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Search irs 1. Search irs   Fuel Taxes Table of Contents Definitions Information Returns Registration RequirementsAdditional information. Search irs Gasoline and Aviation GasolineTaxable Events Gasoline Blendstocks Diesel Fuel and KeroseneTaxable Events Dyed Diesel Fuel and Dyed Kerosene Alaska and Feedstocks Back-up Tax Diesel-Water Fuel Emulsion Kerosene for Use in AviationTaxable Events Liability For Tax Surtax on any liquid used in a fractional ownership program aircraft as fuel Certificate for Commercial Aviation and Exempt UsesExempt use. Search irs Reseller statement. Search irs Other Fuels (Including Alternative Fuels)Taxable Events Compressed Natural Gas (CNG)Taxable Events Fuels Used on Inland WaterwaysFishing vessels. Search irs Deep-draft ocean-going vessels. Search irs Passenger vessels. Search irs Ocean-going barges. Search irs State or local governments. Search irs Cellulosic or Second Generation Biofuel Not Used as Fuel Biodiesel Sold as But Not Used as Fuel Definitions Excise taxes are imposed on all the following fuels. Search irs Gasoline, including aviation gasoline and gasoline blendstocks. Search irs Diesel fuel, including dyed diesel fuel. Search irs Diesel-water fuel emulsion. Search irs Kerosene, including dyed kerosene and kerosene used in aviation. Search irs Other Fuels (including alternative fuels). Search irs Compressed natural gas (CNG). Search irs Fuels used in commercial transportation on inland waterways. Search irs Any liquid used in a fractional ownership program aircraft as fuel. Search irs The following terms are used throughout the discussion of fuel taxes. Search irs Other terms are defined in the discussion of the specific fuels to which they pertain. Search irs Agri-biodiesel. Search irs   Agri-biodiesel means biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and camelina, and from animal fats. Search irs Approved terminal or refinery. Search irs   This is a terminal operated by a registrant that is a terminal operator or a refinery operated by a registrant that is a refiner. Search irs Biodiesel. Search irs   Biodiesel means the monoalkyl esters of long chain fatty acids derived from plant or animal matter that meet the registration requirements for fuels and fuel additives established by the Environmental Protection Agency (EPA) under section 211 of the Clean Air Act, and the requirements of the American Society of Testing Materials (ASTM) D6751. Search irs Blended taxable fuel. Search irs   This means any taxable fuel produced outside the bulk transfer/terminal system by mixing taxable fuel on which excise tax has been imposed and any other liquid on which excise tax has not been imposed. Search irs This does not include a mixture removed or sold during the calendar quarter if all such mixtures removed or sold by the blender contain less than 400 gallons of a liquid on which the tax has not been imposed. Search irs Blender. Search irs   This is the person that produces blended taxable fuel. Search irs Bulk transfer. Search irs   This is the transfer of taxable fuel by pipeline or vessel. Search irs Bulk transfer/terminal system. Search irs   This is the taxable fuel distribution system consisting of refineries, pipelines, vessels, and terminals. Search irs Fuel in the supply tank of any engine, or in any tank car, railcar, trailer, truck, or other equipment suitable for ground transportation is not in the bulk transfer/terminal system. Search irs Cellulosic biofuel. Search irs   Cellulosic biofuel means any liquid fuel produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis that meets the registration requirements for fuels and fuel additives established by the EPA under section 211 of the Clean Air Act. Search irs Cellulosic biofuel does not include any alcohol with a proof of less than 150 (without regard to denaturants). Search irs For fuels sold or used after December 31, 2009, cellulosic biofuel does not include fuel of which more than 4% (determined by weight) is any combination of water and sediment, fuel of which the ash content is more than 1%, or fuel that has an acid number greater than 25. Search irs Also see Second generation biofuel below. Search irs Diesel-water fuel emulsion. Search irs   A diesel-water fuel emulsion means an emulsion at least 14% of which is water. Search irs The emulsion additive used to produce the fuel must be registered by a United States manufacturer with the EPA under section 211 of the Clean Air Act as in effect on March 31, 2003. Search irs Dry lease aircraft exchange. Search irs   See later, under Surtax on any liquid used in a fractional ownership program aircraft as fuel. Search irs Enterer. Search irs   This is the importer of record (under customs law) for the taxable fuel. Search irs However, if the importer of record is acting as an agent, such as a customs broker, the person for whom the agent is acting is the enterer. Search irs If there is no importer of record, the owner at the time of entry into the United States is the enterer. Search irs Entry. Search irs   Taxable fuel is entered into the United States when it is brought into the United States and applicable customs law requires that it be entered for consumption, use, or warehousing. Search irs This does not apply to fuel brought into Puerto Rico (which is part of the U. Search irs S. Search irs customs territory), but does apply to fuel brought into the United States from Puerto Rico. Search irs Fractional ownership aircraft program and fractional program aircraft. Search irs   See later, under Surtax on any liquid used in a fractional ownership program aircraft as fuel. Search irs Measurement of taxable fuel. Search irs   Volumes of taxable fuel can be measured on the basis of actual volumetric gallons or gallons adjusted to 60 degrees Fahrenheit. Search irs Other fuels. Search irs   See Other Fuels (Including Alternative Fuels), later, and Alternative Fuel Credit and Alternative Fuel Mixture Credit in chapter 2. Search irs Pipeline operator. Search irs   This is the person that operates a pipeline within the bulk transfer/terminal system. Search irs Position holder. Search irs   This is the person that holds the inventory position in the taxable fuel in the terminal, as reflected in the records of the terminal operator. Search irs You hold the inventory position when you have a contractual agreement with the terminal operator for the use of the storage facilities and terminaling services for the taxable fuel. Search irs A terminal operator that owns taxable fuel in its terminal is a position holder. Search irs Rack. Search irs   This is a mechanism capable of delivering fuel into a means of transport other than a pipeline or vessel. Search irs Refiner. Search irs   This is any person that owns, operates, or otherwise controls a refinery. Search irs Refinery. Search irs   This is a facility used to produce taxable fuel and from which taxable fuel may be removed by pipeline, by vessel, or at a rack. Search irs However, this term does not include a facility where only blended fuel, and no other type of fuel, is produced. Search irs For this purpose, blended fuel is any mixture that would be blended taxable fuel if produced outside the bulk transfer/terminal system. Search irs Registrant. Search irs   This is a taxable fuel registrant (see Registration Requirements, later). Search irs Removal. Search irs   This is any physical transfer of taxable fuel. Search irs It also means any use of taxable fuel other than as a material in the production of taxable fuel or Other Fuels. Search irs However, taxable fuel is not removed when it evaporates or is otherwise lost or destroyed. Search irs Renewable diesel. Search irs   See Renewable Diesel Credits in chapter 2. Search irs Sale. Search irs   For taxable fuel not in a terminal, this is the transfer of title to, or substantial incidents of ownership in, taxable fuel to the buyer for money, services, or other property. Search irs For taxable fuel in a terminal, this is the transfer of the inventory position if the transferee becomes the position holder for that taxable fuel. Search irs Second generation biofuel. Search irs   This is any liquid fuel derived by, or from, qualified feedstocks, and meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U. Search irs S. Search irs C. Search irs 7545). Search irs It also includes certain liquid fuel which is derived by, or from, any cultivated algae, cyanobacteria, or lemna. Search irs It is not alcohol of less than 150 proof (disregard any added denaturants). Search irs See Form 6478 for more information. Search irs State. Search irs   This includes any state, any of its political subdivisions, the District of Columbia, and the American Red Cross. Search irs An Indian tribal government is treated as a state only if transactions involve the exercise of an essential tribal government function. Search irs Taxable fuel. Search irs   This means gasoline, diesel fuel, and kerosene. Search irs Terminal. Search irs   This is a storage and distribution facility supplied by pipeline or vessel, and from which taxable fuel may be removed at a rack. Search irs It does not include a facility at which gasoline blendstocks are used in the manufacture of products other than finished gasoline if no gasoline is removed from the facility. Search irs A terminal does not include any facility where finished gasoline, diesel fuel, or kerosene is stored if the facility is operated by a registrant and all such taxable fuel stored at the facility has been previously taxed upon removal from a refinery or terminal. Search irs Terminal operator. Search irs   This is any person that owns, operates, or otherwise controls a terminal. Search irs Throughputter. Search irs   This is any person that is a position holder or that owns taxable fuel within the bulk transfer/terminal system (other than in a terminal). Search irs Vessel operator. Search irs   This is the person that operates a vessel within the bulk transfer/terminal system. Search irs However, vessel does not include a deep draft ocean-going vessel. Search irs Information Returns Form 720-TO and Form 720-CS are information returns used to report monthly receipts and disbursements of liquid products. Search irs A liquid product is any liquid transported into storage at a terminal or delivered out of a terminal. Search irs For a list of products, see the product code table in the Instructions for Forms 720-TO and 720-CS. Search irs The returns are due the last day of the month following the month in which the transaction occurs. Search irs Generally, these returns can be filed on paper or electronically. Search irs For information on filing electronically, see Publication 3536, Motor Fuel Excise Tax EDI Guide. Search irs Publication 3536 is only available on the IRS website. Search irs Form 720-TO. Search irs   This information return is used by terminal operators to report receipts and disbursements of all liquid products to and from all approved terminals. Search irs Each terminal operator must file a separate form for each approved terminal. Search irs Form 720-CS. Search irs   This information return must be filed by bulk transport carriers (barges, vessels, and pipelines) who receive liquid product from an approved terminal or deliver liquid product to an approved terminal. Search irs Registration Requirements The following discussion applies to excise tax registration requirements for activities relating to fuels only. Search irs See Form 637 for other persons who must register and for more information about registration. Search irs Persons that are required to be registered. Search irs   You are required to be registered if you are a: Blender; Enterer; Pipeline operator; Position holder; Refiner; Terminal operator; Vessel operator; Producer or importer of alcohol, biodiesel, agri-biodiesel, and renewable diesel; or Producer of cellulosic or second generation biofuel. Search irs Persons that may register. Search irs   You may, but are not required to, register if you are a: Feedstock user, Industrial user, Throughputter that is not a position holder, Ultimate vendor, Diesel-water fuel emulsion producer, Credit card issuer, or Alternative fuel claimant. Search irs Ultimate vendors, credit card issuers, and alternative fuel claimants do not need to be registered to buy or sell fuel. Search irs However, they must be registered to file claims for certain sales and uses of fuel. Search irs See Form 637 for more information. Search irs Taxable fuel registrant. Search irs   This is an enterer, an industrial user, a refiner, a terminal operator, or a throughputter who received a Letter of Registration under the excise tax registration provisions and whose registration has not been revoked or suspended. Search irs The term registrant as used in the discussions of these fuels means a taxable fuel registrant. Search irs Additional information. Search irs   See the Form 637 instructions for the information you must submit when you apply for registration. Search irs Failure to register. Search irs   The penalty for failure to register if you must register, unless due to reasonable cause, is $10,000 for the initial failure, and then $1,000 each day thereafter you fail to register. Search irs Gasoline and Aviation Gasoline Gasoline. Search irs   Gasoline means all products commonly or commercially known or sold as gasoline with an octane rating of 75 or more that are suitable for use as a motor fuel. Search irs Gasoline includes any gasoline blend other than: Qualified ethanol and methanol fuel (at least 85 percent of the blend consists of alcohol produced from coal, including peat), Partially exempt ethanol and methanol fuel (at least 85 percent of the blend consists of alcohol produced from natural gas), or Denatured alcohol. Search irs Gasoline also includes gasoline blendstocks, discussed later. Search irs Aviation gasoline. Search irs   This means all special grades of gasoline suitable for use in aviation reciprocating engines and covered by ASTM specification D910 or military specification MIL-G-5572. Search irs Taxable Events The tax on gasoline is $. Search irs 184 per gallon. Search irs The tax on aviation gasoline is $. Search irs 194 per gallon. Search irs When used in a fractional ownership program aircraft, gasoline also is subject to a surtax of $. Search irs 141 per gallon. Search irs See Surtax on any liquid used in a fractional ownership program aircraft as fuel, later. Search irs Tax is imposed on the removal, entry, or sale of gasoline. Search irs Each of these events is discussed later. Search irs Also, see the special rules that apply to gasoline blendstocks, later. Search irs If the tax is paid on the gasoline in more than one event, a refund may be allowed for the “second” tax paid. Search irs See Refunds of Second Tax in chapter 2. Search irs Removal from terminal. Search irs   All removals of gasoline at a terminal rack are taxable. Search irs The position holder for that gasoline is liable for the tax. Search irs Two-party exchanges. Search irs   In a two-party exchange, the receiving person, not the delivering person, is liable for the tax imposed on the removal of taxable fuel from the terminal at the terminal rack. Search irs A two-party exchange means a transaction (other than a sale) where the delivering person and receiving person are both taxable fuel registrants and all of the following apply. Search irs The transaction includes a transfer from the delivering person, who holds the inventory position for the taxable fuel in the terminal as reflected in the records of the terminal operator. Search irs The exchange transaction occurs before or at the same time as removal across the rack by the receiving person. Search irs The terminal operator in its records treats the receiving person as the person that removes the product across the terminal rack for purposes of reporting the transaction on Form 720-TO. Search irs The transaction is subject to a written contract. Search irs Terminal operator's liability. Search irs   The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator and is not a registrant. Search irs   However, a terminal operator meeting all the following conditions at the time of the removal will not be liable for the tax. Search irs The terminal operator is a registrant. Search irs The