IRS Accused Of Bowing To Political Pressure Over Synfuel Tax Credit

by Leroy Baker, Tax-News.com, New York

01 December 2003

An Internal Revenue Service Lawyer has charged that the IRS caved in to corporate interests and political pressure, after the agency dropped its decision to investigate abuses of the synfuel tax credit, according to the Wall Street Journal.

The synfuel tax credit was introduced in 1980 as a way of rewarding firms for creating an alternative form of energy, thus lessening the nation’s dependence on oil during the energy crisis being endured at that time. Firms are awarded the credit, currently worth approximately $25 a ton, according to the WSJ, to develop a refined form of fuel derived from coal. However, it is well known that companies can easily cheat the system, due to the vague standards set by the "significant chemical change" test.

According to IRS attorney Bill Henck, the synfuel tax credit has cost the government an estimated $1 billion to $2 billion annually, and he warns that as the industry grows it could end up costing as much as $10 billion per year.

The IRS however, has denied being influenced by politicians or industry lobbyists after deciding to cancel a review of the tax credit announced in June. "Clearly, this issue created economic uncertainty in the industry. Resolving this quickly was the right thing to do", commented IRS acting chief counsel Emily Parker in the WSJ report, adding that the decision to cancel the review "was based on the facts and law".

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