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Income Tax Return Filing

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Income Tax Return Filing

Income tax return filing 1. Income tax return filing   Fuel Taxes Table of Contents Definitions Information Returns Registration RequirementsAdditional information. Income tax return filing Gasoline and Aviation GasolineTaxable Events Gasoline Blendstocks Diesel Fuel and KeroseneTaxable Events Dyed Diesel Fuel and Dyed Kerosene Alaska and Feedstocks Back-up Tax Diesel-Water Fuel Emulsion Kerosene for Use in AviationTaxable Events Liability For Tax Surtax on any liquid used in a fractional ownership program aircraft as fuel Certificate for Commercial Aviation and Exempt UsesExempt use. Income tax return filing Reseller statement. Income tax return filing Other Fuels (Including Alternative Fuels)Taxable Events Compressed Natural Gas (CNG)Taxable Events Fuels Used on Inland WaterwaysFishing vessels. Income tax return filing Deep-draft ocean-going vessels. Income tax return filing Passenger vessels. Income tax return filing Ocean-going barges. Income tax return filing State or local governments. Income tax return filing Cellulosic or Second Generation Biofuel Not Used as Fuel Biodiesel Sold as But Not Used as Fuel Definitions Excise taxes are imposed on all the following fuels. Income tax return filing Gasoline, including aviation gasoline and gasoline blendstocks. Income tax return filing Diesel fuel, including dyed diesel fuel. Income tax return filing Diesel-water fuel emulsion. Income tax return filing Kerosene, including dyed kerosene and kerosene used in aviation. Income tax return filing Other Fuels (including alternative fuels). Income tax return filing Compressed natural gas (CNG). Income tax return filing Fuels used in commercial transportation on inland waterways. Income tax return filing Any liquid used in a fractional ownership program aircraft as fuel. Income tax return filing The following terms are used throughout the discussion of fuel taxes. Income tax return filing Other terms are defined in the discussion of the specific fuels to which they pertain. Income tax return filing Agri-biodiesel. Income tax return filing   Agri-biodiesel means biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and camelina, and from animal fats. Income tax return filing Approved terminal or refinery. Income tax return filing   This is a terminal operated by a registrant that is a terminal operator or a refinery operated by a registrant that is a refiner. Income tax return filing Biodiesel. Income tax return filing   Biodiesel means the monoalkyl esters of long chain fatty acids derived from plant or animal matter that meet the registration requirements for fuels and fuel additives established by the Environmental Protection Agency (EPA) under section 211 of the Clean Air Act, and the requirements of the American Society of Testing Materials (ASTM) D6751. Income tax return filing Blended taxable fuel. Income tax return filing   This means any taxable fuel produced outside the bulk transfer/terminal system by mixing taxable fuel on which excise tax has been imposed and any other liquid on which excise tax has not been imposed. Income tax return filing This does not include a mixture removed or sold during the calendar quarter if all such mixtures removed or sold by the blender contain less than 400 gallons of a liquid on which the tax has not been imposed. Income tax return filing Blender. Income tax return filing   This is the person that produces blended taxable fuel. Income tax return filing Bulk transfer. Income tax return filing   This is the transfer of taxable fuel by pipeline or vessel. Income tax return filing Bulk transfer/terminal system. Income tax return filing   This is the taxable fuel distribution system consisting of refineries, pipelines, vessels, and terminals. Income tax return filing Fuel in the supply tank of any engine, or in any tank car, railcar, trailer, truck, or other equipment suitable for ground transportation is not in the bulk transfer/terminal system. Income tax return filing Cellulosic biofuel. Income tax return filing   Cellulosic biofuel means any liquid fuel produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis that meets the registration requirements for fuels and fuel additives established by the EPA under section 211 of the Clean Air Act. Income tax return filing Cellulosic biofuel does not include any alcohol with a proof of less than 150 (without regard to denaturants). Income tax return filing For fuels sold or used after December 31, 2009, cellulosic biofuel does not include fuel of which more than 4% (determined by weight) is any combination of water and sediment, fuel of which the ash content is more than 1%, or fuel that has an acid number greater than 25. Income tax return filing Also see Second generation biofuel below. Income tax return filing Diesel-water fuel emulsion. Income tax return filing   A diesel-water fuel emulsion means an emulsion at least 14% of which is water. Income tax return filing The emulsion additive used to produce the fuel must be registered by a United States manufacturer with the EPA under section 211 of the Clean Air Act as in effect on March 31, 2003. Income tax return filing Dry lease aircraft exchange. Income tax return filing   See later, under Surtax on any liquid used in a fractional ownership program aircraft as fuel. Income tax return filing Enterer. Income tax return filing   This is the importer of record (under customs law) for the taxable fuel. Income tax return filing However, if the importer of record is acting as an agent, such as a customs broker, the person for whom the agent is acting is the enterer. Income tax return filing If there is no importer of record, the owner at the time of entry into the United States is the enterer. Income tax return filing Entry. Income tax return filing   Taxable fuel is entered into the United States when it is brought into the United States and applicable customs law requires that it be entered for consumption, use, or warehousing. Income tax return filing This does not apply to fuel brought into Puerto Rico (which is part of the U. Income tax return filing S. Income tax return filing customs territory), but does apply to fuel brought into the United States from Puerto Rico. Income tax return filing Fractional ownership aircraft program and fractional program aircraft. Income tax return filing   See later, under Surtax on any liquid used in a fractional ownership program aircraft as fuel. Income tax return filing Measurement of taxable fuel. Income tax return filing   Volumes of taxable fuel can be measured on the basis of actual volumetric gallons or gallons adjusted to 60 degrees Fahrenheit. Income tax return filing Other fuels. Income tax return filing   See Other Fuels (Including Alternative Fuels), later, and Alternative Fuel Credit and Alternative Fuel Mixture Credit in chapter 2. Income tax return filing Pipeline operator. Income tax return filing   This is the person that operates a pipeline within the bulk transfer/terminal system. Income tax return filing Position holder. Income tax return filing   This is the person that holds the inventory position in the taxable fuel in the terminal, as reflected in the records of the terminal operator. Income tax return filing You hold the inventory position when you have a contractual agreement with the terminal operator for the use of the storage facilities and terminaling services for the taxable fuel. Income tax return filing A terminal operator that owns taxable fuel in its terminal is a position holder. Income tax return filing Rack. Income tax return filing   This is a mechanism capable of delivering fuel into a means of transport other than a pipeline or vessel. Income tax return filing Refiner. Income tax return filing   This is any person that owns, operates, or otherwise controls a refinery. Income tax return filing Refinery. Income tax return filing   This is a facility used to produce taxable fuel and from which taxable fuel may be removed by pipeline, by vessel, or at a rack. Income tax return filing However, this term does not include a facility where only blended fuel, and no other type of fuel, is produced. Income tax return filing For this purpose, blended fuel is any mixture that would be blended taxable fuel if produced outside the bulk transfer/terminal system. Income tax return filing Registrant. Income tax return filing   This is a taxable fuel registrant (see Registration Requirements, later). Income tax return filing Removal. Income tax return filing   This is any physical transfer of taxable fuel. Income tax return filing It also means any use of taxable fuel other than as a material in the production of taxable fuel or Other Fuels. Income tax return filing However, taxable fuel is not removed when it evaporates or is otherwise lost or destroyed. Income tax return filing Renewable diesel. Income tax return filing   See Renewable Diesel Credits in chapter 2. Income tax return filing Sale. Income tax return filing   For taxable fuel not in a terminal, this is the transfer of title to, or substantial incidents of ownership in, taxable fuel to the buyer for money, services, or other property. Income tax return filing For taxable fuel in a terminal, this is the transfer of the inventory position if the transferee becomes the position holder for that taxable fuel. Income tax return filing Second generation biofuel. Income tax return filing   This is any liquid fuel derived by, or from, qualified feedstocks, and meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U. Income tax return filing S. Income tax return filing C. Income tax return filing 7545). Income tax return filing It also includes certain liquid fuel which is derived by, or from, any cultivated algae, cyanobacteria, or lemna. Income tax return filing It is not alcohol of less than 150 proof (disregard any added denaturants). Income tax return filing See Form 6478 for more information. Income tax return filing State. Income tax return filing   This includes any state, any of its political subdivisions, the District of Columbia, and the American Red Cross. Income tax return filing An Indian tribal government is treated as a state only if transactions involve the exercise of an essential tribal government function. Income tax return filing Taxable fuel. Income tax return filing   This means gasoline, diesel fuel, and kerosene. Income tax return filing Terminal. Income tax return filing   This is a storage and distribution facility supplied by pipeline or vessel, and from which taxable fuel may be removed at a rack. Income tax return filing It does not include a facility at which gasoline blendstocks are used in the manufacture of products other than finished gasoline if no gasoline is removed from the facility. Income tax return filing A terminal does not include any facility where finished gasoline, diesel fuel, or kerosene is stored if the facility is operated by a registrant and all such taxable fuel stored at the facility has been previously taxed upon removal from a refinery or terminal. Income tax return filing Terminal operator. Income tax return filing   This is any person that owns, operates, or otherwise controls a terminal. Income tax return filing Throughputter. Income tax return filing   This is any person that is a position holder or that owns taxable fuel within the bulk transfer/terminal system (other than in a terminal). Income tax return filing Vessel operator. Income tax return filing   This is the person that operates a vessel within the bulk transfer/terminal system. Income tax return filing However, vessel does not include a deep draft ocean-going vessel. Income tax return filing Information Returns Form 720-TO and Form 720-CS are information returns used to report monthly receipts and disbursements of liquid products. Income tax return filing A liquid product is any liquid transported into storage at a terminal or delivered out of a terminal. Income tax return filing For a list of products, see the product code table in the Instructions for Forms 720-TO and 720-CS. Income tax return filing The returns are due the last day of the month following the month in which the transaction occurs. Income tax return filing Generally, these returns can be filed on paper or electronically. Income tax return filing For information on filing electronically, see Publication 3536, Motor Fuel Excise Tax EDI Guide. Income tax return filing Publication 3536 is only available on the IRS website. Income tax return filing Form 720-TO. Income tax return filing   This information return is used by terminal operators to report receipts and disbursements of all liquid products to and from all approved terminals. Income tax return filing Each terminal operator must file a separate form for each approved terminal. Income tax return filing Form 720-CS. Income tax return filing   This information return must be filed by bulk transport carriers (barges, vessels, and pipelines) who receive liquid product from an approved terminal or deliver liquid product to an approved terminal. Income tax return filing Registration Requirements The following discussion applies to excise tax registration requirements for activities relating to fuels only. Income tax return filing See Form 637 for other persons who must register and for more information about registration. Income tax return filing Persons that are required to be registered. Income tax return filing   You are required to be registered if you are a: Blender; Enterer; Pipeline operator; Position holder; Refiner; Terminal