terminal operator has an unexpired notification certificate (discussed later) from the position holder. Search irs The terminal operator has no reason to believe any information on the certificate is false. Search irs Removal from refinery. Search irs   The removal of gasoline from a refinery is taxable if the removal meets either of the following conditions. Search irs It is made by bulk transfer and the refiner, the owner of the gasoline immediately before the removal, or the operator of the pipeline or vessel is not a registrant. Search irs It is made at the refinery rack. Search irs The refiner is liable for the tax. Search irs Exception. Search irs   The tax does not apply to a removal of gasoline at the refinery rack if all the following requirements are met. Search irs The gasoline is removed from an approved refinery not served by pipeline (other than for receiving crude oil) or vessel. Search irs The gasoline is received at a facility operated by a registrant and located within the bulk transfer/terminal system. Search irs The removal from the refinery is by railcar. Search irs The same person operates the refinery and the facility at which the gasoline is received. Search irs Entry into the United States. Search irs   The entry of gasoline into the United States is taxable if the entry meets either of the following conditions. Search irs It is made by bulk transfer and the enterer or the operator of the pipeline or vessel is not a registrant. Search irs It is not made by bulk transfer. Search irs The enterer is liable for the tax. Search irs Importer of record's liability. Search irs   The importer of record is jointly and severally liable for the tax with the enterer if the importer of record is not the enterer of the taxable fuel and the enterer is not a taxable fuel registrant. Search irs   However, an importer of record meeting both of the following conditions at the time of the entry will not be liable for the tax. Search irs The importer of record has an unexpired notification certificate (discussed later) from the enterer. Search irs The importer of record has no reason to believe any information in the certificate is false. Search irs Customs bond. Search irs   The customs bond will not be charged for the tax imposed on the entry of the gasoline if at the time of entry the surety has an unexpired notification certificate from the enterer and has no reason to believe any information in the certificate is false. Search irs Removal from a terminal by unregistered position holder or unregistered pipeline or vessel operator. Search irs   The removal by bulk transfer of gasoline from a terminal is taxable if the position holder for the gasoline or the operator of the pipeline or vessel is not a registrant. Search irs The position holder is liable for the tax. Search irs The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator. Search irs However, see Terminal operator's liability under Removal from terminal, earlier, for an exception. Search irs Bulk transfers not received at approved terminal or refinery. Search irs   The removal by bulk transfer of gasoline from a terminal or refinery, or the entry of gasoline by bulk transfer into the United States, is taxable if the following conditions apply. Search irs No tax was previously imposed (as discussed earlier) on any of the following events. Search irs The removal from the refinery. Search irs The entry into the United States. Search irs The removal from a terminal by an unregistered position holder. Search irs Upon removal from the pipeline or vessel, the gasoline is not received at an approved terminal or refinery (or at another pipeline or vessel). Search irs   The owner of the gasoline when it is removed from the pipeline or vessel is liable for the tax. Search irs However, an owner meeting all the following conditions at the time of the removal will not be liable for the tax. Search irs The owner is a registrant. Search irs The owner has an unexpired notification certificate (discussed later) from the operator of the terminal or refinery where the gasoline is received. Search irs The owner has no reason to believe any information on the certificate is false. Search irs The operator of the facility where the gasoline is received is liable for the tax if the owner meets these conditions. Search irs The operator is jointly and severally liable if the owner does not meet these conditions. Search irs Sales to unregistered person. Search irs   The sale of gasoline located within the bulk transfer/terminal system to a person that is not a registrant is taxable if tax was not previously imposed under any of the events discussed earlier. Search irs   The seller is liable for the tax. Search irs However, a seller meeting all the following conditions at the time of the sale will not be liable for the tax. Search irs   The seller is a registrant. Search irs The seller has an unexpired notification certificate (discussed later) from the buyer. Search irs The seller has no reason to believe any information on the certificate is false. Search irs The buyer of the gasoline is liable for the tax if the seller meets these conditions. Search irs The buyer is jointly and severally liable if the seller does not meet these conditions. Search irs Exception. Search irs   The tax does not apply to a sale if all of the following apply. Search irs The buyer's principal place of business is not in the United States. Search irs The sale occurs as the fuel is delivered into a transport vessel with a capacity of at least 20,000 barrels of fuel. Search irs The seller is a registrant and the exporter of record. Search irs The fuel was exported. Search irs Removal or sale of blended gasoline. Search irs   The removal or sale of blended gasoline by the blender is taxable. Search irs See Blended taxable fuel under Definitions, earlier. Search irs   The blender is liable for the tax. Search irs The tax is figured on the number of gallons not previously subject to the tax on gasoline. Search irs   Persons who blend alcohol with gasoline to produce an alcohol fuel mixture outside the bulk transfer/terminal system must pay the gasoline tax on the volume of alcohol in the mixture. Search irs See Form 720 to report this tax. Search irs You also must be registered with the IRS as a blender. Search irs See Form 637. Search irs   However, if an untaxed liquid is sold as taxed taxable fuel and that untaxed liquid is used to produce blended taxable fuel, the person that sold the untaxed liquid is jointly and severally liable for the tax imposed on the blender's sale or removal of the blended taxable fuel. Search irs Notification certificate. Search irs   The notification certificate is used to notify a person of the registration status of the registrant. Search irs A copy of the registrant's letter of registration cannot be used as a notification certificate. Search irs A model notification certificate is shown in the Appendix as Model Certificate C. Search irs A notification certificate must contain all information necessary to complete the model. Search irs   The certificate may be included as part of any business records normally used for a sale. Search irs A certificate expires on the earlier of the date the registrant provides a new certificate, or the date the recipient of the certificate is notified that the registrant's registration has been revoked or suspended. Search irs The registrant must provide a new certificate if any information on a certificate has changed. Search irs Additional persons liable. Search irs   When the person liable for the tax willfully fails to pay the tax, joint and several liability for the tax is imposed on: Any officer, employee, or agent of the person who is under a duty to ensure the payment of the tax and who willfully fails to perform that duty, or Anyone who willfully causes the person to fail to pay the tax. Search irs Gasoline Blendstocks Gasoline blendstocks may be subject to $. Search irs 001 per gallon LUST tax as discussed below. Search irs Gasoline includes gasoline blendstocks. Search irs The previous discussions apply to these blendstocks. Search irs However, if certain conditions are met, the removal, entry, or sale of gasoline blendstocks are taxed at $. Search irs 001 per gallon or are not subject to the excise tax. Search irs Blendstocks. Search irs   Gasoline blendstocks are: Alkylate, Butane, Butene, Catalytically cracked gasoline, Coker gasoline, Ethyl tertiary butyl ether (ETBE), Hexane, Hydrocrackate, Isomerate, Methyl tertiary butyl ether (MTBE), Mixed xylene (not including any separated isomer of xylene), Natural gasoline, Pentane, Pentane mixture, Polymer gasoline, Raffinate, Reformate, Straight-run gasoline, Straight-run naphtha, Tertiary amyl methyl ether (TAME), Tertiary butyl alcohol (gasoline grade) (TBA), Thermally cracked gasoline, and Toluene. Search irs   However, gasoline blendstocks do not include any product that cannot be used without further processing in the production of finished gasoline. Search irs Not used to produce finished gasoline. Search irs   Gasoline blendstocks not used to produce finished gasoline are not taxable (other than LUST) if the following conditions are met. Search irs Removals and entries not connected to sale. Search irs   Nonbulk removals and entries are not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) is a registrant. Search irs Removals and entries connected to sale. Search irs   Nonbulk removals and entries are not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) is a registrant, and at the time of the sale, meets the following requirements. Search irs The person has an unexpired certificate (discussed later) from the buyer. Search irs The person has no reason to believe any information in the certificate is false. Search irs Sales after removal or entry. Search irs   The sale of a gasoline blendstock that was not subject to tax on its nonbulk removal or entry, as discussed earlier, is taxable. Search irs The seller is liable for the tax. Search irs However, the sale is not taxable if, at the time of the sale, the seller meets the following requirements. Search irs The seller has an unexpired certificate (discussed next) from the buyer. Search irs The seller has no reason to believe any information in the certificate is false. Search irs Certificate of buyer. Search irs   The certificate from the buyer certifies the gasoline blendstocks will not be used to produce finished gasoline. Search irs The certificate may be included as part of any business records normally used for a sale. Search irs A model certificate is shown in the Appendix as Model Certificate D. Search irs The certificate must contain all information necessary to complete the model. Search irs   A certificate expires on the earliest of the following dates. Search irs The date 1 year after the effective date (not earlier than the date signed) of the certificate. Search irs The date a new certificate is provided to the seller. Search irs The date the seller is notified that the buyer's right to provide a certificate has been withdrawn. Search irs The buyer must provide a new certificate if any information on a certificate has changed. Search irs   The IRS may withdraw the buyer's right to provide a certificate if that buyer uses the gasoline blendstocks in the production of finished gasoline or resells the blendstocks without getting a certificate from its buyer. Search irs Received at approved terminal or refinery. Search irs   The nonbulk removal or entry of gasoline blendstocks received at an approved terminal or refinery is not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) meets all the following requirements. Search irs The person is a registrant. Search irs The person has an unexpired notification certificate (discussed earlier) from the operator of the terminal or refinery where the gasoline blendstocks are received. Search irs The person has no reason to believe any information on the certificate is false. Search irs Bulk transfers to registered industrial user. Search irs   The removal of gasoline blendstocks from a pipeline or vessel is not taxable (other than LUST) if the blendstocks are received by a registrant that is an industrial user. Search irs An industrial user is any person that receives gasoline blendstocks by bulk transfer for its own use in the manufacture of any product other than finished gasoline. Search irs Credits or Refunds. Search irs   A credit or refund of the gasoline tax may be allowable if gasoline is used for a nontaxable purpose or exempt use. Search irs For more information, see chapter 2. Search irs Diesel Fuel and Kerosene Generally, diesel fuel and kerosene are taxed in the same manner as gasoline (discussed earlier). Search irs However, special rules (discussed later) apply to dyed diesel fuel and dyed kerosene, and to undyed diesel fuel and undyed kerosene sold or used in Alaska for certain nontaxable uses and undyed kerosene used for a feedstock purpose. Search irs Diesel fuel means: Any liquid that without further processing or blending is suitable for use as a fuel in a diesel-powered highway vehicle or train, and Transmix. Search irs A liquid is suitable for this use if the liquid has practical and commercial fitness for use in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train. Search irs A liquid may possess this practical and commercial fitness even though the specified use is not the predominant use of the liquid. Search irs However, a liquid does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train. Search irs Diesel fuel does not include gasoline, kerosene, excluded liquid, No. Search irs 5 and No. Search irs 6 fuel oils covered by ASTM specification D396, or F-76 (Fuel Naval Distillate) covered by military specification MIL-F-16884. Search irs An excluded liquid is either of the following. Search irs A liquid that contains less than 4% normal paraffins. Search irs A liquid with all the following properties. Search irs Distillation range of 125 degrees Fahrenheit or less. Search irs Sulfur content of 10 ppm or less. Search irs Minimum color of +27 Saybolt. Search irs Transmix means a by-product of refined products created by the mixing of different specification products during pipeline transportation. Search irs Kerosene. Search irs   This means any of the following liquids. Search irs One of the two grades of kerosene (No. Search irs 1-K and No. Search irs 2-K) covered by ASTM specification D3699. Search irs Kerosene-type jet fuel covered by ASTM specification D1655 or military specification MIL-DTL-5624T (Grade JP-5) or MIL-DTL-83133E (Grade JP-8). Search irs See Kerosene for Use in Aviation, later. Search irs   However, kerosene does not include excluded liquid, discussed earlier. Search irs   Kerosene also includes any liquid that would be described above but for the presence of a dye of the type used to dye kerosene for a nontaxable use. Search irs Diesel-powered highway vehicle. Search irs   This is any self-propelled vehicle designed to carry a load over public highways (whether or not also designed to perform other functions) and propelled by a diesel-powered engine. Search irs Specially designed mobile machinery for nontransportation functions and vehicles specially designed for off-highway transportation are generally not considered diesel-powered highway vehicles. Search irs For more information about these vehicles and for information about vehicles not considered highway vehicles, see Off-Highway Business Use (No. Search irs 2) in chapter 2. Search irs Diesel-powered train. Search irs   This is any diesel-powered equipment or machinery that rides on rails. Search irs The term includes a locomotive, work train, switching engine, and track maintenance machine. Search irs Taxable Events The tax on diesel fuel and kerosene is $. Search irs 244 per gallon. Search irs It is imposed on the removal, entry, or sale of diesel fuel and kerosene. Search irs Each of these events is discussed later. Search irs Only the $. Search irs 001 LUST tax applies to dyed diesel fuel and dyed kerosene, discussed later. Search irs If the tax is paid on the diesel fuel or kerosene in more than one event, a refund may be allowed for the “second” tax paid. Search irs See Refunds of Second Tax in chapter 2. Search irs Use in certain intercity and local buses. Search irs   Dyed diesel