Seventh Circuit denies butane alternative fuel mixture credit claim


Authored by RSM US LLP

On June 29, 2021, the U.S. Court of Appeals for the Seventh Circuit affirmed a lower court’s rejection of energy company U.S. Venture’s refund claim for more than $33 million dollars of alternative fuel mixture credit. The court held that gasoline blends containing butane do not qualify for an alternative fuel mixture excise tax credit under IRC section 6426(e).

During oral arguments, U.S. Venture urged the appellate panel to reverse the lower court’s finding excluding butane from qualifying for the credit. The company argued that butane could be an alternative fuel under the plain language of the statute, which provides an excise tax credit to taxpayers that sell or use a mixture of an “alternative fuel” and a “taxable fuel.”

However, the appeals court rejected U.S. Venture’s argument and found the statute clear on its face. In its analysis, the court did not look beyond the language of the statute and excise tax regulations, stating its reading “is consistent with the long-standing statutory and regulatory definition of alternative fuels.” The court was critical of U.S. Venture’s technical arguments, noted that butane has been a component of gasoline for many years and was not an alternative to the current petroleum-based process for the production of gasoline.

WNT observations

U.S. Venture is one of a number of taxpayers litigating this issue with millions of dollars of refund claims at issue.  Other cases include Vitol v. United States (on appeal to Fifth Circuit Court of Appeals); Valero Marketing and Supply Company v .United States (Western District of Texas), and Philadelphia Energy Solutions Refining and Marketing v. United States (Federal Claims Court). To date, no taxpayer has yet prevailed with its argument that butane is an alternative fuel for purposes of the alternative fuel mixture excise tax credit.  

For more information on the Seventh Circuit’s ruling, refer to U.S. Venture, Inc. v. United States.

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This article was written by Debbie Gordon, Eugene Boakye and originally appeared on 2021-07-06.
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