In the 1930's the pulp and paper industry began burning "black liquor", a byproduct of the wood pulping process, to provide power for their mills. This was, and is, very resourceful, but not nearly as creative as their recent practice of adding diesel to black liquor in order to qualify for tax credits that were not intended for them.
In 2005, Congress passed legislation that granted a 50¢ per gallon tax credit for adding bio-fuels to fossil fuels used for transportation. In 2007, an extension of that law to include fuels for other purposes created a loophole for the pulp and paper industry. Instead of cutting fossil fuel with biofuel as the legislation intended, they did it the other way around, adding diesel, a much dirtier fuel, to black liquor.
The pulp and paper industry, which includes Koch Industries (Georgia Pacific, Alabama River pulp mills), poached billions from the government until President Obama closed the loophole in 2010 as part of the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act."
As it turns out, Obama did them a favor. The pulp and paper industry dispatched accountants to the IRS and convinced them to allow their black liquor/diesel cocktail to qualify for a different, $1.01/gallon tax credit intended to create new cellulosic biofuels for transportation. The IRS allowed this even though Congress specifically excluded black liquor mixtures from the cellulosic biofuels tax credit.
According to the Washington Post,
“It’s outrageous that the IRS and Congress have let these companies get a tax windfall for something that serves no public policy purpose,” said Martin A. Sullivan, a private tax economist who previously worked at the Treasury and on the staff of the Joint Committee on Taxation.
The IRS, he said, “definitely could have shut it down and, for reasons that are hard to understand, they caved to everything the industry asked for.”
the IRS said that the provision in the 2010 health-care legislation didn’t prevent black liquor produced in 2009 from qualifying as a cellulosic biofuel, so the paper industry got its calculators out again. The cellulosic biofuel tax credit, part of the 2008 farm bill, is worth $1.01 a gallon.
What’s more, although the cellulosic biofuel credit is not refundable, it can be applied in future years, slashing tax bills perhaps as late as 2015.
International Paper said it is still trying to decide whether to amend its 2009 tax return and convert the $2.1 billion of alternative fuel credits it received into cellulosic biofuel credits. If it does, it could conceivably save much more.
Koch Industries is on this gravy train. Their company owns Georgia Pacific and pulp mills. Since they are a private company, we don't know exactly how many billions they've siphoned off from taxpayers, but according to one report, they received more than $1 billion in 2009. They may qualify for additional credits for that same period. (We also know that Koch industries profits are up 50% over the past five years, even as they have cut their workforce by 18% over that same period. Job creators indeed.)
Here's the kicker: The IRS ruling on cellulosic biofuel was issued June 28, 2010. The ruling was expected to go against the paper and pulp companies. 26 days earlier, on January 2, Koch industries announced the purchase of Alabama Rivers pulp mills.
for reasons that are hard to understand, they caved to everything the industry asked for.
Could it be that the two guys worth $50 billion twisted some arms at the IRS? Could it be that someone with the IRS leaked the ruling in advance? The timing of the pulp mill purchase that resulted in a huge windfall for the Koch brothers sounds a bit too coincidental to me.
Remember, to Alabama Rivers, it looked for all the world that their black liquor subsidies were a thing of the past. 26 days after selling their company to Koch Industries, the IRS doubled the tax credits.