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IRS.gov Website
Publication 225
taxmap/pubs/p225-063.htm#en_us_publink1000218848

Chapter 14
Excise Taxes(p80)

Reminders(p80)


taxmap/pubs/p225-063.htm#en_us_publink1000218850
Kerosene for use in aviation.(p80)
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.
EIC
Congress may take additional legislative action that would impact excise tax items for 2011, particularly the fuels listed in Table 14-1. To find out if additional legislation was enacted, go to IRS.gov, and type "excise tax" (or a particular fuel) in the searchbox.

taxmap/pubs/p225-063.htm#TXMP697c8742Introduction

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.
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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Useful items

You may want to see:


Publication
 510 Excise Taxes
Form (and Instructions)
 720: Quarterly Federal Excise Tax Return
 4136: Credit for Federal Tax Paid on Fuels
 8849: Claim for Refund of Excise Taxes
See chapter 16 for information about getting publications and forms.
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Fuels Used in Farming(p81)

rule
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.
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Farm.(p81)

rule
A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, and truck farms, orchards, plantations, ranches, nurseries, ranges, and feed yards for fattening cattle. It also includes structures such as greenhouses used primarily for raising agricultural or horticultural commodities. A fish farm is an area where fish are grown or raised — not merely caught or harvested.
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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.

Fuel UsedOn a Farm for Farming PurposesOff-Highway Business UseHousehold Use or Use Other Than as a Fuel1
GasolineCredit onlyCredit or refundNone
Aviation gasolineCredit onlyNoneNone
Undyed diesel fuel and undyed keroseneCredit or refund by the farmer onlyCredit or refund2Credit or refund2
Kerosene for use in aviationCredit or refundNoneNone
Dyed diesel fuel and dyed keroseneNoneNoneNone
Other Fuels (including alternative fuels)3Credit or refund by the farmer onlyCredit or refundNone
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, liquid natural gas (LNG), liquefied gas derived from biomass, and compressed gas derived from biomass.
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Farming purposes.(p81)

rule
As the owner, tenant, or operator and the ultimate purchaser of fuel that you purchased, you use the fuel on a farm for farming purposes if you use it in any of the following ways.
  1. To cultivate the soil or to raise or harvest any agricultural or horticultural commodity.
  2. To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife.
  3. To operate, manage, conserve, improve, or maintain your farm and its tools and equipment.
  4. 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.
  5. 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.
If any other person, such as a neighbor or custom operator, performs a service for you on your farm for any of the purposes included in list items (1) or (2), earlier, you are considered to be the ultimate purchaser who used the fuel on a farm for farming purposes. Therefore, you can still claim the credit or refund for the fuel so used. However, see Custom application of fertilizer and pesticide, later. If the other person performs any other services for you on your farm for purposes not included in list items (1) or (2) above, no one can claim the credit or refund for fuel used on your farm for those other services.
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Example.(p81)

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.
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Buyer of fuel, including undyed diesel fuel or undyed kerosene.(p81)
If doubt exists whether the owner, tenant, or operator of the farm bought the fuel, determine who actually bore the cost of the fuel. For example, if the owner of a farm and his or her tenant equally share the cost of gasoline used on the farm, each can claim a credit for the tax on half the fuel used.
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Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuels).(p81)
The farmer is the only person who can make a claim for credit or refund for the tax on undyed diesel fuel, undyed kerosene, or Other Fuels (including alternative fuels) used for farming purposes. Also see Dyed Diesel Fuel and Dyed Kerosene, later.
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Custom application of fertilizer and pesticide.(p81)
Fuel used on a farm for farming purposes includes fuel used in the application of fertilizer, pesticides, or other substances, including aerial applications. Generally, the applicator is treated as having used the fuel on a farm for farming purposes. For aviation gasoline, the aerial applicator makes the claim as the ultimate purchaser. For kerosene used in aviation, the ultimate purchaser may make the claim or waive the right to make the claim to the registered ultimate vendor. A sample waiver is included as Model Waiver L in the appendix of Publication 510.
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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Fuel not used for farming.(p81)
You do not use fuel on a farm for farming purposes when you use it in any of the following ways.
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All-terrain vehicles (ATVs).(p82)

rule
Fuel used in ATVs on a farm for farming purposes, discussed earlier, is eligible for a credit or refund of excise taxes on the fuel. Fuel used in ATVs for nonfarming purposes is not eligible for a credit or refund of the taxes. If ATVs are used both for farming and nonfarming purposes, only that portion of the fuel used for farming purposes is eligible for the credit or refund.