Re-Fueling the Propane Tax Credit
By Ryan Vaughan and Owen Liu
March 3, 2020
In December 2019, The Further Consolidated Appropriations Act of 2020 reinstated several fuel tax credits, including retroactively extending the alternative fuel tax credit, which expired in 2017. On January 15, 2020, the Internal Revenue Service issued Notice 2020-8 (the “Notice”), which provides a process for eligible taxpayers to make a one-time claim for the credits and payments allowed for alternative fuel sold and used during calendar year 2018 and 2019.
Under Section 4 of the Notice, the 2018 and/or 2019 alternative fuel tax credit can be claimed by filing Form 8849 with Schedule 3. The taxpayer has to be registered with the IRS for the Excise Tax and maintain adequate records to substantiate eligibility. Under Section 8 of the Notice, the procedures for claiming the alternative fuel income tax credit by filing Form 4136 do not change.
Additionally, the Notice requires all claims for 2018 and/or 2019 eligible fuel credits to be made on a single Form 8849 and Schedule 3, which must be filed between February 14 and August 11, 2020. As discussed in the prior paragraph, taxpayers can still file for 2019 eligible fuel credits with Form 4136, subject to the due date of the respective income tax return.
When filing for the 2018 alternative fuel tax credit, either Form 8849 or Form 4136 can be used (but not both). Filing Form 8849 may be more efficient than filing Form 4136, since filing Form 4136 also requires amending the 2018 income tax returns.
Some taxpayers use alternative fuel in their trade or business, but they are not required to pay excise tax directly to the IRS, thus they have no excise tax liability. Since Form 8849 is used to claim credit against the excise tax, will a taxpayer receive a refund by filing Form 8849, even if the taxpayer did not have excise tax liability? Based on the Notice, it appears that in these cases the IRS will issue a refund in lieu of an alternative fuel income tax credit.
Partnerships will file Form 8849, rather than the partners. This is because while a partnership is disregarded for federal income tax purposes, it is regarded as a taxable entity for excise tax purposes.
Internal Revenue Code Section 6424(d) allows an alternative fuel tax credit of 50 cents for each gallon of alternative fuel use claimed by eligible taxpayers. Propane, also known as Liquified Petroleum Gas, is one of the eligible alternative fuels, among others such as P Series fuels, Compressed Natural Gas, and Liquified Hydrogen. The credit is commonly applicable to taxpayers who use propane to fuel vehicles not required to be registered for highway use, such as forklifts.
The alternative fuel tax credit is used to reduce the excise tax liability for the period of the claim, typically during the calendar year. If the alternative fuel tax credit exceeds the taxpayer’s excise tax liability, then the excess amount is allowed as an alternative fuel income tax credit.
Please contact your Mazars USA LLP professional for additional information.