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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.


The Koch brothers

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Comment Preferences

  •  Good find. The Kochs are middlemen, (7+ / 0-)

    traders.  Traders have always suckled at the public teat.  The produce nothing and rely on public support to cover their back in case anybody objects to being ripped off.
    The Koch acquisition of Georgia Pacific is also recent.  In some cases, they have shut down alternative fuel facilities, presumably to reduce the competition on behalf of their coal and oil enterprises.
    Much of the antagonism towards government by the commercial class is a ploy to distract from the fact that they are sucklings at the public teat.  "Small government" is munificence that's "all mine."

    The Koch corporations are our Golem.

    People to Wall Street: "LET OUR MONEY GO"

    by hannah on Fri Oct 28, 2011 at 11:45:41 PM PDT

  •  We can't be closing those little loopholes... (4+ / 0-)

    You know, no industry or business could survive without them.  (snark)

    Seriously, it gets tiresome hearing about the myriad ways in which companies game the system.  I have no doubt that if this hole were filled, several more would pop up to take its place.  Even the best-intended, most carefully constructed laws and regs can be perverted to serve those who already have it all.  Sometimes, I despair of it ever being any different....

    -7.62, -7.28 "Hold fast to dreams, for if dreams die, life is a broken winged bird that cannot fly." -Langston Hughes

    by luckylizard on Sat Oct 29, 2011 at 03:29:24 AM PDT

    •  I don't see how taking a credit is "gaming (2+ / 0-)
      Recommended by:
      luckylizard, VClib

      the system."  I have kids, and take credits for them.  That's not gaming the system, and if Congress wants to eliminate that they can.  Until then, I'll keep "gaming the system."

      •  That's right, johnny (1+ / 0-)
        Recommended by:

        Keep gaming the wonderful system that has worked so damn well for the working folk (you know, the 99%'ers) over the last 40 years.      


        •  Here's my take: if allowing the credit is the (1+ / 0-)
          Recommended by:

          correct reading of the statute, then it should be allowed.  Tax law is distinctly legal reasoning, and if the statute provides for something, then critiquing the political implications - or critiquing it because it helps someone we don't like - is simply wrong-headed.  

          So I don't see how the credit provision, and particularly the IRS reading of them, can be criticized independently of a legal critique.  

          •  johnny, are you kidding? (1+ / 0-)
            Recommended by:

            critiquing outrageous credits to billionaires (the 1%) is wrong, "because it helps someone we don't like - is simply wrong-headed."  

            johnny (with a small j), you have definitely stumbled onto the wrong political blog site.

            •  MajorT - in tax, the code is the law (0+ / 0-)

              If I read johnny's point correctly you can be critical of the legislators who passed the law, and changed the IRS code, and you can be critical of the company and its lobbyists for advocating the code change, but you can't be critical of the IRS if the company's application of the code is correct. Once the code is in place, any tax payer who follows the code is due the credit.

              "let's talk about that"

              by VClib on Sat Oct 29, 2011 at 10:56:42 PM PDT

              [ Parent ]

          •  By the way, johnny (1+ / 0-)
            Recommended by:

            Are you an Obama supporter?

          •  These types of credits are the law specifically (4+ / 0-)

            because the the lobbyists who got the law passed by promising campaign money to legislators work for the people who are cashing in on the credits. That is what is meant by gaming the system. And only the super rich can afford to do it. I presume you got your kids the usual way (biological or adoption) and did not buy them so you could make out like a bandit on those tax credits. The process that paper mills use to produce paper from trees is variable and even if a process  is more ecologically dangerous a long as it produces more tax credit worthy black liquor the better. So 1) gut regulations on the processes that produce more black liquor and 2) take credit for it. Yeah sure, it's the law.

            Republicans aren't so bad as long as they don't move next door, try to marry my child, or run for public office.

            by OHdog on Sat Oct 29, 2011 at 05:29:39 AM PDT

            [ Parent ]

      •  A legitmate credit is one thing. (2+ / 0-)
        Recommended by:
        OHdog, Major Tom

        I'm presuming you didn't deliberately have more kids or adopt some simply to collect the credits.  

