Guidance on Alternative Fuel

D. Definition of Essential Governmental
Function
The definition of an essential governmental function under § 7871(e) of the
Code for purposes of determining the
availability of tax-exempt bond financing
for an ITG (including the summary of
which activities are considered an essential governmental function customarily
performed by State and local governments) described in the advance notice of
proposed rulemaking under § 7871 published by the IRS on August 9, 20063 will
be considered a reasonable and good faith
interpretation of what constitutes an essential government function under § 414(d).
E. Relief Only Applies Pending Further
Guidance
The relief provided in this section III
applies pending the issuance of further
guidance relating to § 414(d), including
the amendment made by section 906(a)(1)
of PPA ’06.
IV. Request for Comments
The IRS and the Department of the
Treasury request public comments on issues relating to the amendment made by
section 906(a)(1) of PPA ’06, including
transitional issues not addressed in this
notice (such as issues for ITG plans with
a cash or deferred arrangement under
§ 401(k)). Written comments should be
submitted by January 22, 2007. Send
submissions to: CC:PA:LPD:PR (Notice
2006–89), room 5203, Internal Revenue
Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand delivered Monday through
Friday between the hours of 8:30 a.m.
and 4:30 p.m. to: Crystal Mall 4 Building, 1901 S. Bell St., room 108, Arlington, VA 22202. Alternatively, taxpayers
may submit comments electronically to
[email protected]
(Notice 2006–89).
Drafting Information
The principal author of this notice is
Ingrid Grinde of the Employee Plans, Tax
Exempt and Government Entities Division. For further information regarding
3

this notice, please contact the Employee
Plans taxpayer assistance telephone service at (877) 829–5500 (a toll-free number) between the hours of 8:30 am and
4:30 pm Eastern Time, Monday through
Friday . Ms. Grinde may be reached at
(202) 283–9888 (not a toll-free number).

Alternative Fuel and
Alternative Fuel Mixtures;
Blood Collector Organizations
Notice 2006–92
Section 1. PURPOSE
This notice provides guidance on: (1)
the credit and payment provisions for
alternative fuel and alternative fuel mixtures under §§ 34, 6426(d), 6426(e), and
6427(e) of the Internal Revenue Code; and
(2) the imposition of tax on alternative
fuel and alternative fuel mixtures under
§§ 4041(a)(2), 4041(a)(3), and 4081(b).
These provisions were added by the Safe,
Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users
(Pub. L. 109–59) and are effective October 1, 2006. This notice also provides
guidance on the excise tax exemption for
blood collector organizations added by the
Pension Protection Act of 2006 (Pub. L.
109–280). References to regulations in
this notice are to the Manufacturers and
Retailers Excise Tax Regulations.
Section 2. DEFINITIONS
(a) Alternative fuel has the meaning
given to the term by § 6426(d)(2). Section 6426(d)(2) provides that alternative
fuel means liquefied petroleum gas, P
Series Fuels (as defined by the Secretary
of Energy under 42 U.S.C. 13211(2)),
compressed or liquefied natural gas, liquefied hydrogen, any liquid fuel derived
from coal (including peat) through the
Fischer-Tropsch process, and liquid hydrocarbons derived from biomass (as
defined in § 45K(c)(3)). The term does
not include ethanol, methanol, biodiesel,
or renewable diesel. (For the definition of
biodiesel, see § 40A(d)(1). For the definition of renewable diesel and treatment

