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Taxslayer login 1. Taxslayer login   Fuel Taxes Table of Contents Definitions Information Returns Registration RequirementsAdditional information. Taxslayer login 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. Taxslayer login Reseller statement. Taxslayer login Other Fuels (Including Alternative Fuels)Taxable Events Compressed Natural Gas (CNG)Taxable Events Fuels Used on Inland WaterwaysFishing vessels. Taxslayer login Deep-draft ocean-going vessels. Taxslayer login Passenger vessels. Taxslayer login Ocean-going barges. Taxslayer login State or local governments. Taxslayer login 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. Taxslayer login Gasoline, including aviation gasoline and gasoline blendstocks. Taxslayer login Diesel fuel, including dyed diesel fuel. Taxslayer login Diesel-water fuel emulsion. Taxslayer login Kerosene, including dyed kerosene and kerosene used in aviation. Taxslayer login Other Fuels (including alternative fuels). Taxslayer login Compressed natural gas (CNG). Taxslayer login Fuels used in commercial transportation on inland waterways. Taxslayer login Any liquid used in a fractional ownership program aircraft as fuel. Taxslayer login The following terms are used throughout the discussion of fuel taxes. Taxslayer login Other terms are defined in the discussion of the specific fuels to which they pertain. Taxslayer login Agri-biodiesel. Taxslayer login   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. Taxslayer login Approved terminal or refinery. Taxslayer login   This is a terminal operated by a registrant that is a terminal operator or a refinery operated by a registrant that is a refiner. Taxslayer login Biodiesel. Taxslayer login   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. Taxslayer login Blended taxable fuel. Taxslayer login   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. Taxslayer login 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. Taxslayer login Blender. Taxslayer login   This is the person that produces blended taxable fuel. Taxslayer login Bulk transfer. Taxslayer login   This is the transfer of taxable fuel by pipeline or vessel. Taxslayer login Bulk transfer/terminal system. Taxslayer login   This is the taxable fuel distribution system consisting of refineries, pipelines, vessels, and terminals. Taxslayer login 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. Taxslayer login Cellulosic biofuel. Taxslayer login   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. Taxslayer login Cellulosic biofuel does not include any alcohol with a proof of less than 150 (without regard to denaturants). Taxslayer login 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. Taxslayer login Also see Second generation biofuel below. Taxslayer login Diesel-water fuel emulsion. Taxslayer login   A diesel-water fuel emulsion means an emulsion at least 14% of which is water. Taxslayer login 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. Taxslayer login Dry lease aircraft exchange. Taxslayer login   See later, under Surtax on any liquid used in a fractional ownership program aircraft as fuel. Taxslayer login Enterer. Taxslayer login   This is the importer of record (under customs law) for the taxable fuel. Taxslayer login 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. Taxslayer login If there is no importer of record, the owner at the time of entry into the United States is the enterer. Taxslayer login Entry. Taxslayer login   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. Taxslayer login This does not apply to fuel brought into Puerto Rico (which is part of the U. Taxslayer login S. Taxslayer login customs territory), but does apply to fuel brought into the United States from Puerto Rico. Taxslayer login Fractional ownership aircraft program and fractional program aircraft. Taxslayer login   See later, under Surtax on any liquid used in a fractional ownership program aircraft as fuel. Taxslayer login Measurement of taxable fuel. Taxslayer login   Volumes of taxable fuel can be measured on the basis of actual volumetric gallons or gallons adjusted to 60 degrees Fahrenheit. Taxslayer login Other fuels. Taxslayer login   See Other Fuels (Including Alternative Fuels), later, and Alternative Fuel Credit and Alternative Fuel Mixture Credit in chapter 2. Taxslayer login Pipeline operator. Taxslayer login   This is the person that operates a pipeline within the bulk transfer/terminal system. Taxslayer login Position holder. Taxslayer login   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. Taxslayer login 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. Taxslayer login A terminal operator that owns taxable fuel in its terminal is a position holder. Taxslayer login Rack. Taxslayer login   This is a mechanism capable of delivering fuel into a means of transport other than a pipeline or vessel. Taxslayer login Refiner. Taxslayer login   This is any person that owns, operates, or otherwise controls a refinery. Taxslayer login Refinery. Taxslayer login   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. Taxslayer login However, this term does not include a facility where only blended fuel, and no other type of fuel, is produced. Taxslayer login For this purpose, blended fuel is any mixture that would be blended taxable fuel if produced outside the bulk transfer/terminal system. Taxslayer login Registrant. Taxslayer login   This is a taxable fuel registrant (see Registration Requirements, later). Taxslayer login Removal. Taxslayer login   This is any physical transfer of taxable fuel. Taxslayer login It also means any use of taxable fuel other than as a material in the production of taxable fuel or Other Fuels. Taxslayer login However, taxable fuel is not removed when it evaporates or is otherwise lost or destroyed. Taxslayer login Renewable diesel. Taxslayer login   See Renewable Diesel Credits in chapter 2. Taxslayer login Sale. Taxslayer login   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. Taxslayer login 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. Taxslayer login Second generation biofuel. Taxslayer login   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. Taxslayer login S. Taxslayer login C. Taxslayer login 7545). Taxslayer login It also includes certain liquid fuel which is derived by, or from, any cultivated algae, cyanobacteria, or lemna. Taxslayer login It is not alcohol of less than 150 proof (disregard any added denaturants). Taxslayer login See Form 6478 for more information. Taxslayer login State. Taxslayer login   This includes any state, any of its political subdivisions, the District of Columbia, and the American Red Cross. Taxslayer login An Indian tribal government is treated as a state only if transactions involve the exercise of an essential tribal government function. Taxslayer login Taxable fuel. Taxslayer login   This means gasoline, diesel fuel, and kerosene. Taxslayer login Terminal. Taxslayer login   This is a storage and distribution facility supplied by pipeline or vessel, and from which taxable fuel may be removed at a rack. Taxslayer login 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. Taxslayer login 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. Taxslayer login Terminal operator. Taxslayer login   This is any person that owns, operates, or otherwise controls a terminal. Taxslayer login Throughputter. Taxslayer login   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). Taxslayer login Vessel operator. Taxslayer login   This is the person that operates a vessel within the bulk transfer/terminal system. Taxslayer login However, vessel does not include a deep draft ocean-going vessel. Taxslayer login Information Returns Form 720-TO and Form 720-CS are information returns used to report monthly receipts and disbursements of liquid products. Taxslayer login A liquid product is any liquid transported into storage at a terminal or delivered out of a terminal. Taxslayer login For a list of products, see the product code table in the Instructions for Forms 720-TO and 720-CS. Taxslayer login The returns are due the last day of the month following the month in which the transaction occurs. Taxslayer login Generally, these returns can be filed on paper or electronically. Taxslayer login For information on filing electronically, see Publication 3536, Motor Fuel Excise Tax EDI Guide. Taxslayer login Publication 3536 is only available on the IRS website. Taxslayer login Form 720-TO. Taxslayer login   This information return is used by terminal operators to report receipts and disbursements of all liquid products to and from all approved terminals. Taxslayer login Each terminal operator must file a separate form for each approved terminal. Taxslayer login Form 720-CS. Taxslayer login   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. Taxslayer login Registration Requirements The following discussion applies to excise tax registration requirements for activities relating to fuels only. Taxslayer login See Form 637 for other persons who must register and for more information about registration. Taxslayer login Persons that are required to be registered. Taxslayer login   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. Taxslayer login Persons that may register. Taxslayer login   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. Taxslayer login Ultimate vendors, credit card issuers, and alternative fuel claimants do not need to be registered to buy or sell fuel. Taxslayer login However, they must be registered