fuel and dyed kerosene cannot be used in certain intercity and local buses. Search irs A claim for $. Search irs 17 per gallon may be made by the registered ultimate vendor (under certain conditions) or the ultimate purchaser for undyed diesel fuel or undyed kerosene sold for use in certain intercity or local buses. Search irs An intercity or local bus is a bus engaged in furnishing (for compensation) passenger land transportation available to the general public. Search irs The bus must be engaged in one of the following activities. Search irs Scheduled transportation along regular routes regardless of the size of the bus. Search irs Nonscheduled transportation if the seating capacity of the bus is at least 20 adults (not including the driver). Search irs A bus is available to the general public if the bus is available for hire to more than a limited number of persons, groups, or organizations. Search irs Removal from terminal. Search irs   All removals of diesel fuel and kerosene at a terminal rack are taxable. Search irs The position holder for that fuel is liable for the tax. Search irs Two-party exchanges. Search irs   In a two-party exchange, the receiving person, not the delivering person, is liable for the tax imposed on the removal of taxable fuel from the terminal at the terminal rack. Search irs A two-party exchange means a transaction (other than a sale) where the delivering person and receiving person are both taxable fuel registrants and all of the following apply. Search irs The transaction includes a transfer from the delivering person, who holds the inventory position for the taxable fuel in the terminal as reflected in the records of the terminal operator. Search irs The exchange transaction occurs before or at the same time as completion of removal across the rack by the receiving person. Search irs The terminal operator in its records treats the receiving person as the person that removes the product across the terminal rack for purposes of reporting the transaction on Form 720-TO. Search irs The transaction is subject to a written contract. Search irs Terminal operator's liability. Search irs   The terminal operator is jointly and severally liable for the tax if the terminal operator provides any person with any bill of lading, shipping paper, or similar document indicating that diesel fuel or kerosene is dyed (discussed later). Search irs   The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator and is not a registrant. Search irs However, a terminal operator will not be liable for the tax in this situation if, at the time of the removal, the following conditions are met. Search irs The terminal operator is a registrant. Search irs The terminal operator has an unexpired notification certificate (discussed under Gasoline) from the position holder. Search irs The terminal operator has no reason to believe any information on the certificate is false. Search irs Removal from refinery. Search irs   The removal of diesel fuel or kerosene from a refinery is taxable if the removal meets either of the following conditions. Search irs It is made by bulk transfer and the refiner, the owner of the fuel immediately before the removal, or the operator of the pipeline or vessel is not a registrant. Search irs It is made at the refinery rack. Search irs The refiner is liable for the tax. Search irs Exception. Search irs   The tax does not apply to a removal of diesel fuel or kerosene at the refinery rack if all the following conditions are met. Search irs The diesel fuel or kerosene is removed from an approved refinery not served by pipeline (other than for receiving crude oil) or vessel. Search irs The diesel fuel or kerosene is received at a facility operated by a registrant and located within the bulk transfer/terminal system. Search irs The removal from the refinery is by: Railcar and the same person operates the refinery and the facility at which the diesel fuel or kerosene is received, or For diesel fuel only, a trailer or semi-trailer used exclusively to transport the diesel fuel from a refinery (described in (1)) to a facility (described in (2)) less than 20 miles from the refinery. Search irs Entry into the United States. Search irs   The entry of diesel fuel or kerosene into the United States is taxable if the entry meets either of the following conditions. Search irs It is made by bulk transfer and the enterer or the operator of the pipeline or vessel is not a registrant. Search irs It is not made by bulk transfer. Search irs The enterer is liable for the tax. Search irs Importer of record's liability. Search irs   The importer of record is jointly and severally liable for the tax with the enterer if the importer of record is not the enterer of the taxable fuel and the enterer is not a taxable fuel registrant. Search irs   However, an importer of record meeting both of the following conditions at the time of the entry will not be liable for the tax. Search irs The importer of record has an unexpired notification certificate (discussed under Gasoline) from the enterer. Search irs The importer of record has no reason to believe any information in the certificate is false. Search irs Customs bond. Search irs   The customs bond will not be charged for the tax imposed on the entry of the diesel fuel or kerosene if at the time of entry the surety has an unexpired notification certificate from the enterer and has no reason to believe any information in the certificate is false. Search irs Removal from a terminal by unregistered position holder or unregistered pipeline or vessel operator. Search irs   The removal by bulk transfer of diesel fuel or kerosene from a terminal is taxable if the position holder for that fuel or the operator of the pipeline or vessel is not a registrant. Search irs The position holder is liable for the tax. Search irs The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator. Search irs However, see Terminal operator's liability under Removal from terminal, earlier, for an exception. Search irs Bulk transfers not received at approved terminal or refinery. Search irs   The removal by bulk transfer of diesel fuel or kerosene from a terminal or refinery or the entry of diesel fuel or kerosene by bulk transfer into the United States is taxable if the following conditions apply. Search irs No tax was previously imposed (as discussed earlier) on any of the following events. Search irs The removal from the refinery. Search irs The entry into the United States. Search irs The removal from a terminal by an unregistered position holder. Search irs Upon removal from the pipeline or vessel, the diesel fuel or kerosene is not received at an approved terminal or refinery (or at another pipeline or vessel). Search irs   The owner of the diesel fuel or kerosene when it is removed from the pipeline or vessel is liable for the tax. Search irs However, an owner meeting all the following conditions at the time of the removal will not be liable for the tax. Search irs The owner is a registrant. Search irs The owner has an unexpired notification certificate (discussed under Gasoline) from the operator of the terminal or refinery where the diesel fuel or kerosene is received. Search irs The owner has no reason to believe any information on the certificate is false. Search irs The operator of the facility where the diesel fuel or kerosene is received is liable for the tax if the owner meets these conditions. Search irs The operator is jointly and severally liable if the owner does not meet these conditions. Search irs Sales to unregistered person. Search irs   The sale of diesel fuel or kerosene located within the bulk transfer/terminal system to a person that is not a registrant is taxable if tax was not previously imposed under any of the events discussed earlier. Search irs   The seller is liable for the tax. Search irs However, a seller meeting all the following conditions at the time of the sale will not be liable for the tax. Search irs The seller is a registrant. Search irs The seller has an unexpired notification certificate (discussed under Gasoline) from the buyer. Search irs The seller has no reason to believe any information on the certificate is false. Search irs The buyer of the diesel fuel or kerosene is liable for the tax if the seller meets these conditions. Search irs The buyer is jointly and severally liable if the seller does not meet these conditions. Search irs Exception. Search irs   The tax does not apply to a sale if all of the following apply. Search irs The buyer's principal place of business is not in the United States. Search irs The sale occurs as the fuel is delivered into a transport vessel with a capacity of at least 20,000 barrels of fuel. Search irs The seller is a registrant and the exporter of record. Search irs The fuel was exported. Search irs Removal or sale of blended diesel fuel or kerosene. Search irs   The removal or sale of blended diesel fuel or blended kerosene by the blender is taxable. Search irs Blended taxable fuel produced using biodiesel is subject to the tax. Search irs See Blended taxable fuel under Definitions, earlier. Search irs   The blender is liable for the tax. Search irs The tax is figured on the number of gallons not previously subject to the tax. Search irs   Persons who blend biodiesel with undyed diesel fuel to produce and sell or use a biodiesel mixture outside the bulk transfer/terminal system must pay the diesel fuel tax on the volume of biodiesel in the mixture. Search irs Generally, the biodiesel mixture must be diesel fuel (defined earlier). Search irs See Form 720 to report this tax. Search irs You also must be registered by the IRS as a blender. Search irs See Form 637 for more information. Search irs   However, if an untaxed liquid is sold as taxable fuel and that untaxed liquid is used to produce blended taxable fuel, the person that sold the untaxed liquid is jointly and severally liable for the tax imposed on the blender's sale or removal of the blended taxable fuel. Search irs Additional persons liable. Search irs   When the person liable for the tax willfully fails to pay the tax, joint and several liability for the tax applies to: Any officer, employee, or agent of the person who is under a duty to ensure the payment of the tax and who willfully fails to perform that duty; or Anyone who willfully causes the person to fail to pay the tax. Search irs Credits or Refunds. Search irs   A credit or refund is allowable for the tax on undyed diesel fuel or undyed kerosene used for a nontaxable use. Search irs For more information, see chapter 2. Search irs Dyed Diesel Fuel and Dyed Kerosene Dyed diesel fuel and dyed kerosene are subject to $. Search irs 001 per gallon LUST tax as discussed below, unless the fuel is for export. Search irs The excise tax is not imposed on the removal, entry, or sale of diesel fuel or kerosene (other than the LUST tax) if all the following tests are met. Search irs The person otherwise liable for tax (for example, the position holder) is a registrant. Search irs In the case of a removal from a terminal, the terminal is an approved terminal. Search irs The diesel fuel or kerosene satisfies the dyeing requirements (described next). Search irs Dyeing requirements. Search irs   Diesel fuel or kerosene satisfies the dyeing requirements only if it satisfies the following requirements. Search irs It contains the dye Solvent Red 164 (and no other dye) at a concentration spectrally equivalent to at least 3. Search irs 9 pounds of the solid dye standard Solvent Red 26 per thousand barrels of fuel or any dye of a type and in a concentration that has been approved by the Commissioner. Search irs Is indelibly dyed by mechanical injection. Search irs See section 6 of Notice 2005-80 for transition rules that apply until final regulations are issued by the IRS. Search irs Notice required. Search irs   A legible and conspicuous notice stating either: DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE or DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE must be: Provided by the terminal operator to any person that receives dyed diesel fuel or dyed kerosene at a terminal rack of that operator, and Posted by a seller on any retail pump or other delivery facility where it sells dyed diesel fuel or dyed kerosene for use by its buyer. Search irs   The notice under item (1) must be provided by the time of the removal and must appear on all shipping papers, bills of lading, and similar documents accompanying the removal of the fuel. Search irs   Any seller that fails to post the required notice under item (2) is presumed to know that the fuel will be used for a taxable use (a use other than a nontaxable use listed later). Search irs That seller is subject to the penalty described next. Search irs Penalty. Search irs   A penalty is imposed on a person if any of the following situations apply. Search irs Any dyed fuel is sold or held for sale by the person for a use the person knows or has reason to know is not a nontaxable use of the fuel. Search irs Any dyed fuel is held for use or used by the person for a use other than a nontaxable use and the person knew, or had reason to know, that the fuel was dyed. Search irs The person willfully alters, chemically or otherwise, or attempts to so alter, the strength or composition of any dye in dyed fuel. Search irs The person has knowledge that a dyed fuel that has been altered, as described in (3) above, sells or holds for sale such fuel for any use for which the person knows or has reason to know is not a nontaxable use of the fuel. Search irs   The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. Search irs After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. Search irs   This penalty is in addition to any tax imposed on the fuel. Search irs   If the penalty is imposed, each officer, employee, or agent of a business entity who willfully participated in any act giving rise to the penalty is jointly and severally liable with that entity for the penalty. Search irs   There is no administrative appeal or review allowed for the third and subsequent penalty imposed by section 6715 on any person except for: Fraud or a mistake in the chemical analysis, or Mathematical calculation of the penalty. Search irs   If you are liable for the penalty, you may also be liable for the back-up tax, discussed later. Search irs However, the penalty applies only to dyed diesel fuel and dyed kerosene, while the back-up tax may apply to other fuels. Search irs The penalty may apply if the fuel is held for sale or use for a taxable use while the back-up tax does not apply unless the fuel is delivered into a fuel supply tank. Search irs Exception to penalty. Search irs   The penalty under item (3) will not apply in any of the following situations. Search irs Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with any undyed liquid and the resulting product meets the dyeing requirements. Search irs Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with any other liquid (other than diesel fuel or kerosene) that contains the type and amount of dye required to meet the dyeing requirements. Search irs The alteration or attempted alteration occurs in an exempt area of Alaska. Search irs See Removal for sale or use in Alaska, later. Search irs Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with diesel fuel or kerosene not meeting the dyeing requirements and the blending occurs as part of a nontaxable use (other than export), discussed later. Search irs Alaska and Feedstocks Tax of $. Search irs 001 per gallon is imposed on: Undyed diesel fuel or undyed kerosene sold or used in Alaska for certain nontaxable uses (see Later sales on page 10). Search irs Undyed kerosene used for feedstock purposes. Search irs Removal for sale or use in Alaska. Search irs   No tax is imposed on the removal, entry, or sale of diesel fuel or kerosene in Alaska for ultimate sale or use in certain areas of Alaska for certain nontaxable uses. Search irs The removal or entry of any diesel fuel or kerosene is not taxed if all the following requirements are satisfied. Search irs The person otherwise liable for the tax (position holder, refiner, or enterer): Is a registrant, Can show satisfactory evidence of the nontaxable nature of the transaction, and Has no reason to believe the evidence is false. Search irs In the case of a removal from