of renewable diesel in the same manner as
biodiesel, see § 40A(f).)
(b) Alternative fuel mixture means a
mixture of alternative fuel and taxable
fuel that contains at least 0.1 percent (by
volume) of taxable fuel (as defined in
§ 4083(a)(1)).
(c) Alternative fueler means a person
that—
(1) Is an alternative fueler (unmixed
fuel); or
(2) Produces alternative fuel mixtures
for sale or use in its trade or business.
(d) The alternative fueler (unmixed
fuel) with respect to any alternative fuel is
the person that—
(1) Is liable for tax on the alternative
fuel imposed by § 4041(a)(2) or (3) (determined in the case of compressed natural
gas after the application of § 48.4041–21
and in the case of any other alternative fuel
after the application of rules similar to the
rules of §§ 48.4041–3 and 48.4041–5); or
(2) Would be so liable for such tax but
for the application of an exemption provided by § 4041(a)(3)(B), (b), (f), (g), or
(h).
(e) Motor vehicle has the meaning given
to the term by § 48.4041–8(c).
(f) Use as a fuel. The following definitions apply for purposes of section 4 of
this notice (relating to alternative fuel mixtures):
(1) A mixture is used as a fuel when it
is consumed in the production of energy.
Thus, for example, a mixture is used as
a fuel when it is consumed in an internal
combustion engine to power a vehicle or in
a furnace to produce heat. A mixture that
is destroyed in a fire or other casualty loss
is not used as a fuel.
(2) A mixture producer sells a mixture
for use as a fuel if the producer has reason
to believe that the mixture will be used
as a fuel either by the person buying the
mixture from the producer or by any later
buyer of the mixture.
Section 3. ALTERNATIVE FUEL
(a) Overview. This section provides
rules under which a credit or payment may
be obtained under § 6426 (the alternative
fuel excise tax credit), §§ 34 and 6427
(the alternative fuel income tax credit), or
§ 6427 (the alternative fuel payment) for

Advance notice of proposed rulemaking, REG–118788–06, 71 Fed. Reg. 45474 (August 9, 2006).

2006–43 I.R.B.

774

October 23, 2006

alternative fuel that is sold for use or used
as a fuel in a motor vehicle or motorboat.
The amount of the credit or payment allowed with respect to alternative fuel is
based on the amount of alternative fuel
sold or used.
(b) Conditions to allowance—(1) Excise tax credit. A claim for the alternative
fuel excise tax credit with respect to alternative fuel sold for use or used as a fuel
in a motor vehicle or motorboat is allowed
under § 6426 only if the claimant—
(i) Is the alternative fueler (unmixed
fuel) with respect to the fuel;
(ii)(A) Is registered under § 4101 as an
alternative fueler; or
(B) In the case of a claim made before
July 1, 2007, is registered under § 4101 for
any purpose;
(iii) Has made no other claim with respect to the alternative fuel;
(iv) Has filed a timely claim on Form
720, Quarterly Federal Excise Tax Return,
and the claim contains all the information
required by the claim form described in
paragraph (c) of this section; and
(v) Has § 4041 liability for the period
of the claim and the total amount of the
alternative fuel excise tax credit claimed
under § 6426 for the period of the claim
does not exceed such liability.
(2) Refundable income tax credit—(i)
In general. A claim for the alternative fuel
income tax credit with respect to alternative fuel sold for use or used as a fuel in a
motor vehicle or motorboat is allowed under §§ 34 and 6427(e)(2) only if—
(A) The conditions of paragraphs
(b)(1)(i) and (ii) of this section are met;
(B) The sale or use of the alternative
fuel is in the claimant’s trade or business;
(C) The claimant has filed a timely
claim for credit on Form 4136, Credit for
Federal Tax Paid on Fuels, and the claim
contains all the information required by
the claim form described in paragraph (c)
of this section; and
(D) The amount claimed under §§ 34
and 6427(e)(2) as an alternative fuel income tax credit is the amount that exceeds
the claimant’s § 4041 liability for the period of the claim.
(ii) Estimated tax reduction. For purposes of determining the amount of required estimated tax payments, the alternative fuel income tax credit claimed on
Form 4136 is subtracted from total tax and
reduces estimated tax payments. Thus, a