to file claims for certain sales and uses of fuel. Taxslayer login See Form 637 for more information. Taxslayer login Taxable fuel registrant. Taxslayer login   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. Taxslayer login The term registrant as used in the discussions of these fuels means a taxable fuel registrant. Taxslayer login Additional information. Taxslayer login   See the Form 637 instructions for the information you must submit when you apply for registration. Taxslayer login Failure to register. Taxslayer login   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. Taxslayer login Gasoline and Aviation Gasoline Gasoline. Taxslayer login   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. Taxslayer login 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. Taxslayer login Gasoline also includes gasoline blendstocks, discussed later. Taxslayer login Aviation gasoline. Taxslayer login   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. Taxslayer login Taxable Events The tax on gasoline is $. Taxslayer login 184 per gallon. Taxslayer login The tax on aviation gasoline is $. Taxslayer login 194 per gallon. Taxslayer login When used in a fractional ownership program aircraft, gasoline also is subject to a surtax of $. Taxslayer login 141 per gallon. Taxslayer login See Surtax on any liquid used in a fractional ownership program aircraft as fuel, later. Taxslayer login Tax is imposed on the removal, entry, or sale of gasoline. Taxslayer login Each of these events is discussed later. Taxslayer login Also, see the special rules that apply to gasoline blendstocks, later. Taxslayer login If the tax is paid on the gasoline in more than one event, a refund may be allowed for the “second” tax paid. Taxslayer login See Refunds of Second Tax in chapter 2. Taxslayer login Removal from terminal. Taxslayer login   All removals of gasoline at a terminal rack are taxable. Taxslayer login The position holder for that gasoline is liable for the tax. Taxslayer login Two-party exchanges. Taxslayer login   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. Taxslayer login 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. Taxslayer login 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. Taxslayer login The exchange transaction occurs before or at the same time as removal across the rack by the receiving person. Taxslayer login 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. Taxslayer login The transaction is subject to a written contract. Taxslayer login Terminal operator's liability. Taxslayer login   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. Taxslayer login   However, a terminal operator meeting all the following conditions at the time of the removal will not be liable for the tax. Taxslayer login The terminal operator is a registrant. Taxslayer login The terminal operator has an unexpired notification certificate (discussed later) from the position holder. Taxslayer login The terminal operator has no reason to believe any information on the certificate is false. Taxslayer login Removal from refinery. Taxslayer login   The removal of gasoline from a refinery is taxable if the removal meets either of the following conditions. Taxslayer login 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. Taxslayer login It is made at the refinery rack. Taxslayer login The refiner is liable for the tax. Taxslayer login Exception. Taxslayer login   The tax does not apply to a removal of gasoline at the refinery rack if all the following requirements are met. Taxslayer login The gasoline is removed from an approved refinery not served by pipeline (other than for receiving crude oil) or vessel. Taxslayer login The gasoline is received at a facility operated by a registrant and located within the bulk transfer/terminal system. Taxslayer login The removal from the refinery is by railcar. Taxslayer login The same person operates the refinery and the facility at which the gasoline is received. Taxslayer login Entry into the United States. Taxslayer login   The entry of gasoline into the United States is taxable if the entry meets either of the following conditions. Taxslayer login It is made by bulk transfer and the enterer or the operator of the pipeline or vessel is not a registrant. Taxslayer login It is not made by bulk transfer. Taxslayer login The enterer is liable for the tax. Taxslayer login Importer of record's liability. Taxslayer login   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. Taxslayer login   However, an importer of record meeting both of the following conditions at the time of the entry will not be liable for the tax. Taxslayer login The importer of record has an unexpired notification certificate (discussed later) from the enterer. Taxslayer login The importer of record has no reason to believe any information in the certificate is false. Taxslayer login Customs bond. Taxslayer login   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. Taxslayer login Removal from a terminal by unregistered position holder or unregistered pipeline or vessel operator. Taxslayer login   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. Taxslayer login The position holder is liable for the tax. Taxslayer login The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator. Taxslayer login However, see Terminal operator's liability under Removal from terminal, earlier, for an exception. Taxslayer login Bulk transfers not received at approved terminal or refinery. Taxslayer login   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. Taxslayer login No tax was previously imposed (as discussed earlier) on any of the following events. Taxslayer login The removal from the refinery. Taxslayer login The entry into the United States. Taxslayer login The removal from a terminal by an unregistered position holder. Taxslayer login Upon removal from the pipeline or vessel, the gasoline is not received at an approved terminal or refinery (or at another pipeline or vessel). Taxslayer login   The owner of the gasoline when it is removed from the pipeline or vessel is liable for the tax. Taxslayer login However, an owner meeting all the following conditions at the time of the removal will not be liable for the tax. Taxslayer login The owner is a registrant. Taxslayer login The owner has an unexpired notification certificate (discussed later) from the operator of the terminal or refinery where the gasoline is received. Taxslayer login The owner has no reason to believe any information on the certificate is false. Taxslayer login The operator of the facility where the gasoline is received is liable for the tax if the owner meets these conditions. Taxslayer login The operator is jointly and severally liable if the owner does not meet these conditions. Taxslayer login Sales to unregistered person. Taxslayer login   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. Taxslayer login   The seller is liable for the tax. Taxslayer login However, a seller meeting all the following conditions at the time of the sale will not be liable for the tax. Taxslayer login   The seller is a registrant. Taxslayer login The seller has an unexpired notification certificate (discussed later) from the buyer. Taxslayer login The seller has no reason to believe any information on the certificate is false. Taxslayer login The buyer of the gasoline is liable for the tax if the seller meets these conditions. Taxslayer login The buyer is jointly and severally liable if the seller does not meet these conditions. Taxslayer login Exception. Taxslayer login   The tax does not apply to a sale if all of the following apply. Taxslayer login The buyer's principal place of business is not in the United States. Taxslayer login The sale occurs as the fuel is delivered into a transport vessel with a capacity of at least 20,000 barrels of fuel. Taxslayer login The seller is a registrant and the exporter of record. Taxslayer login The fuel was exported. Taxslayer login Removal or sale of blended gasoline. Taxslayer login   The removal or sale of blended gasoline by the blender is taxable. Taxslayer login See Blended taxable fuel under Definitions, earlier. Taxslayer login   The blender is liable for the tax. Taxslayer login The tax is figured on the number of gallons not previously subject to the tax on gasoline. Taxslayer login   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. Taxslayer login See Form 720 to report this tax. Taxslayer login You also must be registered with the IRS as a blender. Taxslayer login See Form 637. Taxslayer login   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. Taxslayer login Notification certificate. Taxslayer login   The notification certificate is used to notify a person of the registration status of the registrant. Taxslayer login A copy of the registrant's letter of registration cannot be used as a notification certificate. Taxslayer login A model notification certificate is shown in the Appendix as Model Certificate C. Taxslayer login A notification certificate must contain all information necessary to complete the model. Taxslayer login   The certificate may be included as part of any business records normally used for a sale. Taxslayer login 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. Taxslayer login The registrant must provide a new certificate if any information on a certificate has changed. Taxslayer login Additional persons liable. Taxslayer login   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. Taxslayer login Gasoline Blendstocks Gasoline blendstocks may be subject to $. Taxslayer login 001 per gallon LUST tax as discussed below. Taxslayer login Gasoline includes gasoline blendstocks. Taxslayer login The previous discussions apply to these blendstocks. Taxslayer login However, if certain conditions are met, the removal, entry, or sale of gasoline blendstocks are taxed at $. Taxslayer login 001 per gallon or are not subject to the excise tax. Taxslayer login Blendstocks. Taxslayer login   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. Taxslayer login   However, gasoline blendstocks do not include any product that cannot be used without further processing in the production of finished gasoline. Taxslayer login Not used to produce finished gasoline. Taxslayer login   Gasoline blendstocks not used to produce finished gasoline are not taxable (other than LUST) if the following conditions are met. Taxslayer login Removals and entries not connected to sale. Taxslayer login   Nonbulk removals and entries are not taxable if the person otherwise liable for the tax (position holder, refiner, or enterer) is a registrant. Taxslayer login Removals and entries connected to sale. Taxslayer login   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. Taxslayer login The person has an unexpired certificate (discussed later) from the buyer. Taxslayer login The person has no reason to believe any information in the certificate is false. Taxslayer login Sales after removal or entry. Taxslayer login   The sale of a gasoline blendstock that was not subject to tax on its nonbulk removal or entry, as discussed earlier, is taxable. Taxslayer login The seller is liable for the tax. Taxslayer login However, the sale is not taxable if, at the time of the sale, the seller meets the following requirements. Taxslayer login The seller has an unexpired certificate (discussed next) from the buyer. Taxslayer login The seller has no reason to believe any information in the certificate is false. Taxslayer login Certificate of buyer. Taxslayer login   The certificate from the buyer certifies the gasoline blendstocks will not be used to produce finished gasoline. Taxslayer login The certificate may be included as part of any business records normally used for a sale. Taxslayer login A model certificate is shown in the Appendix as Model Certificate D. Taxslayer login The certificate must contain all information necessary to complete the model. Taxslayer login   A certificate expires on the earliest of the following dates. Taxslayer login The date 1 year after the effective date (not earlier than the date signed) of the certificate. Taxslayer login The date a new certificate is provided to the seller. Taxslayer login The date the seller is notified that the buyer's right to provide a certificate has been withdrawn. Taxslayer login The buyer must provide a new certificate if any information on a certificate has changed. Taxslayer login   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. Taxslayer login Received at approved terminal or refinery. Taxslayer login   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. Taxslayer login The person is a registrant. Taxslayer login The person has an unexpired notification certificate (discussed earlier) from the operator of the terminal or refinery where the gasoline blendstocks are received. Taxslayer login The person has no reason to believe any information on the certificate is false. Taxslayer login Bulk transfers to registered industrial user. Taxslayer login   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. Taxslayer login 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. Taxslayer login Credits or Refunds. Taxslayer login   A credit or refund of the gasoline tax may be allowable if gasoline is used for a nontaxable purpose or exempt use. Taxslayer login For more information, see chapter 2. Taxslayer login Diesel Fuel and Kerosene Generally, diesel fuel and kerosene are taxed in the same manner as gasoline (discussed earlier). Taxslayer login 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. Taxslayer login 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. Taxslayer login 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. Taxslayer login A liquid may possess this practical and commercial fitness even though the specified use is not the predominant use of the liquid. Taxslayer login 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. Taxslayer login Diesel fuel does not include gasoline, kerosene, excluded liquid, No. Taxslayer login 5 and No. Taxslayer login 6 fuel oils covered by ASTM specification D396, or F-76 (Fuel Naval Distillate) covered by military specification MIL-F-16884. Taxslayer login An excluded liquid is either of the following. Taxslayer login A liquid that contains less than 4% normal paraffins. Taxslayer login A liquid with all the following properties. Taxslayer login Distillation range of 125 degrees Fahrenheit or less. Taxslayer login Sulfur content of 10 ppm or less. Taxslayer login Minimum color of +27 Saybolt. Taxslayer login Transmix means a by-product of refined products created by the mixing of different specification products during pipeline transportation. Taxslayer login Kerosene. Taxslayer login   This means any of the following liquids. Taxslayer login One of the two grades of kerosene (No. Taxslayer login 1-K and No. Taxslayer login 2-K) covered by ASTM specification D3699. Taxslayer login 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). Taxslayer login See Kerosene for Use in Aviation, later. Taxslayer login   However, kerosene does not include excluded liquid, discussed earlier. Taxslayer login   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. Taxslayer login Diesel-powered highway vehicle. Taxslayer login   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. Taxslayer login Specially designed mobile machinery for nontransportation functions and vehicles specially designed for off-highway transportation are generally not considered diesel-powered highway vehicles. Taxslayer login For more information about these vehicles and for information about vehicles not considered highway vehicles, see Off-Highway Business Use (No. Taxslayer login 2) in chapter 2. Taxslayer login Diesel-powered train. Taxslayer login   This is any diesel-powered equipment or machinery that rides on rails. Taxslayer login The term includes a locomotive, work train, switching engine, and track maintenance machine. Taxslayer login Taxable Events The tax on diesel fuel and kerosene is $. Taxslayer login 244 per gallon. Taxslayer login It is imposed on the removal, entry, or sale of diesel fuel and kerosene. Taxslayer login Each of these events is discussed later. Taxslayer login Only the $. Taxslayer login 001 LUST tax applies to dyed diesel fuel and dyed kerosene, discussed later. Taxslayer login 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. Taxslayer login See Refunds of Second Tax in chapter 2. Taxslayer login Use in certain intercity and local buses. Taxslayer login   Dyed diesel fuel and dyed kerosene cannot be used in certain intercity and local buses. Taxslayer login A claim for $. Taxslayer login 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. Taxslayer login An intercity or local bus is a bus engaged in furnishing (for compensation) passenger land transportation available to the general public. Taxslayer login The bus must be engaged in one of the following activities. Taxslayer login Scheduled transportation along regular routes regardless of the size of the bus. Taxslayer login Nonscheduled transportation if the seating capacity of the bus is at least 20 adults (not including the driver). Taxslayer login 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. Taxslayer login Removal from terminal. Taxslayer login   All removals of diesel fuel and kerosene at a terminal rack are taxable. Taxslayer login The position holder for that fuel is liable for the tax. Taxslayer login Two-party exchanges. Taxslayer login   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. Taxslayer login 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. Taxslayer login 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. Taxslayer login The exchange transaction occurs before or at the same time as completion of removal across the rack by the receiving person. Taxslayer login 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. Taxslayer login The transaction is subject to a written contract. Taxslayer login Terminal operator's liability. Taxslayer login   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). Taxslayer login   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. Taxslayer login 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. Taxslayer login The terminal operator is a registrant. Taxslayer login The terminal operator has an unexpired notification certificate (discussed under Gasoline) from the position holder. Taxslayer login The terminal operator has no reason to believe any information on the certificate is false. Taxslayer login Removal from refinery. Taxslayer login   The removal of diesel fuel or kerosene from a refinery is taxable if the removal meets either of the following conditions. Taxslayer login 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. Taxslayer login It is made at the refinery rack. Taxslayer login The refiner is liable for the tax. Taxslayer login Exception. Taxslayer login   The tax does not apply to a removal of diesel fuel or kerosene at the refinery rack if all the following conditions are met. Taxslayer login The diesel fuel or kerosene is removed from an approved