operator; Vessel operator; Producer or importer of alcohol, biodiesel, agri-biodiesel, and renewable diesel; or Producer of cellulosic or second generation biofuel. Income tax return filing Persons that may register. Income tax return filing   You may, but are not required to, register if you are a: Feedstock user, Industrial user, Throughputter that is not a position holder, Ultimate vendor, Diesel-water fuel emulsion producer, Credit card issuer, or Alternative fuel claimant. Income tax return filing Ultimate vendors, credit card issuers, and alternative fuel claimants do not need to be registered to buy or sell fuel. Income tax return filing However, they must be registered to file claims for certain sales and uses of fuel. Income tax return filing See Form 637 for more information. Income tax return filing Taxable fuel registrant. Income tax return filing   This is an enterer, an industrial user, a refiner, a terminal operator, or a throughputter who received a Letter of Registration under the excise tax registration provisions and whose registration has not been revoked or suspended. Income tax return filing The term registrant as used in the discussions of these fuels means a taxable fuel registrant. Income tax return filing Additional information. Income tax return filing   See the Form 637 instructions for the information you must submit when you apply for registration. Income tax return filing Failure to register. Income tax return filing   The penalty for failure to register if you must register, unless due to reasonable cause, is $10,000 for the initial failure, and then $1,000 each day thereafter you fail to register. Income tax return filing Gasoline and Aviation Gasoline Gasoline. Income tax return filing   Gasoline means all products commonly or commercially known or sold as gasoline with an octane rating of 75 or more that are suitable for use as a motor fuel. Income tax return filing Gasoline includes any gasoline blend other than: Qualified ethanol and methanol fuel (at least 85 percent of the blend consists of alcohol produced from coal, including peat), Partially exempt ethanol and methanol fuel (at least 85 percent of the blend consists of alcohol produced from natural gas), or Denatured alcohol. Income tax return filing Gasoline also includes gasoline blendstocks, discussed later. Income tax return filing Aviation gasoline. Income tax return filing   This means all special grades of gasoline suitable for use in aviation reciprocating engines and covered by ASTM specification D910 or military specification MIL-G-5572. Income tax return filing Taxable Events The tax on gasoline is $. Income tax return filing 184 per gallon. Income tax return filing The tax on aviation gasoline is $. Income tax return filing 194 per gallon. Income tax return filing When used in a fractional ownership program aircraft, gasoline also is subject to a surtax of $. Income tax return filing 141 per gallon. Income tax return filing See Surtax on any liquid used in a fractional ownership program aircraft as fuel, later. Income tax return filing Tax is imposed on the removal, entry, or sale of gasoline. Income tax return filing Each of these events is discussed later. Income tax return filing Also, see the special rules that apply to gasoline blendstocks, later. Income tax return filing If the tax is paid on the gasoline in more than one event, a refund may be allowed for the “second” tax paid. Income tax return filing See Refunds of Second Tax in chapter 2. Income tax return filing Removal from terminal. Income tax return filing   All removals of gasoline at a terminal rack are taxable. Income tax return filing The position holder for that gasoline is liable for the tax. Income tax return filing Two-party exchanges. Income tax return filing   In a two-party exchange, the receiving person, not the delivering person, is liable for the tax imposed on the removal of taxable fuel from the terminal at the terminal rack. Income tax return filing A two-party exchange means a transaction (other than a sale) where the delivering person and receiving person are both taxable fuel registrants and all of the following apply. Income tax return filing The transaction includes a transfer from the delivering person, who holds the inventory position for the taxable fuel in the terminal as reflected in the records of the terminal operator. Income tax return filing The exchange transaction occurs before or at the same time as removal across the rack by the receiving person. Income tax return filing The terminal operator in its records treats the receiving person as the person that removes the product across the terminal rack for purposes of reporting the transaction on Form 720-TO. Income tax return filing The transaction is subject to a written contract. Income tax return filing Terminal operator's liability. Income tax return filing   The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator and is not a registrant. Income tax return filing   However, a terminal operator meeting all the following conditions at the time of the removal will not be liable for the tax. Income tax return filing The terminal operator is a registrant. Income tax return filing The terminal operator has an unexpired notification certificate (discussed later) from the position holder. Income tax return filing The terminal operator has no reason to believe any information on the certificate is false. Income tax return filing Removal from refinery. Income tax return filing   The removal of gasoline from a refinery is taxable if the removal meets either of the following conditions. Income tax return filing It is made by bulk transfer and the refiner, the owner of the gasoline immediately before the removal, or the operator of the pipeline or vessel is not a registrant. Income tax return filing It is made at the refinery rack. Income tax return filing The refiner is liable for the tax. Income tax return filing Exception. Income tax return filing   The tax does not apply to a removal of gasoline at the refinery rack if all the following requirements are met. Income tax return filing The gasoline is removed from an approved refinery not served by pipeline (other than for receiving crude oil) or vessel. Income tax return filing The gasoline is received at a facility operated by a registrant and located within the bulk transfer/terminal system. Income tax return filing The removal from the refinery is by railcar. Income tax return filing The same person operates the refinery and the facility at which the gasoline is received. Income tax return filing Entry into the United States. Income tax return filing   The entry of gasoline into the United States is taxable if the entry meets either of the following conditions. Income tax return filing It is made by bulk transfer and the enterer or the operator of the pipeline or vessel is not a registrant. Income tax return filing It is not made by bulk transfer. Income tax return filing The enterer is liable for the tax. Income tax return filing Importer of record's liability. Income tax return filing   The importer of record is jointly and severally liable for the tax with the enterer if the importer of record is not the enterer of the taxable fuel and the enterer is not a taxable fuel registrant. Income tax return filing   However, an importer of record meeting both of the following conditions at the time of the entry will not be liable for the tax. Income tax return filing The importer of record has an unexpired notification certificate (discussed later) from the enterer. Income tax return filing The importer of record has no reason to believe any information in the certificate is false. Income tax return filing Customs bond. Income tax return filing   The customs bond will not be charged for the tax imposed on the entry of the gasoline if at the time of entry the surety has an unexpired notification certificate from the enterer and has no reason to believe any information in the certificate is false. Income tax return filing Removal from a terminal by unregistered position holder or unregistered pipeline or vessel operator. Income tax return filing   The removal by bulk transfer of gasoline from a terminal is taxable if the position holder for the gasoline or the operator of the pipeline or vessel is not a registrant. Income tax return filing The position holder is liable for the tax. Income tax return filing The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator. Income tax return filing However, see Terminal operator's liability under Removal from terminal, earlier, for an exception. Income tax return filing Bulk transfers not received at approved terminal or refinery. Income tax return filing   The removal by bulk transfer of gasoline from a terminal or refinery, or the entry of gasoline by bulk transfer into the United States, is taxable if the following conditions apply. Income tax return filing No tax was previously imposed (as discussed earlier) on any of the following events. Income tax return filing The removal from the refinery. Income tax return filing The entry into the United States. Income tax return filing The removal from a terminal by an unregistered position holder. Income tax return filing Upon removal from the pipeline or vessel, the gasoline is not received at an approved terminal or refinery (or at another pipeline or vessel). Income tax return filing   The owner of the gasoline when it is removed from the pipeline or vessel is liable for the tax. Income tax return filing However, an owner meeting all the following conditions at the time of the removal will not be liable for the tax. Income tax return filing The owner is a registrant. Income tax return filing The owner has an unexpired notification certificate (discussed later) from the operator of the terminal or refinery where the gasoline is received. Income tax return filing The owner has no reason to believe any information on the certificate is false. Income tax return filing The operator of the facility where the gasoline is received is liable for the tax if the owner meets these conditions. Income tax return filing The operator is jointly and severally liable if the owner does not meet these conditions. Income tax return filing Sales to unregistered person. Income tax return filing   The sale of gasoline located within the bulk transfer/terminal system to a person that is not a registrant is taxable if tax was not previously imposed under any of the events discussed earlier. Income tax return filing   The seller is liable for the tax. Income tax return filing However, a seller meeting all the following conditions at the time of the sale will not be liable for the tax. Income tax return filing   The seller is a registrant. Income tax return filing The seller has an unexpired notification certificate (discussed later) from the buyer. Income tax return filing The seller has no reason to believe any information on the certificate is false. Income tax return filing The buyer of the gasoline is liable for the tax if the seller meets these conditions. Income tax return filing The buyer is jointly and severally liable if the seller does not meet these conditions. Income tax return filing Exception. Income tax return filing   The tax does not apply to a sale if all of the following apply. Income tax return filing The buyer's principal place of business is not in the United States. Income tax return filing The sale occurs as the fuel is delivered into a transport vessel with a capacity of at least 20,000 barrels of fuel. Income tax return filing The seller is a registrant and the exporter of record. Income tax return filing The fuel was exported. Income tax return filing Removal or sale of blended gasoline. Income tax return filing   The removal or sale of blended gasoline by the blender is taxable. Income tax return filing See Blended taxable fuel under Definitions, earlier. Income tax return filing   The blender is liable for the tax. Income tax return filing The tax is figured on the number of gallons not previously subject to the tax on gasoline. Income tax return filing   Persons who blend alcohol with gasoline to produce an alcohol fuel mixture outside the bulk transfer/terminal system must pay the gasoline tax on the volume of alcohol in the mixture. Income tax return filing See Form 720 to report this tax. Income tax return filing You also must be registered with the IRS as a blender. Income tax return filing See Form 637. Income tax return filing   However, if an untaxed liquid is sold as taxed taxable fuel and that untaxed liquid is used to produce blended taxable fuel, the person that sold the untaxed liquid is jointly and severally liable for the tax imposed on the blender's sale or removal of the blended taxable fuel. Income tax return filing Notification certificate. Income tax return filing   The notification certificate is used to notify a person of the registration status of the registrant. Income tax return filing A copy of the registrant's letter of registration cannot be used as a notification certificate. Income tax return filing A model notification certificate is shown in the Appendix as Model Certificate C. Income tax return filing A notification certificate must contain all information necessary to complete the model. Income tax return filing   The certificate may be included as part of any business records normally used for a sale. Income tax return filing A certificate expires on the earlier of the date the registrant provides a new certificate, or the date the recipient of the certificate is notified that the registrant's registration has been revoked or suspended. Income tax return filing