Publication 378 (04/2005), Fuel Tax Credits and Refunds

3. Filing Claims

Table of Contents

This chapter tells you how and when to make a claim for a credit or refund of excise taxes on fuels. This chapter also covers recordkeeping requirements, interest and penalty provisions, and when to include the credit or refund in your income.

General Information

Generally, you will provide all the information needed to claim a credit or refund when you properly complete Form 8849, Form 4136, or Form 720 (Schedule C). In some cases, you will have to attach additional information. You need to keep records that support your claim for a credit or refund.

Keep at your principal place of business all records needed to enable the IRS to verify that you are the person entitled to claim a credit or refund and the amount you claimed.

Ultimate purchaser. Ultimate purchasers may make claims for the nontaxable use of fuels on Form 4136, Form 8849 (Schedule 1), and Form 720 (Schedule C) if reporting excise tax liability on that return. If you are an ultimate purchaser, you must keep the following records.

The number of gallons purchased and used during the period covered by your claim.
The dates of the purchases.
The names and addresses of suppliers and amounts purchased from each in the period covered by your claim.
The nontaxable use for which you used the fuel.
The number of gallons used for each nontaxable use.

It is important that your records show separately the number of gallons used for each nontaxable use that qualifies as a claim. If the fuel is exported, you must have proof of exportation.

For more information about keeping records, see Publication 583, Starting a Business and Keeping Records, or Publication 552, Recordkeeping for Individuals.

Exceptions.

The ultimate purchaser may not claim a credit or refund for undyed diesel fuel, undyed kerosene, or aviation-grade kerosene sold for the exclusive use of a state or local government; or for use on a farm for farming purposes or
The ultimate purchaser may not claim a credit or refund if it has waived its right to a claim for credit or refund as follows.
1. The ultimate purchaser of gasoline or aviation gasoline used by a state or local government for its exclusive use or a by nonprofit educational organization for its exclusive may waive its right to make a claim by providing a certificate that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Certificate D on page 18. A new certificate is required each year or when any information in the current certificate expires.
2. The ultimate purchaser of aviation-grade kerosene used for a nontaxable use may waive its right to make a claim by providing a waiver that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Waiver C on page 17. A new waiver is required each year or when any information in the current waiver expires.
3. The ultimate purchaser of undyed diesel fuel or undyed kerosene used in certain intercity and local buses may waive its right to make a claim by providing a waiver that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Waiver E on page 19. A new waiver is required each year or when any information in the current waiver expires.

Registered ultimate vendor. Registered ultimate vendors may make claims for certain sales of fuels on Form 4136, Form 8849 (Schedule 1), and Form 720 (Schedule C) if reporting excise tax liability on that return. If you are a registered ultimate vendor, you must keep certain information pertaining to the sale of the fuel.

To make a claim, you must have sold the fuel at a tax-excluded price, repaid the tax to the buyer, or obtained the buyer's written consent to the allowance of the claim. You are required to have a valid certificate or waiver in your possession in order to make the claim.

In addition, you must have a registration number that has not been revoked or suspended. You can get a registration number from the IRS by completing Form 637, Application for Registration (For Certain Excise Tax Activities), and providing the information requested in its instructions.

Farming and state use. To make a claim as an ultimate vendor (farming or state), you must have a UV registration number. If you sell undyed diesel fuel, undyed kerosene, or aviation-grade kerosene for use on a farm for farming purposes or for use by a state or local government, you must keep the following information.

The name and taxpayer identification number of each person (farmer, custom harvester, or government unit) that bought the fuel.
The number of gallons sold to each person.
An unexpired certificate from the buyer. See Model Certificate B on page 16. The certificate expires on the earlier of one year after the date of the certificate or the date a new certificate is given to the registered ultimate vendor.

Nonprofit educational organization and state use. To make a claim as an ultimate vendor (nonprofit educational organization or state), you must have a UV registration number. If you sell gasoline or aviation gasoline to a nonprofit educational organization for its exclusive use or to a state or local government for its exclusive use, you must keep the following information.

The name and taxpayer identification number of each person (nonprofit educational organization or government unit) that bought the fuel.
The number of gallons sold to each person.
An unexpired certificate from the buyer. See Model Certificate D on page 18. The certificate expires on the earlier of one year after the date of the certificate or the date a new certificate is given to the registered ultimate vendor.