refinery not served by pipeline (other than for receiving crude oil) or vessel. Taxslayer login The diesel fuel or kerosene is received at a facility operated by a registrant and located within the bulk transfer/terminal system. Taxslayer login 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. Taxslayer login Entry into the United States. Taxslayer login   The entry of diesel fuel or kerosene into the United States is taxable if the entry meets either of the following conditions. Taxslayer login It is made by bulk transfer and the enterer or the operator of the pipeline or vessel is not a registrant. Taxslayer login It is not made by bulk transfer. Taxslayer login The enterer is liable for the tax. Taxslayer login Importer of record's liability. Taxslayer login   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. Taxslayer login   However, an importer of record meeting both of the following conditions at the time of the entry will not be liable for the tax. Taxslayer login The importer of record has an unexpired notification certificate (discussed under Gasoline) from the enterer. Taxslayer login The importer of record has no reason to believe any information in the certificate is false. Taxslayer login Customs bond. Taxslayer login   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. Taxslayer login Removal from a terminal by unregistered position holder or unregistered pipeline or vessel operator. Taxslayer login   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. Taxslayer login The position holder is liable for the tax. Taxslayer login The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator. Taxslayer login However, see Terminal operator's liability under Removal from terminal, earlier, for an exception. Taxslayer login Bulk transfers not received at approved terminal or refinery. Taxslayer login   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. Taxslayer login No tax was previously imposed (as discussed earlier) on any of the following events. Taxslayer login The removal from the refinery. Taxslayer login The entry into the United States. Taxslayer login The removal from a terminal by an unregistered position holder. Taxslayer login 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). Taxslayer login   The owner of the diesel fuel or kerosene when it is removed from the pipeline or vessel is liable for the tax. Taxslayer login However, an owner meeting all the following conditions at the time of the removal will not be liable for the tax. Taxslayer login The owner is a registrant. Taxslayer login 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. Taxslayer login The owner has no reason to believe any information on the certificate is false. Taxslayer login The operator of the facility where the diesel fuel or kerosene is received is liable for the tax if the owner meets these conditions. Taxslayer login The operator is jointly and severally liable if the owner does not meet these conditions. Taxslayer login Sales to unregistered person. Taxslayer login   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. Taxslayer login   The seller is liable for the tax. Taxslayer login However, a seller meeting all the following conditions at the time of the sale will not be liable for the tax. Taxslayer login The seller is a registrant. Taxslayer login The seller has an unexpired notification certificate (discussed under Gasoline) from the buyer. Taxslayer login The seller has no reason to believe any information on the certificate is false. Taxslayer login The buyer of the diesel fuel or kerosene is liable for the tax if the seller meets these conditions. Taxslayer login The buyer is jointly and severally liable if the seller does not meet these conditions. Taxslayer login Exception. Taxslayer login   The tax does not apply to a sale if all of the following apply. Taxslayer login The buyer's principal place of business is not in the United States. Taxslayer login The sale occurs as the fuel is delivered into a transport vessel with a capacity of at least 20,000 barrels of fuel. Taxslayer login The seller is a registrant and the exporter of record. Taxslayer login The fuel was exported. Taxslayer login Removal or sale of blended diesel fuel or kerosene. Taxslayer login   The removal or sale of blended diesel fuel or blended kerosene by the blender is taxable. Taxslayer login Blended taxable fuel produced using biodiesel is subject to the tax. Taxslayer login See Blended taxable fuel under Definitions, earlier. Taxslayer login   The blender is liable for the tax. Taxslayer login The tax is figured on the number of gallons not previously subject to the tax. Taxslayer login   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. Taxslayer login Generally, the biodiesel mixture must be diesel fuel (defined earlier). Taxslayer login See Form 720 to report this tax. Taxslayer login You also must be registered by the IRS as a blender. Taxslayer login See Form 637 for more information. Taxslayer login   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. Taxslayer login Additional persons liable. Taxslayer login   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. Taxslayer login Credits or Refunds. Taxslayer login   A credit or refund is allowable for the tax on undyed diesel fuel or undyed kerosene used for a nontaxable use. Taxslayer login For more information, see chapter 2. Taxslayer login Dyed Diesel Fuel and Dyed Kerosene Dyed diesel fuel and dyed kerosene are subject to $. Taxslayer login 001 per gallon LUST tax as discussed below, unless the fuel is for export. Taxslayer login 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. Taxslayer login The person otherwise liable for tax (for example, the position holder) is a registrant. Taxslayer login In the case of a removal from a terminal, the terminal is an approved terminal. Taxslayer login The diesel fuel or kerosene satisfies the dyeing requirements (described next). Taxslayer login Dyeing requirements. Taxslayer login   Diesel fuel or kerosene satisfies the dyeing requirements only if it satisfies the following requirements. Taxslayer login It contains the dye Solvent Red 164 (and no other dye) at a concentration spectrally equivalent to at least 3. Taxslayer login 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. Taxslayer login Is indelibly dyed by mechanical injection. Taxslayer login See section 6 of Notice 2005-80 for transition rules that apply until final regulations are issued by the IRS. Taxslayer login Notice required. Taxslayer login   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. Taxslayer login   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. Taxslayer login   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). Taxslayer login That seller is subject to the penalty described next. Taxslayer login Penalty. Taxslayer login   A penalty is imposed on a person if any of the following situations apply. Taxslayer login 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. Taxslayer login 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. Taxslayer login The person willfully alters, chemically or otherwise, or attempts to so alter, the strength or composition of any dye in dyed fuel. Taxslayer login 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. Taxslayer login   The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. Taxslayer login After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. Taxslayer login   This penalty is in addition to any tax imposed on the fuel. Taxslayer login   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. Taxslayer login   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. Taxslayer login   If you are liable for the penalty, you may also be liable for the back-up tax, discussed later. Taxslayer login However, the penalty applies only to dyed diesel fuel and dyed kerosene, while the back-up tax may apply to other fuels. Taxslayer login 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. Taxslayer login Exception to penalty. Taxslayer login   The penalty under item (3) will not apply in any of the following situations. Taxslayer login Diesel fuel or kerosene meeting the dyeing requirements (described earlier) is blended with any undyed liquid and the resulting product meets the dyeing requirements. Taxslayer login 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. Taxslayer login The alteration or attempted alteration occurs in an exempt area of Alaska. Taxslayer login See Removal for sale or use in Alaska, later. Taxslayer login 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. Taxslayer login Alaska and Feedstocks Tax of $. Taxslayer login 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). Taxslayer login Undyed kerosene used for feedstock purposes. Taxslayer login Removal for sale or use in Alaska. Taxslayer login   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. Taxslayer login The removal or entry of any diesel fuel or kerosene is not taxed if all the following requirements are satisfied. Taxslayer login 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. Taxslayer login In the case of a removal from a terminal, the terminal is an approved terminal. Taxslayer login 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. Taxslayer login   If all three of the requirements above are not met, then tax is imposed at $. Taxslayer login 244 per gallon. Taxslayer login   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. Taxslayer login Satisfactory evidence may include copies of qualified dealer licenses or exemption certificates