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E-FILING DELAYS FOR OFF-HIGHWAY FUEL CREDIT

February 14, 2008

2/20/08: SEE UPDATE AT BOTTOM OF POST

Roger McEowen of the Center for Agricultural Law and Taxation at Iowa State reports a problem with electronic filing of Form 4136. The IRS doesn't expect to accept e-filed returns with this form before March 3.

The problem? Many farm returns are due March 1; qualifying farmers who file by then don't have to pay estimated taxes. Farmers typically claim a credit on Form 4136 for fuel used on the farm.

Roger's report is below; it includes the awkward work-around the IRS prescribes for this problem. The other work-around: file the old-fashioned way with a paper 1040. Be sure to send it Certified Mail, Return Receipt Requested, to document that it was postmarked by March 1.

Delay in E-Filing of Form 4136 - by Roger McEowen

An individual or business can claim a credit on IRS Form 4136 for various nontaxable uses of gasoline and other fuels. The credit can be claimed for various purposes including, mining, manufacturing, farming, mowing, aviation and home heating. Claims can also be made for sales to state and local governments and for alternative fuels. The taxpayer must be the one purchasing the fuel to file a claim.

Unfortunately, as a result of changes made by H.R. 4839, the Tax Technical Corrections Act (Act) of 2007 (signed into law on December 29, 2007), the IRS will not accept e-filed Form 4136 (Credit for Federal Tax Paid on Fuels for Tax Year 2007) until March 3, 2008. The Act requires IRS to revise Form 4136 to add fields relating to the Leaking Underground Storage Tank (LUST) tax (see Act, §6(d)(B)). But, there is no delay associated with paper filing by mail of federal individual tax returns that include Form 4136. So, farm returns that are due March 1, and also contain Form 4136 will have to be paper-filed.

Planning tip: If a client qualifies for the earned income credit (EIC) or a tax refund under the recently enacted tax bill, it is possible to e-file the return without an associated Form 4136, receive the EIC and/or tax refund, then later file an amended return electronically containing the Form 4136. In many instances, the EIC and/or tax refund may be of greater dollar value than the amount of the fuel credit claimed on Form 4136.

If a federal tax return has a penalty for underpayment of estimated tax and also contains Form 4136, some or all of the underpayment penalty may be due to the IRS delay in accepting e-filed returns. A waiver of the underpayment penalty due to this delay normally could be requested on Form 2210. However, the IRS position is that because a paper return could have been timely filed, the IRS delay in accepting e-filed returns containing Form 4136 is not the cause of any underpayment. Thus, a waiver of the penalty will not be available.

Roger understands from his conversations with IRS that the "amended" return would be filed using a 1040, not a 1040X (UPDATE 2/15/08: Roger says that the IRS has contacted him and has said the amended returns should use 1040X).

2/20/2008 UPDATE: Roger McEowan reports that the IRS will grant a special one-week extension to the March 1 deadline (March 3 this year, as March 1 is on a Saturday) for farm returns with a Form 4136:

On February 20, IRS issued a press release stating that farm
returns with an attached Form 4136 that are electronically filed will be
considered timely filed if e-filed on or before March 10. IRS emphasizes that the one week relief does not impact farm returns that do not have an attached Form 4136. IRS estimates that approximately 77,000 returns will be impacted.

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