Blocked pump. To make a claim as an ultimate vendor (blocked pump), you must have a UP registration number. If you sell undyed kerosene (other than aviation-grade kerosene) from a pump that qualifies as a blocked pump because it is locked by you after each sale and is unlocked by you at the request of the buyer, you must keep the following information for each sale of more than 5 gallons.

The date of each sale.
The name and address of the buyer.
The number of gallons sold to that buyer.

Blending for extreme cold. To make a claim, you must be a taxable fuel registrant, a registered ultimate vendor, or a registered ultimate vendor (blocked pump). If you sell undyed kerosene (other than aviation-grade kerosene) for blending with diesel fuel in an area under a declaration of extreme cold and the blend will be sold for use or used for heating purposes, you must keep the following information.

The number of gallons sold to each person.
An unexpired certificate from the buyer for each purchase of kerosene. See Model Certificate A on page 15.

Certain intercity and local bus use. To make a claim as an ultimate vendor of undyed diesel fuel or undyed kerosene used in certain intercity and local buses, you must have a UB registration. Current UV registrants will be able to file registered ultimate vendor claims for undyed diesel fuel or undyed kerosene used in certain intercity or local buses until June 30, 2005. You must keep the following information:

The date of each sale.
The name and address of the buyer.
The number of gallons sold to the buyer.
A copy of the waiver signed by the buyer at the time the credit or payment is claimed. See Model Waiver E on page 19.

Aviation-grade kerosene. To make a claim as an ultimate vendor of aviation-grade kerosene for a nontaxable use or use in commercial aviation (other than foreign trade), you must have a UA registration number. See Aviation-grade kerosene on page 4 for a list of nontaxable uses. Current UV registrants will be able to file registered ultimate vendor claims for aviation-grade kerosene until June 30, 2005. You must keep the following information:

The date of each sale.
The name and address of the buyer.
The number of gallons sold to the buyer.
A copy of the waiver signed by the buyer at the time the credit or payment is claimed. See Model Waiver C on page 17.

Taxpayer identification number. To file a claim, you must have a taxpayer identification number. Your taxpayer identification number can be any of the following.

Employer identification number (EIN).
Social security number (SSN).
Individual taxpayer identification number (ITIN), if you are an alien individual and do not have and are not eligible to get an SSN.

If you normally file only a U.S. individual income tax return (such as Form 1040 or 1040NR), use your SSN or ITIN. You get an SSN by filing Form SS-5, Application for a Social Security Card, with the Social Security Administration. To get an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS.

If you operate a business, use your EIN. If you do not have an EIN, you may apply for one online. Go to the IRS website at www.irs.gov/businesses/small/ and click on the “Employer ID Numbers (EINs)” link. You may also apply for an EIN by telephone by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS.

Claiming a Refund

Generally, you may claim a refund on Form 8849. Complete and attach to Form 8849 the appropriate Form 8849 schedules. However, if you file Form 720, you can use the Schedule C portion of Form 720 for your refund claims for the quarter. See the Form 720 instructions. Do not claim a refund on Form 8849 for any amount for which you have filed or will file a claim on Schedule C (Form 720) or Form 4136.

Alcohol fuel mixture credits and biodiesel mixture credits must be taken on Schedule C (Form 720) against your taxable fuel liability. To the extent the alcohol fuel mixture credit and biodiesel mixture credit exceed taxable fuel liability, a payment is allowed and may be taken as a credit on Schedule C (Form 720), as a refund on Schedule 3 (Form 8849), or as an income tax credit on Forms 4136, 6478, or 8864 as applicable. Only one claim may be made for any particular amount of alcohol or biodiesel.

Ultimate Purchasers

If you are an ultimate purchaser, you may claim a refund for the excise tax on fuels you purchase and use for a nontaxable use. You may file a claim for refund for any quarter of your tax year for which you can claim at least $750. This amount is the excise tax on all fuels used for a 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. If you cannot claim at least $750 at the end of your tax year, you must claim a credit on your income tax return using
Form 4136.

Use in mobile machinery. An ultimate purchaser may only make an annual claim for off-highway business use in mobile machinery.

