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Tax credits for the production, blending, or use of biofuels have been around since 2004, and the Inflation Reduction Act of 2022 extended them. Our newest report shows that the IRS can do more to identify and address noncompliant claims for the credits.
First things first - what are biofuels?
- Biodiesel fuel is considered an alternative to petroleum-based transportation fuel and is typically made from soybeans and other plant oils, animal fats, and recycled cooking oils.
- Alternative fuels include liquefied petroleum gas, compressed or liquefied natural gas, compressed or liquefied gas derived from biomass, and liquid fuel derived from biomass.
Why did we do this audit?
We assessed the effectiveness of IRS procedures to detect and prevent questionable claims for biofuel tax credits. Some taxpayers may attempt to take advantage of biofuel tax credits and make fraudulent claims for biofuel that does not exist or does not qualify for the biofuel tax credits.
What did we find?
We reviewed a sample of 124 taxpayers and found that 42 of them claimed biofuel tax credits totaling about $30.3 million but didn't provide either an approved registration number or a Certificate of Biodiesel. So, these claims would not be allowable.
Under current law, the IRS could only address these claims after the returns are filed and examined and it issues notices of deficiency to the taxpayers, as appropriate. The IRS does not have the legal authority to deny biofuel tax credits or otherwise enforce the registration requirements on taxpayers who are not eligible to receive the credits at the time a tax return is filed.
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