The registrant must provide a new certificate if any information on a certificate has changed. Income tax return filing Additional persons liable. Income tax return filing   When the person liable for the tax willfully fails to pay the tax, joint and several liability for the tax is imposed on: Any officer, employee, or agent of the person who is under a duty to ensure the payment of the tax and who willfully fails to perform that duty, or Anyone who willfully causes the person to fail to pay the tax. Income tax return filing Gasoline Blendstocks Gasoline blendstocks may be subject to $. Income tax return filing 001 per gallon LUST tax as discussed below. Income tax return filing Gasoline includes gasoline blendstocks. Income tax return filing The previous discussions apply to these blendstocks. Income tax return filing However, if certain conditions are met, the removal, entry, or sale of gasoline blendstocks are taxed at $. Income tax return filing 001 per gallon or are not subject to the excise tax. Income tax return filing Blendstocks. Income tax return filing   Gasoline blendstocks are: Alkylate, Butane, Butene, Catalytically cracked gasoline, Coker gasoline, Ethyl tertiary butyl ether (ETBE), Hexane, Hydrocrackate, Isomerate, Methyl tertiary butyl ether (MTBE), Mixed xylene (not including any separated isomer of xylene), Natural gasoline, Pentane, Pentane mixture, Polymer gasoline, Raffinate, Reformate, Straight-run gasoline, Straight-run naphtha, Tertiary amyl methyl ether (TAME), Tertiary butyl alcohol (gasoline grade) (TBA), Thermally cracked gasoline, and Toluene. Income tax return filing   However, gasoline blendstocks do not include any product that cannot be used without further processing in the production of finished gasoline. Income tax return filing Not used to produce finished gasoline. Income tax return filing   Gasoline blendstocks not used to produce finished gasoline are not taxable (other than LUST) if the following conditions are met. Income tax return filing Removals and entries not connected to sale. Income tax return filing   Nonbulk removals and entries are not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) is a registrant. Income tax return filing Removals and entries connected to sale. Income tax return filing   Nonbulk removals and entries are not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) is a registrant, and at the time of the sale, meets the following requirements. Income tax return filing The person has an unexpired certificate (discussed later) from the buyer. Income tax return filing The person has no reason to believe any information in the certificate is false. Income tax return filing Sales after removal or entry. Income tax return filing   The sale of a gasoline blendstock that was not subject to tax on its nonbulk removal or entry, as discussed earlier, is taxable. Income tax return filing The seller is liable for the tax. Income tax return filing However, the sale is not taxable if, at the time of the sale, the seller meets the following requirements. Income tax return filing The seller has an unexpired certificate (discussed next) from the buyer. Income tax return filing The seller has no reason to believe any information in the certificate is false. Income tax return filing Certificate of buyer. Income tax return filing   The certificate from the buyer certifies the gasoline blendstocks will not be used to produce finished gasoline. Income tax return filing The certificate may be included as part of any business records normally used for a sale. Income tax return filing A model certificate is shown in the Appendix as Model Certificate D. Income tax return filing The certificate must contain all information necessary to complete the model. Income tax return filing   A certificate expires on the earliest of the following dates. Income tax return filing The date 1 year after the effective date (not earlier than the date signed) of the certificate. Income tax return filing The date a new certificate is provided to the seller. Income tax return filing The date the seller is notified that the buyer's right to provide a certificate has been withdrawn. Income tax return filing The buyer must provide a new certificate if any information on a certificate has changed. Income tax return filing   The IRS may withdraw the buyer's right to provide a certificate if that buyer uses the gasoline blendstocks in the production of finished gasoline or resells the blendstocks without getting a certificate from its buyer. Income tax return filing Received at approved terminal or refinery. Income tax return filing   The nonbulk removal or entry of gasoline blendstocks received at an approved terminal or refinery is not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) meets all the following requirements. Income tax return filing The person is a registrant. Income tax return filing The person has an unexpired notification certificate (discussed earlier) from the operator of the terminal or refinery where the gasoline blendstocks are received. Income tax return filing The person has no reason to believe any information on the certificate is false. Income tax return filing Bulk transfers to registered industrial user. Income tax return filing   The removal of gasoline blendstocks from a pipeline or vessel is not taxable (other than LUST) if the blendstocks are received by a registrant that is an industrial user. Income tax return filing An industrial user is any person that receives gasoline blendstocks by bulk transfer for its own use in the manufacture of any product other than finished gasoline. Income tax return filing Credits or Refunds. Income tax return filing   A credit or refund of the gasoline tax may be allowable if gasoline is used for a nontaxable purpose or exempt use. Income tax return filing For more information, see chapter 2. Income tax return filing Diesel Fuel and Kerosene Generally, diesel fuel and kerosene are taxed in the same manner as gasoline (discussed earlier). Income tax return filing However, special rules (discussed later) apply to dyed diesel fuel and dyed kerosene, and to undyed diesel fuel and undyed kerosene sold or used in Alaska for certain nontaxable uses and undyed kerosene used for a feedstock purpose. Income tax return filing Diesel fuel means: Any liquid that without further processing or blending is suitable for use as a fuel in a diesel-powered highway vehicle or train, and Transmix. Income tax return filing A liquid is suitable for this use if the liquid has practical and commercial fitness for use in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train. Income tax return filing A liquid may possess this practical and commercial fitness even though the specified use is not the predominant use of the liquid. Income tax return filing However, a liquid does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train. Income tax return filing Diesel fuel does not include gasoline, kerosene, excluded liquid, No. Income tax return filing 5 and No. Income tax return filing 6 fuel oils covered by ASTM specification D396, or F-76 (Fuel Naval Distillate) covered by military specification MIL-F-16884. Income tax return filing An excluded liquid is either of the following. Income tax return filing A liquid that contains less than 4% normal paraffins. Income tax return filing A liquid with all the following properties. Income tax return filing Distillation range of 125 degrees Fahrenheit or less. Income tax return filing Sulfur content of 10 ppm or less. Income tax return filing Minimum color of +27 Saybolt. Income tax return filing Transmix means a by-product of refined products created by the mixing of different specification products during pipeline transportation. Income tax return filing Kerosene. Income tax return filing   This means any of the following liquids. Income tax return filing One of the two grades of kerosene (No. Income tax return filing 1-K and No. Income tax return filing 2-K) covered by ASTM specification D3699. Income tax return filing Kerosene-type jet fuel covered by ASTM specification D1655 or military specification MIL-DTL-5624T (Grade JP-5) or MIL-DTL-83133E (Grade JP-8). Income tax return filing See Kerosene for Use in Aviation, later. Income tax return filing   However, kerosene does not include excluded liquid, discussed earlier. Income tax return filing   Kerosene also includes any liquid that would be described above but for the presence of a dye of the type used to dye kerosene for a nontaxable use. Income tax return filing Diesel-powered highway vehicle. Income tax return filing   This is any self-propelled vehicle designed to carry a load over public highways (whether or not also designed to perform other functions) and propelled by a diesel-powered engine. Income tax return filing Specially designed mobile machinery for nontransportation functions and vehicles specially designed for off-highway transportation are generally not considered diesel-powered highway vehicles. Income tax return filing For more information about these vehicles and for information about vehicles not considered highway vehicles, see Off-Highway Business Use (No. Income tax return filing 2) in chapter 2. Income tax return filing Diesel-powered train. Income tax return filing   This is any diesel-powered equipment or machinery that rides on rails. Income tax return filing The term includes a locomotive, work train, switching engine, and track maintenance machine. Income tax return filing Taxable Events The tax on diesel fuel and kerosene is $. Income tax return filing 244 per gallon. Income tax return filing It is imposed on the removal, entry, or sale of diesel fuel and kerosene. Income tax return filing Each of these events is discussed later. Income tax return filing Only the $. Income tax return filing 001 LUST tax applies to dyed diesel fuel and dyed kerosene, discussed later. Income tax return filing If the tax is paid on the diesel fuel or kerosene in more than one event, a refund may be allowed for the “second” tax paid. Income tax return filing See Refunds of Second Tax in chapter 2. Income tax return filing Use in certain intercity and local buses. Income tax return filing   Dyed diesel fuel and dyed kerosene cannot be used in certain intercity and local buses. Income tax return filing A claim for $. Income tax return filing 17 per gallon may be made by the registered ultimate vendor (under certain conditions) or the ultimate purchaser for undyed diesel fuel or undyed kerosene sold for use in certain intercity or local buses. Income tax return filing An intercity or local bus is a bus engaged in furnishing (for compensation) passenger land transportation available to the general public. Income tax return filing The bus must be engaged in one of the following activities. Income tax return filing Scheduled transportation along regular routes regardless of the size of the bus. Income tax return filing Nonscheduled transportation if the seating capacity of the bus is at least 20 adults (not including the driver). Income tax return filing A bus is available to the general public if the bus is available for hire to more than a limited number of persons, groups, or organizations. Income tax return filing Removal from terminal. Income tax return filing   All removals of diesel fuel and kerosene at a terminal rack are taxable. Income tax return filing The position holder for that fuel is liable for the tax. Income tax return filing Two-party exchanges. Income tax return filing   In a two-party exchange, the receiving person, not the delivering person, is liable for the tax imposed on the removal of taxable fuel from the terminal at the terminal rack. Income tax return filing A two-party exchange means a transaction (other than a sale) where the delivering person and receiving person are both taxable fuel registrants and all of the following apply. Income tax return filing The transaction includes a transfer from the delivering person, who holds the inventory position for the taxable fuel in the terminal as reflected in the records of the terminal operator. Income tax return filing The exchange transaction occurs before or at the same time as completion of removal across the rack by the receiving person. Income tax return filing The terminal operator in its records treats the receiving person as the person that removes the product across the terminal rack for purposes of reporting the transaction on Form 720-TO. Income tax return filing The transaction is subject to a written contract. Income tax return filing Terminal operator's liability. Income tax return filing   The terminal operator is jointly and severally liable for the tax if the terminal operator provides any person with any bill of lading, shipping paper, or similar document indicating that diesel fuel or kerosene is dyed (discussed later). Income tax return filing   The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator and is not a registrant. Income tax return filing However, a terminal operator will not be liable for the tax in this situation if, at the time of the removal, the following conditions are met. Income tax return filing The terminal operator is a registrant. Income tax return filing The terminal operator has an unexpired notification certificate (discussed under Gasoline) from the position holder. Income tax return filing The terminal operator has no reason to believe any information on the certificate is false. Income tax return filing Removal from refinery. Income tax return filing   The removal of diesel fuel or kerosene from a refinery is taxable if the removal meets either of the following conditions. Income