How to file. File the claim for refund by filling out Schedule 1 (Form 8849) and attaching it to Form 8849. Send it to the address shown in the instructions. Only one claim may be filed for a quarter.

Example.

You purchased gasoline and undyed diesel fuel. For the first quarter of your tax year, the excise tax on fuel you use for an off-highway business use is $184 for gasoline and $244 for diesel fuel. You cannot file a claim for refund since the total ($428) is less than $750.

For the second quarter, the excise tax on fuel you use for an off-highway business use is $92 for gasoline and $244 for diesel fuel. You add the amount from the first quarter ($428) to the total amount from the second quarter ($336) and determine you can file a claim for refund since the total is $764.

When to file. 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 any quarter of your tax year, you will have to claim a credit for that amount on your income tax return, as discussed earlier.

Generally, an annual claim must be made on Form 4136 (as discussed under Claiming a Credit on Form 4136 later). However, the following must use Schedule 1 (Form 8849) to file an annual claim.

The United States.
A state, political subdivision of a state, and the District of Columbia.
An organization exempt from income tax under section 501(a) of the Internal Revenue Code that is not required to file an income tax return.

Registered Ultimate Vendors

If you are a registered ultimate vendor, you can make a claim for refund of the excise tax on fuel that you sold for certain uses. Complete Form 8849 and Schedule 2 (including line 6 or line 7, if applicable) to make the claim. See Chapter 1. Fuels.

Undyed diesel fuel. You must meet the following requirements for this claim.

The claim must be for undyed diesel fuel sold for use on a farm for farming purposes or by a state or local government (including essential government use by an Indian tribal government).
The claim must be for sales during a period of at least 1 week.
The claim must be for at least $200. Claims for sales by a registered ultimate vendor of undyed kerosene and aviation-grade kerosene can be combined with claims for sales of undyed diesel fuel to meet this requirement.

Undyed kerosene (other than aviation-grade kerosene). You must meet the following requirements for this claim.

The claim must be for undyed kerosene sold for use on a farm for farming purposes, for use by a state or local government, from a blocked pump, or for blending with diesel fuel to be used for heating purposes.
The claim must be for sales during a period of at least 1 week.
The claim must be for at least $100. Only claims for sales by a registered ultimate vendor of undyed kerosene can be used to meet this requirement.

Aviation-grade kerosene. You must meet the following requirements for this claim.

The claim must be for aviation-grade kerosene sold to the buyer for a nontaxable use or any use in commercial aviation, if the ultimate purchaser has waived the right to make the claim; or the claim must be for aviation-grade kerosene sold for use on a farm for farming purposes or for use by a state or local government.
The claim must be for sales during a period of 1 week.
The claim must be for at least $200. Claims for sales by registered ultimate vendors of undyed diesel fuel and undyed kerosene can be combined with claims for sales by registered ultimate vendors of aviation-grade kerosene to meet this requirement.

Undyed diesel fuel or undyed kerosene used in certain intercity and local buses. You must meet the following requirements for this claim. There is no minimum amount to make this claim.

The claim must be for undyed diesel fuel or undyed kerosene used in certain intercity or local buses.
The claim must be for sales during a period of at least 1 week.

Gasoline and aviation gasoline. You must meet the following requirements for this claim.

The claim must be for gasoline or aviation gasoline sold to a state for its exclusive use or to a nonprofit educational organization for its exclusive use.
The claim must be for sales during a period of 1 week.
The claim must be for at least $200.

How to file. File registered ultimate vendor claims by filling out Schedule 2 (Form 8849) and attaching it to Form 8849. Send it to the address shown in the instructions. Write “Registered Ultimate Vendor Claim” on the envelope.

Do not combine this claim with any other claim on Form 8849.

When to file. The claim must be filed by the last day of the first quarter following the earliest quarter included in the claim. If you do not meet the requirements or fail to file a timely quarterly refund claim, you will have to make a claim for a credit on Form 4136.

Claiming a Credit on Form 4136

A credit may be claimed on Form 4136 when you file your income tax return at the end of the year. If you meet certain requirements (discussed earlier), you may be able to make a claim during the year.

Credit only. You can claim the following taxes only as a credit on Form 4136.

