IRS outlines procedures for claiming 2015 fuel tax credits

The IRS has issued procedures (Notice 2016-05) for claiming the alternative fuel and biodiesel tax credits that were reinstated retroactively for 2015. The procedures are similar to those used for the last extension: Taxpayers can claim their entire 2015 credit on a single Form 8849, “Claim for Refund of Excise Taxes,” by Aug. 8, 2016, or by attaching Form 4136, “Credit for Federal Tax Paid on Fuels,” to their annual income tax return.

The alternative fuel, alternative fuel mixture and biodiesel mixture credits expired at the end of 2014, but were extended retroactively for 2015 in December by the Protecting Americans from Tax Hikes Act of 2015. Under normal procedures, taxpayers must first use these fuel tax credits to offset any fuel tax on Form 720, “Quarterly Federal Excise Tax Return.” Refundable amounts can be claimed either quarterly as a payment by filing Form 8849 or Form 4136.

Notice 2016-06 allows taxpayers to claim their entire 2015 credit by filing a single Form 8849 by Aug. 8, 2016. Taxpayers who wish to file for a refund on their income tax return using Form 4136 will use the normal procedures when they file their annual return.

The alternative fuel mixture credit is not refundable, so taxpayers must amend a Form 720 with a Form 720X to use the credits to offset fuel tax liability. Form 720X allows taxpayers to amend multiple quarters on a single form. Taxpayers claiming the nonrefundable biodiesel credits under Section 40 or 40A must use the normal procedures. The IRS will not process any protective or anticipatory claims for any of the credits, so taxpayers who have already filed must refile using the procedures under the notice.

The IRS generally does not require these refundable fuel credits to be included in income. The agency is taking the position, however, that if the credit should have been used first to offset actual fuel excise tax, the credit must be included in income, or the cost of goods sold must be reduced. This position has generated controversy and is currently being litigated.

The credits have been extended for 2016, and taxpayers should use normal procedures for all 2016 claims. Taxpayers cannot combine 2016 claims with 2015 claims on a single Form 8849. Taxpayers should also note that the excise tax and credit rates for liquefied natural gas (LNG) and liquefied petroleum gas (propane, or LPG) have been pegged to the their energy equivalents to gasoline and diesel for 2016. The IRS has not yet released the rates for 2016, but the excise taxes are expected to be 14.3 cents per gallon for LNG and 13.2 cents for propane, while the 50 cent per gallon alternative fuel credit is expected to be reduced to 29 cents for LNG and 36 cents for propane.

For more information, please contact Dustin Stamper. Tax professional standards statement
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