a terminal, the terminal is an approved terminal. Search irs The owner of the fuel immediately after the removal or entry holds the fuel for its own use in a nontaxable use (discussed later) or is a qualified dealer. Search irs   If all three of the requirements above are not met, then tax is imposed at $. Search irs 244 per gallon. Search irs   A qualified dealer is any person that holds a qualified dealer license from the state of Alaska or has been registered by the IRS as a qualified retailer. Search irs Satisfactory evidence may include copies of qualified dealer licenses or exemption certificates obtained for state tax purposes. Search irs Later sales. Search irs   The excise tax applies to diesel fuel or kerosene sold by a qualified dealer after the removal or entry. Search irs The tax is imposed at the time of the sale and the qualified dealer is liable for the tax. Search irs However, the sale is not taxable (other than the LUST tax at $. Search irs 001 per gallon) if all the following requirements are met. Search irs The fuel is sold in Alaska for certain nontaxable uses. Search irs The buyer buys the fuel for its own use in a nontaxable use or is a qualified dealer. Search irs The seller can show satisfactory evidence of the nontaxable nature of the transaction and has no reason to believe the evidence is false. Search irs Feedstock purposes. Search irs   The $. Search irs 001 per gallon LUST tax is imposed on the removal or entry of undyed kerosene if all the following conditions are met. Search irs The person otherwise liable for tax (position holder, refiner, or enterer) is a registrant. Search irs In the case of a removal from a terminal, the terminal is an approved terminal. Search irs Either: The person otherwise liable for tax uses the kerosene for a feedstock purpose, or The kerosene is sold for use by the buyer for a feedstock purpose and, at the time of the sale, the person otherwise liable for tax has an unexpired certificate (described later) from the buyer and has no reason to believe any information on the certificate is false. Search irs   If all of the requirements above are not met, then tax is imposed at $. Search irs 244 per gallon. Search irs   Kerosene is used for a feedstock purpose when it is used for nonfuel purposes in the manufacture or production of any substance other than gasoline, diesel fuel, or Other Fuels. Search irs For example, kerosene is used for a feedstock purpose when it is used as an ingredient in the production of paint, but is not used for a feedstock purpose when it is used to power machinery at a factory where paint is produced. Search irs A feedstock user is a person that uses kerosene for a feedstock purpose. Search irs A registered feedstock user is a person that has been registered by the IRS as a feedstock user. Search irs See Registration Requirements, earlier. Search irs Later sales. Search irs   The excise tax ($. Search irs 244 per gallon) applies to kerosene sold for use by the buyer for a feedstock purpose (item (3)(b) above) if the buyer in that sale later sells the kerosene. Search irs The tax is imposed at the time of the later sale and that seller is liable for the tax. Search irs Certificate. Search irs   The certificate from the buyer certifies the buyer is a registered feedstock user and the kerosene will be used by the buyer for a feedstock purpose. Search irs The certificate may be included as part of any business records normally used for a sale. Search irs A model certificate is shown in the Appendix as Model Certificate G. Search irs Your certificate must contain all information necessary to complete the model. Search irs   A certificate expires on the earliest of the following dates. Search irs The date 1 year after the effective date (not earlier than the date signed) of the certificate. Search irs The date the seller is provided a new certificate or notice that the current certificate is invalid. Search irs The date the seller is notified the buyer's registration has been revoked or suspended. Search irs   The buyer must provide a new certificate if any information on a certificate has changed. Search irs Back-up Tax Tax is imposed on the delivery of any of the following into the fuel supply tank of a diesel-powered highway vehicle. Search irs Any dyed diesel fuel or dyed kerosene for other than a nontaxable use. Search irs Any undyed diesel fuel or undyed kerosene on which a credit or refund (for fuel used for a nontaxable purpose) has been allowed. Search irs Any liquid other than gasoline, diesel fuel, or kerosene. Search irs Generally, this back-up tax is imposed at a rate of $. Search irs 244 per gallon. Search irs Liability for tax. Search irs   Generally, the operator of the vehicle into which the fuel is delivered is liable for the tax. Search irs In addition, the seller of the diesel fuel or kerosene is jointly and severally liable for the tax if the seller knows or has reason to know that the fuel will be used for other than a nontaxable use. Search irs Exemptions from the back-up tax. Search irs   The back-up tax does not apply to a delivery of diesel fuel or kerosene for uses 1, 2, 6, 7, 12, 13, 14, and 15 listed under Definitions of Nontaxable Uses in chapter 2. Search irs   In addition, since the back-up tax is imposed only on the delivery into the fuel supply tank of a diesel-powered vehicle or train, the tax does not apply to diesel fuel or kerosene used as heating oil or in stationary engines. Search irs Diesel-Water Fuel Emulsion Diesel-water fuel emulsion means diesel fuel at least 14% of which is water and for which the emulsion additive is registered by a United States manufacturer with the EPA under section 211 of the Clean Air Act as in effect on March 31, 2003. Search irs A reduced tax rate of $. Search irs 198 per gallon is imposed on a diesel-water fuel emulsion. Search irs To be eligible for the reduced rate, the person who sells, removes, or uses the diesel-water fuel emulsion must be registered by the IRS. Search irs If the diesel-water fuel emulsion does not meet the requirements above, or if the person who sells, removes, or uses the fuel is not registered, the diesel-water fuel emulsion is taxed at $. Search irs 244 per gallon. Search irs Credits or refunds. Search irs   The allowance for a credit or refund on a diesel-water fuel emulsion is discussed in chapter 2. Search irs Kerosene for Use in Aviation Taxable Events Generally, kerosene is taxed at $. Search irs 244 per gallon unless a reduced rate applies (see Diesel Fuel and Kerosene, earlier). Search irs For kerosene removed directly from a terminal into the fuel tank of an aircraft for use in noncommercial aviation, the tax rate is $. Search irs 219. Search irs The rate of $. Search irs 219 also applies if kerosene is removed into any aircraft from a qualified refueler truck, tanker, or tank wagon that is loaded with the kerosene from a terminal that is located within an airport. Search irs The airport terminal does not need to be a secured airport terminal for this rate to apply. Search irs However, the refueler truck, tanker, or tank wagon must meet the requirements discussed under Certain refueler trucks, tankers, and tank wagons, treated as terminals, later. Search irs For kerosene removed directly into the fuel tank of an aircraft for use in commercial aviation, the rate of tax is $. Search irs 044 per gallon. Search irs For kerosene removed into an aircraft from a qualified refueler truck, tanker, or tank wagon, the $. Search irs 044 rate applies only if the truck, tanker, or tank wagon is loaded at a terminal that is located in a secured area of the airport. Search irs See Terminal located within a secured area of an airport, later. Search irs In addition, the operator must provide the position holder with a certificate similar to Model Certificate K in the Appendix. Search irs For kerosene removed directly into the fuel tank of an aircraft for a use exempt from tax under section 4041(c) (such as use in an aircraft for the exclusive use of a state or local government), the rate of tax is $. Search irs 001. Search irs There is no tax on kerosene removed directly into the fuel tank of an aircraft for use in foreign trade. Search irs The kerosene must be removed from a qualifying refueler truck, tanker, or tank wagon loaded at a terminal located within a secured area of an airport. Search irs See Terminal located within a secured area of an airport, later. Search irs In addition, the operator must provide the position holder with a certificate similar to Model Certificate K in the Appendix. Search irs The position holder is liable for the $. Search irs 001 per gallon tax. Search irs For kerosene removed directly from a terminal into the fuel tank of an fractional ownership program aircraft after March 31, 2012, a surtax of $. Search irs 141 per gallon applies. Search irs Certain refueler trucks, tankers, and tank wagons treated as terminals. Search irs   For purposes of the tax imposed on kerosene for use in aviation removed directly into the fuel tank of an aircraft for use in commercial aviation, certain refueler trucks, tankers, and tank wagons are treated as part of a terminal if the following conditions are met. Search irs Such terminal is located within an area of an airport. Search irs Any kerosene for use in aviation that is loaded in a refueler truck, tanker, or tank wagon at a terminal is for delivery into aircraft at the airport in which the terminal is located. Search irs Except in exigent circumstances, such as those identified in Notice 2005-80, no vehicle registered for highway use is loaded with kerosene for use in aviation at the terminal. Search irs The refueler truck, tanker, or tank wagon meets the following requirements: Has storage tanks, hose, and coupling equipment designed and used for fueling aircraft, Is not registered for highway use, and Is operated by the terminal operator or a person that makes a daily accounting to the terminal operator of each delivery of fuel from the refueler truck, tanker, or tank wagon. Search irs Information reporting will be required by terminal operators regarding this provision. Search irs Until the format of this information reporting is issued, taxpayers are required to retain records regarding the daily accounting, but are not required to report such information. Search irs Terminal located within a secured area of an airport. Search irs   See Notice 2005-4 and Notice 2005-80 for the list of terminals located within a secured area of an airport. Search irs This list refers to fueling operations at airport terminals as it applies to the federal excise tax on kerosene for use in aviation, and has nothing to do with the general security of airports either included or not included in the list. Search irs Liability For Tax If the kerosene is removed directly into the fuel tank of an aircraft for use in commercial aviation, the operator of the aircraft in commercial aviation is liable for the tax on the removal at the rate of $. Search irs 044 per gallon. Search irs However, the position holder is liable for the LUST tax for kerosene for use in aviation removed directly into the fuel tank of an aircraft for use exempt from tax under section 4041(c) (except foreign trade). Search irs For example, for kerosene removed directly into the aircraft for use in military aircraft, the position holder is liable for the tax. Search irs For the aircraft operator to be liable for the tax $. Search irs 044 rate, the position holder must meet the following requirements: Is a taxable fuel registrant, Has an unexpired certificate (a model certificate is shown in the Appendix as Model Certificate K) from the operator of the aircraft, and Has no reason to believe any of the information in the certificate is false. Search irs Commercial aviation. Search irs   Commercial aviation is any use of an aircraft in the business of transporting persons or property by air for pay. Search irs However, commercial aviation does not include any of the following uses. Search irs Any use exclusively for the purpose of skydiving. Search irs Certain air transportation by seaplane. Search irs See Seaplanes under Transportation of Persons by Air in chapter 4. Search irs Any use of an aircraft owned or leased by a member of an affiliated group and unavailable for hire by nonmembers. Search irs For more information, see Aircraft used by affiliated corporations under Special Rules on Transportation Taxes in chapter 4. Search irs Any use of an aircraft that has a maximum certificated takeoff weight of 6,000 pounds or less, unless the aircraft is operated on an established line. Search irs For more information, see Small aircraft under Special Rules on Transportation Taxes in chapter 4. Search irs Any use where the surtax on fuel used in a fractional ownership program aircraft is imposed. Search irs See Surtax on any liquid used in a fractional ownership program aircraft as fuel below. Search irs Surtax on any liquid used in a fractional ownership program aircraft as fuel Fuel used in a fractional ownership program aircraft (as defined below) after March 31, 2012, is subject to a surtax of $. Search irs 141 per gallon. Search irs The fractional ownership program manager is liable for the tax. Search irs The surtax applies in addition to any other taxes imposed on the removal, entry, use, or sale of the fuel. Search irs If the surtax is imposed, the following air transportation taxes do not apply. Search irs Transportation of persons by air. Search irs Transportation of property by air. Search irs Use of international air travel facilities. Search irs These taxes are described under Air Transportation Taxes, later. Search irs A fractional ownership program aircraft flight is considered noncommercial aviation, for the rules for kerosene used in noncommercial aviation, see Kerosene for Use in Aviation above. Search irs Fractional ownership aircraft program    is a program under which:  A single fractional ownership program manager provides fractional ownership program management services on behalf of the fractional owners; There are one or more fractional owners per fractional program aircraft, with at least one fractional program aircraft having more than one owner; For at least two fractional program aircraft, none of the ownership interests in the aircraft are less than the minimum fractional ownership interest or held by the program manager; There exists a dry-lease aircraft exchange arrangement among all of the fractional owners; and There are multi-year program agreements covering the fractional ownership, fractional ownership program management services, and dry-lease aircraft exchange aspects of the program. Search irs Fractional program aircraft. Search irs   Any aircraft that, in any fractional ownership aircraft program, is listed as a fractional program aircraft in the management specifications issued to the manager of such program by Federal Aviation Administration under subpart K of part 91 title 14, Code of Federal Regulations, and is registered in the U. Search irs S. Search irs   Fractional program aircraft are not considered used for transportation of a qualified fractional owner, or on account of such qualified fractional owner when they are used for flight demonstration, maintenance or crew training. Search irs In such situations, the flight is not commercial aviation. Search irs Instead, the tax on the fuel used in the flight is imposed at the non-commercial aviation rate. Search irs Fractional owner. Search irs   Any person owning any interest (including the entire interest) in a fractional program aircraft. Search irs Dry lease aircraft exchange. Search irs   An agreement, documented by the written program agreements, under which the fractional program aircraft are available, on an as-needed basis without crew, to each fractional owner. Search irs Special rule relating to deadhead service. Search irs   A fractional program aircraft will not be considered to be used on account of a qualified fractional owner when it is used in deadhead service and a person other than a qualified fractional owner is separately charged for such service. Search irs More information. Search irs   See section 4043 for more information on the surtax. Search irs Certificate for Commercial Aviation and Exempt Uses A certificate is required from the aircraft operator: To