The House Natural Resources Committee's top Democrat today asked Treasury Secretary Tim Geithner to invalidate an Internal Revenue Service memo that last year exempted heavy Canadian crude from the per-barrel federal tax imposed to pay for oil spill cleanups.

Rep. Ed Markey of Massachusetts made his plea several days after the two-year anniversary of a Canadian oil sands crude spill in Michigan that became the costliest onshore leak in U.S. history. Allowing the IRS memo to remain relevant for Canadian fuel processors, he warned Geithner, risks giving refiners a "loophole ... for purposes of avoiding the excise tax" and depriving the oil spill liability trust fund of $48 million this year.

At issue is guidance, which was first reported by E&E Daily, that the IRS issued at the request of a company whose identity remained secret, exempting oil sands crude from the 8-cent-per-barrel levy imposed to help pay for spill cleanups (E&E Daily, Feb. 8). The taxation agency cited language from a 1980 House committee report in bolstering its ruling for synthetic fuels -- including "shale oil, liquids from coal, tar sands, or biomass" -- but did not consult oil industry experts, according to Democratic staff on the Natural Resources panel.

"Not only does the IRS's [memo] misread congressional intent and fail on technical grounds; it also runs contrary to both public policy and common sense," Democratic aides wrote in a report that accompanied Markey's request. "If the oil spill response fund is to pay for costly tar sands spills, as required by law, then common sense dictates that Congress intended for the excise tax to apply to those responsible for importing it."

The American Petroleum Institute told Greenwire earlier this year that it took no position on whether to formally ensure that the oil-spill liability tax is imposed on Canadian crude, which can enter the United States market in the form of unrefined "diluted bitumen" or a partially refined fuel known as "syncrude." A third type, "synbit," uses syncrude as the diluent for diluted bitumen.

It is diluted bitumen that drives the bulk of the political controversy behind the Keystone XL pipeline, which would nearly double U.S. import capacity for Canadian oil sands crude if approved by the Obama administration following a review that is expected to stretch into next year. Republican presidential nominee Mitt Romney, by contrast, has promised to greenlight the XL line as one of his first acts if elected.

Cleanup after the 2010 spill of oil sands crude in Marshall, Mich., cost nearly $800 million. The pipeline's operator, Enbridge Energy Partners LP, is empowered to tap the oil-spill liability trust fund because its responsibilities topped the $350 million cap, Markey noted in his letter.

Click here to read the new Democratic report on the IRS exemption for oil sands crude.

Click here to read Markey's letter to Geithner.