Executive summary: The one-time alternative fuel credit claim period ends April 11, 2023
The alternative fuel tax credit was retroactively reinstated by the Inflation Reduction Act of 2022. Companies that sell or use alternative fuels in their trade or business could benefit from the one-time claim for alternative fuels excise tax credits. One-time claims for the retroactively reinstated periods must be filed by April 11, 2023.
One-time claims for alternative fuels excise tax credits
The alternative fuel tax credit was retroactively reinstated and extended by the Inflation Reduction Act of 2022 (Act). The alternative fuel credit is claimed by companies that sell or use alternative fuel in a motor vehicle, motorboat or in aviation. Alternative fuels include liquified petroleum gas (propane), liquefied natural gas and compressed natural gas. The credit is 50 cents per gallon (or gallon equivalent) and is first claimed against excise tax liability. Any credit in excess of the tax liability may be claimed as an excise tax payment or refundable income tax credit.
The credits which expired Dec. 31, 2021, were retroactively reinstated and extended through Dec. 31, 2024. The Act provides rules to permit a one-time claim for the alternative fuel credits for alternative fuels sold or used during the first, second and third calendar quarters of 2022. Notice 2022-39 provided rules that taxpayers must follow to make a one-time claim for alternative fuel credits during recently expired periods. Pursuant to this notice, a one-time claim must be filed by April 11, 2023. See prior coverage.
Generally, there are three statutory methods to normally claim the credit. However, for the period in which the alternative credit expired, the first three quarters of 2022, Notice 2022-39 provides taxpayers may file a one-time claim using Form 8849, Claims for Refund of Excise Taxes with Schedule 3, Certain Fuel Mixtures and the Alternative Fuel Credit. Notably, the one-time claim is to include the first three quarters of 2022. If a one-time claim is not filed by April 11, 2023, the taxpayer can make the claim on its income tax return using Form 4136, Credit for Federal Tax Paid on Fuels.
Prior to filing for the alternative fuel tax credit, the taxpayer must first be registered by the IRS as an alternative fueler (Activity Letter AL). Registration is a condition to the allowance of the alternative fuel credit. Unregistered taxpayers who would like to claim the credit may apply for registration by filing Form 637, Application for Registration (for Certain Excise Tax Activities).
Washington National Tax takeaways
The IRS filing period for the one-time alternative fuel tax credit claim is close to expiring. The claim period for the one-time claim began Oct. 13, 2022, and runs through April 11, 2023. This gives taxpayers 180 days to file for the one-time claim. Notably, the deadline is now less than one month away.
The alternative fuel credit is primarily of interest to the following entities:
- Users of propane in forklifts
- Sellers of alternative fuel at the retail pump
- Purchasers of alternative fuel in bulk for use in motor vehicles (such as propane in forklifts)
- Users of CNG or LNG in fleet vehicles or buses
For partnerships that are alternative fuelers, using the Form 8849 to claim the alternative fuel credit (including the one-time claim for the retroactively reinstated periods) is often times preferred, as this is an entity-level claim. If the alternative fueler is time-barred from making a claim on Form 8849, a claim can be made on the income tax return; however, when using the income tax return, the credit will be allocated to partners in the partnership.
Claimants must carefully follow the procedures outlined in the statute and Treasury guidance in preparation of one-time claims. Consult with your tax advisors for further information.