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PCS Tax Insight

Private Company Services Publication

 

 

May 19, 2011

 

 

Forklifts, golden eggs? – an easy and quick refundable credit may be available for those taxpayers that use a forklift in warehouse

 

 

In 2005, Congress enacted the Safe, Accountable, Flexible and Efficient

Transportation Equity Act of 2005 to encourage the use of alternative fuels. The legislation created the Alternative

Fuel credit (AFC), a 50 cents-per-gallon credit for alternative fuels. The credit is

scheduled to expire on December 31, 2011. However, this credit has been extended several times by Congress

since its original enactment in 2006.

As recently as December 2010, the

credit was extended by the Tax Relief,

Unemployment Insurance

Reauthorization, and Job Creation Act of 2010 (H.R. 4853).

 

The credit may provide significant tax benefit to private companies that use

forklifts, loaders, and other strictly off-

highway machinery in the course of


 

business. The credit is easy to claim

and is refundable. Some taxpayers may be able to accelerate the benefits of the

credit by claiming the credit on a weekly basis.

Eligible fuel

The AFC is available for users or sellers

of alternative fuels used in off-road,

business vehicles. Alternative fuels are

defined in Internal Revenue Code section 6426(d)(2) and specifically

include liquefied petroleum gas,

otherwise known as propane. Under

section 6426(d)(2), propane qualifies as

a special motor fuel (now alternative fuel). It also defines “motor vehicle” using the definition in Reg. sec. 48.4041-8(c), which specifically

includes forklifts as motor vehicles.



Therefore, the sale of propane for use in

a forklift qualifies for the AFC, if all

other conditions are met, as discussed below.

How to claim the credit

The credit amount is the product of 50

cents and the number of gallons of

alternative fuel used to power the

motor vehicle. If the alternative fuel is

not in liquid form, the credit is

computed using the gasoline gallon equivalent in terms of energy value.

 

The credit is claimed as either an excise tax credit or an income tax credit.

Amounts that exceed tax liability are

fully refundable. The general

procedure for claiming the credit is as

follows:


Acceleration

Taxpayers with no excise tax liability

may be able to accelerate their AFC

refund claim from an annual basis with

Form 4136 to a quarterly basis using

Form 8849, Claim for Refund of Excise

Taxes. Form 8849 is due on the last day of the first quarter following the

quarter in which the claimant used or

sold the alternative fuel included in the

claim. This is especially beneficial to qualifying taxpayers that extend their federal income tax returns, which are

often filed eight and a half months after year-end.

 

If a taxpayer’s AFC claim is greater than

$200, and the claim spans at least one week, the taxpayer can file Form 8849

to claim credits on a weekly basis, further accelerating the timing of


1.

Taxpayer must register with the

IRS by filing Form 637,

Application for Registration

(For Certain Excise Tax

Activities), as an “Alternative

Fueler.”


refunds.

 

Even if a taxpayer chooses not to

accelerate the credit claim, any amount

claimed on the annual federal income tax return may be used to reduce the

amount of required estimated tax


2. If the taxpayer has an excise tax

liability, the AFC is claimed on Form 720, Quarterly Federal Excise Tax Return.

 

3. After offsetting any excise tax

liability, the excess of the AFC

may be taken as a yearly

income tax credit on Form

4136, Credit for Federal Tax Paid on Fuels, attached to the

annual federal income tax return.


payments resulting in the current period cash savings.

 

Claiming the credit in past years

Taxpayers with pre-2010 tax years for

which the statute of limitations for

refunds has not expired that qualify for

the AFC still may be able to claim the credit. The taxpayer will first need to

register with the IRS, and either file

Form 720X, or file Form 4136 with an

amended federal income tax for that tax

year. The registration need not have

been in place at the time of the original. 

 

 

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fuel use; registration is required only by

the time the claim is filed.

 

Of particular note are claims made for the 2010 tax year. Originally, the AFC

was available only through tax years ending in 2009; however, Congress

extended the credit through December 31, 2011, with retroactive applicability to alternative fuel used or sold during

2010. IRS Notice 2011-10, 2011-6

I.R.B. 463, provides a special procedure to file a one-time claim for credit for the

alternative fuel used or sold during

2010. If a taxpayer meets certain

requirements included in this notice, the taxpayer is eligible to file all of its

2010 claims for the credit on one Form 8849, on or before August 1, 2011. Taxpayers that filed “protective” or

anticipatory claims in 2010 must re-file their claims as specified in Notice 2011- 10.

 

A key to a possible tax

examination: record

retention

All AFC claimants should maintain

proper documentation to substantiate

the claims made. In the event of an IRS examination, the primary inquiry from the IRS will relate to the acquisition of

the alternative fuel. In the case of propane, supplies are most often

obtained through an outside vendor, so the invoices from the vendor should be

retained for all claim periods and should state clearly the volume of


propane purchased. The IRS also may

request documentation of actual use or

sale of the alternative fuel. For

propane, if there are no direct records

of the fuel used, secondary records may

be useful, such as types of forklifts

used, average propane consumption per

type of forklift, and average hours of use for forklifts.

Observations

S corporations and electing large

partnerships that claim the AFC using Form 4136 receive the credit and any related refund at the entity level.

Partnerships that do not claim the

credit using Form 8849 or Schedule C

of Form 720 must include as a footnote

on Schedule K-1 the necessary

information for partners to claim their allocated share of the credit.

How PwC can help

PwC may be able to assist taxpayers in

claiming the AFC by determining

eligibility for the credit and assisting

with registration and credit

acceleration. PwC personnel also may help taxpayers analyze the best way to claim a refund or credit for the sale or

use of alternative fuels, as well as by preparing or reviewing the necessary

forms. For clients that have never claimed the AFC, PwC can review

records to identify if there is an

opportunity to obtain a refund by filing amended returns.


 

 

 

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For more information, please do not hesitate to contact:    

Richard P. Stovsky       216-875-3111                 richard.p.stovsky@us.pwc.com  

Kenneth Hunter           203-539-4218                 kenneth.hunter@us.pwc.com  

Daniel J. Wiles            201-414-4586                 dan.wiles@us.pwc.com  

Jason Spitzer              202-346-5287                 jason.spitzer@us.pwc.com  

 

This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.  SOLICITATION  © 2011 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.    PwC                              

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