tax return filing It is made by bulk transfer and the refiner, the owner of the fuel immediately before the removal, or the operator of the pipeline or vessel is not a registrant. Income tax return filing It is made at the refinery rack. Income tax return filing The refiner is liable for the tax. Income tax return filing Exception. Income tax return filing   The tax does not apply to a removal of diesel fuel or kerosene at the refinery rack if all the following conditions are met. Income tax return filing The diesel fuel or kerosene is removed from an approved refinery not served by pipeline (other than for receiving crude oil) or vessel. Income tax return filing The diesel fuel or kerosene is received at a facility operated by a registrant and located within the bulk transfer/terminal system. Income tax return filing The removal from the refinery is by: Railcar and the same person operates the refinery and the facility at which the diesel fuel or kerosene is received, or For diesel fuel only, a trailer or semi-trailer used exclusively to transport the diesel fuel from a refinery (described in (1)) to a facility (described in (2)) less than 20 miles from the refinery. Income tax return filing Entry into the United States. Income tax return filing   The entry of diesel fuel or kerosene into the United States is taxable if the entry meets either of the following conditions. Income tax return filing It is made by bulk transfer and the enterer or the operator of the pipeline or vessel is not a registrant. Income tax return filing It is not made by bulk transfer. Income tax return filing The enterer is liable for the tax. Income tax return filing Importer of record's liability. Income tax return filing   The importer of record is jointly and severally liable for the tax with the enterer if the importer of record is not the enterer of the taxable fuel and the enterer is not a taxable fuel registrant. Income tax return filing   However, an importer of record meeting both of the following conditions at the time of the entry will not be liable for the tax. Income tax return filing The importer of record has an unexpired notification certificate (discussed under Gasoline) from the enterer. Income tax return filing The importer of record has no reason to believe any information in the certificate is false. Income tax return filing Customs bond. Income tax return filing   The customs bond will not be charged for the tax imposed on the entry of the diesel fuel or kerosene if at the time of entry the surety has an unexpired notification certificate from the enterer and has no reason to believe any information in the certificate is false. Income tax return filing Removal from a terminal by unregistered position holder or unregistered pipeline or vessel operator. Income tax return filing   The removal by bulk transfer of diesel fuel or kerosene from a terminal is taxable if the position holder for that fuel or the operator of the pipeline or vessel is not a registrant. Income tax return filing The position holder is liable for the tax. Income tax return filing The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator. Income tax return filing However, see Terminal operator's liability under Removal from terminal, earlier, for an exception. Income tax return filing Bulk transfers not received at approved terminal or refinery. Income tax return filing   The removal by bulk transfer of diesel fuel or kerosene from a terminal or refinery or the entry of diesel fuel or kerosene by bulk transfer into the United States is taxable if the following conditions apply. Income tax return filing No tax was previously imposed (as discussed earlier) on any of the following events. Income tax return filing The removal from the refinery. Income tax return filing The entry into the United States. Income tax return filing The removal from a terminal by an unregistered position holder. Income tax return filing Upon removal from the pipeline or vessel, the diesel fuel or kerosene is not received at an approved terminal or refinery (or at another pipeline or vessel). Income tax return filing   The owner of the diesel fuel or kerosene when it is removed from the pipeline or vessel is liable for the tax. Income tax return filing However, an owner meeting all the following conditions at the time of the removal will not be liable for the tax. Income tax return filing The owner is a registrant. Income tax return filing The owner has an unexpired notification certificate (discussed under Gasoline) from the operator of the terminal or refinery where the diesel fuel or kerosene is received. Income tax return filing The owner has no reason to believe any information on the certificate is false. Income tax return filing The operator of the facility where the diesel fuel or kerosene is received is liable for the tax if the owner meets these conditions. Income tax return filing The operator is jointly and severally liable if the owner does not meet these conditions. Income tax return filing Sales to unregistered person. Income tax return filing   The sale of diesel fuel or kerosene located within the bulk transfer/terminal system to a person that is not a registrant is taxable if tax was not previously imposed under any of the events discussed earlier. Income tax return filing   The seller is liable for the tax. Income tax return filing However, a seller meeting all the following conditions at the time of the sale will not be liable for the tax. Income tax return filing The seller is a registrant. Income tax return filing The seller has an unexpired notification certificate (discussed under Gasoline) from the buyer. Income tax return filing The seller has no reason to believe any information on the certificate is false. Income tax return filing The buyer of the diesel fuel or kerosene is liable for the tax if the seller meets these conditions. Income tax return filing The buyer is jointly and severally liable if the seller does not meet these conditions. Income tax return filing Exception. Income tax return filing   The tax does not apply to a sale if all of the following apply. Income tax return filing The buyer's principal place of business is not in the United States. Income tax return filing The sale occurs as the fuel is delivered into a transport vessel with a capacity of at least 20,000 barrels of fuel. Income tax return filing The seller is a registrant and the exporter of record. Income tax return filing The fuel was exported. Income tax return filing Removal or sale of blended diesel fuel or kerosene. Income tax return filing   The removal or sale of blended diesel fuel or blended kerosene by the blender is taxable. Income tax return filing Blended taxable fuel produced using biodiesel is subject to the tax. Income tax return filing See Blended taxable fuel under Definitions, earlier. Income tax return filing   The blender is liable for the tax. Income tax return filing The tax is figured on the number of gallons not previously subject to the tax. Income tax return filing   Persons who blend biodiesel with undyed diesel fuel to produce and sell or use a biodiesel mixture outside the bulk transfer/terminal system must pay the diesel fuel tax on the volume of biodiesel in the mixture. Income tax return filing Generally, the biodiesel mixture must be diesel fuel (defined earlier). Income tax return filing See Form 720 to report this tax. Income tax return filing You also must be registered by the IRS as a blender. Income tax return filing See Form 637 for more information. Income tax return filing   However, if an untaxed liquid is sold as taxable fuel and that untaxed liquid is used to produce blended taxable fuel, the person that sold the untaxed liquid is jointly and severally liable for the tax imposed on the blender's sale or removal of the blended taxable fuel. Income tax return filing Additional persons liable. Income tax return filing   When the person liable for the tax willfully fails to pay the tax, joint and several liability for the tax applies to: Any officer, employee, or agent of the person who is under a duty to ensure the payment of the tax and who willfully fails to perform that duty; or Anyone who willfully causes the person to fail to pay the tax. Income tax return filing Credits or Refunds. Income tax return filing   A credit or refund is allowable for the tax on undyed diesel fuel or undyed kerosene used for a nontaxable use. Income tax return filing For more information, see chapter 2. Income tax return filing Dyed Diesel Fuel and Dyed Kerosene Dyed diesel fuel and dyed kerosene are subject to $. Income tax return filing 001 per gallon LUST tax as discussed below, unless the fuel is for export. Income tax return filing The excise tax is not imposed on the removal, entry, or sale of diesel fuel or kerosene (other than the LUST tax) if all the following tests are met. Income tax return filing The person otherwise liable for tax (for example, the position holder) is a registrant. Income tax return filing In the case of a removal from a terminal, the terminal is an approved terminal. Income tax return filing The diesel fuel or kerosene satisfies the dyeing requirements (described next). Income tax return filing Dyeing requirements. Income tax return filing   Diesel fuel or kerosene satisfies the dyeing requirements only if it satisfies the following requirements. Income tax return filing It contains the dye Solvent Red 164 (and no other dye) at a concentration spectrally equivalent to at least 3. Income tax return filing 9 pounds of the solid dye standard Solvent Red 26 per thousand barrels of fuel or any dye of a type and in a concentration that has been approved by the Commissioner. Income tax return filing Is indelibly dyed by mechanical injection. Income tax return filing See section 6 of Notice 2005-80 for transition rules that apply until final regulations are issued by the IRS. Income tax return filing Notice required. Income tax return filing   A legible and conspicuous notice stating either: DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE or DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE must be: Provided by the terminal operator to any person that receives dyed diesel fuel or dyed kerosene at a terminal rack of that operator, and Posted by a seller on any retail pump or other delivery facility where it sells dyed diesel fuel or dyed kerosene for use by its buyer. Income tax return filing   The notice under item (1) must be provided by the time of the removal and must appear on all shipping papers, bills of lading, and similar documents accompanying the removal of the fuel. Income tax return filing   Any seller that fails to post the required notice under item (2) is presumed to know that the fuel will be used for a taxable use (a use other than a nontaxable use listed later). Income tax return filing That seller is subject to the penalty described next. Income tax return filing Penalty. Income tax return filing   A penalty is imposed on a person if any of the following situations apply. Income tax return filing Any dyed fuel is sold or held for sale by the person for a use the person knows or has reason to know is not a nontaxable use of the fuel. Income tax return filing Any dyed fuel is held for use or used by the person for a use other than a nontaxable use and the person knew, or had reason to know, that the fuel was dyed. Income tax return filing The person willfully alters, chemically or otherwise, or attempts to so alter, the strength or composition of any dye in dyed fuel. Income tax return filing The person has knowledge that a dyed fuel that has been altered, as described in (3) above, sells or holds for sale such fuel for any use for which the person knows or has reason to know is not a nontaxable use of the fuel. Income tax return filing   The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. Income tax return filing After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. Income tax return filing   This penalty is in addition to any tax imposed on the fuel. Income tax return filing   If the penalty is imposed, each officer, employee, or agent of a business entity who willfully participated in any act giving rise to the penalty is jointly and severally liable with that entity for the penalty. Income tax return filing   There is no administrative appeal or review allowed for the third and subsequent penalty imposed by section 6715 on any person except for: Fraud or a mistake in the chemical analysis, or Mathematical calculation of the penalty. Income tax return filing   If you are liable for the penalty, you may also be liable for the back-up tax, discussed later. Income tax return filing However, the penalty applies only to dyed diesel fuel and dyed kerosene, while the back-up tax may apply to other fuels. Income tax return filing The penalty may apply if the fuel is held for sale or use for a taxable use while the back-up tax does not apply unless the fuel is delivered into a fuel supply tank. Income tax return filing Exception to penalty. Income tax return filing   The penalty under item (3) will not apply in any of the following situations. Income tax return filing Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with any undyed liquid and the resulting product meets the dyeing requirements. Income tax return filing Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with any other liquid (other than diesel fuel or kerosene) that contains the type and amount of dye required to meet the dyeing requirements. Income tax return filing The alteration or attempted alteration occurs in an exempt area of Alaska. Income tax return filing See