Tax on gasoline or aviation gasoline used on a farm for farming purposes.
Tax on fuels 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 (discussed above) previously filed for any quarter of the tax year.
Tax on fuel you used in mobile machinery (off-highway business use) that traveled less than 7,500 miles.

Do not claim a credit for any amount for which you have filed a refund claim on Form 8849 or credit on Form 720 (Schedule C).

When to file. You can claim a fuel tax credit on your income tax return for the year you used the fuel (or sold the fuel in the case of a registered ultimate vendor claims).

You may be able to make a fuel tax claim on an amended income tax return for the year you used the fuel. Generally you must file an amended return by the later of 3 years from the date you filed your original return or within 2 years from the date you paid the income tax.

How to claim a credit. How you claim a credit depends on whether you are an individual, partnership, corporation, S corporation, or farmers' cooperative association.

Individuals. You claim the credit on the “Other payments from” line of Form 1040. Also check box b on that line. If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit.

Partnership. Partnerships (other than electing large partnerships) claim the credit by including a statement on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., showing each partners share of the number of gallons of each fuel sold or used for a nontaxable use, the type of use, and the applicable credit per gallon. Each partner claims the credit on his or her income tax return for the partners share of the fuel used by the partnership.

Other entities. Corporations, S corporations, farmers' cooperative associations, and trusts must make the claim on the line for “credit for Federal tax paid on fuels” of the applicable income tax return.

Federal, state, and local governments, and certain tax-exempt organizations (as discussed earlier under Claiming a Refund) must use Form 8849, not Form 4136, to make an annual claim.

Interest

IRS pays no interest on refunds described in this publication other than refunds to registered ultimate vendors (discussed earlier) not paid within 45 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.

The penalty for failure to register if you are required to register, unless due to reasonable cause, is increased to $10,000 for the initial failure, and then $1,000 each day thereafter you fail to register.

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 amount 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 amount 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 amount in gross income for the tax year in which you receive the credit.

Example 1.

Sharon Brown, a cash basis farmer, filed her 2004 Form 1040 on March 3, 2005. On her Schedule F, Sharon deducted the total cost of gasoline (including $110 of excise taxes) used on the farm. Then, on Form 4136, Sharon claimed the $110 as a credit. Sharon reports the $110 as additional income on her 2005 Schedule F.

Example 2.

March Corporation uses the calendar year as its tax year. For 2004, 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 (2004).

Form 4136. The corporation claims the remaining amounts ($400 + $300) as a credit on its 2004 income tax return by attaching Form 4136. It files its tax return in 2005. It includes this credit ($700) in its 2005 gross income.

Accrual method. If you use an accrual method, include the amount of credit or refund 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.

Patty Green uses an accrual method. She files her 2004 return on April 15, 2005. On Schedule C (Form 1040) she deducts the total cost of gasoline (including $155 of excise taxes) used for an off-highway business use during 2004. On Form 4136, Patty claims the $155 as a credit. She reports the $155 as additional income on her 2004 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 2004, the corporation reports the $3,100 of excise taxes as income on its 2004 income tax return. This consists of the $2,400 it claimed on Form 8849 and the $700 it claimed on Form 4136.

Example

Tyler 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 2004 income tax year, which ends in December, he used 3,000 gallons of undyed diesel fuel. The excise tax on the 3,000 gallons of undyed diesel fuel he used was $732 (24.4 cents per gallon).

Because the tax is less than $750, Tyler must claim a credit for the tax on his 2004 income tax return. He fills out Form 4136 and attaches it to his 2004 income tax return, which he files in 2005. He enters the $732 on line 69 of his Form 1040 and checks box b.

Tyler uses the cash method of accounting. On his 2004 Schedule C (Form 1040), he deducts the total cost of the fuel, including the tax. When Tyler files his 2005 Form 1040, he will include the $732 credit shown on his 2004 Form 4136 as additional income on his Schedule C (Form 1040) for 2005.

Example, continued. For the first two quarters of 2005, Tyler's records show the following.

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

Tyler 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). The claim must be filed by September 30, 2005 which is the last day of the first quarter (July - Sept.) following the last quarter (April - June) included in the claim. He will have to include the $1,281 excise tax refund as additional income on his Schedule C (Form 1040) for 2005.