obtained for state tax purposes. Taxslayer login Later sales. Taxslayer login   The excise tax applies to diesel fuel or kerosene sold by a qualified dealer after the removal or entry. Taxslayer login The tax is imposed at the time of the sale and the qualified dealer is liable for the tax. Taxslayer login However, the sale is not taxable (other than the LUST tax at $. Taxslayer login 001 per gallon) if all the following requirements are met. Taxslayer login The fuel is sold in Alaska for certain nontaxable uses. Taxslayer login The buyer buys the fuel for its own use in a nontaxable use or is a qualified dealer. Taxslayer login The seller can show satisfactory evidence of the nontaxable nature of the transaction and has no reason to believe the evidence is false. Taxslayer login Feedstock purposes. Taxslayer login   The $. Taxslayer login 001 per gallon LUST tax is imposed on the removal or entry of undyed kerosene if all the following conditions are met. Taxslayer login The person otherwise liable for tax (position holder, refiner, or enterer) is a registrant. Taxslayer login In the case of a removal from a terminal, the terminal is an approved terminal. Taxslayer login 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. Taxslayer login   If all of the requirements above are not met, then tax is imposed at $. Taxslayer login 244 per gallon. Taxslayer login   Kerosene is used for a feedstock purpose when it is used for nonfuel purposes in the manufacture or production of any substance other than gasoline, diesel fuel, or Other Fuels. Taxslayer login For example, kerosene is used for a feedstock purpose when it is used as an ingredient in the production of paint, but is not used for a feedstock purpose when it is used to power machinery at a factory where paint is produced. Taxslayer login A feedstock user is a person that uses kerosene for a feedstock purpose. Taxslayer login A registered feedstock user is a person that has been registered by the IRS as a feedstock user. Taxslayer login See Registration Requirements, earlier. Taxslayer login Later sales. Taxslayer login   The excise tax ($. Taxslayer login 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. Taxslayer login The tax is imposed at the time of the later sale and that seller is liable for the tax. Taxslayer login Certificate. Taxslayer login   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. Taxslayer login The certificate may be included as part of any business records normally used for a sale. Taxslayer login A model certificate is shown in the Appendix as Model Certificate G. Taxslayer login Your certificate must contain all information necessary to complete the model. Taxslayer login   A certificate expires on the earliest of the following dates. Taxslayer login The date 1 year after the effective date (not earlier than the date signed) of the certificate. Taxslayer login The date the seller is provided a new certificate or notice that the current certificate is invalid. Taxslayer login The date the seller is notified the buyer's registration has been revoked or suspended. Taxslayer login   The buyer must provide a new certificate if any information on a certificate has changed. Taxslayer login 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. Taxslayer login Any dyed diesel fuel or dyed kerosene for other than a nontaxable use. Taxslayer login Any undyed diesel fuel or undyed kerosene on which a credit or refund (for fuel used for a nontaxable purpose) has been allowed. Taxslayer login Any liquid other than gasoline, diesel fuel, or kerosene. Taxslayer login Generally, this back-up tax is imposed at a rate of $. Taxslayer login 244 per gallon. Taxslayer login Liability for tax. Taxslayer login   Generally, the operator of the vehicle into which the fuel is delivered is liable for the tax. Taxslayer login 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. Taxslayer login Exemptions from the back-up tax. Taxslayer login   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. Taxslayer login   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. Taxslayer login 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. Taxslayer login A reduced tax rate of $. Taxslayer login 198 per gallon is imposed on a diesel-water fuel emulsion. Taxslayer login 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. Taxslayer login 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 $. Taxslayer login 244 per gallon. Taxslayer login Credits or refunds. Taxslayer login   The allowance for a credit or refund on a diesel-water fuel emulsion is discussed in chapter 2. Taxslayer login Kerosene for Use in Aviation Taxable Events Generally, kerosene is taxed at $. Taxslayer login 244 per gallon unless a reduced rate applies (see Diesel Fuel and Kerosene, earlier). Taxslayer login For kerosene removed directly from a terminal into the fuel tank of an aircraft for use in noncommercial aviation, the tax rate is $. Taxslayer login 219. Taxslayer login The rate of $. Taxslayer login 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. Taxslayer login The airport terminal does not need to be a secured airport terminal for this rate to apply. Taxslayer login 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. Taxslayer login For kerosene removed directly into the fuel tank of an aircraft for use in commercial aviation, the rate of tax is $. Taxslayer login 044 per gallon. Taxslayer login For kerosene removed into an aircraft from a qualified refueler truck, tanker, or tank wagon, the $. Taxslayer login 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. Taxslayer login See Terminal located within a secured area of an airport, later. Taxslayer login In addition, the operator must provide the position holder with a certificate similar to Model Certificate K in the Appendix. Taxslayer login 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 $. Taxslayer login 001. Taxslayer login There is no tax on kerosene removed directly into the fuel tank of an aircraft for use in foreign trade. Taxslayer login 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. Taxslayer login See Terminal located within a secured area of an airport, later. Taxslayer login In addition, the operator must provide the position holder with a certificate similar to Model Certificate K in the Appendix. Taxslayer login The position holder is liable for the $. Taxslayer login 001 per gallon tax. Taxslayer login For kerosene removed directly from a terminal into the fuel tank of an fractional ownership program aircraft after March 31, 2012, a surtax of $. Taxslayer login 141 per gallon applies. Taxslayer login Certain refueler trucks, tankers, and tank wagons treated as terminals. Taxslayer login   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. Taxslayer login Such terminal is located within an area of an airport. Taxslayer login 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. Taxslayer login 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. Taxslayer login 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. Taxslayer login Information reporting will be required by terminal operators regarding this provision. Taxslayer login 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. Taxslayer login Terminal located within a secured area of an airport. Taxslayer login   See Notice 2005-4 and Notice 2005-80 for the list of terminals located within a secured area of an airport. Taxslayer login 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. Taxslayer login 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 $. Taxslayer login 044 per gallon. Taxslayer login 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). Taxslayer login For example, for kerosene removed directly into the aircraft for use in military aircraft, the position holder is liable for the tax. Taxslayer login For the aircraft operator to be liable for the tax $. Taxslayer login 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. Taxslayer login Commercial aviation. Taxslayer login   Commercial aviation is any use of an aircraft in the business of transporting persons or property by air for pay. Taxslayer login However, commercial aviation does not include any of the following uses. Taxslayer login Any use exclusively for the purpose of skydiving. Taxslayer login Certain air transportation by seaplane. Taxslayer login See Seaplanes under Transportation of Persons by Air in chapter 4. Taxslayer login Any use of an aircraft owned or leased by a member of an affiliated group and unavailable for hire by nonmembers. Taxslayer login For more information, see Aircraft used by affiliated corporations under Special Rules on Transportation Taxes in chapter 4. Taxslayer login 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. Taxslayer login For more information, see Small aircraft under Special Rules on Transportation Taxes in chapter 4. Taxslayer login Any use where the surtax on fuel used in a fractional ownership program aircraft is imposed. Taxslayer login See Surtax on any liquid used in a fractional ownership program aircraft as fuel below. Taxslayer login 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 $. Taxslayer login 141 per gallon. Taxslayer login The fractional ownership program manager is liable for the tax. Taxslayer login The surtax applies in addition to any other taxes imposed on the removal, entry, use, or sale of the fuel. Taxslayer login If the surtax is imposed, the following air transportation taxes do not apply. Taxslayer login Transportation of persons by air. Taxslayer login Transportation