Removal for sale or use in Alaska, later. Income tax return filing Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with diesel fuel or kerosene not meeting the dyeing requirements and the blending occurs as part of a nontaxable use (other than export), discussed later. Income tax return filing Alaska and Feedstocks Tax of $. Income tax return filing 001 per gallon is imposed on: Undyed diesel fuel or undyed kerosene sold or used in Alaska for certain nontaxable uses (see Later sales on page 10). Income tax return filing Undyed kerosene used for feedstock purposes. Income tax return filing Removal for sale or use in Alaska. Income tax return filing   No tax is imposed on the removal, entry, or sale of diesel fuel or kerosene in Alaska for ultimate sale or use in certain areas of Alaska for certain nontaxable uses. Income tax return filing The removal or entry of any diesel fuel or kerosene is not taxed if all the following requirements are satisfied. Income tax return filing The person otherwise liable for the tax (position holder, refiner, or enterer): Is a registrant, Can show satisfactory evidence of the nontaxable nature of the transaction, and Has no reason to believe the evidence is false. Income tax return filing In the case of a removal from a terminal, the terminal is an approved terminal. Income tax return filing The owner of the fuel immediately after the removal or entry holds the fuel for its own use in a nontaxable use (discussed later) or is a qualified dealer. Income tax return filing   If all three of the requirements above are not met, then tax is imposed at $. Income tax return filing 244 per gallon. Income tax return filing   A qualified dealer is any person that holds a qualified dealer license from the state of Alaska or has been registered by the IRS as a qualified retailer. Income tax return filing Satisfactory evidence may include copies of qualified dealer licenses or exemption certificates obtained for state tax purposes. Income tax return filing Later sales. Income tax return filing   The excise tax applies to diesel fuel or kerosene sold by a qualified dealer after the removal or entry. Income tax return filing The tax is imposed at the time of the sale and the qualified dealer is liable for the tax. Income tax return filing However, the sale is not taxable (other than the LUST tax at $. Income tax return filing 001 per gallon) if all the following requirements are met. Income tax return filing The fuel is sold in Alaska for certain nontaxable uses. Income tax return filing The buyer buys the fuel for its own use in a nontaxable use or is a qualified dealer. Income tax return filing The seller can show satisfactory evidence of the nontaxable nature of the transaction and has no reason to believe the evidence is false. Income tax return filing Feedstock purposes. Income tax return filing   The $. Income tax return filing 001 per gallon LUST tax is imposed on the removal or entry of undyed kerosene if all the following conditions are met. Income tax return filing The person otherwise liable for tax (position holder, refiner, or enterer) is a registrant. Income tax return filing In the case of a removal from a terminal, the terminal is an approved terminal. Income tax return filing Either: The person otherwise liable for tax uses the kerosene for a feedstock purpose, or The kerosene is sold for use by the buyer for a feedstock purpose and, at the time of the sale, the person otherwise liable for tax has an unexpired certificate (described later) from the buyer and has no reason to believe any information on the certificate is false. Income tax return filing   If all of the requirements above are not met, then tax is imposed at $. Income tax return filing 244 per gallon. Income tax return filing   Kerosene is used for a feedstock purpose when it is used for nonfuel purposes in the manufacture or production of any substance other than gasoline, diesel fuel, or Other Fuels. Income tax return filing For example, kerosene is used for a feedstock purpose when it is used as an ingredient in the production of paint, but is not used for a feedstock purpose when it is used to power machinery at a factory where paint is produced. Income tax return filing A feedstock user is a person that uses kerosene for a feedstock purpose. Income tax return filing A registered feedstock user is a person that has been registered by the IRS as a feedstock user. Income tax return filing See Registration Requirements, earlier. Income tax return filing Later sales. Income tax return filing   The excise tax ($. Income tax return filing 244 per gallon) applies to kerosene sold for use by the buyer for a feedstock purpose (item (3)(b) above) if the buyer in that sale later sells the kerosene. Income tax return filing The tax is imposed at the time of the later sale and that seller is liable for the tax. Income tax return filing Certificate. Income tax return filing   The certificate from the buyer certifies the buyer is a registered feedstock user and the kerosene will be used by the buyer for a feedstock purpose. Income tax return filing The certificate may be included as part of any business records normally used for a sale. Income tax return filing A model certificate is shown in the Appendix as Model Certificate G. Income tax return filing Your certificate must contain all information necessary to complete the model. Income tax return filing   A certificate expires on the earliest of the following dates. Income tax return filing The date 1 year after the effective date (not earlier than the date signed) of the certificate. Income tax return filing The date the seller is provided a new certificate or notice that the current certificate is invalid. Income tax return filing The date the seller is notified the buyer's registration has been revoked or suspended. Income tax return filing   The buyer must provide a new certificate if any information on a certificate has changed. Income tax return filing Back-up Tax Tax is imposed on the delivery of any of the following into the fuel supply tank of a diesel-powered highway vehicle. Income tax return filing Any dyed diesel fuel or dyed kerosene for other than a nontaxable use. Income tax return filing Any undyed diesel fuel or undyed kerosene on which a credit or refund (for fuel used for a nontaxable purpose) has been allowed. Income tax return filing Any liquid other than gasoline, diesel fuel, or kerosene. Income tax return filing Generally, this back-up tax is imposed at a rate of $. Income tax return filing 244 per gallon. Income tax return filing Liability for tax. Income tax return filing   Generally, the operator of the vehicle into which the fuel is delivered is liable for the tax. Income tax return filing In addition, the seller of the diesel fuel or kerosene is jointly and severally liable for the tax if the seller knows or has reason to know that the fuel will be used for other than a nontaxable use. Income tax return filing Exemptions from the back-up tax. Income tax return filing   The back-up tax does not apply to a delivery of diesel fuel or kerosene for uses 1, 2, 6, 7, 12, 13, 14, and 15 listed under Definitions of Nontaxable Uses in chapter 2. Income tax return filing   In addition, since the back-up tax is imposed only on the delivery into the fuel supply tank of a diesel-powered vehicle or train, the tax does not apply to diesel fuel or kerosene used as heating oil or in stationary engines. Income tax return filing Diesel-Water Fuel Emulsion Diesel-water fuel emulsion means diesel fuel at least 14% of which is water and for which the emulsion additive is registered by a United States manufacturer with the EPA under section 211 of the Clean Air Act as in effect on March 31, 2003. Income tax return filing A reduced tax rate of $. Income tax return filing 198 per gallon is imposed on a diesel-water fuel emulsion. Income tax return filing To be eligible for the reduced rate, the person who sells, removes, or uses the diesel-water fuel emulsion must be registered by the IRS. Income tax return filing If the diesel-water fuel emulsion does not meet the requirements above, or if the person who sells, removes, or uses the fuel is not registered, the diesel-water fuel emulsion is taxed at $. Income tax return filing 244 per gallon. Income tax return filing Credits or refunds. Income tax return filing   The allowance for a credit or refund on a diesel-water fuel emulsion is discussed in chapter 2. Income tax return filing Kerosene for Use in Aviation Taxable Events Generally, kerosene is taxed at $. Income tax return filing 244 per gallon unless a reduced rate applies (see Diesel Fuel and Kerosene, earlier). Income tax return filing For kerosene removed directly from a terminal into the fuel tank of an aircraft for use in noncommercial aviation, the tax rate is $. Income tax return filing 219. Income tax return filing The rate of $. Income tax return filing 219 also applies if kerosene is removed into any aircraft from a qualified refueler truck, tanker, or tank wagon that is loaded with the kerosene from a terminal that is located within an airport. Income tax return filing The airport terminal does not need to be a secured airport terminal for this rate to apply. Income tax return filing However, the refueler truck, tanker, or tank wagon must meet the requirements discussed under Certain refueler trucks, tankers, and tank wagons, treated as terminals, later. Income tax return filing For kerosene removed directly into the fuel tank of an aircraft for use in commercial aviation, the rate of tax is $. Income tax return filing 044 per gallon. Income tax return filing For kerosene removed into an aircraft from a qualified refueler truck, tanker, or tank wagon, the $. Income tax return filing 044 rate applies only if the truck, tanker, or tank wagon is loaded at a terminal that is located in a secured area of the airport. Income tax return filing See Terminal located within a secured area of an airport, later. Income tax return filing In addition, the operator must provide the position holder with a certificate similar to Model Certificate K in the Appendix. Income tax return filing For kerosene removed directly into the fuel tank of an aircraft for a use exempt from tax under section 4041(c) (such as use in an aircraft for the exclusive use of a state or local government), the rate of tax is $. Income tax return filing 001. Income tax return filing There is no tax on kerosene removed directly into the fuel tank of an aircraft for use in foreign trade. Income tax return filing The kerosene must be removed from a qualifying refueler truck, tanker, or tank wagon loaded at a terminal located within a secured area of an airport. Income tax return filing See Terminal located within a secured area of an airport, later. Income tax return filing In addition, the operator must provide the position holder with a certificate similar to Model Certificate K in the Appendix. Income tax return filing The position holder is liable for the $. Income tax return filing 001 per gallon tax. Income tax return filing For kerosene removed directly from a terminal into the fuel tank of an fractional ownership program aircraft after March 31, 2012, a surtax of $. Income tax return filing 141 per gallon applies. Income tax return filing Certain refueler trucks, tankers, and tank wagons treated as terminals. Income tax return filing   For purposes of the tax imposed on kerosene for use in aviation removed directly into the fuel tank of an aircraft for use in commercial aviation, certain refueler trucks, tankers, and tank wagons are treated as part of a terminal if the following conditions are met. Income tax return filing Such terminal is located within an area of an airport. Income tax return filing Any kerosene for use in aviation that is loaded in a refueler truck, tanker, or tank wagon at a terminal is for delivery into aircraft at the airport in which the terminal is located. Income tax return filing Except in exigent circumstances, such as those identified in Notice 2005-80, no vehicle registered for highway use is loaded with kerosene for use in aviation at the terminal. Income tax return filing The refueler truck, tanker, or tank wagon meets the following requirements: Has storage tanks, hose, and coupling equipment designed and used for fueling aircraft, Is not registered for highway use, and Is operated by the terminal operator or a person that makes a daily accounting to the terminal operator of each delivery of fuel from the refueler truck, tanker, or tank wagon. Income tax return filing Information reporting will be required by terminal operators regarding this provision. Income tax return filing Until the format of this information reporting is issued, taxpayers are required to retain records regarding the daily accounting, but are not required to report such information. Income tax return filing Terminal located within a secured area of an airport. Income tax return filing   See Notice 2005-4 and Notice 2005-80 for the list of terminals located within a secured area of an airport. Income tax return filing This list refers to fueling operations at airport terminals as it applies to the federal excise tax on kerosene for use in aviation, and has nothing to do with the general security of airports either included or not included in the list. Income tax return filing Liability For Tax If the kerosene is removed directly into the fuel tank of an aircraft for use in commercial aviation, the operator of the aircraft in commercial aviation is liable for the tax on the removal at the rate of $. Income tax return filing 044 per gallon. Income tax