Publication 225
Farmer's Tax Guide

For use in preparing 2002 Returns

Acknowledgment:

The valuable advice and assistance given us each year by the National Farm Income Tax Extension Committee is gratefully acknowledged.

Fuels Used in
Off-Highway
Business Use

You may be eligible to claim a credit or refund for the excise tax on fuel used in an off-highway business use.

Off-highway business use.   This is any use of fuel in a trade or business or in an income-producing activity. The use must not be in a highway vehicle registered or required to be registered for use on public highways. Off-highway business use generally does not include any use in a motorboat.

Farmers cannot claim a credit or refund for the tax on undyed kerosene used in an off-highway business use if the kerosene was sold from a blocked pump or for blending with diesel fuel in an area described in an IRS declaration of extreme cold if the blended fuel is used for heating purposes. Only the registered ultimate vendor that sold the kerosene can claim the credit or refund under these circumstances. For more information, see Publication 378.

Examples.   Off-highway business use includes the use of fuels in any of the following ways.

• In stationary machines such as generators, compressors, power saws, and similar equipment.
• For cleaning purposes.
• In forklift trucks, bulldozers, and earthmovers.

Generally, it does not include nonbusiness, off-highway use of fuel, such as use by minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment.

For more information about the credit or refund for fuels used in an off-highway business use, see Publication 378.

Table 18–3

Fuels Used for Household Use

You may be eligible to claim a credit or refund for the excise tax on undyed diesel fuel and undyed kerosene used for home use. This applies to fuel 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 (discussed earlier).

Farmers cannot claim a credit or refund for the tax on undyed kerosene used for household use if the kerosene was sold from a blocked pump or for blending with diesel fuel in an area described in an IRS declaration of extreme cold if the blended fuel is used for heating purposes. Only the registered ultimate vendor that sold the kerosene can claim the credit or refund under these circumstances. For more information, see Publication 378.

How To Claim a
Credit or Refund

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 (discussed later) are listed in Table 18-4.

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.

• 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.

Taxpayer identification number.   To file a claim for credit or refund, you must have a taxpayer identification number. See Taxpayer Identification Number in chapter 2.

Filing date on holiday or weekend.   If the last day for filing your claim falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next day that is not a Saturday, Sunday, or legal holiday.

Credit or refund.   A credit is an amount that reduces the tax on your income tax return when you file it at the end of the year. If you meet certain requirements, you can claim a refund during the year instead of waiting until you file your tax return.

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

• Tax on gasoline you used on a farm for farming purposes.
• Tax on fuels 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.

Claiming a Credit

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.

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

Individuals.   You claim the credit on line 68 of your 2002 Form 1040. Check box b. If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit.

Partnership.   A partnership cannot claim the credit on Form 1065, U.S. Return of Partnership Income. The partnership must include on line 25 of Schedule K-1 (Form 1065), Partner's Share of Income, Credits, Deductions, etc., each partner's 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 partner's share of the fuel used by the partnership.

An electing large partnership can claim the credit on line 27 of Form 1065-B, U.S. Return of Income for Electing Large Partnerships.

Corporation.   To claim the credit, a corporation uses either line 32g of Form 1120, U.S. Corporation Income Tax Return, or line 28g of Form 1120-A, U.S. Corporation Short-Form Income Tax Return.

S corporation.   To claim the credit, an S corporation uses line 23c of Form 1120S, U.S. Income Tax Return for an S Corporation.

Farmers' cooperative association.   If a cooperative must file Form 990-C, Farmers' Cooperative Association Income Tax Return, it uses line 32g to claim the credit.

Trust.   A trust required to file Form 1041, U.S. Income Tax Return for Estates and Trusts, uses line 24g to claim the credit.

When to claim a credit.   You can claim a fuel tax credit on your income tax return for the year you used the fuel.

Once you have filed a Form 4136, you cannot file an amended return to show an increase in the number of gallons reported on a line of that form. See the following discussion for when you can file a claim on an amended return.

Fuel tax claim on amended return.   You may be able to make a fuel tax claim on an amended return for the year you used the fuel. You can file an amended return to claim a fuel tax credit if any of the following situations apply.

• You did not claim any credit for fuel taxes on Form 4136 for the tax year.
• Your credit is for gasohol blending, discussed in Publication 378.
• Your credit is for a claim group, explained next, for which you did not previously file a claim on Form 4136 for the tax year.

Claims on Form 4136 (other than for gasohol blending, line 9) are separated into seven claim groups. Once you file Form 4136 with a claim for a group, you cannot file an amended return with another claim for that group. However, you can file an amended return with a claim for another group.

The following tables show which claims are in each group. The numbers in the second column of each table refer to the line numbers on Form 4136. The numbers in the third column are from the Type of Use Table in the Form 4136 instructions. For each tax year, you can make only one claim for each group.

Example.   You file your 2002 income tax return and claim a fuel tax credit. Your Form 4136 shows an amount on line 1b for use of gasoline on a farm for farming purposes. This is a Group I claim. You cannot amend your return to claim a credit for an amount on line 2b for use of aviation gasoline on a farm for farming purposes (Type of Use 1), since that is also a Group I claim. However, if you used aviation fuel on a farm for farming purposes, you can amend your return to claim the credit for that fuel tax because that would be a Group VI claim reported on line 5b (Type of Use 1).

Generally, if you are allowed to file an amended return, you must file the amended return by the later of 3 years after the date you filed your original return or within 2 years after you paid the tax. A return filed early is considered filed on the due date.

Claiming a Refund

You make a claim for refund of the excise tax on fuel on Form 8849.

This table gives the basic rules for claiming a credit or refund of excise taxes on fuels used for a nontaxable use.

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 can 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 paid 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 used on a farm for farming purposes. You must claim a credit on your income tax return for the tax.

How to file a quarterly claim.   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. If you file Form 720, you can use the Schedule C portion of Form 720 for your refund claims. (See the Form 720 instructions.)

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

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 2002 Form 1040 on March 3, 2003. 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 2003 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 2002 Form 1040 on April 15, 2003. On Schedule F, he deducts the total cost of gasoline (including $155 of excise taxes) he used on the farm for farming purposes during 2002. On Form 4136, Todd claims the $155 as a credit. He reports the $155 as other income on line 10 of his 2002 Schedule F.

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