Table of Contents
- Topics - This chapter discusses:
- Useful Items - You may want to see:
- Fuels Used in Farming
- Dyed Diesel Fuel and Dyed Kerosene
- Fuels Used in Off-Highway Business Use
- Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines
- How To Claim a Credit or Refund
- Including the Credit or Refund in Income
You may be eligible to claim a credit on your income tax return for the federal excise tax on certain fuels. 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.
Whether you can claim a credit or refund depends on whether the fuel was taxed and the purpose (nontaxable use) for which you used the fuel. The nontaxable uses of fuel for which a farmer may claim a credit or refund are generally the following.
Use on a farm for farming purposes.
Off-highway business use.
Uses other than as a fuel in a propulsion engine, such as home use.
Table 14-1 presents an overview of credits and refunds that may be claimed for fuels used for the nontaxable uses listed above. See Publication 510, Excise Taxes, for more information.
Fuels used in farming
Dyed diesel fuel and dyed kerosene
Fuels used in off-highway business use
Fuels used for household purposes
How to claim a credit or refund
Including the credit or refund in income
510 Excise Taxes
Form (and Instructions)
720 Quarterly Federal Excise Tax Return
4136 Credit for Federal Tax Paid on Fuels
8849 Claim for Refund of Excise Taxes
See chapter 16 for information about getting publications and forms.
Owners, operators, and tenants of farms and certain other persons may be eligible to claim a credit or refund of excise taxes on fuel used in the trade or business of farming, when used on a farm in the United States for farming purposes. See Table 14-1 for a list of available fuel excise tax credits and refunds. Fuel is used on a farm for farming purposes only if used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes.
Use this table to see if you can take a credit or refund for a nontaxable use of the fuel listed.
|Fuel Used||On a Farm for Farming Purposes||Off-Highway Business Use||Household Use or Use Other Than as a Fuel1|
|Gasoline||Credit only||Credit or refund||None|
|Aviation gasoline||Credit only||None||None|
|Undyed diesel fuel and undyed kerosene||Credit or refund||Credit or refund2||Credit or refund2|
|Kerosene for use in aviation||Credit or refund||None||None|
|Dyed diesel fuel and dyed kerosene||None||None||None|
|Other Fuels (including alternative fuels)3||Credit or refund||Credit or refund||None|
|1For a use other than as fuel in a propulsion engine.|
|2Applies to undyed kerosene not sold from a blocked pump or, under certain circumstances, for blending with undyed diesel fuel to be used for heating purposes. See Regulations section 48.6427-10 (b)(1) for the definition of a blocked pump.|
|3Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under Internal Revenue Code section 4081. It includes the alternative fuels: liquefied petroleum gas (LPG),“P” Series fuels, compressed natural gas (CNG), liquefied hydrogen, any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, liquid fuel derived from biomass, liquid natural gas (LNG), liquefied gas derived from biomass, and compressed gas derived from biomass.|
To cultivate the soil or to raise or harvest any agricultural or horticultural commodity.
To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife.
To operate, manage, conserve, improve, or maintain your farm and its tools and equipment.
To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. For this use to qualify, you must have produced more than half the commodity so treated during the tax year. The more-than-one-half test applies separately to each commodity. Commodity means a single raw product. For example, apples and peaches are two separate commodities.
To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if these activities are incidental to your farming operations. Your tree operations are incidental only if they are minor in nature when compared to the total farming operations.
Farm owner Haleigh Blue hired custom operator Tyler Steele to cultivate the soil on her farm. Tyler used 200 gallons of undyed diesel fuel that he purchased to perform the work on Haleigh's farm. In addition, Haleigh hired contractor Lee Brown to pack and store her apple crop. Lee bought 25 gallons of undyed diesel fuel to use in packing the apples. Haleigh can claim the credit for the 200 gallons of undyed diesel fuel used by Tyler on her farm because it qualifies as fuel used on the farm for farming purposes. No one can claim a credit for the 25 gallons used by Lee because that fuel was not used for a farming purpose included in list items (1) or (2), above.
In the above example, both Tyler Steele and Lee Brown could have purchased dyed (untaxed) diesel fuel for their tasks.