return filing However, the position holder is liable for the LUST tax for kerosene for use in aviation removed directly into the fuel tank of an aircraft for use exempt from tax under section 4041(c) (except foreign trade). Income tax return filing For example, for kerosene removed directly into the aircraft for use in military aircraft, the position holder is liable for the tax. Income tax return filing For the aircraft operator to be liable for the tax $. Income tax return filing 044 rate, the position holder must meet the following requirements: Is a taxable fuel registrant, Has an unexpired certificate (a model certificate is shown in the Appendix as Model Certificate K) from the operator of the aircraft, and Has no reason to believe any of the information in the certificate is false. Income tax return filing Commercial aviation. Income tax return filing   Commercial aviation is any use of an aircraft in the business of transporting persons or property by air for pay. Income tax return filing However, commercial aviation does not include any of the following uses. Income tax return filing Any use exclusively for the purpose of skydiving. Income tax return filing Certain air transportation by seaplane. Income tax return filing See Seaplanes under Transportation of Persons by Air in chapter 4. Income tax return filing Any use of an aircraft owned or leased by a member of an affiliated group and unavailable for hire by nonmembers. Income tax return filing For more information, see Aircraft used by affiliated corporations under Special Rules on Transportation Taxes in chapter 4. Income tax return filing Any use of an aircraft that has a maximum certificated takeoff weight of 6,000 pounds or less, unless the aircraft is operated on an established line. Income tax return filing For more information, see Small aircraft under Special Rules on Transportation Taxes in chapter 4. Income tax return filing Any use where the surtax on fuel used in a fractional ownership program aircraft is imposed. Income tax return filing See Surtax on any liquid used in a fractional ownership program aircraft as fuel below. Income tax return filing Surtax on any liquid used in a fractional ownership program aircraft as fuel Fuel used in a fractional ownership program aircraft (as defined below) after March 31, 2012, is subject to a surtax of $. Income tax return filing 141 per gallon. Income tax return filing The fractional ownership program manager is liable for the tax. Income tax return filing The surtax applies in addition to any other taxes imposed on the removal, entry, use, or sale of the fuel. Income tax return filing If the surtax is imposed, the following air transportation taxes do not apply. Income tax return filing Transportation of persons by air. Income tax return filing Transportation of property by air. Income tax return filing Use of international air travel facilities. Income tax return filing These taxes are described under Air Transportation Taxes, later. Income tax return filing A fractional ownership program aircraft flight is considered noncommercial aviation, for the rules for kerosene used in noncommercial aviation, see Kerosene for Use in Aviation above. Income tax return filing Fractional ownership aircraft program    is a program under which:  A single fractional ownership program manager provides fractional ownership program management services on behalf of the fractional owners; There are one or more fractional owners per fractional program aircraft, with at least one fractional program aircraft having more than one owner; For at least two fractional program aircraft, none of the ownership interests in the aircraft are less than the minimum fractional ownership interest or held by the program manager; There exists a dry-lease aircraft exchange arrangement among all of the fractional owners; and There are multi-year program agreements covering the fractional ownership, fractional ownership program management services, and dry-lease aircraft exchange aspects of the program. Income tax return filing Fractional program aircraft. Income tax return filing   Any aircraft that, in any fractional ownership aircraft program, is listed as a fractional program aircraft in the management specifications issued to the manager of such program by Federal Aviation Administration under subpart K of part 91 title 14, Code of Federal Regulations, and is registered in the U. Income tax return filing S. Income tax return filing   Fractional program aircraft are not considered used for transportation of a qualified fractional owner, or on account of such qualified fractional owner when they are used for flight demonstration, maintenance or crew training. Income tax return filing In such situations, the flight is not commercial aviation. Income tax return filing Instead, the tax on the fuel used in the flight is imposed at the non-commercial aviation rate. Income tax return filing Fractional owner. Income tax return filing   Any person owning any interest (including the entire interest) in a fractional program aircraft. Income tax return filing Dry lease aircraft exchange. Income tax return filing   An agreement, documented by the written program agreements, under which the fractional program aircraft are available, on an as-needed basis without crew, to each fractional owner. Income tax return filing Special rule relating to deadhead service. Income tax return filing   A fractional program aircraft will not be considered to be used on account of a qualified fractional owner when it is used in deadhead service and a person other than a qualified fractional owner is separately charged for such service. Income tax return filing More information. Income tax return filing   See section 4043 for more information on the surtax. Income tax return filing Certificate for Commercial Aviation and Exempt Uses A certificate is required from the aircraft operator: To support aircraft operator liability for tax on removal of kerosene for use in aviation directly into the fuel tank of an aircraft in commercial aviation, or For exempt uses. Income tax return filing Certificate. Income tax return filing   The certificate may be included as part of any business records normally used for a sale. Income tax return filing See Model Certificate K in the Appendix. Income tax return filing   A certificate expires on the earliest of the following dates. Income tax return filing The date 1 year after the effective date (not earlier than the date signed) of the certificate. Income tax return filing The date the buyer provides the seller a new certificate or notice that the current certificate is invalid. Income tax return filing The date the IRS or the buyer notifies the seller that the buyer's right to provide a certificate has been withdrawn. Income tax return filing   The buyer must provide a new certificate if any information on a certificate has changed. Income tax return filing   The IRS may withdraw the buyer's right to provide a certificate if the buyer uses the kerosene for use in aviation to which a certificate relates other than as stated in the certificate. Income tax return filing Exempt use. Income tax return filing   The rate on kerosene for use in aviation is $. Income tax return filing 001 (LUST tax) if it is removed from any refinery or terminal directly into the fuel tank of an aircraft for an exempt use. Income tax return filing An exempt use includes kerosene for the exclusive use of a state or local government. Income tax return filing There is no tax on kerosene removed directly into the fuel tank of an aircraft for use in foreign trade. Income tax return filing Flash title transaction. Income tax return filing   A position holder is not liable for tax if, among other conditions, it obtains a certificate (described above) from the operator of the aircraft into which the kerosene is delivered. Income tax return filing In a “flash title transaction” the position holder sells the kerosene to a wholesale distributor (reseller) that in turn sells the kerosene to the aircraft operator as the kerosene is being removed from a terminal into the fuel tank of an aircraft. Income tax return filing In this case, the position holder will be treated as having a certificate from the operator of the aircraft if: The aircraft operator puts the reseller's name, address, and EIN on the certificate in place of the position holder's information; and The reseller provides the position holder with a statement of the kerosene reseller. Income tax return filing Reseller statement. Income tax return filing   This is a statement that is signed under penalties of perjury by a person with authority to bind the reseller; is provided at the bottom or on the back of the certificate (or in an attached document); and contains: The reseller's name, address, and EIN; The position holder's name, address, and EIN; and A statement that the reseller has no reason to believe that any information in the accompanying aircraft operator's certificate is false. Income tax return filing Credits or Refunds. Income tax return filing   A claim may be made by the ultimate purchaser (the operator) for taxed kerosene for use in aviation used in commercial aviation (other than foreign trade) and noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia). Income tax return filing A claim may be made by a registered ultimate vendor for certain sales. Income tax return filing For more information, see chapter 2. Income tax return filing Other Fuels (Including Alternative Fuels) Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under section 4081. Income tax return filing Other Fuels include alternative fuels. Income tax return filing Alternative fuels are: Liquefied petroleum gas (LPG), “P Series” fuels, Compressed natural gas (CNG) (discussed later), Liquefied hydrogen, Any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, Liquid fuel derived from biomass, Liquefied natural gas (LNG), and Liquefied gas derived from biomass. Income tax return filing Liquefied petroleum gas includes propane, butane, pentane, or mixtures of those products. Income tax return filing Qualified methanol and ethanol fuels. Income tax return filing   Qualified ethanol and methanol means any liquid at least 85 percent of which consists of alcohol produced from coal, including peat. Income tax return filing The tax rates are listed in the Instructions for Form 720. Income tax return filing Partially exempt methanol and ethanol fuels. Income tax return filing   A reduced tax rate applies to these fuels. Income tax return filing Partially exempt ethanol and methanol means any liquid at least 85 percent of which consists of alcohol produced from natural gas. Income tax return filing The tax rates are listed in the Instructions for Form 720. Income tax return filing Motor vehicles. Income tax return filing   Motor vehicles include all types of vehicles, whether or not registered (or required to be registered) for highway use, that have both the following characteristics. Income tax return filing They are propelled by a motor. Income tax return filing They are designed for carrying or towing loads from one place to another, regardless of the type of material or load carried or t
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The Income Tax Return Filing

Income tax return filing 9. Income tax return filing   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. Income tax return filing Depletion unit. Income tax return filing Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Income tax return filing The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Income tax return filing There are two ways of figuring depletion: cost depletion and percentage depletion. Income tax return filing For mineral property, you generally must use the method that gives you the larger deduction. Income tax return filing For standing timber, you must use cost depletion. Income tax return filing Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. Income tax return filing More than one person can have an economic interest in the same mineral deposit or timber. Income tax return filing In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Income tax return filing You have an economic interest if both the following apply. Income tax return filing You have acquired by investment any interest in mineral deposits or standing timber. Income tax return filing You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. Income tax return filing A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. Income tax return filing A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Income tax return filing Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Income tax return filing Basis adjustment for depletion. Income tax return filing   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Income tax return filing Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Income tax return filing For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Income tax return filing You can treat two or more separate interests as one property or as separate properties. Income tax return filing See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Income tax return filing There are two ways of figuring depletion on mineral property. Income tax return filing Cost depletion. Income tax return filing Percentage depletion. Income tax return filing Generally, you must use the method that gives you the larger deduction. Income tax return filing However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Income tax return filing See Oil and Gas Wells , later. Income tax return filing Cost Depletion To figure cost depletion