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Freefile com 2. Freefile com   Fuel Tax Credits and Refunds Table of Contents Gasoline and Aviation Gasoline Undyed Diesel Fuel and Undyed Kerosene (Other Than Kerosene Used in Aviation)Sales by Registered Ultimate Vendors Diesel-Water Fuel Emulsion Kerosene for Use in AviationSales by Registered Ultimate Vendors Other Fuels (Including Alternative Fuels) Refunds of Second TaxOptional reporting. Freefile com Providing information. Freefile com Definitions of Nontaxable UsesCustom application of fertilizer and pesticide. Freefile com Fuel used between airfield and farm. Freefile com Fuel not used for farming. Freefile com Vehicles not considered highway vehicles. Freefile com Biodiesel or Renewable Diesel Mixture Credit, Alternative Fuel Credit, and Alternative Fuel Mixture CreditHow to Claim the Credit Filing Claims Claiming A Refund Claiming a Credit on Form 4136 Including the Credit or Refund in Income Federal excise taxes are imposed on certain fuels as discussed in chapter 1. Freefile com This chapter lists the nontaxable uses of each fuel and defines the nontaxable uses. Freefile com Information on the refund of second tax is included. Freefile com This chapter also explains credits and refunds for the biodiesel or renewable diesel mixture credits, and the alternative fuel mixture and alternative fuel credits. Freefile com Information on how to make a claim for credit or refund is included in this chapter and in the instructions for: Form 720, Form 4136, and Form 8849. Freefile com Exported taxable fuel. Freefile com   The claim rates for exported taxable fuel are listed on Schedule C (Form 720), Schedule 1 (Form 8849), and Form 4136. Freefile com Taxpayers making a claim for exported taxable fuel must include with their records proof of exportation. Freefile com Proof of exportation includes: A copy of the export bill of lading issued by the delivering carrier, A certificate by the agent or representative of the export carrier showing actual exportation of the fuel, A certificate of lading signed by a customs officer of the foreign country to which the fuel is exported, or A statement of the foreign consignee showing receipt of the fuel. Freefile com Gasoline and Aviation Gasoline Ultimate Purchasers. Freefile com   The following are the uses of gasoline (defined earlier) for which a credit or refund may be allowable to an ultimate purchaser. Freefile com On a farm for farming purposes (credit only). Freefile com Off-highway business use. Freefile com Export. Freefile com In a boat engaged in commercial fishing. Freefile com In certain intercity and local buses. Freefile com In a school bus. Freefile com Exclusive use by a qualified blood collector organization. Freefile com In a highway vehicle owned by the United States that is not used on a highway. Freefile com Exclusive use by a nonprofit educational organization (see Sales by registered ultimate vendors and Credit Card Purchases, later). Freefile com Exclusive use by a state, political subdivision of a state, or the District of Columbia (see Sales by registered ultimate vendors and Credit Card Purchases, later). Freefile com In an aircraft or vehicle owned by an aircraft museum. Freefile com   The following are the uses of aviation gasoline for which a credit or refund may be allowable to an ultimate purchaser. Freefile com On a farm for farming purposes (credit only). Freefile com Export. Freefile com In foreign trade. Freefile com Certain helicopter and fixed-wing air ambulance uses. Freefile com In commercial aviation (other than foreign trade). Freefile com Exclusive use by a qualified blood collector organization. Freefile com Exclusive use by a nonprofit education organization (see Sales by registered ultimate vendors and Credit card purchases, later). Freefile com Exclusive use by a state, political subdivision of a state, or the District of Columbia (see Sales by registered ultimate vendors and Credit and purchases, later). Freefile com In an aircraft owned by an aircraft museum. Freefile com In military aircraft. Freefile com Claims by persons who paid the tax to the government. Freefile com   Except for sales to nonprofit educational organizations and states and local governments, a credit or refund is allowable to the person that paid the tax to the government if the gasoline was sold to the ultimate purchaser (including an exporter) by either that person or by a retailer and the fuel was exported; used or sold for use as supplies for vessels or aircraft, including military aircraft, commercial fishing, and foreign trade; sold to a qualified blood collector organization; or used or sold for use in the production of Other Fuels. Freefile com See Filing Claims, later. Freefile com Sales by registered ultimate vendors. Freefile com   This is an ultimate vendor that sells gasoline or aviation gasoline to any of the following and that is purchased without the use of a credit card. Freefile com A state or local government for its exclusive use (including essential government use by an Indian tribal government). Freefile com A nonprofit educational organization for its exclusive use. Freefile com   The registered ultimate vendor may make the claim if the ultimate purchaser did not use a credit card and waives its right to the credit or refund by providing the registered ultimate vendor with a certificate. Freefile com A sample certificate is included as Model Certificate M in the Appendix. Freefile com The registered ultimate vendor must have the certificate at the time the credit or refund is claimed. Freefile com   The ultimate vendor must be registered by the IRS. Freefile com See Registration Requirements, earlier. Freefile com Credit card purchases. Freefile com   If gasoline and aviation gasoline are purchased with a credit card issued to a state or local government for its exclusive use (including essential government use by an Indian tribal government), or a nonprofit educational organization for its exclusive use, the person who extended credit to the ultimate purchaser (the credit card issuer) is treated as the person that paid the tax and makes the claim if the credit card issuer: Is registered by the IRS, Has established that the amount of tax has not been collected from the person who purchased the gasoline or has obtained written consent from the ultimate purchaser to the allowance of the credit or refund, and Has repaid or agreed to repay the amount of the tax to the ultimate vendor, has obtained the written consent of the ultimate vendor to the allowance of the credit or refund, or has made arrangements that provide the ultimate vendor with reimbursement of the tax. Freefile com   If the requirements above are not met by the credit card issuer, the credit card issuer must collect the tax from the ultimate purchaser and only the ultimate purchaser may make the claim. Freefile com How to make the claim. Freefile com   If the claim is made by the credit card issuer, see Schedule C  (Form 720) or Schedule 8 (Form 8849). Freefile com Undyed Diesel Fuel and Undyed Kerosene (Other Than Kerosene Used in Aviation) For conditions to an allowance of a credit or refund on exported dyed diesel fuel and dyed kerosene, see Exported taxable fuel, earlier. Freefile com Ultimate purchasers. Freefile com   The following are nontaxable uses of diesel fuel and kerosene (defined earlier) for which a credit or refund may be allowable to an ultimate purchaser. Freefile com On a farm for farming purposes. Freefile com Off-highway business use. Freefile com Export. Freefile com In a qualified local bus. Freefile com In a school bus. Freefile com Other than as a fuel in a propulsion engine of a diesel-powered highway vehicle (such as home heating oil). Freefile com Exclusive use by a qualified blood collector organization. Freefile com In a highway vehicle owned by the United States that is not used on a highway. Freefile com Exclusive use by a nonprofit educational organization (see Sales by Registered Ultimate Vendors and Credit Card Purchases, later). Freefile com Exclusive use by a state, political subdivision of a state, or the District of Columbia (see Sales by Registered Ultimate Vendors and Credit Card Purchases, later). Freefile com In a vehicle owned by an aircraft museum. Freefile com As a fuel in a propulsion engine of a diesel-powered train. Freefile com Sales by Registered Ultimate Vendors The following are the sales for which a credit or refund may be allowable to the registered ultimate vendor only. Freefile com Undyed diesel fuel or undyed kerosene sold for the exclusive use by a state or local government (if credit card rules (defined later) do not apply), Undyed kerosene sold from a blocked pump (defined below), or Undyed diesel fuel or undyed kerosene used in certain intercity and local buses, only if the ultimate purchaser waives its right to the credit or refund by providing the registered ultimate vendor with a waiver. Freefile com Registered ultimate vendor (state use). Freefile com   This is a person that sells undyed diesel fuel or undyed kerosene to a state or local government for its exclusive use (including essential government use by an Indian tribal government). Freefile com The diesel fuel or kerosene must be purchased by the state without the use of a credit card, issued to the state by the credit card issuer, in order for the ultimate vendor to make the claim. Freefile com The ultimate vendor must be registered by the IRS. Freefile com See Registration Requirements, earlier. Freefile com Registered ultimate vendor (blocked pump). Freefile com   This is an ultimate vendor that sells undyed kerosene from a blocked pump. Freefile com   A credit or refund may be allowable to a registered ultimate vendor (blocked pump) if the vendor sold to a buyer undyed kerosene from a blocked pump for use other than as a fuel in a diesel-powered highway vehicle and the vendor had no reason to believe the kerosene would not be used in that manner. Freefile com Blocked pump. Freefile com   A blocked pump is a fuel pump that meets all the following requirements. Freefile com It is used to make retail sales of undyed