support aircraft operator liability for tax on removal of kerosene for use in aviation directly into the fuel tank of an aircraft in commercial aviation, or For exempt uses. Search irs Certificate. Search irs   The certificate may be included as part of any business records normally used for a sale. Search irs See Model Certificate K in the Appendix. Search irs   A certificate expires on the earliest of the following dates. Search irs The date 1 year after the effective date (not earlier than the date signed) of the certificate. Search irs The date the buyer provides the seller a new certificate or notice that the current certificate is invalid. Search irs The date the IRS or the buyer notifies the seller that the buyer's right to provide a certificate has been withdrawn. Search irs   The buyer must provide a new certificate if any information on a certificate has changed. Search irs   The IRS may withdraw the buyer's right to provide a certificate if the buyer uses the kerosene for use in aviation to which a certificate relates other than as stated in the certificate. Search irs Exempt use. Search irs   The rate on kerosene for use in aviation is $. Search irs 001 (LUST tax) if it is removed from any refinery or terminal directly into the fuel tank of an aircraft for an exempt use. Search irs An exempt use includes kerosene for the exclusive use of a state or local government. Search irs There is no tax on kerosene removed directly into the fuel tank of an aircraft for use in foreign trade. Search irs Flash title transaction. Search irs   A position holder is not liable for tax if, among other conditions, it obtains a certificate (described above) from the operator of the aircraft into which the kerosene is delivered. Search irs In a “flash title transaction” the position holder sells the kerosene to a wholesale distributor (reseller) that in turn sells the kerosene to the aircraft operator as the kerosene is being removed from a terminal into the fuel tank of an aircraft. Search irs In this case, the position holder will be treated as having a certificate from the operator of the aircraft if: The aircraft operator puts the reseller's name, address, and EIN on the certificate in place of the position holder's information; and The reseller provides the position holder with a statement of the kerosene reseller. Search irs Reseller statement. Search irs   This is a statement that is signed under penalties of perjury by a person with authority to bind the reseller; is provided at the bottom or on the back of the certificate (or in an attached document); and contains: The reseller's name, address, and EIN; The position holder's name, address, and EIN; and A statement that the reseller has no reason to believe that any information in the accompanying aircraft operator's certificate is false. Search irs Credits or Refunds. Search irs   A claim may be made by the ultimate purchaser (the operator) for taxed kerosene for use in aviation used in commercial aviation (other than foreign trade) and noncommercial aviation (other than nonexempt, noncommercial aviation and exclusive use by a state, political subdivision of a state, or the District of Columbia). Search irs A claim may be made by a registered ultimate vendor for certain sales. Search irs For more information, see chapter 2. Search irs Other Fuels (Including Alternative Fuels) Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under section 4081. Search irs Other Fuels include alternative fuels. Search irs Alternative fuels are: Liquefied petroleum gas (LPG), “P Series” fuels, Compressed natural gas (CNG) (discussed later), Liquefied hydrogen, Any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, Liquid fuel derived from biomass, Liquefied natural gas (LNG), and Liquefied gas derived from biomass. Search irs Liquefied petroleum gas includes propane, butane, pentane, or mixtures of those products. Search irs Qualified methanol and ethanol fuels. Search irs   Qualified ethanol and methanol means any liquid at least 85 percent of which consists of alcohol produced from coal, including peat. Search irs The tax rates are listed in the Instructions for Form 720. Search irs Partially exempt methanol and ethanol fuels. Search irs   A reduced tax rate applies to these fuels. Search irs Partially exempt ethanol and methanol means any liquid at least 85 percent of which consists of alcohol produced from natural gas. Search irs The tax rates are listed in the Instructions for Form 720. Search irs Motor vehicles. Search irs   Motor vehicles include all types of vehicles, whether or not registered (or required to be registered) for highway use, that have both the following characteristics. Search irs They are propelled by a motor. Search irs They are designed for carrying or towing loads from one place to another, regardless of the type of material or load carried or t
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Search irs Publication 908 - Main Content Table of Contents Bankruptcy Code Tax Compliance RequirementsTax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases Tax Returns Due After the Bankruptcy Filing Individuals in Chapter 12 or 13 Individuals in Chapter 7 or 11Debtor's Election To End Tax Year – Form 1040 Taxes and the Bankruptcy Estate Bankruptcy Estate – Income, Deductions, and Credits Tax Reporting – Chapter 11 Cases Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Tax Return Example – Form 1041 Partnerships and CorporationsFiling Requirements Partnerships Corporations Receiverships Determination of TaxPrompt Determination Requests Court Jurisdiction Over Tax MattersBankruptcy Court Tax Court Federal Tax ClaimsUnsecured Tax Claims Discharge of Unpaid Tax Debt CancellationExclusions Reduction of Tax Attributes Partnerships Corporations Tax Attribute Reduction Example How To Get Tax HelpTaxpayer Advocacy Panel (TAP). Search irs Low Income Taxpayer Clinics (LITCs). Search irs Bankruptcy Code Tax Compliance Requirements Tax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases The Bankruptcy Code requires chapter 13 debtors to file all required tax returns for tax periods ending within 4 years of the debtor's bankruptcy filing. Search irs All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. Search irs The debtor may request the trustee to hold the meeting open for an additional 120 days to enable the debtor to file the returns (or until the day the returns are due under an automatic IRS extension, if later). Search irs After notice and hearing, the bankruptcy court may extend the period for another 30 days. Search irs Failure to timely file the returns can prevent confirmation of a chapter 13 plan and result in either dismissal of the chapter 13 case or conversion to a chapter 7 case. Search irs Note. Search irs Individual debtors should use their home address when filing Form 1040 with the IRS. Search irs Returns should not be filed “in care of” the trustee's address. Search irs Ordering tax transcripts and copies of returns. Search irs   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. Search irs The debtor can request free transcripts of the debtor's income tax returns by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS or by placing a request on the IRS's free Automated Delivery Service (ADS), available by calling 1-800-829-1040. Search irs If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. Search irs Transcripts requested using Form 4506-T may be mailed to any address, including to the attention of the trustee in the debtor's bankruptcy case. Search irs Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. Search irs A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. Search irs To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. Search irs It may take up to 60 days for the IRS to provide the copies after receipt of the debtor's request, and there is a fee of $57. Search irs 00 per tax return for copies of the returns. Search irs Tax Returns Due After the Bankruptcy Filing For debtors filing bankruptcy under all chapters (chapters 7, 11, 12, or 13), the Bankruptcy Code provides that if the debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an extension for filing the return before the due date, the taxing authority may request that the bankruptcy court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code. Search irs If the debtor does not file the required return or obtain an extension within 90 days after the request is made, the bankruptcy court must dismiss or convert the case. Search irs Tax returns and payment of taxes in chapter 11 cases. Search irs   The Bankruptcy Code provides that a chapter 11 debtor's failure to timely file tax returns and pay taxes owed after the date of the “order for relief” (the bankruptcy petition date in voluntary cases) is cause for dismissal of the chapter 11 case, conversion to a chapter 7 case, or appointment of a chapter 11 trustee. Search irs Disclosure of debtor's return information to trustee. Search irs   In bankruptcy cases filed under chapter 7 or 11 by individuals, the debtor's income tax returns for the year the bankruptcy case begins and for earlier years are, upon written request, open to inspection by or disclosure to the trustee. Search irs If the bankruptcy case was not voluntary, disclosure cannot be made before the bankruptcy court has entered an order for relief, unless the court rules that the disclosure is needed for determining whether relief should be ordered. Search irs    In bankruptcy cases other than those of individuals filing under chapter 7 or 11, the debtor's income tax returns for the current and prior years are, upon written request, open to inspection by or disclosure to the trustee, but only if the IRS finds that the trustee has a material interest that will be affected by information on the return. Search irs Material interest is generally defined as a financial or monetary interest. Search irs Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Search irs   However, the U. Search irs S. Search irs Trustee (an officer of the Department of Justice, responsible for maintaining and supervising a panel of private trustees for chapter 7 bankruptcy cases) and the standing chapter 13 trustee (the administrator of chapter 13 cases in a specific geographic region) generally do not have a material interest in the debtor’s return or return information. Search irs Disclosure of bankruptcy estate's return information to debtor. Search irs    The bankruptcy estate's tax return(s) are open, upon written request, to inspection by or disclosure to the individual debtor in a chapter 7 or 11 bankruptcy. Search irs Disclosure of the estate's return to the debtor may be necessary to enable the debtor to determine the amount and nature of the tax attributes, if any, that the debtor assumes when the bankruptcy estate terminates. Search irs Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. Search irs Chapter 13 relief is not available to corporations or partnerships. Search irs The bankruptcy estate is not treated as a separate entity for tax purposes when an individual files a petition under chapter 12 (Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income) or 13 (Adjustment of Debts of an Individual with Regular Income) of the Bankruptcy Code. Search irs In these cases the individual continues to file the same federal income tax returns that were filed prior to the bankruptcy petition, Form 1040, U. Search irs S. Search irs Individual Income Tax Return. Search irs On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. Search irs Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. Search irs To the extent the debtor has any losses, credits, or basis in property that were previously reduced as a result of canceled debt, these reductions must be included on the debtor's return. Search irs See Debt Cancellation, later. Search irs Interest on trust accounts in chapter 13 cases. Search irs   In chapter 13 proceedings, do not include interest earned on amounts held by the trustee in trust accounts as income on the debtor's return. Search irs This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. Search irs S. Search irs Trustee system. Search irs The interest is also not taxable to the trustee as income. Search irs Individuals in Chapter 7 or 11 When an individual debtor files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer. Search irs The bankruptcy estate in a chapter 7 case is represented by a trustee. Search irs The trustee is appointed to administer the estate and liquidate any nonexempt assets. Search irs In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. Search irs However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. Search irs During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. Search irs The bankruptcy trustee files a Form 1041 for the bankruptcy estate. Search irs However, when a debtor in a chapter 11 bankruptcy case remains a debtor-in-possession, he or she must file both a Form 1040 individual return and a Form 1041 estate return for the bankruptcy estate (if return filing requirements are met). Search irs Although a husband and wife may file a joint bankruptcy petition whose bankruptcy estates are jointly administered, the estates are be treated as two separate entities for tax purposes. Search irs Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). Search irs For information about determining the tax due and paying tax for a chapter 7 or 11 bankruptcy estate, see Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Search irs Debtor's Election To End Tax Year – Form 1040 Short tax years. Search irs   An individual debtor in a chapter 7 or 11 case may elect to close the debtor's tax year for the year in which the bankruptcy petition is filed, as of the day before the date on which the bankruptcy case commences. Search irs If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. Search irs The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. Search irs   If the election is made, the debtor's federal income tax liability for the first short tax year becomes an allowable claim against the bankruptcy estate arising before the bankruptcy filing. Search irs Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. Search irs    If the debtor does not make an election to end the tax year, the commencement of the bankruptcy case does not affect the debtor's tax year. Search irs Also, no part of the debtor's income tax liability for the year in which the bankruptcy case commences can be collected from the bankruptcy estate. Search irs Note. Search irs The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. Search irs Making the Election - Filing Requirements First short tax year. Search irs   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. Search irs The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. Search irs Second short tax year. Search irs   If the debtor elects to end the tax year on the day before filing the bankruptcy case, the debtor must file the return for the first short tax year in the manner discussed above. Search irs   If the debtor makes this election, the debtor must also file a separate Form 1040 for the second short tax year by the regular due date. Search irs To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. Search irs Example. Search irs Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. Search irs If Jane elected to close her tax year at the commencement of her case, Jane's first short year for 2012 runs from January 1 through May 7, 2012. Search irs Jane's second short year runs from May 8, 2012, through December 31, 2012. Search irs To have a timely filed election for the first short year, Jane must file Form 1040 (or an extension of time to file) for the period January 1 through May 7 by September 15. Search irs To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. Search irs The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. Search irs S. Search irs Individual Tax Return. Search irs The statement must state that the debtor elects under IRC section 1398(d)(2) to close the debtor's tax year on the day before filing the bankruptcy case. Search irs The debtor must file Form 4868 by the due date of the return for the first short tax year. Search irs The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. Search irs Election by debtor's spouse. Search irs   If the debtor is