The IRS Dirty Dozen 2015, #11: Excessive Claims for Fuel Tax Credits

Simply reviewing the permissible uses of the fuel tax credit demonstrates the absurdity of the average taxpayer claiming it, and why these claims have hit the IRS Dirty Dozen list for 2015. 

Permissible claims for fuel tax credits

The fuel tax credit is limited to fuel used for the following purposes:

  • On a farm for farming purposes
  • Off-highway business purposes in stationary machines such as generators, compressors and power saws; for cleaning purposes; and in forklift trucks, bulldozers and earthmovers
  • For export or in foreign trade
  • In a commercial fishing boat
  • In school buses, in a qualified local bus, and for certain intercity and local buses
  • For diesel fuel and kerosene not used for the propulsion engine of a train or diesel-powered highway vehicle 
  • In military aircraft, certain helicopter and fixed-wing aircrafts, and in aircrafts and vehicles owned by aircraft museums
  • For exclusive use by a qualified blood collector organization
  • In a U.S.-owned highway vehicle that is not used on a highway
  • By a nonprofit educational organization
  • By a state, political subdivision of a state, or the District of Columbia

This credit clearly is not applicable to most taxpayers.

Improper claims

The IRS has issued a warning to taxpayers to be wary of shady tax preparers who encourage them to claim the fuel tax credit in order to inflate their refunds. If discovered, the credit must be refunded to the IRS with interest, and a penalty of $5,000 will be imposed.  

The IRS is also aware that the fuel tax credit is being claimed on fraudulent returns filed in taxpayers’ names by identity thieves, and reminds us that participation in a tax scam may result in additional penalties, interest and criminal prosecution. 

Crackdown on fuel tax credit misuse and identity thieves

In 2013, the IRS implemented new compliance filters which identified $33 million in dubious credit claims before they were paid. The IRS has announced that additional, comprehensive measures are being undertaken in 2014 in its detection system to root out excessive or fraudulent fuel tax credits.

Choosing the right tax professional

To avoid IRS troubles, carefully select an experienced accountant who doesn’t engage in any of the questionable practices that we have been highlighting in this blog series. If you are being audited or are subject of a criminal investigation, consult with a tax attorney at Moskowitz LLP

Our final post on the IRS 2015 Dirty Dozen list will discuss the IRS’ response to Frivolous Tax Arguments.