kerosene for use by the buyer in any nontaxable use. Freefile com It is at a fixed location. Freefile com It is identified with a legible and conspicuous notice stating, “UNDYED UNTAXED KEROSENE, NONTAXABLE USE ONLY. Freefile com ” It meets either of the following conditions. Freefile com It cannot reasonably be used to dispense fuel directly into the fuel supply tank of a diesel-powered highway vehicle or train. Freefile com It is locked by the vendor after each sale and unlocked by the vendor only in response to a buyer's request for undyed kerosene for use other than as a fuel in a diesel-powered highway vehicle or train. Freefile com Registered ultimate vendor (certain intercity and local buses). Freefile com   This is an ultimate vendor that sells undyed diesel fuel or undyed kerosene to the ultimate purchaser for use in certain intercity and local buses. Freefile com   The registered ultimate vendor may make the claim if the ultimate purchaser waives its right to the credit or refund by providing the registered ultimate vendor with a waiver. Freefile com A sample waiver is included as Model Waiver N in the Appendix. Freefile com The registered ultimate vendor must have the waiver at the time the credit or payment is claimed. Freefile com Credit Card Purchases. Freefile com   If undyed diesel fuel or kerosene is purchased with a credit card issued to a state, the person who extended credit to the state (the credit card issuer) is treated as the person that paid the tax and makes the claim if the credit card issuer: Is registered by the IRS, Has established that the amount of tax has not been collected from the person who purchased the diesel fuel or kerosene, or has obtained written consent from the ultimate purchaser to the allowance of the credit or refund, and Has repaid or agreed to repay the amount of the tax to the ultimate vendor, has obtained the written consent of the ultimate vendor to the allowance of the credit or refund, or has made arrangements that provide the ultimate vendor with reimbursement of the tax. Freefile com   If the requirements above are not met by the credit card issuer, the credit card issuer must collect the tax from the ultimate purchaser and only the ultimate purchaser may make the claim. Freefile com Diesel-Water Fuel Emulsion A claim for credit or refund may be made for the nontaxable use of a diesel-water fuel emulsion and for undyed diesel fuel used to produce a diesel-water fuel emulsion. Freefile com The claim rate for nontaxable use of a diesel-water fuel emulsion taxed at $. Freefile com 198 per gallon is $. Freefile com 197 (if exported, the claim rate is $. Freefile com 198). Freefile com The following are the nontaxable uses for a diesel-water fuel emulsion for which a credit or refund may be allowable to an ultimate purchaser. Freefile com On a farm for farming purposes. Freefile com Off-highway business use. Freefile com Export. Freefile com In a qualified local bus. Freefile com In a school bus. Freefile com Other than as fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway use). Freefile com Exclusive use by a qualified blood collector organization. Freefile com In a highway vehicle owned by the United States that is not used on a highway. Freefile com Exclusive use by a nonprofit educational organization. Freefile com Exclusive use by a state, political subdivision of a state, or the District of Columbia. Freefile com In an aircraft or vehicle owned by an aircraft museum. Freefile com Blender claims. Freefile com   The claim rate for undyed diesel fuel taxed at $. Freefile com 244 and used to produce a diesel-water fuel emulsion is $. Freefile com 046 per gallon of diesel fuel so used. Freefile com The blender must be registered by the IRS in order to make the claim. Freefile com The blender must attach a statement to the claim certifying that: The diesel-water fuel emulsion contains at least 14% water, 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, Undyed diesel fuel taxed at $. Freefile com 244 was used to produce the diesel-water fuel emulsion, and The diesel-water fuel emulsion was used or sold for use in the blender's trade or business. Freefile com Kerosene for Use in Aviation Ultimate purchasers. Freefile com   Ultimate purchasers of kerosene used in certain aviation uses may make a claim if the rate of tax on their use is less than the rate of tax that was charged on the kerosene. Freefile com   The ultimate purchaser of the kerosene 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) is eligible to make a claim if the ultimate purchaser certifies that the right to make the claim has not been waived. Freefile com Generally, the ultimate purchaser is the aircraft operator. Freefile com   The following are the nontaxable uses of kerosene used in noncommercial aviation for which a credit or refund may be allowable to the ultimate purchaser. Freefile com On a farm for farming purposes. Freefile com Certain helicopter and fixed-wing aircraft uses. Freefile com Exclusive use by a qualified blood collector organization. Freefile com Exclusive use by a nonprofit educational organization. Freefile com In an aircraft owned by an aircraft museum. Freefile com In military aircraft. Freefile com Kerosene for use partly in commercial aviation and partly in nonexempt, noncommercial aviation. Freefile com   If the fuel is used partly for use in commercial aviation and partly for use in nonexempt, noncommercial aviation, the operator may identify, either at the time of purchase or after the kerosene has been used, the amount that will be (or has been) used in commercial aviation. Freefile com At the same time, the operator would either make the claim or waive the right to make the claim for credit or refund of the kerosene for use in commercial and nonexempt, noncommercial aviation. Freefile com   If the operator does not identify the amount of kerosene that will be (or has been) used in commercial aviation, the operator may provide a certificate to the ultimate vendor similar to Model Certificate Q in the Appendix. Freefile com For kerosene purchased with the certificate, used in commercial aviation, and taxed at $. Freefile com 244 per gallon, use of the certificate will be treated as a waiver of the right to claim a credit or refund for the $. Freefile com 025 per gallon part of the tax. Freefile com The ultimate vendor may make this claim. Freefile com The operator may make a claim for the $. Freefile com 175 tax per gallon of the kerosene, but cannot waive the right to make the claim for the $. Freefile com 175 tax per gallon. Freefile com Sales by Registered Ultimate Vendors Kerosene for use in commercial aviation or noncommercial aviation. Freefile com   The registered ultimate vendor of kerosene for use in commercial aviation (other than foreign trade) or noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia) may make this claim if the ultimate purchaser waives its right to the credit or payment by providing the registered ultimate vendor with a waiver. Freefile com A sample waiver is included as Model Waiver L in the Appendix. Freefile com The registered ultimate vendor must have the waiver at the time the credit or payment is claimed. Freefile com   Noncommercial aviation means any use of an aircraft not described as commercial aviation. Freefile com For the definition of commercial aviation, see Commercial aviation on page 11. Freefile com Kerosene for use in nonexempt, noncommercial aviation. Freefile com   Only the registered ultimate vendor may claim a credit or payment for sales of kerosene for use in nonexempt, noncommercial aviation. Freefile com The ultimate vendor must be registered by the IRS (activity letter UA) and have the required certificate from the ultimate purchaser. Freefile com A sample certificate is included as Model Certificate Q in the Appendix. Freefile com The registered ultimate vendor must have the certificate at the time the credit or payment is claimed. Freefile com Kerosene for use in aviation by a state or local government. Freefile com   Only the registered ultimate vendor may claim a credit or payment for sales of kerosene for use in aviation to a state or local government for its exclusive use (including essential government use by an Indian tribal government). Freefile com The kerosene for use in aviation must be purchased by the state without the use of a credit card in order for the ultimate vendor to make the claim. Freefile com The ultimate vendor must be registered by the IRS (activity letter UV) and have the required certificate from the ultimate purchaser. Freefile com A sample certificate is included as Model Certificate P in the Appendix. Freefile com The registered ultimate vendor must have the certificate at the time the credit or payment is claimed. Freefile com Credit card purchases. Freefile com   If taxed kerosene for use in aviation is purchased with a credit card issued to a state, the person who extended credit to the state (the credit card issuer) is treated as the person that paid the tax and makes the claim if the credit card issuer: Is registered by the IRS, Has established that the amount of tax has not been collected from the person who purchased the kerosene, or has obtained written consent from the ultimate purchaser to the allowance of the credit or refund, and Has repaid or agreed to repay the amount of the tax to the ultimate vendor, has obtained the written consent of the ultimate vendor to the allowance of the credit or refund, or has made arrangements that provide the ultimate vendor with reimbursement of the tax. Freefile com   If the requirements above are not met by the credit card issuer, the credit card issuer must collect the tax from the ultimate purchaser and only the ultimate purchaser may make the claim. Freefile com Other Fuels (Including Alternative Fuels) Credit or refund for nontaxable use of taxed Other Fuels may be allowable to an ultimate purchaser. Freefile com While tax is generally imposed on delivery, Other Fuels are taxed prior to delivery in the case of certain bulk sales described in chapter 1. Freefile com The following are the nontaxable uses of Other Fuels for which a