of property by air. Taxslayer login Use of international air travel facilities. Taxslayer login These taxes are described under Air Transportation Taxes, later. Taxslayer login 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. Taxslayer login 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. Taxslayer login Fractional program aircraft. Taxslayer login   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. Taxslayer login S. Taxslayer login   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. Taxslayer login In such situations, the flight is not commercial aviation. Taxslayer login Instead, the tax on the fuel used in the flight is imposed at the non-commercial aviation rate. Taxslayer login Fractional owner. Taxslayer login   Any person owning any interest (including the entire interest) in a fractional program aircraft. Taxslayer login Dry lease aircraft exchange. Taxslayer login   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. Taxslayer login Special rule relating to deadhead service. Taxslayer login   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. Taxslayer login More information. Taxslayer login   See section 4043 for more information on the surtax. Taxslayer login 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. Taxslayer login Certificate. Taxslayer login   The certificate may be included as part of any business records normally used for a sale. Taxslayer login See Model Certificate K in the Appendix. Taxslayer login   A certificate expires on the earliest of the following dates. Taxslayer login The date 1 year after the effective date (not earlier than the date signed) of the certificate. Taxslayer login The date the buyer provides the seller a new certificate or notice that the current certificate is invalid. Taxslayer login The date the IRS or the buyer notifies the seller that the buyer's right to provide a certificate has been withdrawn. Taxslayer login   The buyer must provide a new certificate if any information on a certificate has changed. Taxslayer login   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. Taxslayer login Exempt use. Taxslayer login   The rate on kerosene for use in aviation is $. Taxslayer login 001 (LUST tax) if it is removed from any refinery or terminal directly into the fuel tank of an aircraft for an exempt use. Taxslayer login An exempt use includes kerosene for the exclusive use of a state or local government. Taxslayer login There is no tax on kerosene removed directly into the fuel tank of an aircraft for use in foreign trade. Taxslayer login Flash title transaction. Taxslayer login   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. Taxslayer login 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. Taxslayer login 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. Taxslayer login Reseller statement. Taxslayer login   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. Taxslayer login Credits or Refunds. Taxslayer login   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). Taxslayer login A claim may be made by a registered ultimate vendor for certain sales. Taxslayer login For more information, see chapter 2. Taxslayer login Other Fuels (Including Alternative Fuels) Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under section 4081. Taxslayer login Other Fuels include alternative fuels. Taxslayer login 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. Taxslayer login Liquefied petroleum gas includes propane, butane, pentane, or mixtures of those products. Taxslayer login Qualified methanol and ethanol fuels. Taxslayer login   Qualified ethanol and methanol means any liquid at least 85 percent of which consists of alcohol produced from coal, including peat. Taxslayer login The tax rates are listed in the Instructions for Form 720. Taxslayer login Partially exempt methanol and ethanol fuels. Taxslayer login   A reduced tax rate applies to these fuels. Taxslayer login Partially exempt ethanol and methanol means any liquid at least 85 percent of which consists of alcohol produced from natural gas. Taxslayer login The tax rates are listed in the Instructions for Form 720. Taxslayer login Motor vehicles. Taxslayer login   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. Taxslayer login They are propelled by a motor. Taxslayer login 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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Understanding Your CP285 Notice

CP285 notifies BMF taxpayers the reason their Form 1128, Application To Adopt, Change, or Retain a Tax Year, was denied.


What you need to do

Continue filing your annual income tax return on the tax year you have historically used. If you are a new entity, use the tax year assigned when you received the notice of EIN assignment (CP575, 576, etc.).


You may want to

Submit a newly completed, timely Form 1128 for next tax year.

 

 

Page Last Reviewed or Updated: 12-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Taxslayer Login

Taxslayer login 5. Taxslayer login   Wages, Salaries, and Other Earnings Table of Contents Reminder Introduction Useful Items - You may want to see: Employee CompensationBabysitting. Taxslayer login Miscellaneous Compensation Fringe Benefits Retirement Plan Contributions Stock Options Restricted Property Special Rules for Certain EmployeesClergy Members of Religious Orders Foreign Employer Military Volunteers Sickness and Injury BenefitsDisability Pensions Long-Term Care Insurance Contracts Workers' Compensation Other Sickness and Injury Benefits Reminder Foreign income. Taxslayer login   If you are a U. Taxslayer login S. Taxslayer login citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U. Taxslayer login S. Taxslayer login law. Taxslayer login This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. Taxslayer login This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). Taxslayer login If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. Taxslayer login For details, see Publication 54, Tax Guide for U. Taxslayer login S. Taxslayer login Citizens and Resident Aliens Abroad. Taxslayer login Introduction This chapter discusses compensation received for services as an employee, such as wages, salaries, and fringe benefits. Taxslayer login The following topics are included. Taxslayer login Bonuses and awards. Taxslayer login Special rules for certain employees. Taxslayer login Sickness and injury benefits. Taxslayer login The chapter explains what income is included in the employee's gross income and what is not included. Taxslayer login Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 525 Taxable and Nontaxable Income Employee Compensation This section discusses various types of employee compensation including fringe benefits, retirement plan contributions, stock options, and restricted property. Taxslayer login Form W-2. Taxslayer login    If you are an employee, you should receive Form W-2 from your employer showing the pay you received for your services. Taxslayer login Include your pay on line 7 of Form 1040 or Form 1040A, or on line 1 of Form 1040EZ, even if you do not receive a Form W-2. Taxslayer login   If you performed services, other than as an independent contractor, and your employer did not withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040. Taxslayer login These wages must be included on line 7 of Form 1040. Taxslayer login See Form 8919 for more information. Taxslayer login Childcare providers. Taxslayer login    If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. Taxslayer login If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Taxslayer login You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it. Taxslayer login Babysitting. Taxslayer login   If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you. Taxslayer login Miscellaneous Compensation This section discusses different types of employee compensation. Taxslayer login Advance commissions and other earnings. Taxslayer login   If you receive advance commissions or other amounts for services to be performed in the future and you are a cash-method taxpayer, you must include these amounts in your income in the year you receive them. Taxslayer login    If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. Taxslayer login If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), or you may be able to take a credit for that year. Taxslayer login See Repayments in chapter 12. Taxslayer login Allowances and reimbursements. Taxslayer login    If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Publication 463. Taxslayer login If you are reimbursed for moving expenses, see Publication 521, Moving Expenses. Taxslayer login Back pay awards. Taxslayer login    Include in income amounts you are awarded in a settlement or judgment for back pay. Taxslayer login These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. Taxslayer login They should be reported to you by your employer on Form W-2. Taxslayer login Bonuses and awards. Taxslayer login   Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. Taxslayer login These include prizes such as vacation trips for meeting sales goals. Taxslayer login If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. Taxslayer login However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you. Taxslayer login Employee achievement award. Taxslayer login   If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. Taxslayer login However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Taxslayer login Your employer can tell you whether your award is a qualified plan award. Taxslayer login Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay. Taxslayer login   However, the exclusion does not apply to the following awards: A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years. Taxslayer login A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year. Taxslayer login Example. Taxslayer login Ben Green received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Taxslayer login Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. Taxslayer login However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income. Taxslayer login Differential wage payments. Taxslayer login   This is any payment made to you by an employer for any period during which you are, for a period of more than 30 days, an active duty member of the uniformed services and represents all or a portion of the wages you would have received from the employer during that period. Taxslayer login These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. Taxslayer login The payments are reported as wages on Form W-2. Taxslayer login Government cost-of-living allowances. Taxslayer login   Most payments received by U. Taxslayer login S. Taxslayer login Government civilian employees for working abroad are taxable. Taxslayer login However, certain cost-of-living allowances are tax free. Taxslayer login Publication 516, U. Taxslayer login S. Taxslayer login Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad. Taxslayer login Nonqualified deferred compensation plans. Taxslayer login   Your employer will report to you the total amount of deferrals for the year under a nonqualified deferred compensation plan. Taxslayer login This amount is shown on Form W-2, box 12, using code Y. Taxslayer login This amount is not included in your income. Taxslayer login   However, if at any time during the tax year, the plan fails to meet certain requirements, or is not operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years are included in your income for the current year. Taxslayer login This amount is included in your wages shown on Form W-2, box 1. Taxslayer login It is also shown on Form W-2, box 12, using code Z. Taxslayer login Note received for services. Taxslayer login    If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. Taxslayer login When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Taxslayer login Do not include that part again in your income. Taxslayer login Include the rest of the payment in your income in the year of payment. Taxslayer login   If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them. Taxslayer login Severance pay. Taxslayer login   You must include in income amounts you receive as severance pay and any payment for the cancellation of your employment contract. Taxslayer login Accrued leave payment. Taxslayer login    If you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. Taxslayer login   If you resign from one agency and are reemployed by another agency, you may have to repay part of your lump-sum annual leave payment to the second agency. Taxslayer login You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Taxslayer login Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2. Taxslayer login Outplacement services. Taxslayer login   If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and interview techniques), you must include the unreduced amount of the severance pay in income. Taxslayer login    However, you can deduct the value of these outplacement services (up to the difference between the severance pay included in income and the amount actually received) as a miscellaneous deduction (subject to the 2%-of-adjusted-gross-income (AGI) limit) on Schedule A (Form 1040). Taxslayer login Sick pay. Taxslayer login   Pay you receive from your employer while you are sick or injured is part of your salary or wages. Taxslayer login In addition, you must include in your income sick pay benefits received from any of the following payers: A welfare fund. Taxslayer login A state sickness or disability fund. Taxslayer login An association of employers or employees. Taxslayer login An insurance company, if your employer paid for the plan. Taxslayer login However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. Taxslayer login For more information, see Publication 525. Taxslayer login Social security and Medicare taxes paid by employer. Taxslayer login   If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. Taxslayer login The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. Taxslayer login However, these payments are not treated as social security and Medicare wages if you are a household worker or a farm worker. Taxslayer login Stock appreciation rights. Taxslayer login   Do not include a stock appreciation right granted by your employer in income until you exercise (use) the right. Taxslayer login When you use the right, you are entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. Taxslayer login You include the cash payment in your income in the year you use the right. Taxslayer login Fringe Benefits Fringe benefits received in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Taxslayer login Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules. Taxslayer login Accounting period. Taxslayer login   You must use the same accounting period your employer uses to report your taxable noncash fringe benefits. Taxslayer login Your employer has the option to report taxable noncash fringe benefits by using either of the following rules. Taxslayer login The general rule: benefits are reported for a full calendar year (January 1–December 31). Taxslayer login The special accounting period rule: benefits provided during the last 2 months of the calendar year (or any shorter period) are treated as paid during the following calendar year. Taxslayer login For example, each year your employer reports the value of benefits provided during the last 2 months of the prior year and the first 10 months of the current year. Taxslayer login  Your employer does not have to use the same accounting period for each fringe benefit, but must use the same period for all employees who receive a particular benefit. Taxslayer login   You must use the same accounting period that you use to report the benefit to claim an employee business deduction (for use of a car, for example). Taxslayer login Form W-2. Taxslayer login   Your employer must include all taxable fringe benefits in box 1 of Form W-2 as wages, tips, and other compensation and, if applicable, in boxes 3 and 5 as social security and Medicare wages. Taxslayer login Although not required, your employer may include the total value of fringe benefits in box 14 (or on a separate statement). Taxslayer login However, if your employer provided you with a vehicle and included 100% of its annual lease value in your income, the employer must separately report this value to you in box 14 (or on a separate statement). Taxslayer login Accident or Health Plan In most cases, the value of accident or health plan coverage provided to you by your employer is not included in your income. Taxslayer login Benefits you receive from the plan may be taxable, as explained later under Sickness and Injury Benefits . Taxslayer login For information on the items covered in this section, other than Long-term care coverage, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Taxslayer login Long-term care coverage. Taxslayer login    Contributions by your employer to provide coverage for long-term care services generally are not included in your income. Taxslayer login However, contributions made through a flexible spending or similar arrangement (such as a cafeteria plan) must be included in your income. Taxslayer login This amount will be reported as wages in box 1 of your Form W-2. Taxslayer login   Contributions you make to the plan are discussed in Publication 502, Medical and Dental Expenses. Taxslayer login Archer MSA contributions. Taxslayer login    Contributions by your employer to your Archer MSA generally are not included in your income. Taxslayer login Their total will be reported in box 12 of Form W-2 with code R. Taxslayer login You must report this amount on Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. Taxslayer login File the form with your return. Taxslayer login Health flexible spending arrangement (health FSA). Taxslayer login   If your employer provides a health FSA that qualifies as an accident or health plan, the amount of your salary reduction, and reimbursements of your medical care expenses, in most cases, are not included in your income. Taxslayer login Note. Taxslayer login Health FSAs are subject to a $2,500 limit on salary reduction contributions for plan years beginning after 2012. Taxslayer login The $2,500 limit is subject to an inflation adjustment for plan years beginning after 2013. Taxslayer login For more information, see Notice 2012-40, 2012-26 I. Taxslayer login R. Taxslayer login B. Taxslayer login 1046, available at www. Taxslayer login irs. Taxslayer login gov/irb/2012-26 IRB/ar09. Taxslayer login html. Taxslayer login Health reimbursement arrangement (HRA). Taxslayer login   If your employer provides an HRA that qualifies as an accident or health plan, coverage and reimbursements of your medical care expenses generally are not included in your income. Taxslayer login Health savings accounts (HSA). Taxslayer login   If you are an eligible individual, you and any other person, including your employer or a family member, can make contributions to your HSA. Taxslayer login Contributions, other than employer contributions, are deductible on your