Federal district court: No alternative tax credit under section 6426 for butane

Federal district court: No alternative tax credit

A magistrate judge recommended denial of a taxpayer’s motion for summary judgment on its claim of refund of excise taxes. In the memorandum and recommendation for the U.S. District Court for the Southern District of Texas, the magistrate explained why the taxpayer was not entitled to an alternative fuel credit under section 6426(e) for butane on summary judgment.


Related content

Vitol, Inc. v. United States, No. H-18-2275 (S.D. Tex. February 25, 2020). Read the order [PDF 106 KB]


The taxpayer filed a claim for refund of federal excise taxes.

The taxpayer, a producer of a mixture of butane and gasoline, paid its quarterly excise tax for the tax quarters ending September 2013, December 2013, June 2014, and September 2014, but without reducing the excise tax by the alternative fuel mixture tax credit that is available under section 6426(e).

The taxpayer subsequently filed amended returns to claim the alternative fuel mixture credit and requested a refund of over $8.78 million of excise tax claimed to be overpaid for the subject four tax quarters.

The IRS denied the requested refund, and the taxpayer filed this refund suit in federal district court. 

District court

In the refund litigation, the taxpayer filed a motion for partial summary judgment asserting that the term “liquefied petroleum gas” (LPG), as used in section 6426, includes butane. The government countered that within the context of section 6426, LPG does not include butane.

In denying the taxpayer’s motion for summary judgment, the magistrate judge examined section 6426 and specifically whether the term “alternative fuel” in section 6426(d) includes LPG as well as other types of fuel. As the court found, the common meaning of LPG includes butane. However, the magistrate continued to note that the appropriate inquiry was “whether defining butane as an LPG within section 6426 leads to an absurd result or is contrary to the intent of Congress.” The opinion explains that butane is a taxable fuel under section 4083, and that if butane is considered an LPG under section 6426, then butane would be both an alternative fuel and a taxable fuel within the definition of an alternative fuel mixture. The opinion further notes that “Congress could not have intended for butane to be both an alternative fuel and a taxable fuel within the definition of an alternative fuel mixture. Without further explanation, this result does not make sense. The result is even more absurd when the scientific nature of butane is considered.”

The magistrate also considered Rev. Rul. 2018-2 and Notice 2007-37. 

KPMG observation

The order denying the taxpayer’s claim for partial summary judgment was issued by a magistrate judge. Summary judgment is warranted when the evidence reveals that no genuine dispute exists regarding any material fact and the moving party is entitled to judgment as a matter of law. This opinion by the magistrate judge may be accepted or rejected by the referring federal district court, and the district court itself may reach a different finding when it decides the case.  

For more information, contact a tax professional with KPMG’s Excise Tax Practice group:

Taylor Cortright | +1 (202) 533 6188 | tcortright@kpmg.com

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