credit or refund may be allowable to the ultimate purchaser. Freefile com On a farm for farming purposes. Freefile com Off-highway business use. Freefile com In a boat engaged in commercial fishing. Freefile com In certain intercity and local buses. Freefile com In a school bus. Freefile com In a qualified local bus. Freefile com Exclusive use by a qualified blood collector organization. Freefile com Exclusive use by a nonprofit educational organization. Freefile com Exclusive use by a state, political subdivision of a state, or the District of Columbia. Freefile com In an aircraft or vehicle owned by an aircraft museum. Freefile com Use in any boat operated by the United States for its exclusive use or any vessel of war of any foreign nation. Freefile com See Biodiesel or Renewable Diesel Mixture Credit, Alternative Fuel Credit, and Alternative Fuel Mixture Credit, later. Freefile com Refunds of Second Tax The tax on dyed diesel fuel for inland waterways fuel use applies at the rate listed on Form 720. Freefile com This is in addition to all other taxes imposed on the sale or use of the fuel. Freefile com The section 4081(e) refund (discussed below) cannot be claimed. Freefile com If the tax is paid and reported to the government on more than one taxable event for a taxable fuel under section 4081, the person paying the “second tax” may claim a refund (without interest) of that tax if certain conditions and reporting requirements are met. Freefile com No credit against any tax is allowed for this tax. Freefile com For information about taxable events, see the discussions under Gasoline, Diesel Fuel and Kerosene and Kerosene for Use in Aviation in chapter 1. Freefile com Conditions to allowance of refund. Freefile com   A claim for refund of the tax is allowed only if all the following conditions are met. Freefile com A tax on the fuel was paid to the government and not credited or refunded (the “first tax”). Freefile com After the first tax was imposed, another tax was imposed on the same fuel and was paid to the government (the “second tax”). Freefile com The person that paid the second tax filed a timely claim for refund containing the information required (see Refund claim, later). Freefile com The person that paid the first tax has met the reporting requirements, discussed next. Freefile com Reporting requirements. Freefile com   Generally, the person that paid the first tax must file a “First Taxpayer's Report” with its Form 720 for the quarter to which the report relates. Freefile com A model first taxpayer's report is shown in the Appendix as Model Certificate B. Freefile com The report must contain all information needed to complete the model. Freefile com   By the due date for filing the Form 720, you must also send a separate copy of the report to the following address. Freefile com Department of the Treasury Internal Revenue Service  Cincinnati, OH 45999-0555 Write “EXCISE – FIRST TAXPAYER'S REPORT” across the top of that copy. Freefile com Optional reporting. Freefile com   A first taxpayer's report is not required for the tax imposed on: Removal at a terminal rack, Nonbulk entries into the United States, and Removals or sales by blenders. Freefile com However, if the person liable for the tax expects that another tax will be imposed on that fuel, that person should (but is not required to) file a first taxpayer's report. Freefile com Providing information. Freefile com   The first taxpayer must give a copy of the report to the buyer of the fuel within the bulk transfer/terminal system or to the owner of the fuel immediately before the first tax was imposed, if the first taxpayer is not the owner at that time. Freefile com If an optional report is filed, a copy should (but is not required to) be given to the buyer or owner. Freefile com   A person that receives a copy of the first taxpayer's report and later sells the fuel within the bulk transfer/terminal system must give the copy and a “Statement of Subsequent Seller” to the buyer. Freefile com If the later sale is outside the bulk transfer/terminal system and that person expects that another tax will be imposed, that person should (but is not required to) give the copy and the statement to the buyer. Freefile com A model statement of subsequent seller is shown in the Appendix as Model Certificate A. Freefile com The statement must contain all information necessary to complete the model. Freefile com   If the first taxpayer's report relates to fuel sold to more than one buyer, copies of that report must be made when the fuel is divided. Freefile com Each buyer must be given a copy of the report. Freefile com Refund claim. Freefile com   You must have filed Form 720 and paid the second tax before you file for a refund of that tax. Freefile com You must make your claim for refund on Form 8849. Freefile com Complete Schedule 5 (Form 8849) and attach it to your Form 8849. Freefile com Do not include this claim with a claim under another tax provision. Freefile com You must not have included the second tax in the price of the fuel and must not have collected it from the purchaser. Freefile com You must submit the following information with your claim. Freefile com A copy of the first taxpayer's report (discussed earlier). Freefile com A copy of the statement of subsequent seller if the fuel was bought from someone other than the first taxpayer. Freefile com Definitions of Nontaxable Uses This section provides definitions of the terms used in Table 2-1 for nontaxable uses. Freefile com If applicable, the type of use number from Table 2-1 is indicated in each heading. Freefile com Type of use table. Freefile com   The first column of the table is the number you enter on Form 4136, Form 8849, or Schedule C (Form 720) for that type of use. Freefile com For type of use 2, the mobile machinery parenthetical applies only to Form 8849 and Form 720. Freefile com Table 2-1. Freefile com Type of Use Table No. Freefile com Type of Use 1 On a farm for farming purposes 2 Off-highway business use (for business use other than in a highway vehicle registered or required to be registered for highway use) (other than use in mobile machinery) 3 Export 4 In a boat engaged in commercial fishing 5 In certain intercity and local buses 6 In a qualified local bus 7 In a bus transporting students and employees of schools (school buses) 8 For diesel fuel and kerosene (other than kerosene used in aviation) used other than as a fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway business use) 9 In foreign trade 10 Certain helicopter and fixed-wing aircraft uses 11 Exclusive use by a qualified blood collector organization 12 In a highway vehicle owned by the United States that is not used on a highway 13 Exclusive use by a nonprofit educational organization 14 Exclusive use by a state, political subdivision of a state, or the District of Columbia 15 In an aircraft or vehicle owned by an aircraft museum 16 In military aircraft On a farm for farming purposes (No. Freefile com 1). Freefile com   On a farm for farming purposes means fuel used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes. Freefile com Farm. Freefile com   A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, and truck farms; orchards; plantations; ranches; nurseries; ranges; and feed yards for fattening cattle. Freefile com It also includes structures such as greenhouses used primarily for the raising of agricultural or horticultural commodities. Freefile com A fish farm is an area where fish are grown or raised — not merely caught or harvested. Freefile com Farming purposes. Freefile com   As an owner, tenant, or operator, you use fuel on a farm for farming purposes if you use it in any of the following ways. Freefile com To cultivate the soil or to raise or harvest any agricultural or horticultural commodity. Freefile com To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife. Freefile com To operate, manage, conserve, improve, or maintain your farm and its tools and equipment. Freefile com To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. Freefile com For this use to qualify, you must have produced more than half the commodity so treated during the tax year. Freefile com Commodity means a single raw product. Freefile com For example, apples and peaches are two separate commodities. Freefile com To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if the planting, etc. Freefile com , is incidental to your farming operations. Freefile com Your tree operations will be incidental only if they are minor in nature when compared to the total farming operations. Freefile com   If any other person, such as a neighbor or custom operator, performs a service for you on your farm for any of the purposes listed in (1) or (2), you are considered to be the ultimate purchaser that used the fuel on a farm for farming purposes. Freefile com However, see Custom application of fertilizer and pesticide, next. Freefile com   If doubt exists whether the owner, the tenant, or the operator of the farm bought the fuel, determine who bore the cost of the fuel. Freefile com For example, if the owner of a farm and the tenant equally share the cost of gasoline that is used on a farm for farming purposes, each can claim a credit for the tax on one-half the fuel used. Freefile com Custom application of fertilizer and pesticide. Freefile com   Fuel used on a farm for farming purposes includes fuel used in the application of fertilizer, pesticides, or other substances, including aerial applications. Freefile com Generally, the applicator is treated as having used the fuel on a farm for farming purposes. Freefile com For aviation gasoline, the aerial applicator makes the claim as the ultimate purchaser. Freefile com For kerosene used in aviation, the ultimate purchaser may make the claim or waive their right to make the claim to the registered ultimate vendor. Freefile com Fuel used between airfield and farm. Freefile com   Fuel used by an aerial applicator for the direct flight between the airfield and one or more farms is treated as a farming purpose. Freefile com Fuel not used for farming. Freefile com   Fuel is not used on a farm for farming