to be registered) for highway use under the laws of any State or foreign country;

(9) The exclusive use of a nonprofit educational organization, as defined in section 48.4221-6(b);

(10) Use in a highway vehicle owned by the United States that is not used on the highway; or

(11) Use in a vessel of war of the United States or any foreign nation, as described in section 48.4221-4(b)(5).

(d) EFFECTIVE DATE. This section is effective January 1, 1994.

SECTION 48.4083-1T ADMINISTRATIVE AUTHORITY (TEMPORARY).

(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.

(c) SCOPE OF INSPECTION -- (1) INSPECTION. Officers or employees may 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 transportation of fuel, fuel dyes or fuel markers. This includes any equipment used for the dyeing or marking of fuel. This also includes the books and records 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 reasonable quantities as are necessary to determine its composition.

(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. 7. Sections 48.4101-3T and 48.4101-4T are added to read as follows:

SECTION 48.4101-3T REGISTRATION (TEMPORARY).

(a) OVERVIEW. This section provides rules relating to registration under section 4101 for purposes of the federal excise tax on taxable fuel imposed by section 4081 and the credit or payment allowed to registered ultimate vendors of diesel fuel under section 6427. This section describes persons that must be, or are allowed to be, registered; standards for qualification to be registered; and the terms and conditions of registration. 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. 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.

(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 section 48.4081-6(g)(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 or the District of Columbia) 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 the District of Columbia), 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, any State, or the District of Columbia, 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 person is related to an applicant if the person --

(i) Directly or indirectly exercises control over an activity of the application and 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 section 1.52-1(b) of this chapter) that would be treated as a group of trades or businesses under common control for purposes of section 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.

(c) PERSONS REQUIRED TO BE REGISTERED -- (1) IN GENERAL. A person is required to be registered under section 4101 if the person is engaged in the activity of a --

(i) Blender, as defined in section 48.4081-1(d);

(ii) Enterer, as defined in section 48.4081-1(g);

(iii) Refiner, as defined in section 48.4081-1(o);

(iv) Terminal operator, as defined in section 48.4081-1(t); or

(v) Throughputter, as defined in section 48.4081-1(u)(2) (a throughputter that is a 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 48.4082-4T at the bus rate (as described in section 48.4082-4T(b)(3)(i)) or the train rate (as described in section 48.4082-4T(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 engaged in the activity of --

(1) A gasohol blender, as defined in section 48.4081-6(b)(3);

(2) An industrial user, as defined in section 48.4081-1(1);

(3) A throughputter, as defined in section 48.4081-1(u)(1) (a throughputter that is not a position holder); or

(4) An ultimate vendor of diesel fuel, as defined in section 48.6427-9T(a)(1).

(e) APPLICATION INSTRUCTIONS. Application for registration under section 4101 must be made in accordance with the instructions for Form 637 (or such other forms 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 three following 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; and

(C) The adequate security test of paragraph (f)(4) 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 in an activity 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 in an activity 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 section 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 nor a 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.

(C) The degree of rehabilitation of the person penalized for any wrongful act.

(D) The amount of bond given by the applicant. In this regard, the district director bay 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 section 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 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 estimate 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 distract 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 thereunder;

(ii) Keep records sufficient to show the registrant's tax liability under section 4081 and payments or deposits of such liability;

(iii) Make all information reports required under section 4101(d) and section 48.4101-47;

(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 section 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 (3) of this section: or

(iii) Make any false statement on, or violate the terms of --

(A) A notification certificate of a taxable fuel registrant (as described in section 48.4081-5(b)); or

(B) A certificate of a registered gasohol blender (as described in section 48.4081-6(c)(2)).

(3) ADDITIONAL TERMS AND CONDITIONS FOR TERMINAL OPERATORS -- (i) RECORDS TO BE MAINTAINED RELATING TO REMOVALS OF DIESEL FUEL. Each terminal operator described in section 48.4081-1(t) 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 in accordance with section 48.4082-17(b).

