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The U.S. is hastily transitioning to cleaner energy sources, while this has brought with it the question of complex compliance landscape, especially in regards to alternative fuels such as compressed natural gas (CNG), liquefied petroleum gas (LPG), and liquefied natural gas (LNG). If your business is engaged in alternative fuel activities, understanding Form 720 and the tax implications on fuel is key. The following guide will cover the considerations for filing and changes in store for the year 2025 so that your business can remain sustainable and compliant.

IRS Form 720, or Quarterly Federal Excise Tax Return, is required of companies who produce, sell, or use taxable fuel. CNG, LPG, LNG, and even biodiesel and ethanol blends are subject to federal excise taxes under 4041-4081 of the Internal Revenue Code. If you operate these in a transportation, heating, or industrial sense, you are required to quarterly file Form 720 report and pay the respective tax.

Alternative fuels under the IRS guidelines include:

Compressed Natural Gas (CNG)

Liquefied Petroleum Gas (LPG/Propane)

Liquefied Natural Gas (LNG)

Biodiesel and renewable diesel

Ethanol (including E85)

P-series fuels, liquefied hydrogen, etc.

Each of these fuels is taxed at a different rate and may qualify for certain excise tax credits or refunds. It is paramount to know your fuel type and how you plan to use it to fill Schedule A and Schedule T of Form 720 appropriately.

If you are a fuel distributor, alternative fuel blender, terminal operator, or fleet owner using CNG or LPG in commercial vehicles, you likely need to file. Even local governments and non-profit fleets consuming any of these fuels may have tax liabilities based on exemptions. Accuracy in reporting, however, will put your business in a good standing with the IRS and give you the chance to obtain available tax credits funded under the Alternative Fuel Excise Tax Credit (AFETC).

Classify your fuel types with precision-Even an innocent misreporting of CNG as LNG can quickly turn erroneous tax calculations into a headache.

Keep close track of fuel gallons and usage: Maintain quarterly records of purchase documentation, blending activities, and end usage.

Use IRS-approved e-file providers: E-filing your Form 720 means faster processing, which tends to also eliminate errors along the way.

Be aware of changes in tax rates: Excise tax can change every year, therefore, before you commence filing, looks into the IRS website for any amendments.

While Form 720 handles reporting, use Form 8849 to claim certain fuel-related refunds.

It is about much more than a tax return when it comes to filing Form 720; it is a wider strategy on fuel sustainability, transparency, and responsibility toward the federal government for taxation. When looking to switch their fleets to clean energy or move into the alternative fuels market, good Form 720 filing helps keep one in compliance and work toward a green future.