purposes if it is used in any of the following ways. Freefile com Off the farm, such as on the highway or in noncommercial aviation, other than fuel used between the airfield and farm described above, even if the fuel is used in transporting livestock, feed, crops, or equipment. Freefile com For personal use, such as mowing the lawn. Freefile com In processing, packaging, freezing, or canning operations. Freefile com In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar. Freefile com Off-highway business use (No. Freefile com 2). Freefile com   Off-highway business use means fuel used in a trade or business or in an income-producing activity other than as a fuel in a highway vehicle registered or required to be registered for use on public highways. Freefile com The terms “highway vehicle,” “public highway,” and “registered” are defined below. Freefile com Do not consider any use in a boat as an off-highway business use. Freefile com   Off-highway business use includes fuels used in any of the following ways. Freefile com In stationary machines such as generators, compressors, power saws, and similar equipment. Freefile com For cleaning purposes. Freefile com In forklift trucks, bulldozers, and earthmovers. Freefile com   Generally, this use does not include nonbusiness use of fuel, such as use by minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment. Freefile com Example. Freefile com Caroline owns a landscaping business. Freefile com She uses power lawn mowers and chain saws in her business. Freefile com The gasoline used in the power lawn mowers and chain saws qualifies as fuel used in an off-highway business use. Freefile com The gasoline used in her personal lawn mower at home does not qualify. Freefile com Highway vehicle. Freefile com   A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions. Freefile com Examples of vehicles designed to carry a load over public highways are passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors. Freefile com A vehicle is a highway vehicle even though the vehicle's design allows it to perform a highway transportation function for only one of the following. Freefile com A particular type of load, such as passengers, furnishings, and personal effects (as in a house, office, or utility trailer). Freefile com A special kind of cargo, goods, supplies, or materials. Freefile com Some off-highway task unrelated to highway transportation, except as discussed next. Freefile com Vehicles not considered highway vehicles. Freefile com   Generally, the following kinds of vehicles are not considered highway vehicles for purposes of the credit or refund of fuel taxes. Freefile com Specially designed mobile machinery for nontransportation functions. Freefile com A self-propelled vehicle is not a highway vehicle if all the following apply. Freefile com The chassis has permanently mounted to it machinery or equipment used to perform certain operations (construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations) if the operation of the machinery or equipment is unrelated to transportation on or off the public highways. Freefile com The chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation. Freefile com The chassis could not, because of its special design and without substantial structural modification, be used as part of a vehicle designed to carry any other load. Freefile com The vehicle must have traveled less than 7,500 miles on public highways during the taxable year. Freefile com Vehicles specially designed for off-highway transportation. Freefile com A vehicle is not treated as a highway vehicle if the vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design, the vehicle's capability to transport a load over a public highway is substantially limited or impaired. Freefile com To make this determination, you can take into account the vehicle's size, whether the vehicle is subject to licensing, safety, or other requirements, and whether the vehicle can transport a load at a sustained speed of at least 25 miles per hour. Freefile com It does not matter that the vehicle can carry heavier loads off highway than it is allowed to carry over the highway. Freefile com Nontransportation trailers and semitrailers. Freefile com A trailer or semi-trailer is not treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for carrying on a nontransportation function at an off-highway site. Freefile com For example, a trailer that is capable only of functioning as an office for an off-highway construction operation is not a highway vehicle. Freefile com Public highway. Freefile com   A public highway includes any road in the United States that is not a private roadway. Freefile com This includes federal, state, county, and city roads and streets. Freefile com Registered. Freefile com   A vehicle is considered registered when it is registered or required to be registered for highway use under the law of any state, the District of Columbia, or any foreign country in which it is operated or situated. Freefile com Any highway vehicle operated under a dealer's tag, license, or permit is considered registered. Freefile com A highway vehicle is not considered registered solely because a special permit allows the vehicle to be operated at particular times and under specified conditions. Freefile com Dual use of propulsion motor. Freefile com   Off-highway business use does not include any fuel used in the propulsion motor of a registered highway vehicle even though that motor also operates special equipment by means of a power take-off or power transfer. Freefile com It does not matter if the special equipment is mounted on the vehicle. Freefile com Example. Freefile com The motor of a registered concrete-mixer truck operates both the engine and the mixing unit by means of a power take-off. Freefile com The fuel used in the motor to run the mixer is not off-highway business use. Freefile com Use in separate motor. Freefile com   Off-highway business use includes fuel used in a separate motor to operate special equipment, such as a refrigeration unit, pump, generator, or mixing unit. Freefile com If you draw fuel from the same tank that supplies fuel to the propulsion motor, you must figure the quantity used in the separate motor operating the special equipment. Freefile com You may make a reasonable estimate based on your operating experience and supported by your records. Freefile com   You can use devices that measure the miles the vehicle has traveled (such as hubometers) to figure the gallons of fuel used to propel the vehicle. Freefile com Add to this amount the fuel consumed while idling or warming up the motor before propelling the vehicle. Freefile com The difference between your total fuel used and the fuel used to propel the vehicle is the fuel used in the separate motor. Freefile com Example. Freefile com Hazel owns a refrigerated truck. Freefile com It has a separate motor for the refrigeration unit. Freefile com The same tank supplies both motors. Freefile com Using the truck's hubometer, Hazel figures that 90% of the fuel was used to propel the truck. Freefile com Therefore, 10% of the fuel is used in an off-highway business use. Freefile com Fuel lost or destroyed. Freefile com   You cannot treat fuel lost or destroyed through spillage, fire, or other casualty as fuel used in an off-highway business use. Freefile com Export (No. Freefile com 3). Freefile com   Export means fuel transported from the United States with the intention that the fuel remain in a foreign country or possession of the United States. Freefile com Fuel is not exported if it is in the fuel supply tank of a vehicle or aircraft. Freefile com In a boat engaged in commercial fishing (No. Freefile com 4). Freefile com   In a boat engaged in commercial fishing means fuel used in taking, catching, processing, or transporting fish, shellfish, or other aquatic life for commercial purposes, such as selling or processing the catch, on a specific trip basis. Freefile com They include boats used in both fresh and salt water fishing. Freefile com They do not include boats used for both sport fishing and commercial fishing on the same trip. Freefile com In certain intercity and local buses (No. Freefile com 5). Freefile com   In certain intercity and local buses means fuel used in a bus engaged in furnishing (for compensation) passenger land transportation available to the general public. Freefile com The bus must be engaged in one of the following activities. Freefile com Scheduled transportation along regular routes. Freefile com Nonscheduled operations if the seating capacity of the bus is at least 20 adults, not including the driver. Freefile com Vans and similar vehicles used for van-pooling or taxi service do not qualify. Freefile com Available to the general public. Freefile com   This means you offer service to more than a limited number of persons or organizations. Freefile com If a bus operator normally provides charter operations through travel agencies but has buses available for chartering by the general public, this service is available to the general public. Freefile com A bus does not qualify when its operator uses it to provide exclusive services to only one person, group, or organization. Freefile com Also, intercity bus transportation does not include transporting students and employees of schools or intercity transportation in a qualified local bus. Freefile com In a qualified local bus (No. Freefile com 6). Freefile com   In a qualified local bus means fuel used in a bus meeting all the following requirements. Freefile com It is engaged in furnishing (for compensation) intracity passenger land transportation available to the general public. Freefile com It operates along scheduled, regular routes. Freefile com It has a seating capacity of at least 20 adults (excluding the driver). Freefile com It is under contract with (or is receiving more than a nominal subsidy from) any state or local government to furnish the transportation. Freefile com Intracity passenger land transportation. Freefile com   This is the land transportation of passengers between points located within the same metropolitan area. Freefile