Interest

IRS pays no interest on refunds described in this publication other than refunds to gasohol blenders and registered ultimate vendors (discussed earlier) not paid within 20 days. Refunds resulting from credits claimed on income tax returns may qualify for interest.

Penalties

There are criminal penalties for false or fraudulent claims. In addition, any person who files a refund claim, discussed earlier, for an excessive amount (without reasonable cause) may have to pay a penalty. An excessive amount is the amount claimed that is more than the allowable amount. The penalty is the greater of two times the excessive amount or $10.

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.

The 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 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 1.   Ed Brown, a cash basis farmer, filed his 2002 Form 1040 on March 3, 2003. On his Schedule F, Ed deducted the total cost of gasoline (including $110 of excise taxes) used on the farm. Then, on Form 4136, Ed claimed the $110 as a credit. Ed reports the $110 as additional income on his 2003 Schedule F.

Example 2.   March Corporation uses the calendar year as its tax year. For 2002, the following amounts of excise tax were included in the cost of gasoline the corporation used each quarter in a nontaxable use:

January 1 through March 31	$1,300
April 1 through June 30	1,100
July 1 through September 30	400
October 1 through December 31	300
Total	$3,100

The corporation deducts the entire cost of the gasoline (including the $3,100 in excise taxes) it used during the year as a business expense on its corporation income tax return, thereby reducing its corporate income tax liability for that year.

Form 8849. March Corporation files quarterly refund claims for the first two quarters (ending March 31 and June 30). It cannot file a quarterly refund claim for the third or fourth quarter because it did not meet the $750 minimum requirement.

Since March Corporation uses the cash method of accounting, the corporation includes $2,400 ($1,300 + $1,100) in its gross income for the tax year in which it receives the refunds (2002).

Form 4136. The corporation claims the remaining amounts ($400 + $300) as a credit on its 2002 income tax return by attaching Form 4136. It files its tax return in 2003. It includes this credit ($700) in its 2003 gross income.

Accrual method.   If you use an accrual method, include the amount in gross income for the tax year in which you used the fuels (or sold the fuels if you are a registered ultimate vendor). It does not matter whether you filed for a quarterly refund or claimed the entire amount as a credit.

Example 3.   Todd Green uses an accrual method. He files his 2002 return on April 15, 2003. On Schedule C (Form 1040) he deducts the total cost of gasoline (including $155 of excise taxes) used for an off-highway business use during 2002. On Form 4136, Todd claims the $155 as a credit. He reports the $155 as additional income on his 2002 Schedule C.

Example 4.   Use the same facts as in Example 2 above, except that March Corporation uses an accrual method of accounting. Since the nontaxable use occurred in 2002, the corporation reports the $3,100 of excise taxes as income on its 2002 income tax return. This consists of the $2,400 it claimed on Form 8849 and the $700 it claimed on Form 4136.

Example

Steven S. Sands used undyed diesel fuel in vehicles used in his construction business. The vehicles were not registered (or required to be registered) for highway use. In the fourth quarter of his 2002 income tax year, which ends in December, he used 3,000 gallons of fuel. The excise tax on the 3,000 gallons of fuel he used was $732 (24.4 cents per gallon).

Because the tax is less than $750, Steven must claim a credit for the tax on his 2002 income tax return. He fills out Form 4136 (shown later) and attaches it to his 2002 income tax return, which he files in 2003. He enters the $732 on line 68 of his Form 1040.

Steven uses the cash method of accounting. On his 2002 Schedule C (Form 1040), he deducts the total cost of the fuel, including the tax. When Steven files his 2003 Form 1040, he will include the $732 credit shown on his 2002 Form 4136 as additional income on his Schedule C (Form 1040) for 2003.

For the first two quarters of 2003, Steven's records show the following.

Quarter	Gallons Used	Tax Rate	Claim Amount
First	2,750	.244	$671
Second	2,500	.244	610

Steven could not file a claim for a refund for the first quarter because the amount of the claim was less than $750. He adds the first quarter amount ($671) to the second quarter amount ($610) and claims a refund of $1,281 by filing Form 8849 and Schedule 1 (Form 8849), which are shown later. He will have to include the $1,281 excise tax refund as additional income on his Schedule C (Form 1040) for 2003.

Form 4136, page 1, for Steven S. Sands

Form 4136, page 2, for Steven S. Sands

Form 8849 for Steven S. Sands

Schedule 1 (Form 8849) for Steven Sands

Previous | First | Next

Publication Index | 2002 Tax Help Archives | Tax Help Archives | Home