(C) The value and date of the removal.

(D) The identity of the person that received the fuel.

(E) Any other information required by the Commissioner.

(ii) RETENTION OF INFORMATION. In addition to any other requirement relating to the retention of records, the terminal operator must maintain the information described in paragraph (h)(3)(i) of this section at the terminal from which the removal occurred for at least 3 months after the removal to which it relates.

(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 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 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, at any time, has 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 (i) 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 section 40.6011(a)-3T 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 BOND. A bond given under this paragraph (j) rust be in an amount that the district director determines will ensure timely collection of the taxes imposed by section 4081, taking into account the applicant's financial capacities, tax history, and expected liability under section 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 section 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 section 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 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 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 of tax that the bonded registrant incurred under section 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 bay 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 section 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 section 4081 tax of the bonded registrant, as determined under the provisions of subchapter A of chapter 66 of the Internal revenue Code, for the period covered by the bond; or

(C) The date that the district director receives from the 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 -- (1) For a rule relating to the filing of monthly and semimonthly returns by certain persons that are registered under section 4101, see section 40.6011(a)-3T of this chapter.

(2) For regulations relating to the gasoline tax imposed by section 4081, see sections 48.4081-0 through 48.4081-8. For regulations relating to the diesel fuel tax imposed by section 4081, see sections 48.4081-10T through 48.4081-12T.

(1) EFFECTIVE DATE -- (1) Except as otherwise provided in this paragraph (1), this section is effective January 1, 1994.

(2) Paragraph (c)(1) of this section (relating to persons required to be registered) is effective January 1, 1995.

(3) 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.

SECTION 48.4101-4T INFORMATION REPORTING (TEMPORARY)

(a) IN GENERAL -- (1) TERMINAL OPERATORS. Each terminal operator described in section 48.4081-1(t) must make a return showing --

(i) The name and registration number of any person that is a position holder (as described in section 48.4081-1(m)) at any terminal it operates;

(ii) The identity of the 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 at the operator's terminal in accordance with section 48.4082-1T(b); and

(iii) Any other information required by the Commissioner.

(2) THROUGHPUTTERS. Each throughputter described in section 48.4081-1(u) must make a return showing --

(i) The name and registration number of the operator of each terminal at which it holds an inventory position in taxable fuel; and

(ii) Any other information required by the Commissioner.

(3) GASOHOL BLENDERS. Each registered gasohol blender described in section 48.4081-6(b)(4) 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 the blender 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 the blender 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.

(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.

(c) CONSEQUENCES FOR FAILURE TO MAKE A RETURN. For the consequences for failing to make an information return required by this section, see section 48.4101-3T(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 effective July 1, 1994.

Par. 8. Sections 48.6427-8T and 48.6427-9T are added to read as follows:

SECTION 48.6427-8T CREDIT OR PAYMENT WITH RESPECT TO DIESEL FUEL USED IN A NONTAXABLE USE (OTHER THAN ON A FARM FOR FARMING PURPOSES OR BY A STATE OR LOCAL GOVERNMENT) (TEMPORARY).

(a) CONDITIONS TO ALLOWANCE OF CREDIT OR PAYMENT. A claim for credit or payment with respect to diesel fuel is allowed under this section only if --

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

(2) The claimant bought the fuel and did not resell it in the United States;

(3) The claimant has filed a timely claim for a credit or payment that contains the information required under paragraph (c) of this section; and

(4) The fuel was either --

(i) Used in a use described in sections 48.4082-4T(c)(3) through (11);

(ii) Exported;

(iii) Used other than as a fuel in a propulsion engine of a diesel-powered highway vehicle or diesel-powered boat;

(iv) Used as a fuel in a propulsion engine of a diesel-powered train; or

(v) Used as a fuel in the propulsion engine of an automobile bus if the bus was used in a use described in section 6427(b)(1) (after the application of section 6427(b)(3)).