com It includes transportation along routes that cross state, city, or county boundaries if the routes remain within the metropolitan area. Freefile com Under contract. Freefile com   A bus is under contract with a state or local government only if the contract imposes a bona fide obligation on the bus operator to furnish the transportation. Freefile com More than a nominal subsidy. Freefile com   A subsidy is more than nominal if it is reasonably expected to exceed an amount equal to 3 cents multiplied by the number of gallons of fuel used in buses on subsidized routes. Freefile com A company that operates its buses along subsidized and unsubsidized intracity routes may consider its buses qualified local buses only when the buses are used on the subsidized intracity routes. Freefile com In a school bus (No. Freefile com 7). Freefile com   In a school bus means fuel used in a bus engaged in the transportation of students or employees of schools. Freefile com A school is an educational organization with a regular faculty and curriculum and a regularly enrolled body of students who attend the place where the educational activities occur. Freefile com For diesel fuel and kerosene (other than kerosene used in aviation) used other than as a fuel (No. Freefile com 8). Freefile com   Diesel fuel and kerosene (other than kerosene used in aviation) used other than as a fuel in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train (not including off-highway business use) means undyed diesel fuel and undyed kerosene used: For home heating, lighting, and cooking; In boats; In stationary machines, such as generators and compressors; For cleaning purposes; or In minibikes and snowmobiles. Freefile com In foreign trade (No. Freefile com 9). Freefile com   In foreign trade means fuel used in civil aircraft employed in foreign trade or trade between the United States and any of its possessions. Freefile com The term trade includes the transportation of persons or property for hire and the making of the necessary preparations for such transportation. Freefile com In the case of aircraft registered in a foreign country, the country must allow reciprocal benefits for aircraft registered in the United States. Freefile com Certain helicopter and fixed-wing aircraft uses (No. Freefile com 10). Freefile com   Includes: Certain helicopter uses. Freefile com   Certain helicopter uses means fuel used by a helicopter for any of the following purposes. Freefile com Transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, oil, or gas. Freefile com Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Freefile com Providing emergency medical transportation. Freefile com   During a use described in items (1) and (2), the helicopter must not take off from, or land at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise use services provided pursuant to section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Freefile com For item (1), treat each flight segment as a separate flight. Freefile com Fixed-wing aircraft uses. Freefile com   Fixed-wing aircraft uses means fuel used by a fixed-wing aircraft for any of the following purposes. Freefile com Planting, cultivating, cutting, transporting, or caring for trees (including logging operations). Freefile com Providing emergency medical transportation. Freefile com The aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services. Freefile com During a use described in item (1), the aircraft must not take off from, or land at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise use services provided pursuant to section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code. Freefile com Exclusive use by a qualified blood collector organization (No. Freefile com 11). Freefile com   Exclusive use by a qualified blood collector organization means fuel used by the qualified blood collector organization for its exclusive use in the collection, storage, or transportation of blood. Freefile com Qualified blood collector organization. Freefile com   A qualified blood collector organization is one that is: Described in section 501(c)(3) and exempt from tax under section 501(a), Primarily engaged in the activity of collecting human blood, Registered by the IRS, and Registered by the Food and Drug Administration to collect blood. Freefile com In a highway vehicle owned by the United States that is not used on a highway (No. Freefile com 12). Freefile com   In a highway vehicle owned by the United States that is not used on a highway means fuel used in a vehicle that was not used on public highways during the period covered by the claim. Freefile com This use applies whether or not the vehicle is registered or required to be registered for highway use. Freefile com Exclusive use by a nonprofit educational organization (No. Freefile com 13). Freefile com   Exclusive use by a nonprofit educational organization means fuel used by an organization exempt from income tax under section 501(a) that meets both of the following requirements. Freefile com It has a regular faculty and curriculum. Freefile com It has a regularly enrolled body of students who attend the place where the instruction normally occurs. Freefile com   A nonprofit educational organization also includes a school operated by a church or other organization described in section 501(c)(3) if the school meets the above requirements. Freefile com Exclusive use by a state, political subdivision of a state, or the District of Columbia (No. Freefile com 14). Freefile com   Exclusive use by a state, political subdivision of a state, or the District of Columbia means fuel purchased by the state or local government for its exclusive use. Freefile com A state or local government is any state, any political subdivision thereof, or the District of Columbia. Freefile com An Indian tribal government is treated as a state only if the fuel is used in an activity that involves the exercise of an essential tribal government function. Freefile com Gasoline, diesel fuel, and kerosene used by the American Red Cross is considered to be the use of these fuels by a state. Freefile com In an aircraft or vehicle owned by an aircraft museum (No. Freefile com 15). Freefile com   In an aircraft or vehicle owned by an aircraft museum means fuel used in an aircraft or vehicle that is owned by an organization that meets all the following requirements. Freefile com It is exempt from income tax as an organization described in section 501(c)(3). Freefile com It is operated as a museum under a state (or District of Columbia) charter. Freefile com It is operated exclusively for acquiring, exhibiting, and caring for aircraft of the type used for combat or transport in  World War II. Freefile com   The aircraft or vehicle (such as a ground servicing vehicle for aircraft) must be used exclusively for the purposes described in item (3). Freefile com In military aircraft (No. Freefile com 16). Freefile com   In a military aircraft means fuel used in an aircraft owned by the United States or any foreign nation and constituting a part of its armed forces. Freefile com In commercial aviation (other than foreign trade). Freefile com   See Commercial aviation, earlier, for the definition. Freefile com Use in a train. Freefile com   Use in a train means fuel used in the propulsion engine of equipment or machinery that rides on rails. Freefile com This includes use in a locomotive, work train, switching engine, and track maintenance machine. Freefile com Biodiesel or Renewable Diesel Mixture Credit, Alternative Fuel Credit, and Alternative Fuel Mixture Credit For alternative fuel mixtures produced after December 31, 2011, see How to Claim the Credit below. Freefile com The section 6426 credit for biodiesel and alternative fuel consists of the biodiesel or renewable diesel mixture credit, alternative fuel credit, and alternative fuel mixture credit. Freefile com Biodiesel or renewable diesel mixture credit claimant. Freefile com   Claimant produced a biodiesel mixture by mixing biodiesel with diesel fuel. Freefile com Claimant produced a renewable diesel mixture by mixing renewable diesel with liquid fuel (other than renewable diesel). Freefile com   The person that produced and sold or used the mixture in their trade or business is the only person eligible to make this claim. Freefile com The credit is based on the gallons of biodiesel or renewable diesel in the mixture. Freefile com Renewable diesel does not include any fuel derived from coprocessing biomass (as defined in section 45K(c)(3)) with a feedstock that is not biomass. Freefile com Claim requirements. Freefile com   See the Instructions for Form 720 for the biodiesel or renewable diesel mixture claim requirements. Freefile com Alternative fuel credit claimant. Freefile com   For the alternative fuel credit, the registered alternative fueler who (1) sold an alternative fuel at retail delivered it into the fuel supply tank of a motor vehicle or motorboat, (2) sold an alternative fuel, delivered it in bulk taxable use in a motor vehicle or motorboat, and received required statement from the buyer, (3) used an alternative fuel (not sold at retail or in bulk as previously described) motor vehicle or motorboat, or (4) sold an alternative fuel used as a fuel in aviation is the only person eligible to make this claim. Freefile com Carbon capture requirement. Freefile com   A credit for Fischer-Tropsch process liquid fuel derived from coal (including peat) can be claimed only if the fuel is derived from coal produced at a gasification facility that separates and sequesters at least 75% of the facility's total carbon dioxide emissions. Freefile com Alternative fuel credit. Freefile com   The registered alternative fueler is the person eligible to make the claim. Freefile com An alternative fueler is the person liable for tax on alternative fuel under the rules for taxable events for Other Fuels (discussed in chapter 1) or would be liable but for an exemption for nontaxable uses. Freefile com An alternative fueler includes a person who sells for use or uses an alternative fuel in aviation. Freefile com Alternative fuel mixture credit claimant. Freefile