you must first determine the following. Income tax return filing The property's basis for depletion. Income tax return filing The total recoverable units of mineral in the property's natural deposit. Income tax return filing The number of units of mineral sold during the tax year. Income tax return filing Basis for depletion. Income tax return filing   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Income tax return filing Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Income tax return filing The residual value of land and improvements at the end of operations. Income tax return filing The cost or value of land acquired for purposes other than mineral production. Income tax return filing Adjusted basis. Income tax return filing   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. Income tax return filing Your adjusted basis can never be less than zero. Income tax return filing See Publication 551, Basis of Assets, for more information on adjusted basis. Income tax return filing Total recoverable units. Income tax return filing   The total recoverable units is the sum of the following. Income tax return filing The number of units of mineral remaining at the end of the year (including units recovered but not sold). Income tax return filing The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Income tax return filing   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. Income tax return filing You must include ores and minerals that are developed, in sight, blocked out, or assured. Income tax return filing You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Income tax return filing But see Elective safe harbor for owners of oil and gas property , later. Income tax return filing Number of units sold. Income tax return filing   You determine the number of units sold during the tax year based on your method of accounting. Income tax return filing Use the following table to make this determination. Income tax return filing    IF you  use . Income tax return filing . Income tax return filing . Income tax return filing THEN the units sold during the year are . Income tax return filing . Income tax return filing . Income tax return filing The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Income tax return filing An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Income tax return filing   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Income tax return filing Figuring the cost depletion deduction. Income tax return filing   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. Income tax return filing Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Income tax return filing Rate per unit. Income tax return filing 2 Multiply the rate per unit by units sold during the tax year. Income tax return filing Cost depletion deduction. Income tax return filing You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Income tax return filing Elective safe harbor for owners of oil and gas property. Income tax return filing   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Income tax return filing If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Income tax return filing For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Income tax return filing irs. Income tax return filing gov/pub/irs-irbs/irb04-10. Income tax return filing pdf. Income tax return filing   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. Income tax return filing The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Income tax return filing The election, if made, is effective for the tax year in which it is made and all later years. Income tax return filing It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Income tax return filing Once revoked, it cannot be re-elected for the next 5 years. Income tax return filing Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. Income tax return filing The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . Income tax return filing Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Income tax return filing Gross income. Income tax return filing   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Income tax return filing Any rents or royalties you paid or incurred for the property. Income tax return filing The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. Income tax return filing A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Income tax return filing   Use the following fraction to figure the part of the bonus you must subtract. Income tax return filing No. Income tax return filing of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. Income tax return filing For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Income tax return filing Taxable income limit. Income tax return filing   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. Income tax return filing   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. Income tax return filing These deductible items include, but are not limited to, the following. Income tax return filing Operating expenses. Income tax return filing Certain selling expenses. Income tax return filing Administrative and financial overhead. Income tax return filing Depreciation. Income tax return filing Intangible drilling and development costs. Income tax return filing Exploration and development expenditures. Income tax return filing Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Income tax return filing Losses sustained. Income tax return filing   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Income tax return filing Do not deduct any net operating loss deduction from the gross income from the property. Income tax return filing Corporations do not deduct charitable contributions from the gross income from the property. Income tax return filing If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. Income tax return filing See section 1. Income tax return filing 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Income tax return filing Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Income tax return filing You are either an independent producer or a royalty owner. Income tax return filing The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Income tax return filing If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Income tax return filing For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. Income tax return filing Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. Income tax return filing However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Income tax return filing For information on figuring the deduction, see Figuring percentage depletion , later. Income tax return filing Refiners who cannot claim percentage depletion. Income tax return filing   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. Income tax return filing The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. Income tax return filing Related person. Income tax return filing   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. Income tax return filing For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Income tax return filing A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Income tax return filing For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. Income tax return filing The value of the outstanding stock of a corporation. Income tax return filing The interest in the profits or capital of a partnership. Income tax return filing The beneficial interests in an estate or trust. Income tax return filing Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Income tax return filing Retailers who cannot claim percentage depletion. Income tax return filing   You cannot claim percentage depletion if both the following apply. Income tax return filing You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Income tax return filing Through a retail outlet operated by you or a related person. Income tax return filing To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. Income tax return filing To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. Income tax return filing The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. Income tax return filing   For the purpose of determining if this rule applies, do not count the following. Income tax return filing Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Income tax return filing Bulk sales of aviation fuels to the Department of Defense. Income tax return filing Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. Income tax return filing Related person. Income tax return filing   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Income tax return filing Sales through a related person. Income tax return filing   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. Income tax return filing   You are not considered to be selling through a related person who is a retailer if all the following apply. Income tax return filing You do not have a significant ownership interest in the retailer. Income tax return filing You sell your production to persons who are not related to either you or the retailer. Income tax return filing The retailer does not buy oil or natural gas from your customers or persons related to your customers. Income tax return filing There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. Income tax return filing Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. Income tax return filing Transferees who cannot claim percentage depletion. Income tax return filing   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. Income tax return filing For a definition of the term “transfer,” see section 1. Income tax return filing 613A-7(n) of the regulations. Income tax return filing For a definition of the term “interest in proven oil or gas property,” see section 1. Income tax return filing 613A-7(p) of the regulations. Income tax return filing Figuring percentage depletion. Income tax return filing   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. Income tax return filing If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. Income tax return filing If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. Income tax return filing   In addition, there is a limit on the percentage depletion deduction. Income tax return filing See Taxable income limit , later. Income tax return filing Average daily production. Income tax return filing   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. Income tax return filing Partial interest. Income tax return filing   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. Income tax return filing   You have a partial interest in the production from a property if you have a net profits interest in the property. Income tax return filing To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. Income tax return filing To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Income tax return filing Then multiply the total production from the property by your percentage participation to figure your share of the production. Income tax return filing Example. Income tax return filing Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Income tax return filing During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Income tax return filing Javier had expenses of $90,000 attributable to the property. Income tax return filing The property generated a net profit of $110,000 ($200,000 − $90,000). Income tax return filing Pablo received income of $22,000 ($110,000 × . Income tax return filing 20) for his net profits interest. Income tax return filing Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Income tax return filing Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Income tax return filing Depletable oil or natural gas quantity. Income tax return filing   Generally, your depletable oil quantity is 1,000 barrels. Income tax return filing Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. Income tax return filing If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. Income tax return filing Example. Income tax return filing You have both oil and natural gas production. Income tax return filing To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Income tax return filing Your depletable natural gas quantity is 2. Income tax return filing 16 million cubic feet of gas (360 × 6000). Income tax return filing You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Income tax return filing If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. Income tax return filing Also, see Notice 2012-50, available at www. Income tax return filing irs. Income tax return filing gov/irb/2012–31_IRB/index. Income tax return filing html. Income tax return filing Business entities and family members. Income tax return filing   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. Income tax return filing Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). Income tax return filing You and your spouse and minor children. Income tax return filing A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. Income tax return filing Controlled group of corporations. Income tax return filing   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Income tax return filing They share the depletable quantity. Income tax return filing A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. Income tax return filing ” Gross income from the property. Income tax return filing   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. Income tax return filing If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. Income tax return filing   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. Income tax return filing   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Income tax return filing Average daily production exceeds depletable