Including the Credit or Refund in Income

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

Which year you include a credit or refund in gross income depends on whether you use the cash or an accrual method of accounting.

Cash method. If you use the cash method and file a claim for refund, include the refund in 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 farmer, filed his 2001 Form 1040 on March 1, 2002. On his Schedule F, he deducted the total cost of gasoline (including $110 of excise taxes) used on the farm for farming purposes. Then, on Form 4136, he claimed the $110 as a credit. Ed reports the $110 as other income on line 10 of his 2002 Schedule F.

Accrual method. If you use an accrual method, include the claim amount in gross income for the tax year in which you used the fuels. It does not matter whether you filed for a quarterly refund or claimed the entire amount as a credit.

Example. Todd Green, an accrual basis farmer, files his 2001 Form 1040 on April 15, 2002. On Schedule F, he deducts the total cost of gasoline (including $155 of excise taxes) he used on the farm for farming purposes during 2001. On Form 4136, Todd claims the $155 as a credit. He reports the $155 as other income on line 10 of his 2001 Schedule F.

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