How To Claim Fuel Tax Credits & Refunds

You may be eligible to claim a credit on your income tax return for federal excise tax imposed on certain fuels used for a nontaxable use. You may also be eligible to claim a quarterly refund of the fuel taxes during the year, instead of waiting to claim a credit on your income tax return.

Instead of paying the fuel tax and filing for a credit or refund, you may be able to buy certain fuel tax free. For more information, see How To Buy Fuel Tax Free, later.

Nontaxable Uses

This section discusses the nontaxable uses that are of particular interest to fishermen. For information about credits and refunds for fuels used for nontaxable uses not discussed in this section, see Publication 378.

Commercial fishing. You may be eligible to claim a credit or refund of excise tax on gasoline used in a boat engaged in commercial fishing.

Boats engaged in commercial fishing include only watercraft used in taking, catching, processing, or transporting fish, shellfish, or other aquatic life for commercial purposes, such as selling or processing the catch, on a specific trip basis. They include boats used in both fresh and salt water fishing. They do not include boats used for both sport fishing and commercial fishing on the same trip.

Fuel used in aircraft to locate fish is not fuel used in commercial fishing.

Off-highway business use. You may be eligible to claim a credit or refund of excise tax on fuel if you use the fuel in an off-highway business use.

What is off-highway business use? Off-highway business use is any use of fuel in a trade or business or in any income-producing activity. It does not include use in a highway vehicle registered or required to be registered for use on public highways. Off-highway business use includes fuels used in the following ways.

• In stationary engines to operate generators, compressors, and similar equipment.
• For cleaning purposes.

Do not consider any use in a boat as an off-highway business use.

How To Claim a Credit or Refund

This section tells you when and how to claim a credit or refund of excise taxes on fuels you use for a nontaxable use.

Credit or refund. A credit is an amount that reduces the tax on your income tax return when you file it at the end of the year. If you meet certain requirements (discussed later), you can claim a refund during the year instead of waiting until you file your tax return.

Credit only. The following taxes can only be claimed as a credit.

• Tax on fuels you used for nontaxable uses if the total for the tax year is less than $750.
• Tax on fuel you did not include in any claim for refund previously filed for the tax year.

Claiming a Credit

You make a claim for credit on Form 4136 and attach it to your income tax return. Do not claim a credit for any amount for which you have filed a refund claim.

When to claim a credit. You can claim a fuel tax credit on your income tax return for the year you used the fuels.

Once you have filed a Form 4136, you cannot file an amended return to show an increase in the number of gallons of fuel reported on a line of that form. See the following discussion for when you can file a claim on an amended return.

Fuel tax claim on amended return. You may be able to make a fuel tax claim on an amended return for the year you used the fuel. Generally, if you are allowed to file an amended return, you must file it by the later of 3 years from the date you filed your original income tax return or within 2 years from the time you paid the income tax. A return filed early is considered to have been filed on the due date.

You can file an amended return to claim a fuel tax credit if any of the following apply.

• You did not claim any credit for fuel taxes on Form 4136 for the tax year.
• Your credit is for gasohol blending, as discussed in Publication 378.
• Your credit is for a claim group, explained next, for which you did not previously file a claim on Form 4136 for the tax year.

Claims on Form 4136 (other than for gasohol blending) are separated into seven claim groups. Once you file Form 4136 with a claim for a group, you cannot file an amended return with another claim for that group. However, you can file an amended return with a claim for another group.

Claim group table. The following table shows which claims are in each group. The numbers in the second column refer to the line numbers on Form 4136. The numbers in the third column are from the Type of Use Table in the Form 4136 instructions.

For each tax year, you can make only one claim for each group.

Example. You file your income tax return and claim a fuel tax credit. Your Form 4136 shows an amount on line 1c for use of gasoline in a boat engaged in commercial fishing. This is a Group IV claim. You cannot amend your return to claim a credit for an amount on line 1d for use of gasohol in a boat engaged in commercial fishing (Type of Use 4), since that is also a Group IV claim. However, if you used the gasohol in an off-highway business use, you can amend your return to claim the credit for that fuel tax because that would be a Group II claim reported on line 1d (Type of Use 2).

How to claim a credit. As an individual, you claim the credit on line 64 of Form 1040. Check box "b" on line 64. If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit.

Claiming a Refund

You can file a claim for refund for any quarter of your tax year for which you can claim $750 or more. This amount is the excise tax on all fuels used for any nontaxable use during that quarter or any prior quarter (for which no other claim has been filed) during the tax year.

If you cannot claim at least $750 at the end of a quarter, you carry the amount over to the next quarter of your tax year to determine if you can claim at least $750 for that quarter. If you cannot claim at least $750 at the end of the fourth quarter of your tax year, you must claim a credit on your income tax return, using Form 4136. Only one claim can be filed for a quarter.

Form 8849. You make a claim for a refund on Form 8849. File the claim by filling out Schedule 1 (Form 8849) and attaching it to Form 8849. Send it to the address shown in the instructions.

When to file a quarterly claim. You must file a quarterly claim by the last day of the first quarter following the last quarter included in the claim. If you do not file a timely refund claim for the fourth quarter of your tax year, you will have to claim a credit for that amount on your income tax return, as discussed earlier.

Including the Credit or Refund in Income

Include any credit or refund of excise taxes on fuels in your gross income if you included the cost of the fuel as an expense deduction that reduced your income tax liability.

If you use the cash method of accounting and file a claim for refund, include the refund in your gross income for the tax year in which you receive the refund. If you claim a credit on your income tax return, include the credit in gross income for the tax year in which you file Form 4136. If you file an amended return and claim a credit, include the credit in gross income for the tax year in which you receive the credit.

Example. Ed Brown, a cash basis fisherman, filed his 1999 Form 1040 on March 1, 2000. On his Schedule C, Ed deducted the total cost of gasoline (including $110 of excise taxes) used in his boat while engaged in commercial fishing operations. Then, on Form 4136, Ed claimed the $110 as a credit. Ed reports the $110 as additional income on his 2000 Schedule C.

How To Buy Fuel Tax Free

Instead of paying the fuel tax and filing a claim for credit or refund when the fuel is used for a nontaxable use, you may be eligible to buy it tax free.

Gasoline. Your supplier may be able to sell you gasoline at a tax-free price only for use in a boat engaged in commercial fishing.

Your supplier may be eligible to claim a credit or refund of the excise tax on the gasoline sold to you at a tax-free price. Refer your supplier to Credits and Refunds under Gasoline in Publication 510, Excise Taxes for 2001, for details.

To buy gasoline at a tax-free price, give your supplier a signed certificate identifying you and stating how you will use the gasoline. You do not need to renew the certificate as long as the information it contains continues to be correct. An acceptable exemption certificate is shown in Table 3.

Table 3. Sample Exemption Certificate

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