com   For the alternative fuel mixture credit, the registered alternative fueler that produced and sold or used the mixture as a fuel in their trade or business is the only person eligible to make this claim. Freefile com The credit is based on the gallons of alternative fuel in the mixture. Freefile com An alternative fuel mixture is a mixture of alternative fuel and section 4081 taxable fuel (gasoline, diesel fuel, or kerosene). Freefile com Registration. Freefile com   You must be registered by the IRS to be eligible to claim the section 6426 fuel credit. Freefile com See Registration Requirements in chapter 1. Freefile com Credits for fuel provide incentive for United States production. Freefile com   The section 6426 fuel credit may not be claimed for alternative fuel that is produced outside the United States for use as a fuel outside the United States. Freefile com The United States includes any possession of the United States. Freefile com Credit for fuels derived from paper or pulp production. Freefile com   Credit for alternative fuels and alternative fuel mixtures for any fuel derived from the production of paper or pulp are not available for fuel sold or used on or after December 31, 2009. Freefile com How to Claim the Credit Any biodiesel or renewable diesel mixture credit must first be claimed on Schedule C to reduce your taxable fuel liability reported on Form 720. Freefile com Any excess credit may be claimed on Schedule C (Form 720), Schedule 3 (Form 8849), Form 4136, or Form 8864, Biodiesel and Renewable Diesel Fuels Credit. Freefile com See Notice 2005-4 and the Instructions for Form 720 for more information. Freefile com Also see Notice 2013-26 on page 984 of I. Freefile com R. Freefile com B. Freefile com 2013-18 at www. Freefile com irs. Freefile com gov/pub/irs-irbs/irb13-18. Freefile com pdf; and see chapter 2, later. Freefile com Coordination with income tax credit. Freefile com   Only one credit may be taken for any amount of biodiesel or renewable diesel. Freefile com If any amount is claimed (or will be claimed) for any amount of biodiesel or renewable diesel on Form 720, Form 8849, or Form 4136, then a claim cannot be made on Form 8864 for that amount of biodiesel or renewable diesel. Freefile com   Any alternative fuel credit must first be claimed on Schedule C (Form 720) to reduce your section 4041 taxable fuel liability for alternative fuel and CNG reported on Form 720. Freefile com Any excess credit may claimed on Schedule C (Form 720), Schedule 3 (Form 8849), or Form 4136. Freefile com   For alternative fuel mixtures produced after December 31, 2011, the alternative fuel mixture credit can be claimed on Schedule C (Form 720), not on Form 4136 or Schedule 3 (Form 8849), and only to the extent of your section 4081 taxable fuel liability for gasoline, diesel fuel and kerosene reported on Form 720. Freefile com   Calculate the limitation for alternative fuel mixtures separately and enter on Schedule C (Form 720), line 14, only the gallons of mixtures that do not exceed your section 4081 taxable fuel liability. Freefile com Filing Claims This section tells you how to make a claim for a credit or refund of excise taxes on fuels. Freefile com This section also covers recordkeeping requirements and when to include the credit or refund in your income. Freefile com Generally, you will provide all the information needed to claim a credit or refund when you properly complete Form 8849, Form 4136, Schedule C (Form 720), Form 6478, or Form 8864. Freefile com In some cases, you will have to attach additional information. Freefile com You need to keep records that support your claim for a credit or refund. Freefile com Keep at your principal place of business all records needed to enable the IRS to verify that you are the person entitled to claim a credit or refund and the amount you claimed. Freefile com Ultimate purchaser. Freefile com   Ultimate purchasers may make claims for the nontaxable use of fuels on Form 4136, Schedule 1 (Form 8849), and Schedule C (Form 720) if reporting excise tax liability on that return. Freefile com If you are an ultimate purchaser, you must keep the following records. Freefile com The number of gallons purchased and used during the period covered by your claim. Freefile com The dates of the purchases. Freefile com The names and addresses of suppliers and amounts purchased from each in the period covered by your claim. Freefile com The nontaxable use for which you used the fuel. Freefile com The number of gallons used for each nontaxable use. Freefile com It is important that your records show separately the number of gallons used for each nontaxable use that qualifies as a claim. Freefile com If the fuel is exported, you must have proof of exportation. Freefile com   For more information about keeping records, see Publication 583, Starting a Business and Keeping Records, or chapter 1 of Publication 17, Your Federal Income Tax for Individuals. Freefile com Exceptions. Freefile com    Generally, the ultimate purchaser may not claim a credit or refund for undyed diesel fuel, undyed kerosene, or kerosene for use in aviation sold for the exclusive use of a state or local government. Freefile com However, see Claims by credit card issuers, later, for an exception. Freefile com The ultimate purchaser may not claim a credit or refund as follows. Freefile com The ultimate purchaser of gasoline or aviation gasoline used by a state or local government for its exclusive use or by a nonprofit educational organization for its exclusive use may waive its right to make a claim by providing a certificate that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Certificate M. Freefile com A new certificate is required each year or when any information in the current certificate expires. Freefile com The ultimate purchaser of kerosene for use in commercial aviation or noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia) may waive its right to make a claim by providing a waiver that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Waiver L. Freefile com A new waiver is required each year or when any information in the current waiver expires. Freefile com The ultimate purchaser of undyed diesel fuel or undyed kerosene used in certain intercity and local buses may waive its right to make a claim by providing a waiver that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Waiver N. Freefile com A new waiver is required each year or when any information in the current waiver expires. Freefile com The ultimate purchaser of kerosene for use in nonexempt, noncommercial aviation must provide a certificate that is signed under penalties of perjury by a person authorized to bind the ultimate purchaser and is in the same format as the Model Certificate Q. Freefile com A new certificate is required each year or when any information in the current certificate expires. Freefile com Registered ultimate vendor. Freefile com   Registered ultimate vendors may make claims for certain sales of fuels on Form 4136, Schedule 2 (Form 8849), and Schedule C (Form 720) if reporting excise tax liability on that return. Freefile com If you are a registered ultimate vendor, you must keep certain information pertaining to the sale of the fuel. Freefile com   To make a claim, you must have sold the fuel at a tax-excluded price, repaid the tax to the buyer, or obtained the buyer's written consent to the allowance of the claim. Freefile com You are required to have a valid certificate or waiver in your possession in order to make the claim. Freefile com   In addition, you must have a registration number that has not been revoked or suspended. Freefile com See Form 637. Freefile com State use. Freefile com   To make a claim as an ultimate vendor (state), you must have a UV registration number and the fuel cannot be purchased with a credit card as explained below. Freefile com If you sell undyed diesel fuel, undyed kerosene, or kerosene for use in aviation for use by a state or local government, you must keep the following information. Freefile com The name and taxpayer identification number of each person (government unit) that bought the fuel. Freefile com The number of gallons sold to each person. Freefile com An unexpired certificate from the buyer. Freefile com See Model Certificate P in the Appendix. Freefile com The certificate expires on the earlier of 1 year after the date of the certificate or the date a new certificate is given to the registered ultimate vendor. Freefile com Nonprofit educational organization and state use. Freefile com   To make a claim as an ultimate vendor (nonprofit educational organization or state), you must have a UV registration number and the fuel cannot be purchased with a credit card as explained later. Freefile com If you sell gasoline or aviation gasoline to a nonprofit educational organization for its exclusive use or to a state or local government for its exclusive use, you must keep the following information. Freefile com The name and taxpayer identification number of each person (nonprofit educational organization or government unit) that bought the fuel. Freefile com The number of gallons sold to each person. Freefile com An unexpired certificate from the buyer. Freefile com See Model Certificate M in the Appendix. Freefile com  The certificate expires on the earlier of 1 year after the date of the certificate or the date a new certificate is given to the registered ultimate vendor. Freefile com Blocked pump. Freefile com   To make a claim as an ultimate vendor (blocked pump), you must have a UP registration number. Freefile com If you sell undyed kerosene (other than kerosene for use in aviation) from a pump that qualifies as a blocked pump because it is locked by you after each sale and is unlocked by you at the request of the buyer, you must keep the following information for each sale of more than 5 gallons. Freefile com The date of each sale. Freefile com The name and address of the buyer. Freefile com The number of gallons sold to that buyer. Freefile com Certain intercity and local bus use. Freefile com   To make a claim as an ultimate vendor of undyed diesel fuel or undyed