        Altering their fuel formulation to make it eligible for a credit is something else.  They were already using biofuel for their energy.  It must have been cost-effective, or they wouldn't have done it.  Adding diesel after the law was passed wasn't meant to improve anything.  It was purely designed to take advantage of a credit to which they otherwise would not have been entitled, ergo, gaming the system.

        -7.62, -7.28 "Hold fast to dreams, for if dreams die, life is a broken winged bird that cannot fly." -Langston Hughes

        by luckylizard on Sat Oct 29, 2011 at 05:32:26 AM PDT

        [ Parent ]

    •  Despair earns nothing. (3+ / 0-)
      Recommended by:
      OHdog, luckylizard, Alice in Florida

      The loopholes can be closed, if there is a will to do so. Make no mistake about that.

      •  I wonder if our electeds (2+ / 0-)
        Recommended by:
        Major Tom, OHdog

        are really smart enough to craft legislation...  I honestly don't believe that most of them think beyond their narrow scope to see the larger picture.  I've been around long enough to have seen this movie before.  The question is are they too stupid to make good laws or are they just so craven that they will always leave an "out" for their cronies?

        -7.62, -7.28 "Hold fast to dreams, for if dreams die, life is a broken winged bird that cannot fly." -Langston Hughes

        by luckylizard on Sat Oct 29, 2011 at 05:35:33 AM PDT

        [ Parent ]

        •  lucky (2+ / 0-)
          Recommended by:
          luckylizard, OHdog

          It's not about being "crafty enough." It's about being forthright and honest enough. You know, OWS is right: Both parties are guilty of intentionally screwing us big time over the years. However, I will always defend the Democratic Party by saying that they are not as rotten and corrupt as the soul-less, Republican fascist plutocrats.

          •  You're right. (3+ / 0-)
            Recommended by:
            OHdog, Major Tom, Alice in Florida

            It pains me to admit it, but the Dems have lost their way, too.  I cannot imagine why they think they must embrace the winger positions when there is obviously a yearning for real liberal, progressive action.  

            Too many people, younger than I, have grown up without any exposure to unions and the good that they accomplished.  When I was young, it was impossible to live in this area without knowing many people who were employed in big union shops: Caterpillar, John Deere, International Harvester, Case, ALCOA, etc.  Then there were the smaller shops who did machine tooling for these companies.  

            When the big companies left or merged and downsized, the smaller ones were left with less work, too.  Now, it's rare for anyone to know someone who is a laborer in a union shop.  That changes the whole ethos of the area, makes us all feel like we're on our own in this.  All of this happened in my lifetime (60+years).  I can't believe it!

            -7.62, -7.28 "Hold fast to dreams, for if dreams die, life is a broken winged bird that cannot fly." -Langston Hughes

            by luckylizard on Sat Oct 29, 2011 at 05:52:09 AM PDT

            [ Parent ]

            •  God Bless You, Lucky (1+ / 0-)
              Recommended by:

              You know, if the Progressive Movement (or the Working Folk's 99%ers National Movement) is stopped in its tracks now, when will the average American ever get any true economic, social, judicial and environmental justice? Indeed, is OWS our last best hope?

              •  I hope it's not our last, but (1+ / 0-)
                Recommended by:
                Major Tom

                right now, I think it's our best.  

                My community only started to Occupy last week, and then it was only a rally.  I'm looking for my tent because they're encouraging us to occupy our neighborhoods by camping in the front yard.  Sounds like (chilly) fun.  :-)

                -7.62, -7.28 "Hold fast to dreams, for if dreams die, life is a broken winged bird that cannot fly." -Langston Hughes

                by luckylizard on Sat Oct 29, 2011 at 06:26:50 AM PDT

                [ Parent ]

  •  Regarding the conspiracy theory (0+ / 0-)

    it makes no sense is the IRS supposed to be corrupted by the establishment of a pulp mill in Alabama? It may well be there's something fishy about the ruling...without seeing it we don't know if it was poor legislative drafting or if the IRS has been staffed with business-friendly administrative judges....but the fact of an additional pulp mill being installed doesn't indicate anything.

    "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

    by Alice in Florida on Sat Oct 29, 2011 at 07:23:35 AM PDT

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