Table of Contents
- Reminders
- Introduction
- 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 Use or Other Than as a Fuel
- How To Claim a Credit or Refund
- Including the Credit or Refund in Income
Kerosene for use in aviation. The ultimate purchaser of kerosene for use in aviation on a farm for farming purposes can claim a credit or refund if they have not waived their right to make the claim.
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.
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Use on a farm for farming purposes.
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Off-highway business use.
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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 information about credits and refunds for fuels used for nontaxable uses not discussed in this chapter.
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Fuels used in farming,
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Dyed diesel fuel and dyed kerosene,
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Fuels used in off-highway business use,
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Fuels used for household use or other than as a fuel,
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How to claim a credit or refund, and
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Including the credit or refund in income.
Publication
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510 Excise Taxes
Form (and Instructions)
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720 Quarterly Federal Excise Tax Return
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4136 Credit for Federal Tax Paid on Fuels
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8849 Claim for Refund of Excise Taxes
See chapter 16 for information about getting publications and forms.
You may be eligible to claim a credit or refund of excise taxes on fuel used on a farm for farming purposes. This applies if you are the owner, tenant, or operator of a farm. See Table 14-1 for a list of available fuel 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.
Table 14-1. Fuel Tax Credits and Refunds at a Glance
Use this table to see if you can take a credit or refund for a nontaxable use of the fuel listed.
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Fuel Used | On a Farm for Farming Purposes | Off-Highway Business Use | Household Use or Use Other Than as a Fuel1 |
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Gasoline | Credit only | Credit or refund | None |
Aviation gasoline | Credit only | None | None |
Undyed diesel fuel and undyed kerosene | Credit or refund by the farmer only | 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 by the farmer only | 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. | |||
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, and liquefied natural gas (LNG). |
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To cultivate the soil or to raise or harvest any agricultural or horticultural commodity.
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To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife.
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To operate, manage, conserve, improve, or maintain your farm and its tools and equipment.
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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.
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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 the planting, etc., is incidental to your farming operations. Your tree operations are incidental only if they are minor in nature when compared to the total farming operations.
Example.
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 Brown to pack and store her apple crop. Brown 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 Brown because they were not used for a farming purpose included in list items (1) or (2), above.
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.
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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.
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For personal use, such as mowing the lawn.
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In processing, packaging, freezing, or canning operations.
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In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar.
The $.001 leaking underground storage tank (LUST) tax is included on sales of dyed diesel fuel and dyed kerosene and is not refundable. You must continue to use dyed diesel fuel and dyed kerosene only for a nontaxable use, including use on a farm for farming purposes. If you use the dyed fuel for a taxable use, you could be subject to the excise tax and a penalty. For example, if a truck used on a farm for farming purposes is also used on the highway (even though in connection with operating the farm), tax applies to the gallons of diesel fuel used (or sold for use) in operating the truck on the highways.
You may be eligible to claim a credit or refund for the excise tax on fuel used in an off-highway business use.
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In stationary machines such as generators, compressors, power saws, and similar equipment.
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For cleaning purposes.
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In forklift trucks, bulldozers, and earthmovers.
You may be eligible to claim a credit or refund for the excise tax on undyed kerosene used for home use or used other than as a fuel. This applies to undyed kerosene you purchased and used in your home for heating, lighting, and cooking. Home use is considered a use other than as a fuel in a propulsion engine. 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.
Table 14-2. Claiming a Credit or Refund of Excise Taxes
This table gives the basic rules for claiming a credit or refund of excise taxes on fuels used for a nontaxable use.
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Credit | Refund | |
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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) |
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. |
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. You do not have to use any special form, but the records should establish the following information.
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The total number of gallons bought and used during the period covered by your claim.
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The dates of the purchases.
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The names and addresses of suppliers and amounts bought from each during the period covered by your claim.
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The nontaxable use for which you used the fuel.
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The number of gallons used for each nontaxable use.
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Tax on gasoline and aviation gasoline you used on a farm for farming purposes.
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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.
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Tax on fuel you did not include in any claim for refund previously filed for any quarter of the tax year.
You make a claim for a fuel tax credit on Form 4136 and attach it to your income tax return. Do not claim a credit for any excise tax for which you have filed a refund claim.
partnership.
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.
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.You make a claim for refund of the excise tax on fuel on Form 8849.
Do not claim a refund on Form 8849 for any excise tax for which you have filed or will file a claim on Schedule C (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.
You cannot claim a refund for excise tax on gasoline and aviation gasoline used on a farm for farming purposes. You must claim a credit on your income tax return for the tax.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.
Example.
Sharon Brown, a cash basis farmer, filed her 2008 Form 1040 on March 3, 2009. 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. Sharon reports the $110 as other income on
line 10 of her 2009 Schedule F.
Example.
Patty Green, an accrual basis farmer, files her 2008 Form 1040 on April 15, 2009. On Schedule F, she deducts the total cost of gasoline (including $155 of excise taxes) she used on the farm for farming purposes during 2008. On Form 4136, Patty claims the $155 as a credit. She reports the $155 as other income on line 10 of her 2008 Schedule F.
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