married, the debtor's spouse may join in the election to end the tax year. Search irs If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. Search irs The debtor must elect by the due date for filing the return for the first short tax year. Search irs Once the election is made, it cannot be revoked for the first short tax year. Search irs However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. Search irs Later bankruptcy of spouse. Search irs    If the debtor's spouse files for bankruptcy later in the same year, he or she may also choose to end his or her tax year, regardless of whether he or she joined in the election to end the debtor's tax year. Search irs   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. Search irs If the debtor's spouse joined the debtor's election or if the debtor had not made the election to end the tax year, the debtor can join in the spouse's election. Search irs However, if the debtor made an election and the spouse did not join that election, the debtor cannot then join the spouse's later election. Search irs The debtor and the spouse are precluded from this election because they have different tax years. Search irs This results because the debtor does not have a tax year ending the day before the spouse's filing for bankruptcy, and the debtor cannot file a joint return for a year ending on the day before the spouse's filing of bankruptcy. Search irs Example 1. Search irs Paul and Mary Harris are calendar-year taxpayers. Search irs Paul's voluntary chapter 7 bankruptcy case begins on March 4. Search irs If Paul does not make an election, his tax year does not end on March 3. Search irs If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. Search irs Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. Search irs They must make the election by July 15, the due date for filing the joint return. Search irs Example 2. Search irs Fred and Ethel Barnes are calendar-year taxpayers. Search irs Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. Search irs Ethel could elect to end her tax year on October 31. Search irs If Fred did not elect to end his tax year on May 5, or if he elected to do so but Ethel had not joined in his election, Ethel would have 2 tax years in the same calendar year if she decided to close her tax year. Search irs Her first tax year is January 1–October 31, and her second year is November 1–December 31. Search irs If Fred did not end his tax year as of May 5, he could join in Ethel's election to close her tax year on October 31, but only if they file a joint return for the tax year January 1–October 31. Search irs If Fred elected to end his tax year on May 5, but Ethel did not join in Fred's election, Fred cannot join in Ethel's election to end her tax year on October 31. Search irs Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. Search irs Example 3. Search irs Jack and Karen Thomas are calendar-year taxpayers. Search irs Karen's voluntary chapter 7 bankruptcy case began on April 10, and Jack's voluntary chapter 7 bankruptcy case began on October 3 of the same year. Search irs Karen elected to close her tax year on April 9 and Jack joins in Karen's election. Search irs Under these facts, Jack would have 3 tax years for the same calendar year if he makes the election relating to his own bankruptcy case. Search irs The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. Search irs Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). Search irs If Karen does join in, she would have the same 3 short tax years as Jack. Search irs Also, if Karen joins in Jack's election, they may file a joint return for the third tax year (October 3–December 31), but they are not required to do so. Search irs Annualizing taxable income. Search irs   If the debtor elects to close the tax year, the debtor must annualize taxable income for each short tax year in the same manner a change in annual accounting period is calculated. Search irs See Short Tax Year in Publication 538, for information on how to annualize the debtor's income and to figure the tax for the short tax year. Search irs Dismissal of bankruptcy case. Search irs   If the bankruptcy court later dismisses an individual chapter 7 or 11 case, the bankruptcy estate is no longer treated as a separate taxable entity. Search irs It is as if no bankruptcy estate was created for tax purposes. Search irs In this situation, the debtor must file amended tax returns on Form 1040X, to replace all full or short year individual returns (Form 1040) and bankruptcy estate returns (Form 1041) filed as a result of the bankruptcy case. Search irs Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. Search irs Attach a statement to the amended returns explaining why the debtor is filing an amended return. Search irs Taxes and the Bankruptcy Estate Property of the bankruptcy estate. Search irs   At the commencement of a bankruptcy case a bankruptcy estate is created. Search irs Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. Search irs This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. Search irs However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. Search irs Note. Search irs Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. Search irs Excluded property is never included in the estate. Search irs Transfer of assets between debtor and bankruptcy estate. Search irs   The transfer (other than by sale or exchange) of an asset from the debtor to the bankruptcy estate is not treated as a disposition for income tax purposes. Search irs The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. Search irs For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. Search irs The estate assumes the same basis, holding period, and character of the transferred assets. Search irs Also, the estate generally accounts for the transferred assets in the same manner as debtor. Search irs   When the bankruptcy estate is terminated or dissolved, any resulting transfer (other than by sale or exchange) of the estate's assets back to the debtor is also not treated as a disposition for tax purposes. Search irs The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. Search irs Abandoned property. Search irs    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. Search irs If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. Search irs Separate taxable entity. Search irs   When an individual files a bankruptcy petition under chapter 7 or 11, the bankruptcy estate is treated as a separate taxable entity from the debtor. Search irs The court appointed trustee or the debtor-in-possession is responsible for preparing and filing all of the bankruptcy estate's tax returns, including its income tax return on Form 1041, U. Search irs S. Search irs Income Tax Return for Estates and Trusts, and paying its taxes. Search irs The debtor remains responsible for filing his or her own returns on Form 1040, U. Search irs S. Search irs Individual Income Tax Return, and paying taxes on income that does not belong to the estate. Search irs Employer identification number. Search irs   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Search irs The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. Search irs See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Search irs    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Search irs Income, deductions, and credits – Form 1040. Search irs   In an individual chapter 7 or 11 bankruptcy case, do not include the income, deductions, and credits that belong to the bankruptcy estate on the debtor's individual income tax return (Form 1040). Search irs Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. Search irs The bankruptcy estate must reduce certain losses, credits, and the basis in property (to the extent of these items) by the amount of canceled debt. Search irs See Debt Cancellation, below. Search irs Note. Search irs The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. Search irs Additionally, the bankruptcy exclusion cannot be used to exclude income from a cancelled debt if the discharge of indebtedness was not within the bankruptcy case, even though the debtor was under the bankruptcy court's protection at the time. Search irs However, other exclusions, such as the insolvency exclusion, may apply. Search irs Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. Search irs    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. Search irs Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. Search irs   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. Search irs Additionally, in chapter 7 cases, gross income of the bankruptcy estate does not include any income that the debtor earns after the date of the bankruptcy petition. Search irs Income of the estate in individual chapter 11 cases. Search irs    In chapter 11 cases, under IRC section 1398(e)(1), gross income of the bankruptcy estate includes income that the debtor earns for services performed after the bankruptcy petition date. Search irs Also, earnings from services performed by an individual debtor after the commencement of the chapter 11 case are property of the bankruptcy estate under section 1115 of the Bankruptcy Code (11 U. Search irs S. Search irs C. Search irs section 1115). Search irs Note. Search irs A debtor-in-possession may be compensated by the estate for managing or operating a trade or business that the debtor conducted before the commencement of the bankruptcy case. Search irs Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). Search irs Amounts paid by the estate to the debtor-in-possession for managing or operating the trade or business may qualify as administrative expenses of the estate. Search irs See Administrative expenses, below. Search irs Conversion or dismissal of chapter 11 cases. Search irs   If a chapter 11 case is converted to a chapter 13 case, the chapter 13 estate is not a separate taxable entity and earnings from post-conversion services and income from property of the estate realized after the conversion to chapter 13 are taxed to the debtor. Search irs If the chapter 11 case is converted to a chapter 7 case, 11 U. Search irs S. Search irs C. Search irs section 1115 does not apply after conversion and: Earnings from post-conversion services will be taxed to the debtor, rather than the estate, and The property of the chapter 11 estate will become property of the chapter 7 estate. Search irs Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. Search irs If a chapter 11 case is dismissed, the debtor is treated as if the bankruptcy case had never been filed and as if no bankruptcy estate had been created. Search irs Bankruptcy Estate Deductions and Credits A bankruptcy estate deducts expenses incurred in a trade, business, or activity, and uses credits in the same way the debtor would have deducted or credited them had he or she continued operations. Search irs Note. Search irs Expenses may be disallowed under other provisions of the IRC (such as the disallowance of certain capital expenditures or expenses relating to tax-exempt interest). Search irs Administrative expenses. Search irs   Allowable expenses include administrative expenses. Search irs    Administrative expenses can only be deducted by the estate, never by the debtor. Search irs   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. Search irs These expenses are deductible on Form 1040, Schedule A as miscellaneous itemized deductions not subject to the 2% floor on miscellaneous itemized deductions, because they would not have been incurred if property had not been held by the bankruptcy estate. Search irs See IRC section 67(e). Search irs Administrative expenses of the bankruptcy estate attributable to conducting a trade or business for the production of estate rents or royalties are deductible in arriving at adjusted gross income on Form 1040, Schedules C, E, and F. Search irs Note. Search irs The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. Search irs See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. Search irs Administrative expense loss. Search irs   If the administrative expenses of the bankruptcy estate are more than its gross income for a tax year, the excess amount may be carried back 3 years and forward 7 years. Search irs The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. Search irs The excess amount to be carried back or forward is treated like a net operating loss (NOL) and must first be carried back to the earliest year possible. Search irs For a discussion of NOLs, see Publication 536. Search irs Attribute carryovers. Search irs   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. Search irs These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. Search irs The bankruptcy estate assumes the following tax attributes from the debtor: NOL carryovers, Carryovers of excess charitable contributions, Recovery of tax benefit items, Credit carryovers, Capital loss carryovers, Basis, holding period, and character of assets, Method of accounting, Passive activity loss and credit carryovers, Unused at-risk deductions, and Other tax attributes provided in the regulations. Search irs   Certain tax attributes of the bankruptcy estate must be reduced by the amount of income that was previously excluded as a result of cancellation of debt during the bankruptcy proceeding. Search irs See Debt Cancellation, later. Search irs   When the bankruptcy estate is terminated (for example, when the case ends), the debtor assumes any remaining tax attributes previously taken over by the bankruptcy estate. Search irs The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. Search irs Note. Search irs The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. Search irs See Administrative expense loss, above. Search irs Passive and at-risk activities. Search irs   For bankruptcy cases beginning after November 8, 1992, passive activity carryover losses and credits and unused at-risk deductions are treated as tax attributes passing from the debtor to the bankruptcy estate, which the estate then passes back to the debtor when the bankruptcy estate terminates. Search irs Additionally, transfers to the debtor (other than by sale or exchange) of interests in passive or at-risk activities are treated as non-taxable exchanges. Search irs These transfers include the return of exempt property and abandonment of estate property to the debtor. Search irs Carrybacks from the debtor's activities. Search irs   The debtor cannot carry back any NOL or credit carryback from a tax year ending after the bankruptcy case has begun to any tax year ending before the case began. Search irs Carrybacks from the bankruptcy estate. Search irs   If the bankruptcy estate has an NOL that did not pass to the estate from the debtor under the attribute carryover rules, the estate can carry the loss back not only to its own earlier tax years but also to the debtor's tax years before the year the bankruptcy case began. Search irs The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. Search irs Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. Search irs    In chapter 11 cases, when an employer issues a Form W-2 reporting all of the debtor's wages, salary, or other compensation for a calendar year, and a portion of the earnings represent post-petition services includible in the estate's gross income, the Form W-2 amounts must be allocated between the estate and the debtor. Search irs The debtor-in-possession or trustee must allocate the income amount reported in box 1 and the income tax withheld reported in box 2 between the debtor and the estate. Search irs These allocations must reflect that the debtor's gross earnings from post-petition services and gross income from post-petition property are, generally, includible in the estate's gross income and not the debtor's gross income. Search irs The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. Search irs The same method must be used to allocate the income and the withheld tax. Search irs Example. Search irs If 20% of the wages reported on Form W-2 for a calendar year were earned after the commencement of the case and are included in the estate's gross income, 20% of the withheld income tax reported on Form W-2 must also be claimed as a credit on the estate's income tax return. Search irs Likewise, 80% of wages must be reported by the debtor and 80% of the income tax withheld must be claimed