Fuel Tax Credit For An Off-Highway Business Can Be Claimed For The Fuel Tax Credit
Proponents of this idea assert that taxpayers can claim the section 6421 fuels tax credit without regard to whether they qualify for the credit through the purchase and use of gasoline for an off-highway business. In addition, certain purveyors of fraudulent tax schemes have claimed on behalf of clients (usually on IRS Form 4136, Credit for Federal Tax Paid on Fuels) the tax credit under section 6427 for nontaxable uses of fuel when the taxpayers clearly are not entitled to the credit based on the facts, such as the taxpayers’ occupation and income level, type of motor vehicle and how it is used, and the volume of fuel claimed.The Law: These claims are frivolous. Section 6421(a) allows a tax credit for gasoline purchased and used in an off-highway business. Similarly, section 6427 provides a tax credit to certain purchasers of un dyed diesel fuel used in an off-highway business. The diesel fuel credit is allowable both for off-highway business use or any use other than in a registered diesel-powered highway vehicle (e.g., in a private home for personal heating purposes). The circumstances in which the credits are available are specific and limited. The principal requirement is that the fuel be used in an off-highway business. Off-highway business use is the use of fuel in a trade or business or in an income-producing activity other than as a fuel in a vehicle registered for use on public highways. IRS Publication 225 (2008), Farmer’s Tax Guide, gives as examples of the off-highway business use of fuels: (1) use in stationary machines like generators, compressors, power saws, and similar equipment; (2) use in forklifts, bulldozers, and earth movers; and (3) use in cleaning. Also, Publication 510 (2008), Excise Taxes, explains that, with some exceptions, a highway vehicle is one “designed to carry a load over a public highway,” including federal, state, county, and city roads and streets. Passenger cars, motorcycles, buses, highway trucks, tractor trailers, etc., generally are highway vehicles. The fuels tax credits, however, are being claimed without regard to these requirements and often in absurdly huge amounts that cannot possibly be for the quantity of fuel expended for off-highway purposes. Notice 2008-14, 2008-4 I.R.B. 310, lists such positions as frivolous.In November 2007, a federal district court judge in North Carolina permanently barred Nicole Baine from preparing federal income tax returns. According to the government’s civil injunction complaint, Baine prepared federal income tax returns for customers fraudulently claiming the fuel tax credits. The court in September entered a similar injunction order against Baine’s co-defendant, Anthony Green.In January 2008, a federal court in Charlotte, North Carolina, entered a preliminary injunction against Kodjovi Raphael Totou who operates Queen City Tax Services. The order bars Totou from preparing or filing federal income tax returns until August 2008. The government complaint alleges that Totou claimed fraudulent fuels tax credits on customers’ returns. Totou was permanently barred from preparing federal income tax returns.In April 2008, a federal judge in Michigan barred Eric D. Parrish from preparing federal income tax returns. The complaint alleged that Parrish’s Detroit business, E Professionals, claimed bogus deductions and credits on customers’ federal income tax returns. Specifically, Parrish falselyclaimed federal fuel tax credits on customers’ returns. The court found that Parrish repeatedly engaged in misconduct subject to penalties under federal tax laws, thus warranting the permanent ban on return preparation.In May 2008, a federal court in Texas permanently barred Grace Machoko from preparing federal income tax returns for anyone other than herself. The court held that Machoko, whose business is called First Income Tax Services, repeatedly prepared fraudulent tax returns claiming false fuels tax credits.In September 2008, a federal court in Dallas barred Farai Chihota from preparing federal income tax returns for others. According to the government’s complaint, Chihota’s Quick Tax Service prepared returns claiming fraudulent fuel tax credits.In 2009, federal courts continued to grant injunctions against those who fraudulently claiming fuel tax credits for their clients.In April, for example, the Chicago-based tax preparation firm El Caminante Inc. and its principal operator Maric Colica were barred from preparing federal income tax returns claiming false fuels tax credits.In May, Georgia return preparer Ophelia Kelley, who operated two tax return preparation firms, was permanently barred from preparing tax returns for others, in part because of false fuel tax credits.In June another Georgia-based tax return preparer Derrick Jackson and his business, Tax Wisdom and International Tax Accounting Services, were permanently barred from preparing federal tax returns for others.In July, a federal district court in Florida permanently barred J’s Corporation, which was operated by Carole Exantus, from preparing federal tax returns. The court determined that J’s Corporation repeatedly prepared federal tax returns that claimed false tax credits, including falsefuel tax credits, and deductions.