Courts reject IRS's "one-claim" rule for sec. 34 fuel tax credits.

• Author: Madden, David

Two courts recently held that a taxpayer may file an amended Form 4136, Credit for Federal Tax Paid On Fuels, for a Sec. 34 fuel excise tax credit claim on its income tax return, even though the taxpayer claimed a credit earlier for the same type of fuel use for the same tax year. In Schlumberger Technology Corp., 47 Fed. Cl. 298 (2000), the Court of Federal Claims rejected the IRS's argument that a statutory "one-claim" rule governing fuel tax refunds under Sec. 6427 governs a taxpayer's right to an income tax credit under Sec. 34. In February 2001, the Tax Court agreed with the Court of Federal Claims in FPL Group, Inc., 116 TC No. 7.

The Service has been increasingly intent in recent years on enforcing a one-claim rule for refunds or credits arising from nontaxable use of motor fuels. Gasoline, undyed diesel fuel and undyed kerosene are taxed under Sec. 4081, generally on their removal from a terminal at the end of a refinery/ pipeline/terminal system, and aviation fuel is taxed under Sec. 4091, generally when a producer or registered wholesaler sells it. Thus, the price at the pump reflects the previously imposed Federal tax (18.4 cents a gallon for gasoline, 24.4 cents a gallon for diesel fuel and kerosene and 21.9 cents a gallon for aviation fuel).

Secs. 6421 and 6427 allow certain "exempt" fuel users to claim a refund equal to all or a portion of the excise tax paid on the fuel used. Exempt uses include off-highway business use, use of gasoline by state and local governments, use by nonprofit educational organizations, use of diesel fuel or kerosene as heating fuel, use in certain buses and use of aviation fuel in commercial air transportation. Generally, a user can file a refund claim for any calendar quarter in the tax year in which it has accumulated fuel excise tax claims of at least $750 under Secs. 6421 and 6427. Taxpayers can use Form 8849, Claim for Refund of Excise Taxes, or Form 720, Quarterly Federal Excise Tax Return, and must make claims before the end of the calendar quarter following the last quarter in which the exempt use of the fuel occurred.

Sec. 34 allows a refundable credit against income tax for any fuel the taxpayer could have claimed under Sec. 6421 or 6427, but did not do so. (A credit is also allowed for gasoline used on farms, for which the taxpayer cannot make quarterly refund claims.) The taxpayer uses Form 4136, Credit for Federal Tax Paid on Fuels, attaching the form to its income tax return. A taxpayer...