as a credit on the debtor's income tax return. Search irs See IRC section 31(a). Search irs   If information returns are issued to the debtor for gross income, gross proceeds, or other reportable payments that should have been reported to the bankruptcy estate, the debtor-in-possession or trustee must allocate the improperly reported income in a reasonable manner between the debtor and the estate. Search irs In general, the allocation must ensure that any income and income tax withheld attributable to the post-petition period is reported on the estate's return, and any income and income tax withheld attributable to the pre-petition period is reported on the debtor's return. Search irs    IRS Notice 2006-83 requires the debtor to attach a statement to his or her individual income tax return (Form 1040) stating that the return is filed subject to a chapter 11 bankruptcy case. Search irs The statement must also: Show the allocations of income and income tax withheld, Describe the method used to allocate income and income tax withheld, and List the filing date of the bankruptcy case, the bankruptcy court in which the case is pending, the bankruptcy court case number, and the bankruptcy estate's EIN. Search irs Note. Search irs The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). Search irs   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. Search irs Self-employment taxes in individual chapter 11 cases. Search irs   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. Search irs Net earnings from self-employment are equal to the gross income derived by an individual from any trade or business carried on by such individual, less deductions attributable to the business. Search irs   Neither section 1115 of the Bankruptcy Code nor IRC section 1398 addresses the application of self-employment tax to the post-petition earnings of the individual debtor. Search irs Therefore, if the debtor continues to derive gross income from the performance of services as a self-employed individual after the commencement of the bankruptcy case, the debtor must continue to report the debtor's self-employment income on Schedule SE (Form 1040) of the debtor's income tax return. Search irs This schedule includes self-employment income earned post-petition and the attributable deductions. Search irs The debtor must pay any self-employment tax imposed by IRC section 1401. Search irs Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. Search irs   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. Search irs However, section 1115 of the Bankruptcy Code (11 U. Search irs S. Search irs C. Search irs section 1115) does not affect the determination of what are deemed wages for Federal Insurance Contributions Act (FICA) tax, Federal Unemployment Tax Act (FUTA) tax, or Federal Income Tax Withholding purposes. Search irs See Notice 2006-83. Search irs   The reporting and withholding obligations of a debtor's employer also do not change. Search irs An employer should continue to report the wages and tax withholding on a Form W-2 issued under the debtor's name and social security number. Search irs Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. Search irs   Within a reasonable time after the commencement of a chapter 11 bankruptcy case, the trustee or debtor-in-possession should provide notification of the bankruptcy estate's EIN to all persons (or entities) that are required to file information returns for the bankruptcy estate's gross income, gross proceeds, or other types of reportable payments. Search irs See IRC section 6109(a)(2). Search irs As these payments are the property of the estate under section 1115 of the Bankruptcy Code, the payors should report the gross income, gross proceeds, or other reportable payments on the appropriate information return using the estate's name and EIN as required under the IRC and regulations (see IRC sections 6041 through 6049). Search irs   The trustee or debtor-in-possession should not, however, provide the EIN to a person (or entity) filing Form W-2 reporting the debtor's wages or other compensation, as section 1115 of the Bankruptcy Code does not affect the determination of what constitutes wages for purposes of federal income tax withholding or FICA. Search irs See Notice 2006-83. Search irs An employer should continue to report all wage income and tax withholding, both pre-petition and post-petition, on a Form W-2 to the debtor under the debtor's social security number. Search irs   The debtor in a chapter 11 case is not required to file a new Form W-4 with an employer solely because the debtor filed a chapter 11 case and the post-petition wages are includible in the estate's income and not the debtor's income. Search irs However, a new Form W-4 may be necessary if the debtor is no longer entitled to claim the same number of allowances previously claimed because certain deductions or credits now belong to the estate. Search irs See Employment Tax Regulations section 31. Search irs 3402(f)(2)-1. Search irs Additionally, the debtor may wish to file a new Form W-4 to increase the income tax withheld from post-petition wages allocated to the estate to avoid having to make estimated tax payments for the estate. Search irs See IRC section 6654(a). Search irs Notice required in converted and dismissed cases. Search irs   When a chapter 11 bankruptcy case is closed, dismissed, or converted to a chapter 12 or 13 case, the bankruptcy estate ends as a separate taxable entity. Search irs The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. Search irs This helps to ensure that gross income, proceeds, and other reportable payments realized after the event are reported to the debtor under the correct TIN rather than to the estate. Search irs   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. Search irs Gross income (other than post-conversion income from the debtor's services), gross proceeds, or other reportable payments should continue to be reported to the estate if they are property of the chapter 7 estate. Search irs However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. Search irs After the conversion, the debtor should notify payors required to report the debtor's nonemployee compensation that compensation earned after the conversion should be reported using the debtor's name and TIN, not the estate's name and EIN. Search irs Employment taxes. Search irs   The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. Search irs See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. Search irs   The trustee also has the duty to prepare and file Forms W-2 for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. Search irs For a further discussion of employment taxes, see Employment Taxes, later. Search irs Notice 2006-83 Statement Pending Bankruptcy Case The taxpayer, , filed a bankruptcy petition under chapter 11 of the Bankruptcy Code in the bankruptcy court for the District of . Search irs The bankruptcy court case number is . Search irs Gross income, and withheld federal income tax, reported on Form W-2, Forms 1099, Schedule K-1, and other information returns received under the taxpayer's name and social security number (or other taxpayer identification number) are allocated between the taxpayer's TIN and the bankruptcy estate's EIN as follows, using [describe allocation method]:. Search irs   Year Taxpayer   Estate 1. Search irs Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. Search irs Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. Search irs Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. Search irs Form 1099-MISC Payor: $   $     Withheld income tax (if any) shown on Form 1099-MISC $   $   Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Filing Requirements Filing threshold. Search irs   If the bankruptcy estate has gross income that meets or exceeds the minimum amount required for filing, the trustee or debtor-in-possession must file an income tax return on Form 1041. Search irs This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. Search irs   For 2012, the threshold filing amount for a bankruptcy estate is $9,750 (the sum of the $3,800 personal exemption plus the $5,950 standard deduction for married individuals filing separately). Search irs   These amounts are generally adjusted annually. Search irs See the present year Form 1041 Instructions at www. Search irs irs. Search irs gov/form1041 for the current dollar amounts. Search irs Accounting period. Search irs   A bankruptcy estate may have a fiscal year. Search irs However, this period cannot be longer than 12 months. Search irs Change of accounting period. Search irs   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. Search irs This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. Search irs The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. Search irs Employer identification number. Search irs   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Search irs The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. Search irs    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Search irs   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. Search irs irs. Search irs gov/businesses/small. Search irs The EIN is issued immediately once the application information is validated. Search irs By telephone at 1-800-829-4933 from 7:00 a. Search irs m. Search irs to 7:00 p. Search irs m. Search irs in the trustee's or debtor-in-possession's local time zone. Search irs Assistance provided to callers from Alaska and Hawaii will be based on the hours of operation in the Pacific time zone, or By mailing or faxing Form SS-4, Application for Employer Identification Number. Search irs   If the trustee or debtor-in-possession has not received the bankruptcy estate's EIN by the time the return is due, write “Applied for” and the date you applied in the space for the EIN. Search irs For more details, see Pub. Search irs 583, Starting a Business and Keeping Records. Search irs   Trustees representing ten or more bankruptcy estates (other than estates that will be filing employment or excise tax returns) may request a series or block of EINs. Search irs Figuring tax due. Search irs   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. Search irs However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. Search irs The estate is entitled to one personal exemption and may either itemize deductions or take the basic standard deduction for a married individual filing a separate return. Search irs The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. Search irs Tax rate schedule. Search irs The tax on income for bankruptcy estates is calculated using the tax rate schedule for Married Individuals Filing Separately not the Estates and Trusts tax rate schedule. Search irs When to file. Search irs   Calendar year bankruptcy estates must file Form 1041 by April 15th. Search irs Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. Search irs For example, an estate that has a tax year that ends on June 30th must file Form 1041 by October 15th of the tax year. Search irs If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Search irs Note. Search irs The bankruptcy estate is allowed an automatic 6-month extension of time to file the bankruptcy estate tax return upon filing the required application, Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Search irs Transmittal for Form 1040. Search irs   Form 1041 is used as a transmittal for Form 1040. Search irs If a return is required, the trustee or debtor-in-possession must complete the identification area at the top of Form 1041 and indicate the chapter under which the bankruptcy estate filed, either chapter 7 or chapter 11. Search irs   Prepare the bankruptcy estate's return by completing Form 1040. Search irs In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. Search irs ” Then, attach Form 1040 to the Form 1041 transmittal. Search irs Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. Search irs An example of a bankruptcy estate's tax return is prepared below. Search irs Note. Search irs The filing of the bankruptcy estate's tax return does not relieve a debtor from the requirement to file his or her individual tax return on Form 1040. Search irs Payment of Tax Due Payment methods. Search irs   Payment of tax due may be made by check or money order or by credit or debit card. Search irs For information on how to make payments electronically by credit or debit card, go to irs. Search irs gov/e-pay. Search irs      Payments may also be made electronically using the Electronic Federal Tax Payment System (EFTPS), a free tax payment system that allows you to make payments online or by phone. Search irs To enroll in EFTPS, go to eftps. Search irs gov or call 1-800-555-4477. Search irs For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Search irs Payment voucher – Form 1041-V. Search irs   Form 1041-V accompanies payments made by check or money order for Form 1041. Search irs The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. Search irs Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. Search irs We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. Search irs Estimated tax – Form 1041-ES. Search irs   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. Search irs See the Form 1041-ES Instructions for information on the minimum threshold amount required for filing Form 1041-ES, paying the estimated tax, and exceptions to filing. Search irs Employment Taxes The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. Search irs Until these employment taxes are deposited as required by the IRC, they should be set aside in a separate bank account to ensure that funds are available to satisfy the liability. Search irs If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. Search irs   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. Search irs Also see IRS Notice 931, Deposit Requirements for Employment Taxes, for details on the deposit rules, including the requirement that federal employment tax deposits be made by electronic funds transfer. Search irs The trustee also has a duty to prepare and file Forms W-2, Wage and Tax Statement, for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. Search irs If the debtor fails to prepare and file Forms W-2 for wages paid before bankruptcy, the trustee should instruct the employees to file a Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Search irs , with their individual income tax returns. Search irs Tax Return Example – Form 1041 This publication is not revised annually. Search irs Future changes to the forms and their instructions may not be reflected in this example. Search irs Note. Search irs The following return was prepared for tax year 2011. Search irs In 2011, the threshold filing amount for a bankruptcy estate was $9,500 (the sum of the $3,700 personal exemption plus the $5,800 standard deduction for married individuals filing separately). Search irs Facts and circumstances. Search irs   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. Search irs Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. Search irs   The estate received the following assets from Mr. Search irs Smith: A $100,000 certificate of deposit, Commercial rental real estate with a fair market value (FMV) of $280,000, and His personal residence with an FMV of $200,000. Search irs   Also, the estate received a $251,500 capital loss carryover. Search irs   Mr. Search irs Smith's bankruptcy case was closed on December 31, 2011. Search irs During 2011, Mr. Search irs Smith was relieved of $70,000 of debt by the bankruptcy court. Search irs The estate chose a calendar year as its tax year. Search irs Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. Search irs Schedule B (Form 1040). Search irs    The certificate of deposit earned $5,500 of interest during 2011. Search irs Joan reports this interest on Schedule B. Search irs She completes this schedule and enters the result on Form 1040. Search irs Form 4562. Search irs   Joan enters the depreciation allowed on Form 4562. Search irs She completes the form and enters the result on Schedule E. Search irs Schedule E (Form 1040). Search irs   The commercial real estate was rented through the date of sale. Search irs Joan reports the income and expenses on Schedule E. Search irs She enters the net income on Form 1040. Search irs Form 4797. Search irs   