October 23, 2006

taxpayer may benefit from the credit before filing an income tax return. See, for
example, Form 1120–W, Estimated Tax for
Corporations.
(3) Payments. A claim for the alternative fuel payment with respect to alternative fuel sold for use or used as a fuel in a
motor vehicle or motorboat is allowed under § 6427(e)(2) only if—
(i) The claimant is—
(A) The United States;
(B) A State (as defined in
§ 48.4081–1(b)); or
(C) A § 501(a) exempt organization
(other than an organization required to
file a Form 990–T, Exempt Organization
Business Income Tax Return);
(ii) The conditions of paragraphs
(b)(1)(i) and (ii) of this section are met;
(iii) The sale or use of the alternative
fuel is in the claimant’s trade or business;
(iv) The claimant has filed a timely
claim for payment on Form 8849, Claim
for Refund of Excise Taxes, and the claim
contains all of the information required by
the claim form described in paragraph (c)
of this section; and
(v) The amount claimed under
§ 6427(e)(2) as an alternative fuel payment
is the amount that exceeds the claimant’s
§ 4041 liability for the period of the claim.
(c) Content of claim. The claim form
will provide that each claim for an alternative fuel credit or payment must contain
the following information with respect to
the alternative fuel covered by the claim:
(1) The amount of alternative fuel sold
or used.
(2) A statement that the conditions to
allowance described in paragraph (b) of
this section have been met.
(3) A statement that the claimant either—
(i) Produced the alternative fuel it sold
or used; or
(ii) Has in its possession the name, address, and employer identification number of the person(s) that sold the alternative fuel to the claimant, the date of purchase, and an invoice or other documentation identifying the alternative fuel.
(d) Amount of the credit. The amount
of credit for any alternative fuel other than
compressed natural gas is the product of
$0.50 and the number of gallons of alternative fuel. The amount of the credit for
compressed natural gas is $0.50 per 121
cubic feet.

775

Section 4. ALTERNATIVE FUEL
MIXTURES
(a) Overview. This section provides
rules under which a credit or payment may
be obtained under § 6426 (the alternative
fuel mixture excise tax credit), §§ 34 and
6427 (the alternative fuel mixture income
tax credit), or § 6427 (the alternative fuel
mixture payment) for an alternative fuel
mixture that is sold for use or used as a fuel
by the person producing the mixture. The
amount of the credit or payment allowed
with respect to an alternative fuel mixture
is based on the amount of alternative fuel
used to produce the mixture.
(b) Conditions to allowance—(1) Excise tax credit. A claim for the alternative
fuel mixture excise tax credit with respect
to an alternative fuel mixture is allowed
under § 6426 only if the claimant—
(i) Produced the alternative fuel mixture
for sale or use in the trade or business of the
claimant;
(ii)(A) Sold the alternative fuel mixture
for use as a fuel; or
(B) Used the alternative fuel mixture as
a fuel;
(iii)(A) Is registered under § 4101 as an
alternative fueler; or
(B) In the case of claims made before
July 1, 2007, is registered under § 4101 for
any purpose;
(iv) Has made no other claim with respect to the amount of alternative fuel in
the mixture or, if a payment with respect
to the amount of alternative fuel was erroneously claimed under § 6427 and received, claimant has repaid the government with interest;
(v) Has filed a timely claim on Form
720 and the claim contains all the information required by the claim form described
in paragraph (c) of this section; and
(vi) Has § 4081 liability for the period
of the claim and the total amount of the
alternative fuel mixture excise tax credit
claimed under § 6426 for the period of the
claim does not exceed such liability.
(2) Payment or income tax credit. A
claim for an alternative fuel mixture payment under § 6427 or an alternative fuel
mixture income tax credit under §§ 34 and
6427 is allowed only if—
(i) The conditions of paragraphs
(b)(1)(i), (ii), and (iii) of this section
are met;

2006–43 I.R.B.

(ii) The claimant has filed a timely
claim for payment on Form 8849 or Form
720 or for credit on Form 4136 and the
claim contains all the information required
by the claim form described in paragraph
(c) of this section; and
(iii) The amount claimed under § 6427
as an alternative fuel mixture payment or
under §§ 34 and 6427 as an alternative fuel
mixture income tax credit is the amount
that exceeds the claimant’s § 4081 liability
for the period of the claim.
(c) Content of claim. The claim form
will provide that each claim for an alternative fuel mixture credit or payment must
contain the following information with respect to the mixture covered by the claim:
(1) The amount of alternative fuel in the
alternative fuel mixture.
(2) A statement that the conditions to
allowance described in paragraph (b) of
this section have been met.
(3) A statement that the claimant either—
(i) Produced the alternative fuel it used
in the mixture; or
(ii) Has in its possession the name, address, and employer identification number of the person(s) that sold the alternative fuel to the claimant, the date of purchase, and an invoice or other documentation identifying the alternative fuel.
(d) Amount of the credit or payment.
The amount of credit or payment for any
alternative fuel mixture is the product of
$0.50 and the number of gallons of alternative fuel used to produce the mixture.
Section 5. REGISTRATION
(a) Application for registration. Application for registration as an alternative
fueler is made on Form 637, Application
for Registration (For Certain Excise Tax
Activities), in accordance with the instructions for that form. As provided in
§ 48.4101–1(a)(2), a person is registered
under § 4101 only if the Service has issued
a registration letter to the person.
(b) Requirements. The Service will register an applicant as an alternative fueler
only if the Service—
(1) Determines that the applicant is an
alternative fueler or is likely to become an
alternative fueler within a reasonable time
after being registered under § 4101; and
(2) Is satisfied with the filing, deposit, payment, reporting, and claim his-