kerosene used in certain intercity and local buses, you must have a UB registration number. Freefile com You must keep the following information. Freefile com The date of each sale. Freefile com The name and address of the buyer. Freefile com The number of gallons sold to the buyer. Freefile com A copy of the waiver signed by the buyer at the time the credit or payment is claimed. Freefile com See Model Waiver N in the Appendix. Freefile com Kerosene for use in commercial aviation or noncommercial aviation. Freefile com   To make a claim as an ultimate vendor of kerosene for use in commercial aviation (other than foreign trade) or noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia), you must have a UA registration number. Freefile com See Kerosene for use in aviation, earlier, for a list of nontaxable uses. Freefile com You must keep the following information. Freefile com The date of each sale. Freefile com The name and address of the buyer. Freefile com The number of gallons sold to the buyer. Freefile com A copy of the waiver signed by the buyer at the time the credit or payment is claimed. Freefile com See Model Waiver L in the Appendix. Freefile com Kerosene for use in nonexempt, noncommercial aviation. Freefile com   To make a claim as an ultimate vendor of kerosene for use in nonexempt, noncommercial aviation, you must have a UA registration number. Freefile com You must keep the following information. Freefile com The date of each sale. Freefile com The name and address of the buyer. Freefile com The number of gallons sold to the buyer. Freefile com A copy of the certificate signed by the buyer at the time the credit or payment is claimed. Freefile com See Model Certificate Q in the Appendix. Freefile com Claims by credit card issuers. Freefile com   For sales of gasoline, aviation gasoline, diesel fuel, kerosene, or kerosene for use in aviation that are purchased by an exempt user with the use of a credit card, the registered credit card issuer is the only person who can make the claim. Freefile com An exempt user for this purpose is: For gasoline or aviation gasoline, a state or local government (including essential government use by an Indian tribal government) or a nonprofit educational organization; or For diesel fuel, kerosene, or kerosene for use in aviation, a state or local government (including essential government use by an Indian tribal government). Freefile com   If gasoline is purchased without the use of a credit card, then the registered ultimate vendor of the gasoline may make the claim for refund or credit. Freefile com However, if the gasoline is purchased with a credit card issued to a state, but the credit card issuer is not registered by the IRS or does not meet the conditions described, the credit card issuer must collect the tax and the state may make the claim. Freefile com   If diesel fuel, kerosene, or kerosene for use in aviation is purchased without the use of a credit card, the registered ultimate vendor may make the claim for refund or credit. Freefile com A state is not allowed to make a claim for these fuels. Freefile com However, if the diesel fuel or kerosene is purchased with a credit card issued to a state, but the credit card issuer is not registered by the IRS or does not meet the conditions described, the credit card issuer must collect the tax and the state may make the claim. Freefile com   The claim from the credit card issuer must contain the following information as it applies to the fuel covered in the claim. Freefile com The total number of gallons. Freefile com Its registration number. Freefile com A statement that it has not collected the amount of tax from the ultimate purchaser or has obtained the written consent of the ultimate purchaser to make the claim. Freefile com A statement that it has repaid or agreed to repay the amount of tax to the ultimate vendor, has obtained the written consent of the ultimate vendor to make the claim, or has otherwise made arrangements which directly or indirectly provide the ultimate vendor with reimbursement of the tax. Freefile com Has in its possession an unexpired certificate similar to Model Certificate R in the Appendix and has no reason to believe any of the information in the certificate is false. Freefile com Taxpayer identification number. Freefile com   To file a claim, you must have a taxpayer identification number. Freefile com Your taxpayer identification number can be an: Employer identification number (EIN), Social security number (SSN), or Individual taxpayer identification number (ITIN), if you are an alien individual and do not have and are not eligible to get an SSN. Freefile com   If you normally file only a U. Freefile com S. Freefile com individual income tax return (such as Form 1040 or 1040NR), use your SSN or ITIN. Freefile com You get an SSN by filing Form SS-5, Application for a Social Security Card, with the Social Security Administration. Freefile com To get an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. Freefile com   If you operate a business, use your EIN. Freefile com If you do not have an EIN, you may apply for one online. Freefile com Go to the IRS website at irs. Freefile com gov/businesses/small and click on the “Employer ID Numbers (EINs)” link. Freefile com You may also apply for an EIN by calling 1-800-829-4933, or you can fax or mail Form SS-4, Application for Employer Identification Number, to the IRS. Freefile com Claiming A Refund Generally, you may claim a refund of excise taxes on Form 8849. Freefile com Complete and attach to Form 8849 the appropriate Form 8849 schedules. Freefile com The instructions for Form 8849 and the separate instructions for each schedule explain the requirements for making a claim for refund. Freefile com If you file Form 720, you can use the Schedule C (Form 720) for your refund claims for the quarter. Freefile com See the Instructions for Form 720. Freefile com Do not claim a refund on Form 8849 for any amount for which you have filed or will file a claim on Schedule C (Form 720) or Form 4136. Freefile com The alternative fuel mixture credit must be claimed on Schedule C (Form 720) against your section 4081 taxable fuel liability for gasoline, diesel, and kerosene and any excess is not allowed. Freefile com The alternative fuel credit must first be claimed on Schedule C (Form 720) against your section 4041 taxable fuel liability for alternative fuel and CNG. Freefile com To the extent the alternative fuel credit exceeds this taxable fuel liability, a payment is allowed and may be claimed as a credit on Schedule C (Form 720), or as an income tax credit on Forms 4136, 6478, or 8864, as applicable. Freefile com Only one claim may be made for any particular amount of alternative fuel. Freefile com Claiming a Credit on Form 4136 For alternative fuel mixtures produced after December 31, 2011, the alternative fuel mixture credit cannot be claimed on Form 4136. Freefile com See Biodiesel or Renewable Diesel Mixture Credit, Alternative Fuel Credit and Alternative Fuel Mixture Credit in chapter 2, earlier. Freefile com A credit may be claimed for certain uses and sales of fuels on Form 4136 when you file your income tax return at the end of the year. Freefile com If you meet certain requirements (discussed earlier), you may be able to make a claim during the year. Freefile com Credit only. Freefile com   You can claim the following taxes only as a credit on Form 4136. Freefile com Tax on fuels used for nontaxable uses if the total for your tax year is less than $750. Freefile com Tax on fuel you did not include in any claim for refund previously filed for any quarter of your tax year. Freefile com Tax on fuel you used in mobile machinery (off-highway business use) that traveled less than 7,500 miles on public highways. Freefile com Do not claim a credit for any amount for which you have filed a refund claim on Form 8849 or credit on Schedule C (Form 720). Freefile com When to file. Freefile com   You can claim a fuel tax credit on your income tax return for the year you used the fuel (or sold the fuel in the case of a registered ultimate vendor claim). Freefile com You may be able to make a fuel tax claim on an amended income tax return for the year you used the fuel. Freefile com Generally, you must file an amended return by the later of 3 years from the date you filed your original return or within 2 years from the date you paid the income tax. Freefile com How to claim a credit. Freefile com   How you claim a credit depends on whether you are an individual, partnership, corporation, S corporation, or farmers' cooperative association. Freefile com Individuals. Freefile com   You claim the credit on the “Credits from” line of Form 1040. Freefile com Also check box b on that line. Freefile com If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit. Freefile com Partnerships. Freefile com   Partnerships (other than electing large partnerships) claim the credit by including a statement on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Freefile com , showing each partner's share of the number of gallons of each fuel sold or used for a non
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IRS Non-Retaliation Policy

Section 1203 of the IRS Restructuring and Reform Act of 1998 (RRA ’98), created a statutory provision requiring termination of IRS employment for misconduct.  Section 1203(a) provides that the Commissioner of the Internal Revenue shall terminate the employment of any employee of the Internal Revenue Service if there is a final administrative or judicial determination that such employee committed any act or omission described under subsection (b) in the performance of the employee’s official duties. One of the acts described in subsection (b) is retaliation.

Section 1203 (b)(6) provides that:

Violations of the Internal Revenue Code of 1986, Department of Treasury regulations, or policies of the Internal Revenue Service (including the Internal Revenue Manual) for the purpose of retaliating against, or harassing, a taxpayer, taxpayer representative, or other employee of the Internal Revenue Service.

is an act or omission requiring termination.