quantities. Income tax return filing   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. Income tax return filing Figure your average daily production of oil or natural gas for the year. Income tax return filing Figure your depletable oil or natural gas quantity for the year. Income tax return filing Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Income tax return filing Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). Income tax return filing This is your depletion allowance for that property for the year. Income tax return filing Taxable income limit. Income tax return filing   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. Income tax return filing 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. Income tax return filing For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Income tax return filing 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. Income tax return filing You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Income tax return filing Add it to your depletion allowance (before applying any limits) for the following year. Income tax return filing Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Income tax return filing (However, see Electing large partnerships must figure depletion allowance , later. Income tax return filing ) Each partner or shareholder must decide whether to use cost or percentage depletion. Income tax return filing If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. Income tax return filing Partner's or shareholder's adjusted basis. Income tax return filing   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. Income tax return filing The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Income tax return filing   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. Income tax return filing However, in some cases, it is figured according to the partner's interest in partnership income. Income tax return filing   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. Income tax return filing Recordkeeping. Income tax return filing Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. Income tax return filing The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Income tax return filing The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. Income tax return filing Reporting the deduction. Income tax return filing   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). Income tax return filing Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Income tax return filing The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Income tax return filing The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Income tax return filing Form 6198, At-Risk Limitations. Income tax return filing Form 8582, Passive Activity Loss Limitations. Income tax return filing Electing large partnerships must figure depletion allowance. Income tax return filing   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Income tax return filing The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. Income tax return filing Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Income tax return filing   An electing large partnership is one that meets both the following requirements. Income tax return filing The partnership had 100 or more partners in the preceding year. Income tax return filing The partnership chooses to be an electing large partnership. Income tax return filing Disqualified persons. Income tax return filing   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Income tax return filing Disqualified persons must figure it themselves, as explained earlier. Income tax return filing   All the following are disqualified persons. Income tax return filing Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Income tax return filing Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Income tax return filing Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. Income tax return filing Average daily production is discussed earlier. Income tax return filing Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. Income tax return filing Natural gas sold under a fixed contract. Income tax return filing   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Income tax return filing This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. Income tax return filing The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Income tax return filing Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. Income tax return filing Natural gas from geopressured brine. Income tax return filing   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Income tax return filing This is natural gas that is both the following. Income tax return filing Produced from a well you began to drill after September 1978 and before 1984. Income tax return filing Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Income tax return filing Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Income tax return filing Mines and other natural deposits. Income tax return filing   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. Income tax return filing   The following is a list of the percentage depletion rates for the more common minerals. Income tax return filing DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. Income tax return filing Corporate deduction for iron ore and coal. Income tax return filing   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). Income tax return filing Gross income from the property. Income tax return filing   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Income tax return filing Mining includes all the following. Income tax return filing Extracting ores or minerals from the ground. Income tax return filing Applying certain treatment processes described later. Income tax return filing Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. Income tax return filing Excise tax. Income tax return filing   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. Income tax return filing Extraction. Income tax return filing   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. Income tax return filing This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. Income tax return filing Treatment processes. Income tax return filing   The processes included as mining depend on the ore or mineral mined. Income tax return filing To qualify as mining, the treatment processes must be applied by the mine owner or operator. Income tax return filing For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Income tax return filing Transportation of more than 50 miles. Income tax return filing   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. Income tax return filing    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. Income tax return filing Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. Income tax return filing For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Income tax return filing irs. Income tax return filing gov/irb/2013-01_IRB/ar11. Income tax return filing html. Income tax return filing Disposal of coal or iron ore. Income tax return filing   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Income tax return filing You disposed of it after holding it for more than 1 year. Income tax return filing You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Income tax return filing Treat any gain on the disposition as a capital gain. Income tax return filing Disposal to related person. Income tax return filing   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Income tax return filing A related person (as listed in chapter 2 of Publication 544). Income tax return filing A person owned or controlled by the same interests that own or control you. Income tax return filing Geothermal deposits. Income tax return filing   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Income tax return filing A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Income tax return filing For percentage depletion purposes, a geothermal deposit is not considered a gas well. Income tax return filing   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Income tax return filing See Gross income from the property , earlier, under Oil and Gas Wells. Income tax return filing Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Income tax return filing Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Income tax return filing A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Income tax return filing Bonuses and advanced royalties. Income tax return filing   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. Income tax return filing If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. Income tax return filing Figuring cost depletion. Income tax return filing   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. Income tax return filing To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. Income tax return filing Figuring percentage depletion. Income tax return filing   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . Income tax return filing Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. Income tax return filing However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. Income tax return filing Ending the lease. Income tax return filing   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. Income tax return filing Do this for the year the lease ends or is abandoned. Income tax return filing Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Income tax return filing   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. Income tax return filing Include this amount in income for the year the lease ends. Income tax return filing Increase your adjusted basis in the property by the amount you include in income. Income tax return filing Delay rentals. Income tax return filing   These are payments for deferring development of the property. Income tax return filing Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Income tax return filing These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Income tax return filing Timber You can figure timber depletion only by the cost method. Income tax return filing Percentage depletion does not apply to timber. Income tax return filing Base your depletion on your cost or other basis in the timber. Income tax return filing Your cost does not include the cost of land or any amounts recoverable through depreciation. Income tax return filing Depletion takes place when you cut standing timber. Income tax return filing You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Income tax return filing Figuring cost depletion. Income tax return filing   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Income tax return filing Timber units. Income tax return filing   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Income tax return filing You measure the timber using board feet, log scale, cords, or other units. Income tax return filing If you later determine that you have more or less units of timber, you must adjust the original estimate. Income tax return filing   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Income tax return filing Depletion unit. Income tax return filing   You figure your depletion unit each year by taking the following steps. Income tax return filing Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Income tax return filing Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Income tax return filing Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Income tax return filing Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. Income tax return filing Divide the result of (2) by the result of (3). Income tax return filing This is your depletion unit. Income tax return filing Example. Income tax return filing You bought a timber tract for $160,000 and the land was worth as much as the timber. Income tax return filing Your basis for the timber is $80,000. Income tax return filing Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). Income tax return filing If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Income tax return filing When to claim depletion. Income tax return filing   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). Income tax return filing Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. Income tax return filing The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Income tax return filing Example. Income tax return filing The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Income tax return filing You would deduct $20,000 of the $40,000 depletion that year. Income tax return filing You would add the remaining $20,000 depletion to your closing inventory of timber products. Income tax return filing Electing to treat the cutting of timber as a sale or exchange. Income tax return filing   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Income tax return filing You must make the election on your income tax return for the tax year to which it applies. Income tax return filing If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. Income tax return filing You generally report the gain as long-term capital gain. Income tax return filing The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. Income tax return filing For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Income tax return filing   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Income tax return filing The prior election (and revocation) is disregarded for purposes of making a subsequent election. Income tax return filing See Form T (Timber), Forest Activities Schedule, for more information. Income tax return filing Form T. Income tax return filing   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. Income tax return filing Prev  Up  Next   Home   More Online Publications