2006–43 I.R.B.

tory for federal taxes of the applicant
and any related person (as defined in
§ 48.4101–1(b)(5)).
Section 6. TAXATION OF
ALTERNATIVE FUEL AND
ALTERNATIVE FUEL MIXTURES
(a) Alternative fuels—(1) Liquids. A
liquid alternative fuel (that is, any alternative fuel other than compressed natural
gas) is a liquid other than gas oil, fuel oil,
or taxable fuel and is subject to the tax imposed by § 4041(a)(2) when it is sold for
use or used as a fuel in a motor vehicle or
motorboat. Rules similar to the rules of
§§ 48.4041–3 and 48.4041–5 (relating to
the application of the tax on sales of special
motor fuels) apply. For exemptions from
tax, see §§ 4041(b), (f), (g), and (h).
(2) Compressed natural gas. Compressed natural gas is subject to the tax
imposed by § 4041(a)(3) when it is sold
for use or used as a fuel in a motor vehicle
or motorboat. The rules of § 48.4041–21
apply. For exemptions from tax, see
§§ 4041(a)(3)(B), (b), (f), (g), and (h).
(b) Alternative fuel mixtures—(1) If an
alternative fuel mixture is taxable fuel, the
mixture is subject to tax imposed by § 4081
when it is removed, entered, or sold and the
rules of §§ 48.4081–1 through 48.4081–8
apply.
(2) If an alternative fuel mixture is not
a taxable fuel and is sold for use or used as
a fuel in a diesel-powered highway vehicle or diesel-powered train, the mixture is
subject to the tax imposed by § 4041(a)(1)
at the time of such sale or use and the rules
of § 48.4082–4 apply.
(3) If an alternative fuel mixture is not
a taxable fuel and is sold for use or used
as a fuel in a motor vehicle (other than a
diesel-powered highway vehicle) or motorboat, the mixture is subject to the tax
imposed by § 4041(a)(2) at the time of
such sale or use and rules similar to the
rules of §§ 48.4041–3 and 48.4041–5 (relating to the application of the tax on sales
of special motor fuels) apply. For exemptions from tax, see §§ 4041(b), (f), (g), and
(h).
(c) Rate of tax. For the rate of tax generally, see §§ 4041 and 4081. The rate of
tax for compressed natural gas is $0.183
per 126.67 cubic feet.

776

Section 7. QUALIFIED BLOOD
COLLECTOR ORGANIZATIONS
(a) Overview. Under the Pension Protection Act of 2006 (Pub. L. 109–280),
qualified blood collector organizations are
exempt from many federal excise taxes (or
a credit or payment relating to the tax is
available). These taxes include the taxes
on fuel, tires, communications services,
and heavy vehicles. This provision is effective after December 31, 2006, except
that the exemption from the highway use
tax applies after June 30, 2007.
(b) Definition. Qualified blood collector organization has the meaning given
to the term by § 7701(a)(49). Section
7701(a)(49) provides that a qualified blood
collector organization means an organization that is described in § 501(c)(3) and is
exempt from tax under § 501(a), primarily
engaged in the activity of the collection of
human blood, registered with the Service
for purposes of excise tax exemptions, and
registered by the Food and Drug Administration to collect blood.
(c) Registration—(1) In general. Each
blood collector organization must be registered by the Service as a condition for
applying for the exemptions (or credit or
payments) under the Code as a blood collector organization. Application for registration is made on Form 637, Application for Registration (For Certain Excise
Tax Activities), in accordance with the instructions for that form. As provided in
§ 48.4101–1(a)(2), a person is registered
under § 4101 only if the Service has issued
a registration letter to the person.
(2) Requirements. The Service will register an applicant as a blood collector organization only if the Service—
(i) Determines that the applicant is a
person described in § 7701(a)(49)(A), (B),
and (D); and
(ii) Is satisfied with the filing, deposit, payment, reporting, and claim history for all federal taxes of the applicant
and any related person (as defined in
§ 48.4101–1(b)(5)).
Section 8. EFFECTIVE DATE
This notice is effective after September
30, 2006, except that section 7 of this notice is effective after December 31, 2006.

