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Potential Payday for Propane Users

A refundable tax credit for the sale or use of alternative fuels and alternative fuel mixtures is available to provide relief for taxpayers from the fuel tax. The revenue collected from the fuel tax is committed to transportation and road projects, yet most alternatively fueled vehicles will not be driven on highways. This credit is available to allow users of alternative fuel to recoup the fuel tax that is levied on alternative fuel purchases.

The credit is for alternative fuels or alternative fuel mixtures sold for use or purchased and used as fuel in motor vehicles, such as forklifts. The credit provides for a 50 cents per gallon reduction in the taxpayers' tax liability.

What is an alternative fuel?

For the purpose of this tax credit, an alternative fuel is:

• Liquefied petroleum gas,
• P Series fuels,
• Compressed or liquefied natural gas,
• Liquefied hydrogen,
• Any liquid derived from coal through the Fischer-Tropsch process, and
• Liquid fuel derived from biomass

The most widely-used fuel that falls under the alternative fuel category is propane.

Who is eligible to claim the credit?

Corporations, S-Corporations, partnerships, limited liability companies and individuals are eligible to claim the alternative fuels credit. In the case of limited liability companies and partnerships, the credit will flow through to the partners or members. For corporations and S-Corporations, the credit will be taken at the corporate level.

How do you claim the credit?

• Register with the IRS as an "alternative fueler" by filing Form 637 - Application for Registration for Certain Excise Tax Activities;
  
• Alternative fuels or alternative fuel mixtures are sold or used in your trade or business; and
  
• A timely claim is filed for the credit on Form 4136 - Credit for Federal Tax Paid on Fuels
  

Credit must be included in income.

The amount of the credit received must be picked up in income if the taxpayer claims the fuel cost (including excise tax) as a deduction.

A cash basis taxpayer must include any refund in income for the tax year in which the refund is received. If claimed as a credit, the cash basis taxpayer must include the credit amount in income for the tax year in which the Form 4136 is filed.

Other requirements

Taxpayers claiming the alternative fuels credit should maintain the following information:
•    Number of gallons purchased and used over the tax year
•    Date of purchases
•    Names, addresses and quantities purchased from suppliers
•    Number of gallons used for nontaxable use

For further information, please contact Jason Parish at 312-980-2959 or your Blackman Kallick representative. Our thanks to Justin Kleckner for his contribution to this article.

 

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.