President Obama signed the Small Business Jobs Act of 2010 into law on September 27. The legislation, also known as H.R. 5297, includes a provision to exclude crude tall oil from the definition of biofuel for the purposes of the section 40 tax credit for alcohol fuels. 
 Crude tall oil is a derivative of black liquor, which is produced as a byproduct of wood pulp manufacturing. The substance is combustible and can be used to fuel boilers. 

 According to Greg Jenner, a tax partner with Stoel Rives LLP who specializes in renewable energy, the crude tall oil provision of the legislation essentially plugs a loophole that was present in the tax code that might have allowed crude tall oil producers to claim the tax credit for cellulosic ethanol. A similar loophole was closed earlier this year when a different tax bill excluded black liquor from claiming the tax credit. Pulp and paper mills may be affected by the legislation, but the cellulosic ethanol industry won&#8217;t be, Jenner said. 
 The loophole that the legislation corrects is similar to one that was left open for the now expired alternative fuels tax credit. "What happened was that the paper industry-the lumber industry-figured out they had this byproduct called black liquor...which is combustible," Jenner said. "They can use it as a fuel, and if they blended it with a small amount of taxable fuel, such as diesel, they could claim a big tax credit for it and use it to power their boilers. In other words, what was happening was that they were claiming the credit for something that congress didn&#8217;t think was what was intended&#8230;There is concern that somehow or another black liquor could quality as a cellulosic bioufel and thus qualify for that credit, so congress plugged that whole a few months back."
 While prior legislation blocked black liquor from claiming the tax credit for cellulosic ethanol, that legislation did not block similar substances that can be manufactured from black liquor from claiming the credit. The Small Business Jobs Act of 2010 has now more completely closed that hole in the tax legislation by preventing crude tall oil from claiming the credit. 
 "It&#8217;s kind of alike a game of Whac-A-Mole," Jenner said. "They hit the mole in one hole, and it pops up in another, so they just keep swiping at it."
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President Obama signed the Small Business Jobs Act of 2010 into law on September 27. The legislation, also known as H.R. 5297, includes a provision to exclude crude tall oil from the definition of biofuel for the purposes of the section 40 tax credit for alcohol fuels.

Jobs Act prevents crude tall oil from claiming cellulosic ethanol tax credit

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