October 23, 2006

Section 9. DRAFTING INFORMATION
The principal authors of this notice
are Susan Athy and Deborah Karet of the
Office of the Associate Chief Counsel
(Passthroughs and Special Industries). For
further information regarding this notice,
please contact Ms. Athy (concerning alternative fuel and alternative fuel mixtures)
and Ms. Karet (concerning qualified blood
collector organizations) at (202) 622–3130
(not a toll-free call).

Weighted Average Interest
Rates Update
Notice 2006–94
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code. In addi-

tion, it provides guidance as to the interest
rate on 30-year Treasury securities under
§ 417(e)(3)(A)(ii)(II).
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections
412(b)(5)(B)(ii)
and
412(l)(7)(C)(i), as amended by the Pension
Funding Equity Act of 2004 and by the
Pension Protection Act of 2006, provide
that the interest rates used to calculate current liability and to determine the required
contribution under § 412(l) for plan years
beginning in 2004 through 2007 must be
within a permissible range based on the
weighted average of the rates of interest on
amounts invested conservatively in long
term investment grade corporate bonds
during the 4-year period ending on the last
day before the beginning of the plan year.
Notice 2004–34, 2004–1 C.B. 848, provides guidelines for determining the corporate bond weighted average interest rate

Month

Year

Corporate
Bond
Weighted
Average

October

2006

5.79

For Plan Years
Beginning in:

30-YEAR TREASURY SECURITIES
INTEREST RATE
Section 417(e)(3)(A)(ii)(II) defines
the applicable interest rate, which must
be used for purposes of determining the
minimum present value of a participant’s
benefit under § 417(e)(1) and (2), as the
annual rate of interest on 30-year Treasury
securities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applicable interest rate for a month is the annual
interest rate on 30-year Treasury securities as specified by the Commissioner for
that month in revenue rulings, notices or
other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for September 2006 is 4.85 percent. The Service has determined this rate
as the monthly average of the daily determination of yield on the 30-year Treasury
bond maturing in February 2036.

October 23, 2006

Drafting Information
The principal authors of this notice are
Paul Stern and Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 877–829–5500
(a toll-free number), between the hours of
8:30 a.m. and 4:30 p.m. Eastern time,
Monday through Friday. Mr. Stern may be
reached at 202–283–9703. Mr. Montanaro
may be reached at 202–283–9714. The
telephone numbers in the preceding sentences are not toll-free.
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.

777

and the resulting permissible range of interest rates used to calculate current liability. That notice establishes that the corporate bond weighted average is based on the
monthly composite corporate bond rate derived from designated corporate bond indices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–36 I.R.B. 366.
The composite corporate bond rate for
September 2006 is 5.95 percent. Pursuant
to Notice 2004–34, the Service has determined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.

90% to 100%
Permissible
Range
5.21 to 5.79
(Also Part I, §§ 62, 162, 267, 274; 1.62–2, 1.162–17,
1.267(a)–1, 1.274–5.)

Rev. Proc. 2006–41
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 2005–67, 2005–42 I.R.B. 729, and
provides rules under which the amount of
ordinary and necessary business expenses
of an employee for lodging, meal, and incidental expenses, or for meal and incidental expenses, incurred while traveling
away from home are deemed substantiated
under § 1.274–5 of the Income Tax Regulations when a payor (the employer, its
agent, or a third party) provides a per diem
allowance under a reimbursement or other
expense allowance arrangement to pay for
the expenses. In addition, this revenue
procedure provides an optional method for
employees and self-employed individuals
who are not reimbursed to use in computing the deductible costs paid or incurred
for business meal and incidental expenses,

2006–43 I.R.B.