IRM Section 6.751.1.1 addresses administrative disciplinary matters.  Exhibit 6.751.1-1 is the Internal Revenue Service Guide for Penalty Determinations. Violations of RRA ’98, Section 1203 (b)(6) is included  in the Guide for Penalty Determinations.  This Exhibit shows that the penalty for a First Offense for an RRA ‘98 1203 (b)(6) offense is removal.

Page Last Reviewed or Updated: 05-Nov-2013

The Freefile Com

Freefile com 2. Freefile com   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Freefile com Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Freefile com S. Freefile com or foreign source income. Freefile com This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Freefile com S. Freefile com Virgin Islands (USVI). Freefile com Generally, the same rules that apply for determining U. Freefile com S. Freefile com source income also apply for determining possession source income. Freefile com However, there are some important exceptions to these rules. Freefile com Both the general rules and the exceptions are discussed in this chapter. Freefile com U. Freefile com S. Freefile com income rule. Freefile com   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Freefile com Table 2-1 shows the general rules for determining whether income is from sources within the United States. Freefile com Table 2-1. Freefile com General Rules for Determining U. Freefile com S. Freefile com Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Freefile com Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Freefile com For more information, see Regulations section 1. Freefile com 863-1(b). Freefile com Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Freefile com Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Freefile com Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Freefile com It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Freefile com Services performed wholly within a relevant possession. Freefile com   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Freefile com However, there is an exception for income earned as a member of the U. Freefile com S. Freefile com Armed Forces or a civilian spouse. Freefile com U. Freefile com S. Freefile com Armed Forces. Freefile com   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Freefile com However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Freefile com Civilian spouse of active duty member of the U. Freefile com S. Freefile com Armed Forces. Freefile com   If you are a bona fide resident of a U. Freefile com S. Freefile com possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Freefile com Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Freefile com S. Freefile com possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Freefile com Services performed partly inside and partly outside a relevant possession. Freefile com   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Freefile com Compensation (other than certain fringe benefits) is sourced on a time basis. Freefile com Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Freefile com   Or, you may be permitted to use an alternative basis to determine the source of compensation. Freefile com See Alternative basis , later. Freefile com   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Freefile com In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Freefile com Time basis. Freefile com   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Freefile com Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Freefile com The time period for which the income is made does not have to be a year. Freefile com Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Freefile com Example. Freefile com In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Freefile com Your Puerto Rico source income is $60,000, figured as follows. Freefile com       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Freefile com   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Freefile com Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Freefile com You determine the period to which the income is attributable based on the facts and circumstances of your case. Freefile com For more information on multi-year compensation, see Treasury Decision (T. Freefile com D. Freefile com ) 9212 and Regulations section 1. Freefile com 861-4, 2005-35 I. Freefile com R. Freefile com B. Freefile com 429, available at www. Freefile com irs. Freefile com gov/irb/2005-35_IRB/ar14. Freefile com html. Freefile com Certain fringe benefits sourced on a geographical basis. Freefile com   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Freefile com Housing. Freefile com Education. Freefile com Local transportation. Freefile com Tax reimbursement. Freefile com Hazardous or hardship duty pay. Freefile com Moving expense reimbursement. Freefile com For information on determining the source of the fringe benefits listed above, see Regulations section 1. Freefile com 861-4. Freefile com Alternative basis. Freefile com   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Freefile com If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Freefile com De minimis exception. Freefile com   There is an exception to the rule for determining the source of income earned in a possession. Freefile com Generally, you will not have income from a possession if during a tax year you: Are a U. Freefile com S. Freefile com citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Freefile com This exception began with income earned during your 2008 tax year. Freefile com Pensions. Freefile com   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Freefile com The contribution portion is sourced according to where services were performed that earned the pension. Freefile com The investment earnings portion is sourced according to the location of the pension trust. Freefile com Example. Freefile com You are a U. Freefile com S. Freefile com citizen who worked in Puerto Rico for a U. Freefile com S. Freefile com company. Freefile com All services were performed in Puerto Rico. Freefile com Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Freefile com S. Freefile com pension trust of your employer. Freefile com Distributions from the U. Freefile com S. Freefile com pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Freefile com S. Freefile com source income. Freefile com Investment Income This category includes such income as interest, dividends, rents, and royalties. Freefile com Interest income. Freefile com   The source of interest income is generally determined by the residence of the payer. Freefile com Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Freefile com   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Freefile com See Regulations section 1. Freefile com 937-2(i) for more information. Freefile com Dividends. Freefile com   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Freefile com There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Freefile com For more information, see Regulations section 1. Freefile com 937-2(g). Freefile com Rental income. Freefile com   Rents from property located in a relevant possession are treated as income from sources within that possession. Freefile com Royalties. Freefile com   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Freefile com   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Freefile com Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Freefile com The most common situations are discussed below. Freefile com Real property. Freefile com   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Freefile com The location of the property generally determines the source of income from the sale. Freefile com For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Freefile com If, however, the home you sold was located in the United States, the gain is U. Freefile com S. Freefile com source income. Freefile com Personal property. Freefile com   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Freefile com Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Freefile com If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Freefile com   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Freefile com The rules applying to sales of inventory are discussed below. Freefile com For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Freefile com Inventory. Freefile com   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Freefile com The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Freefile com Purchased. Freefile com   Income from the sale of inventory that you purchased is sourced where you sell the property. Freefile com Generally, this is where title to the property passes to the buyer. Freefile com Produced. Freefile com   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Freefile com For information on making the allocation, see Regulations section 1. Freefile com 863-3(f). Freefile com Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Freefile com S. Freefile com citizen or resident alien prior to becoming a bona fide resident of a possession. Freefile com You are subject to these special rules if you meet both of the following conditions. Freefile com For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Freefile com For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Freefile com If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Freefile com Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Freefile com S. Freefile com tax return. Freefile com (See chapter 3 for additional filing information. Freefile com ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Freefile com These rules apply to dispositions after April 11, 2005. Freefile com For details, see Regulations section 1. Freefile com 937-2(f)(1) and Examples 1 and 2 of section 1. Freefile com 937-2(k). Freefile com Example 1. Freefile com In 2007, Cheryl Jones, a U. Freefile com S. Freefile com citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Freefile com S. Freefile com corporation listed on the New York Stock Exchange. Freefile com On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Freefile com Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Freefile com On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Freefile com On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Freefile com Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Freefile com The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Freefile com This existing special rule applies if you are a U. Freefile com S. Freefile com citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Freefile com S. Freefile com assets during the 10-year period beginning when you became a bona fide resident. Freefile com The gain is U. Freefile com S. Freefile com source income that generally is subject to U. Freefile com S. Freefile com tax if the property is either (1) located in the United States; (2) stock issued by a U. Freefile com S. Freefile com corporation or a debt obligation of a U. Freefile com S. Freefile com person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Freefile com See chapter 3 for filing information. Freefile com Special election. Freefile com   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Freefile com Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Freefile com This election overrides both of the special rules discussed earlier. Freefile com   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Freefile com Marketable securities. Freefile com   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Freefile com Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Freefile com S. Freefile com holding periods. Freefile com   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Freefile com The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Freefile com This is your gain (or loss) that is treated as being from sources within the relevant possession. Freefile com If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Freefile com Example 2. Freefile com Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Freefile com S. Freefile com and possession holding periods. Freefile com Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Freefile com Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Freefile com By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Freefile com Other personal property. Freefile com   For personal property other than marketable securities, use a time-based allocation. Freefile com Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Freefile com      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Freefile com Example 3. Freefile com In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Freefile com On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Freefile com On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Freefile com She had owned the interest for a total of 1,720 days. Freefile com Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Freefile com The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Freefile com By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Freefile com Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Freefile com Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Freefile com These rules do not apply to amounts paid as salary or other compensation for services. Freefile com See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Freefile com Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Freefile com These circumstances are listed below. Freefile com You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Freefile com That office or place of business is a material factor in producing the income. Freefile com The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Freefile com An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Freefile com The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Freefile com Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Freefile com Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Freefile com Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Freefile com Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Freefile com Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Freefile com Example. Freefile com Marcy Jackson is a bona fide resident of American Samoa. Freefile com Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Freefile com A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Freefile com Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Freefile com The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Freefile com However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Freefile com Prev  Up  Next   Home   More Online Publications