A registered ultimate vendor is the person who sells undyed diesel fuel, undyed kerosene, or kerosene for use in aviation to the user (ultimate purchaser) of the fuel for use on a farm for farming purposes. To claim a credit or refund of tax, the ultimate vendor must be registered with the Internal Revenue Service at the time the claim is made. However, registered ultimate vendors cannot make claims for undyed diesel fuel and undyed kerosene sold for use on a farm for farming purposes.
Off the farm, such as on the highway or in noncommercial aviation, even if the fuel is used in transporting livestock, feed, crops, or equipment.
For personal use, such as lawn mowing.
In processing, packaging, freezing, or canning operations.
In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar.
If you purchase dyed diesel fuel or dyed kerosene for a nontaxable use, you must use it only on a farm for farming purposes or for other nontaxable purposes. For example, you should not use dyed diesel fuel in a truck that is used both on the farm for farming purposes and on the highway, even though the highway use is in connection with farm business. Excise tax applies to the fuel used by the truck on the highways. In this situation, undyed (taxed) fuel should be purchased for the truck. You should keep fuel records of the use of the truck on the farm for farming purposes, and for other uses. You may be eligible for a credit or refund for the excise tax on fuel used on the farm for farming purposes.
You may be eligible to claim a credit or refund for the excise tax on fuel used in an off-highway business use.
In stationary machines such as generators, compressors, power saws, and similar equipment;
For cleaning; and
In forklift trucks, bulldozers, and earthmovers.
You may be eligible to claim a credit or refund for the excise tax on undyed diesel fuel or kerosene used for home heating, lighting, and cooking. This also applies to diesel fuel and kerosene used in a home generator to produce electricity for home use. Home use of a fuel does not include use in a propulsion engine and it is not considered an off-highway business use.
You may be able to claim a credit or refund of the excise tax on fuels you use for nontaxable uses. The basic rules for claiming credits and refunds are listed in Table 14-2 .
This table gives the basic rules for claiming a credit or refund of excise taxes on fuels used for a nontaxable use.
|Which form to use||Form 4136, Credit for Federal Tax Paid on Fuels||Form 8849, Claim for Refund of Excise Taxes, and Schedule 1 (Form 8849), Nontaxable Use of Fuels|
|Type of form||Annual||Quarterly|
|When to file||With your income tax return||By the last day of the quarter following the last quarter included in the claim|
|Amount of tax||Any amount||$750 or more1|
|1You may carry over an amount less than $750 to the next quarter.|
The total number of gallons bought and used during the period covered by your claim.
The dates of the purchases.
The names and addresses of suppliers and amounts bought from each during 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 separately show the number of gallons used for each nontaxable use that qualifies as a claim. For more information about recordkeeping, see Publication 583, Starting a Business and Keeping Records.
Tax on gasoline and aviation gasoline you used on a farm for farming purposes.
Tax on fuels (including undyed diesel fuel or undyed kerosene) 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 any quarter of the tax year.
An electing large partnership can claim the credit on the “Other payments” line of Form 1065-B, U.S. Return of Income for Electing Large Partnerships.
Three years from the date the original return was filed, or
Two years from the date the tax was paid.
Generally, you may claim a refund of excise taxes on Form 8849. Complete and attach to Form 8849 the appropriate Form 8849 schedule(s). The instructions for Form 8849 and the separate instructions for each schedule explain the requirements for making a claim for refund. If you file Form 720, you can use its Schedule C for your refund claims for the quarter. See the Instructions for Form 720. Do not claim a refund on Form 8849 for any amount for which you have filed or will file a claim on Form 720 or Form 4136.
You may 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 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 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.
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.
Marucia Brown, a farmer who uses the cash method, filed her 2014 Form 1040 on March 3, 2015. On her Schedule F, she deducted the total cost of gasoline (including $110 of excise taxes) used on the farm for farming purposes. Then, on Form 4136, she claimed the $110 as a credit. Marucia reports the $110 as other income on line 8 of her 2015 Schedule F.
Amy Johnson, a farmer who uses the accrual method, files her 2014 Form 1040 on April 15, 2015. On Schedule F, she deducts the total cost of gasoline (including $155 of excise taxes) she used on the farm for farming purposes during 2014. On Form 4136, Amy claims the $155 as a credit. She reports the $155 as other income on line 8 of her 2014 Schedule F.
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