Fuel Tax Credit

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Fuel Tax Credit

What Is the Fuel Tax Credit?

The Fuel Tax Credit (Credit for Federal Tax Paid on Fuels) is a scheme that allows some firms to decrease their taxable revenue dollar for dollar depending on particular categories of fuel expenses. The Fuel Tax Credit promotes the development and use of renewable fuels. 1

Individual taxpayers are often not eligible for this benefit since it is confined to off-highway commercial use, agriculture and farming, and boats and buses. 2

Key Takeaways

  • The Fuel Tax Credit enables companies to deduct particular kinds of fuel expenditures from their taxable revenue dollar for dollar.
  • This credit is only accessible to a limited number of people since it is restricted to off-highway commercial usage and a narrow range of purposes.
  • The Fuel Tax Credit promotes the use of renewable fuel.
  • The Fuel Tax Credit is available to businesses such as landscaping, farming, manufacturing, and construction. 2

Tax Deductions Vs. Tax Credits

Understanding the Fuel Tax Credit

In some situations, the Fuel Tax Credit may be used to offset the tax levied by the United States government on fuels like as gasoline and diesel. The Internal Revenue Service (IRS) taxes certain fuels primarily to pay highway upkeep, and the tax is levied at the time the gasoline is bought. Because it is impossible to distinguish between taxable and nontaxable gasoline usage at the moment of purchase, practically everyone pays it. However, not everyone uses gasoline for taxable reasons.

It Fosters Use of Renewable Resources

Because this tax would repay fuel taxes dollar for dollar, some businesses may perceive an advantage in including renewable fuel into their current fuel formulas to take advantage of the credit. However, as technology and the motor industry evolve, the precise kinds of fuel that qualify for a tax credit will evolve, as will their intended applications.

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The Fuel Tax Credit is one of the most often exploited or abused tax benefits, according to the IRS; fraud involving this credit may result in a $5,000 fine and prison time. 3

Who’s Eligible?

This credit’s qualifying conditions cover a wide range of fuel kinds, such as the type of fuel used by commercial fisherman to power their boats and the type of fuel used by a warehouse to power its forklifts. School transportation companies may also be eligible. Even if you use automobiles on the road, you may be qualified if you are a non-profit organization. 2

Does Your Business Qualify?

To discover whether you qualify, visit the IRS website or speak with a competent tax expert. Companies and certain individuals may apply for the Fuel Tax Credit using Federal Tax Form 4136 after they have determined that they are eligible. This form may also be used to claim the alternative fuel credit. 4

Fuel Tax Credit Scam

A Colorado court convicted a defrauder on three charges of money laundering in March 2020, sentenced him to seven years in prison plus four years of supervised release and directing him to repay the IRS $7.2 million. 5

Which Companies Can Benefit?

Landscaping, agricultural, industrial, and construction industry owners buy gasoline to operate their equipment, yet they often ignore this credit. For example, the owner of a landscaping company that uses gasoline in its lawnmowers will be able to claim the credit since it falls within the “off-highway usage” category.

The Fuel Tax Credit and the IRS

An Oft-Abused Claim

Even though the Fuel Tax Credit is not accessible to the majority of taxpayers, the IRS has discovered that many filers overstate the monetary amount of their sought refunds by claiming the credit incorrectly. Improper Fuel Tax Credit claims may take two forms: a person or corporation making a mistake on an otherwise acceptable tax return, or identity thieves filing phony claims, frequently as part of a larger fraudulent operation.


The IRS’s “Dirty Dozen”

The IRS creates its Dirty Dozen list each year, which reflects the “worst of the worst” tax schemes. 6 The Fuel Tax Credit is one of the most often misused or abused tax benefits, according to the Dirty Dozen. It is either taken in mistake or as a deliberate effort to defraud the authorities. Fuel Tax Credit fraud is considered a “frivolous tax claim” by the IRS and may result in a $5,000 fine and prison time. 3

The Fuel Tax Credit in the News

The IRS announced on its website on March 2, 2020, that a Colorado court sentenced Matthew Taylor to 83 months in prison for his participation in a biodiesel tax credit fraud scam. Taylor pled guilty to one count of conspiracy to defraud the United States, one count of conspiracy to conduct money laundering, and one count of money laundering. In addition to the seven-year jail sentence, Taylor was sentenced to four years of supervised release and forced to repay the US government $7.2 million.

Taylor and his co-conspirators were found to have defrauded the US government by making bogus claims for tax credits, according to the court. (In this situation, the defrauders would have applied for the credit using IRS Form 8864 Biodiesel and Renewable Diesel Fuels Credit rather than IRS Form 4136.) The con artists set up a phony firm called Shintan Inc., which claimed to be in the business of producing fuel from renewable resources. To escape detection, the defrauders routed the fraudulently acquired monies via a network of bank accounts owned by Shintan and other shell firms.

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From 2010 through 2013, Taylor and his associates sought for and received from the IRS more than $7.2 million in tax credits for renewable fuel that Shintan reportedly generated, of which Taylor earned $4.5 million himself. Shintan, of course, generated no qualified renewable fuel, nor any fuel at all.

Taylor defrauded not just the government, but all U.S. taxpayers, according to the IRS special investigator on the case. 5

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