The commercial real estate was sold on July 1, 2011, for $280,000. Search irs The property was purchased in 2001 at a cost of $250,000. Search irs The total depreciation allowable as of the date of sale was $120,000. Search irs Additionally, $25,000 of selling expenses were incurred. Search irs Joan reports the gain or loss from the sale on Form 4797. Search irs She completes the form and enters the gain on Schedule D (Form 1040). Search irs   Mr. Search irs Smith's former residence was sold on September 30, 2011. Search irs The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. Search irs This sale is excluded from gross income under IRC section 121. Search irs Note. Search irs Gains from the sale of personal residences are excluded from gross income up to $250,000 under IRC section 121 ($500,000 for married couples filing a joint return). Search irs Bankruptcy estates succeed to this exclusion at the commencement of the case. Search irs See Regulation section 1. Search irs 1398-3. Search irs Schedule D (Form 1040). Search irs   Joan completes Schedule D, taking into account the $250,000 capital loss carryover from 2010 ($251,500 transferred to the estate minus $1,500 used on the estate's 2010 return). Search irs She enters the results on Form 1040. Search irs Form 1040, page 1. Search irs   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. Search irs Schedule A (Form 1040). Search irs   During 2011, the estate paid mortgage interest and real property tax on Mr. Search irs Smith's former residence. Search irs It also paid income tax to the state. Search irs Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. Search irs Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. Search irs She completes the Schedule A and enters the result on page 2 of Form 1040. Search irs Form 1040, page 2. Search irs   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. Search irs She then enters the estate's estimated tax payments and figures the amount the estate still owes. Search irs Form 982. Search irs   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. Search irs Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. Search irs See Debt Cancellation, later. Search irs After the bankruptcy case ends, Mr. Search irs Smith will assume the estate's tax attributes. Search irs Mr. Search irs Smith will assume a capital loss carryover of $53,500 ($123,500 carryover minus the $70,000 attribute reduction) for use in preparation of his individual tax return (Form 1040). Search irs Note. Search irs If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. Search irs Form 1041. Search irs   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. Search irs She completes the identification area at the top of Form 1041, then signs and dates the return as the trustee on behalf of the bankruptcy estate. Search irs This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Schedule A This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Schedule B This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Schedule D This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Schedule E This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Form 2119 This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Form 4562 This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. Search irs Please click the link to view the image. Search irs Sample Form 982 Capital Loss Carryover Worksheet—Lines 6 and 14 Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if your 2010 Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on your 2010 Schedule D, line 16, or (b) the amount on your 2010 Form 1040, line 41 (or your 2010 Form 1040NR, line 38, if applicable) is less than zero. Search irs Otherwise, you do not have any carryovers. Search irs 1. Search irs Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. Search irs If a loss, enclose the amount in parentheses 1. Search irs 19,880   2. Search irs Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. Search irs 1,500   3. Search irs Combine lines 1 and 2. Search irs If zero or less, enter -0- 3. Search irs 21,380   4. Search irs Enter the smaller of line 2 or line 3 4. Search irs 1,500     If line 7 of your 2010 Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9. Search irs       5. Search irs Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. Search irs 0   6. Search irs Enter any gain from your 2010 Schedule D, line 15. Search irs If a loss, enter -0- 6. Search irs         7. Search irs Add lines 4 and 6 7. Search irs 1,500   8. Search irs Short-term capital loss carryover for 2011. Search irs Subtract line 7 from line 5. Search irs If zero or less, enter -0-. Search irs If more than zero, also enter this amount on Schedule D, line 6 8. Search irs 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. Search irs       9. Search irs Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. Search irs 251,500   10. Search irs Enter any gain from your 2010 Schedule D, line 7. Search irs If a loss, enter -0- 10. Search irs 0       11. Search irs Subtract line 5 from line 4. Search irs If zero or less, enter -0- 11. Search irs 1,500       12. Search irs Add lines 10 and 11 12. Search irs 1,500   13. Search irs Long-term capital loss carryover for 2011. Search irs Subtract line 12 from line 9. Search irs If zero or less, enter -0-. Search irs If more than zero, also enter this amount on Schedule D, line 14 13. Search irs 250,000                       Partnerships and Corporations Filing Requirements A separate taxable estate is not created when a partnership or corporation files a bankruptcy petition and their tax return filing requirements do not change. Search irs The debtor-in-possession, court appointed trustee, assignee, or receiver must file the entity's income tax returns on Form 1065, Form 1120 or, Form 1120S. Search irs In cases where a trustee or receiver is not appointed, the debtor-in-possession continues business operations and remains in possession of the business' property during the bankruptcy proceeding. Search irs The debtor-in-possession, rather than the general partner of a partnership or corporate officer of a corporation, assumes the fiduciary responsibility to file the business' tax returns. Search irs Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. Search irs However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. Search irs A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. Search irs However, It may or may not be included in the individual partners' income. Search irs See Partnerships, below under Debt Cancellation. Search irs Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. Search irs A bankruptcy trustee, receiver, or debtor-in-possession, having possession of or holding title to substantially all of the property or business operations of the debtor corporation, must file the debtor's corporate income tax return for the tax year. Search irs The following discussion only highlights bankruptcy tax rules applying to corporations. Search irs The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. Search irs Therefore, you may wish to seek the help of a professional tax advisor. Search irs See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. Search irs Tax-Free Reorganizations The tax-free reorganization provisions of the Internal Revenue Code allow a corporation to transfer all or part of its assets to another corporation in a bankruptcy under title 11 of the United States Code or in a similar case. Search irs However, under the reorganization plan, the stock or securities of the corporation to which the assets are transferred must be distributed in a transaction that qualifies under IRC section 354, 355, or 356. Search irs A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. Search irs In these cases, any party to the reorganization must be under the jurisdiction of the court and the transfer of assets under the plan of reorganization must be approved by the court. Search irs In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. Search irs Generally, IRC section 354 provides that no gain or loss is recognized if a corporation's stock is exchanged solely for stock or securities in a corporation that is a party to the reorganization under a qualifying reorganization plan. Search irs In this case, shareholders in the bankrupt corporation would recognize no gain or loss if they exchange their stock solely for stock or securities of the corporation acquiring the bankrupt corporation's assets. Search irs IRC section 355 generally provides that no gain or loss is recognized by a shareholder if a corporation distributes solely stock or securities of another corporation that the distributing corporation controls immediately before the distribution. Search irs IRC section 356 allows tax-free exchanges in situations that would qualify under IRC section 354 or 355, except that other property or money, in addition to the permitted stock or securities, is received by the shareholder. Search irs In this situation, gain is recognized by the shareholder, but only to the extent of the money and the FMV of the other property received. Search irs No loss is recognized in this situation. Search irs Exemption from tax return filing A trustee, receiver, or assignee of a corporation in bankruptcy, receivership, or in the process of dissolving, may apply to the IRS for relief from filing federal income tax returns for the corporation. Search irs To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. Search irs The exemption request must be submitted to the local IRS Insolvency Office handling the case. Search irs The request to the IRS must include the name, address, and EIN of the corporation and a statement of the facts (with any supporting documents) showing why the debtor needs relief from the filing requirements. Search irs The request must also include the following statement: “I hereby request relief from filing federal income tax returns for tax years ending _____ for the above-named corporation and declare under penalties of perjury that to the best of my knowledge and belief the information contained herein is correct. Search irs ” The statement must be signed by the trustee, receiver or assignee. Search irs The statement must also include notice of appointment to act on behalf of the corporation (this is not required for bankruptcy trustees or debtors-in-possession). Search irs The IRS will act on your request within 90 days. Search irs Disclosure of return information to trustee. Search irs   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. Search irs However, in bankruptcy cases other than those of individuals filing under chapter 7 or 11, such as a corporate bankruptcy, the IRS must find that the trustee has a material interest that will be affected by information on the return. Search irs Material interest is generally defined as a financial or monetary interest. Search irs Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Search irs Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. Search irs Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. Search irs QSFs are required to file an annual income tax return, Form 1120-SF, U. Search irs S. Search irs Income Tax Return for Settlement Funds. Search irs More information about QSFs may be found in Treasury Regulation sections 1. Search irs 468B-1 through -5. Search irs Determination of Tax The determination of the proper amount of tax due for a tax year begins with the bankruptcy estate's filing of Form 1041, and the individual debtor's filing of Form 1040, or for bankrupt entities filing Forms 1065, 1120, or 1120S. Search irs After a return is filed, the IRS will either accept the return as filed or select the return for examination. Search irs Under examination the IRS may redetermine the tax liability shown on the return. Search irs If the bankruptcy estate or debtor disagrees with the redetermined tax due, the tax as redetermined by the IRS may be contested in the bankruptcy court, or Tax Court, as applicable. Search irs See Court Jurisdiction over Tax Matters, later. Search irs Prompt Determination Requests Pursuant to Rev. Search irs Proc. Search irs 2006-24, 2006-22 I. Search irs R. Search irs B. Search irs 943, www. Search irs irs. Search irs gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. Search irs irs. Search irs gov/irb/2011-51_IRB/ar13, the bankruptcy trustee may request a determination of any unpaid tax liability incurred by the bankruptcy estate during the administration of the case, by filing a tax return and a request for such determination with the IRS. Search irs Unless the return is fraudulent or contains a material misrepresentation, the estate, trustee, debtor, and any successor to the debtor are discharged from liability upon payment of the tax: As determined by the IRS, As determined by the bankruptcy court, after completion of the IRS examination, or As shown on the return, if the IRS does not: Notify the trustee within 60 days after the request for determination that the return has been selected for examination, or Complete the examination and notify the trustee of any tax due within 180 days after the request (or any additional time permitted by the bankruptcy court). Search irs Making the request for determination. Search irs   As detailed in Rev. Search irs Proc. Search irs 2006-24, as modified by Announcement 2011-77, to request a prompt determination of any unpaid tax liability of the estate, the trustee must file a signed written request, in duplicate, with the Internal Revenue Service, Centralized Insolvency Operation, P. Search irs O. Search irs Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). Search irs   The request must be submitted in duplicate and must be executed under penalties of perjury. Search irs In addition, the trustee must submit along with the request an exact copy of the return(s) filed by the trustee with the IRS for each completed tax period. Search irs The request must contain the following information: A statement indicating that it is a Request for Prompt Determination of Tax Liability, specifying the type of return and tax period for each return being filed. Search irs The name and location of the office where the return was filed. Search irs The name of the debtor. Search irs Debtor's social security number, TIN, or EIN. Search irs Type of bankruptcy estate. Search irs Bankruptcy case number. Search irs Court where the bankruptcy case is pending. Search irs   The copy of the return(s) submitted with the request must be an exact copy of a valid return. Search irs A request for prompt determination will be considered incomplete and returned to the trustee if it is filed with a copy of a document that does not qualify as a valid return. Search irs    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. Search irs A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. Search irs Examination of return. Search irs   The IRS will notify the trustee within 60 days from receipt of the request whether the return filed by the trustee has been selected for examination or has been accepted as filed. Search irs If the return is selected for examination, it will be examined as soon as possible. Search irs The IRS will notify the trustee of any tax due within 180 days from receipt of the application or within any additional time permitted by the bankruptcy court. Search irs   If a prompt determination request is incomplete, all the documents received by the IRS will be returned to the trustee by the assigned Field Insolvency Office with an explanation identifying the missing item(s) and instructions to re-file the request once corrected. Search irs   Once corrected, the request must be filed with the IRS at the Field Insolvency Office address specified in the correspondence accompanying the returned incomplete request. Search irs   In the case of an incomplete request submitted with a copy of an invalid return document, the trustee must file a valid original return with the appropriate IRS office and submit a copy of that return with the corrected request when the request is re-filed. Search irs Note. Search irs An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. Search irs   The 60-day period to notify the trustee whether the return is accepted as filed or has been selected for examination does not begin to run until a complete request package is recei