(b) FORM OF CLAIM. Each claim for an income tax credit under this section must be made on Form 4136, Credit for Federal Tax Paid on Fuels, 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 843, Claim for Refund and Request for Abatement, or on such other form as the Commissioner may designate, in accordance with the instructions for that form.

(c) 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 name, address, telephone number, and employer identification number of the person(s) that sold the diesel fuel to the claimant and the date(s) of the purchase(s).

(ii) A statement by the claimant that the diesel fuel covered by the claim did not contain visible evidence of dye.

(iii) A statement (which may appear on the invoice or similar document) by the person that sold the fuel to the claimant that the diesel fuel sold did not contain visible evidence of dye.

(iv) The total amount of diesel fuel covered by the claim.

(v) The use made of the diesel fuel covered by the claim described by reference to specific categories listed in paragraph (a)(4) of this section (such as use in a boat employed in commercial fishing or use by a nonprofit educational organization).

(vi) If the diesel fuel covered by the claim was exported, a statement that the claimant has the proof of exportation described in section 48.4221-3(d)(1).

(d) TIME AND PLACE FOR FILING CLAIM. For rules relating to the time for filing a claim under section 6427, see section 6427(i).

(e) EFFECTIVE DATE. This section is effective January 1, 1994.

SECTION 48.6427-9T CREDIT OR PAYMENT WITH RESPECT TO DIESEL FUEL SOLD FOR USE ON A FARM FOR FARMING PURPOSES OR BY A STATE OR LOCAL GOVERNMENT (TEMPORARY).

(a) DEFINITIONS -- (1) An ULTIMATE VENDOR, as used in this section, is a person that sells undyed diesel fuel to the user of the fuel (the ultimate purchaser) for use on a farm for farming purposes or for the exclusive use of any State, political subdivision of a State, or the District of Columbia.

(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 l, 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.

(b) CONDITIONS TO ALLOWANCE OF CREDIT OR PAYMENT. A claim for credit or payment with respect to diesel fuel is allowed under this section 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 the ultimate purchaser for --

(i) Use on a farm for farming purposes (as defined in section 48.6420-4); or

(ii) The exclusive use of a State, political subdivision of a State, or the District of Columbia;

(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 (d) of this section.

(c) FORM OF CLAIM. Each claim for an income tax credit under this section must be made on Form 4136, Credit for Federal Tax Paid on Fuels, 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 843, Claim for Refund and Request for Abatement, or on such other form as the Commissioner may designate, in accordance with the instructions for that form.

(d) 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) A copy of the claimant's letter of registration or, if applicable, its certificate of registration.

(ii) The name, address, telephone number, and employer identification number of each person that sold the diesel fuel to the claimant and the date of the purchase.

(iii) The name, address, telephone number, and taxpayer identification number of each farmer or governmental unit that bought the diesel fuel from the claimant and the number of gallons that the claimant sold to each.

(iv) A statement that the diesel fuel covered by the claim did not contain visible evidence of dye.

(v) The total amount of diesel fuel covered by the claim.

(vi) A statement that the claimant 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.

(vii) 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 (d)(2) of this section and the claimant has no reason to believe any information in the certificate is false.

(viii) For claims relating to sales by the vendor before April 1, 1994, either the statement described in paragraph (d)(1)(vii) 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, political subdivision of a State, or the District of Columbia;

(B) The certificate was received from the buyer before January 1, 1994; and

(C) The claimant has no reason to believe any information in the 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 (d)(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 earliest of the following dates:

(A) The date one year after the effective date of the certificate (which may be no earlier than the date it is signed).

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

(ii) MODEL CERTIFICATE.

 CERTIFICATE OF FARMER OR STATE OR LOCAL GOVERNMENT UNIT

(f) EFFECTIVE DATE. This section is effective January 1, 1994.

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

Par. 9. The authority citation for part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 10. Section 602.101(c) is amended by adding the following entries in numerical order to the table to read as follows:

SECTION 602.101 OMB CONTROL NUMBERS.

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