Example

Steven S. Sands used undyed diesel fuel in vehicles used in his construction business. The vehicles were not registered (or required to be registered) for highway use. In the fourth quarter of his 2001 income tax year, which ends in December, he used 3,000 gallons of fuel. The excise tax on the 3,000 gallons of fuel he used was $732 (24.4 cents per gallon).

Because the tax is less than $750, Steven must claim a credit for the tax on his 2001 income tax return. He fills out Form 4136 (shown later) and attaches it to his 2001 income tax return, which he files in 2002. He enters the $732 on line 65 of his Form 1040.

Steven uses the cash method of accounting. On his 2001 Schedule C (Form 1040), he deducts the total cost of the fuel, including the tax. When Steven files his 2002 Form 1040, he will include the $732 credit shown on his 2001 Form 4136 as additional income on his 2002 Schedule C.

For the first two quarters of 2002, Steven's records show the following.

Steven could not file a claim for a refund for the first quarter because the amount of the claim was less than $750. He adds the first quarter amount ($671) to the second quarter amount ($610) and claims a refund of $1,281 by filing Form 8849 and Schedule 1 (Form 8849), which are shown later. He will have to include the $1,281 excise tax refund as additional income on his Schedule C (Form 1040) for 2002.

Form 4136, page 1, for Steven S. Sands

Form 4136, page 2, for Steven S. Sands

Form 8849 for Steven S. Sands

Schedule 1 (Form 8849) for Steven Sands

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