Biodiesel Sold as Fuel But Not Used – Form 720 Guide

Businesses that produce or purchase biodiesel often qualify for federal fuel tax credits. But when fuel is not used as intended such as being diverted from fuel use. The IRS requires you to “recapture” that credit by paying an excise tax. This category is officially called Biodiesel Sold as Fuel But Not Used and is reported on Form 720 each quarter.

If biodiesel or renewable diesel ends up being used for other purposes, this tax ensures that previously claimed credits are accurately reversed. Filing correctly helps you avoid IRS notices, penalties, and compliance delays.

You must pay the excise tax if you claimed a biodiesel-related credit and later:

• Use the biodiesel (or a mixture) for something other than as a fuel

• Purchase biodiesel at retail and then use it to create a mixture

• Separate biodiesel from a mixture after claiming a credit

• Use agri-biodiesel that benefited from the small producer credit for any purpose not allowed under IRS guidance

Whether the biodiesel is consumed internally or sold to another party for a non-fuel purpose, recapture applies.

This tax category is reported under IRS Number 117 on Form 720.

• The standard tax rate is $1.00 per gallon

• Applies to biodiesel, agri-biodiesel, and renewable diesel

• An additional $0.10 per gallon is charged
  if the fuel benefited from the small agri-biodiesel producer credit

• If more than one rate applies:

• Leave the “Rate” column on Form 720 blank

• Attach a schedule listing gallons taxed at each rate

No semi-monthly deposits are required for this tax. You simply calculate the recapture amount and report it quarterly.

You can submit your Form 720 in two ways:

Option 1 — Paper Filing (Manual Method)

You can download Form 720 from the IRS website, complete it manually, and mail it to the appropriate IRS address based on your location.

However, this approach has a few drawbacks:

• Longer processing and confirmation times

• Higher chance of errors or rejection

• Delays in IRS acknowledgment

• Additional printing and mailing costs

Option 2 — File Online (Fast + IRS Approved) - Recommended

The IRS encourages taxpayers to e-file Form 720 for faster and more accurate processing especially for recurring fuel excise taxes like IRS No. 117.

Benefits of e-filing through an authorized system like Simple720:

• Get instant IRS submission status

• Automatic calculations for gallons × tax rate

• Secure record storage for future filings

• No postal delays or manual paperwork

Refer the tax notes to know how the IRS issues rules to claim biodiesel incentives.

WRAP:

If biodiesel is sold or repurposed in ways that don’t qualify for fuel credits, the IRS requires tax recapture under the Biodiesel Sold as Fuel But Not Used category. Reporting IRS No. 117 properly ensures full compliance — without last-minute stress or penalties.