return whether or not you itemize deductions. Taxslayer login Contributions made by your employer are not included in your income. Taxslayer login Distributions from your HSA that are used to pay qualified medical expenses are not included in your income. Taxslayer login Distributions not used for qualified medical expenses are included in your income. Taxslayer login See Publication 969 for the requirements of an HSA. Taxslayer login   Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. Taxslayer login The contributions are treated as a distribution of money and are not included in the partner's gross income. Taxslayer login Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are includible in the partner's gross income. Taxslayer login In both situations, the partner can deduct the contribution made to the partner's HSA. Taxslayer login   Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are includible in the shareholder-employee's gross income. Taxslayer login The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. Taxslayer login Qualified HSA funding distribution. Taxslayer login   You can make a one-time distribution from your individual retirement account (IRA) to an HSA and you generally will not include any of the distribution in your income. Taxslayer login See Publication 590 for the requirements for these qualified HSA funding distributions. Taxslayer login Failure to maintain eligibility. Taxslayer login   If your HSA received qualified HSA distributions from a health FSA or HRA (discussed earlier) or a qualified HSA funding distribution, you must be an eligible individual for HSA purposes for the period beginning with the month in which the qualified distribution was made and ending on the last day of the 12th month following that month. Taxslayer login If you fail to be an eligible individual during this period, other than because of death or disability, you must include the distribution in your income for the tax year in which you become ineligible. Taxslayer login This income is also subject to an additional 10% tax. Taxslayer login Adoption Assistance You may be able to exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses in connection with your adoption of an eligible child. Taxslayer login See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Taxslayer login Adoption benefits are reported by your employer in box 12 of Form W-2 with code T. Taxslayer login They also are included as social security and Medicare wages in boxes 3 and 5. Taxslayer login However, they are not included as wages in box 1. Taxslayer login To determine the taxable and nontaxable amounts, you must complete Part III of Form 8839. Taxslayer login File the form with your return. Taxslayer login De Minimis (Minimal) Benefits If your employer provides you with a product or service and the cost of it is so small that it would be unreasonable for the employer to account for it, the value is not included in your income. Taxslayer login In most cases, the value of benefits such as discounts at company cafeterias, cab fares home when working overtime, and company picnics are not included in your income. Taxslayer login Holiday gifts. Taxslayer login   If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. Taxslayer login However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved. Taxslayer login Educational Assistance You can exclude from your income up to $5,250 of qualified employer-provided educational assistance. Taxslayer login For more information, see Publication 970, Tax Benefits for Education. Taxslayer login Group-Term Life Insurance In most cases, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer (or former employer) is not included in your income. Taxslayer login However, you must include in income the cost of employer-provided insurance that is more than the cost of $50,000 of coverage reduced by any amount you pay toward the purchase of the insurance. Taxslayer login For exceptions, see Entire cost excluded , and Entire cost taxed , later. Taxslayer login If your employer provided more than $50,000 of coverage, the amount included in your income is reported as part of your wages in box 1 of your Form W-2. Taxslayer login Also, it is shown separately in box 12 with code C. Taxslayer login Group-term life insurance. Taxslayer login   This insurance is term life insurance protection (insurance for a fixed period of time) that: Provides a general death benefit, Is provided to a group of employees, Is provided under a policy carried by the employer, and Provides an amount of insurance to each employee based on a formula that prevents individual selection. Taxslayer login Permanent benefits. Taxslayer login   If your group-term life insurance policy includes permanent benefits, such as a paid-up or cash surrender value, you must include in your income, as wages, the cost of the permanent benefits minus the amount you pay for them. Taxslayer login Your employer should be able to tell you the amount to include in your income. Taxslayer login Accidental death benefits. Taxslayer login   Insurance that provides accidental or other death benefits but does not provide general death benefits (travel insurance, for example) is not group-term life insurance. Taxslayer login Former employer. Taxslayer login   If your former employer provided more than $50,000 of group-term life insurance coverage during the year, the amount included in your income is reported as wages in box 1 of Form W-2. Taxslayer login Also, it is shown separately in box 12 with code C. Taxslayer login Box 12 also will show the amount of uncollected social security and Medicare taxes on the excess coverage, with codes M and N. Taxslayer login You must pay these taxes with your income tax return. Taxslayer login Include them on line 60, Form 1040, and follow the instructions for line 60. Taxslayer login For more information, see the Instructions for Form 1040. Taxslayer login Two or more employers. Taxslayer login   Your exclusion for employer-provided group-term life insurance coverage cannot exceed the cost of $50,000 of coverage, whether the insurance is provided by a single employer or multiple employers. Taxslayer login If two or more employers provide insurance coverage that totals more than $50,000, the amounts reported as wages on your Forms W-2 will not be correct. Taxslayer login You must figure how much to include in your income. Taxslayer login Reduce the amount you figure by any amount reported with code C in box 12 of your Forms W-2, add the result to the wages reported in box 1, and report the total on your return. Taxslayer login Figuring the taxable cost. Taxslayer login   Use the following worksheet to figure the amount to include in your income. Taxslayer login     Worksheet 5-1. Taxslayer login Figuring the Cost of Group-Term Life Insurance To Include in Income 1. Taxslayer login Enter the total amount of your insurance coverage from your employer(s) 1. Taxslayer login   2. Taxslayer login Limit on exclusion for employer-provided group-term life insurance coverage 2. Taxslayer login 50,000 3. Taxslayer login Subtract line 2 from line 1 3. Taxslayer login   4. Taxslayer login Divide line 3 by $1,000. Taxslayer login Figure to the nearest tenth 4. Taxslayer login   5. Taxslayer login Go to Table 5-1. Taxslayer login Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Taxslayer login   6. Taxslayer login Multiply line 4 by line 5 6. Taxslayer login   7. Taxslayer login Enter the number of full months of coverage at this cost. Taxslayer login 7. Taxslayer login   8. Taxslayer login Multiply line 6 by line 7 8. Taxslayer login   9. Taxslayer login Enter the premiums you paid per month 9. Taxslayer login       10. Taxslayer login Enter the number of months you paid the premiums 10. Taxslayer login       11. Taxslayer login Multiply line 9 by line 10. Taxslayer login 11. Taxslayer login   12. Taxslayer login Subtract line 11 from line 8. Taxslayer login Include this amount in your income as wages 12. Taxslayer login      Table 5-1. Taxslayer login Cost of $1,000 of Group-Term Life Insurance for One Month Age Cost Under 25 $. Taxslayer login 05 25 through 29 . Taxslayer login 06 30 through 34 . Taxslayer login 08 35 through 39 . Taxslayer login 09 40 through 44 . Taxslayer login 10 45 through 49 . Taxslayer login 15 50 through 54 . Taxslayer login 23 55 through 59 . Taxslayer login 43 60 through 64 . Taxslayer login 66 65 through 69 1. Taxslayer login 27 70 and older 2. Taxslayer login 06 Example. Taxslayer login You are 51 years old and work for employers A and B. Taxslayer login Both employers provide group-term life insurance coverage for you for the entire year. Taxslayer login Your coverage is $35,000 with employer A and $45,000 with employer B. Taxslayer login You pay premiums of $4. Taxslayer login 15 a month under the employer B group plan. Taxslayer login You figure the amount to include in your income as shown in Worksheet 5-1. Taxslayer login Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated, later. Taxslayer login Worksheet 5-1. Taxslayer login Figuring the Cost of Group-Term Life Insurance to Include in Income—Illustrated 1. Taxslayer login Enter the total amount of your insurance coverage from your employer(s) 1. Taxslayer login 80,000 2. Taxslayer login Limit on exclusion for employer-provided group-term life insurance coverage 2. Taxslayer login 50,000 3. Taxslayer login Subtract line 2 from line 1 3. Taxslayer login 30,000 4. Taxslayer login Divide line 3 by $1,000. Taxslayer login Figure to the nearest tenth 4. Taxslayer login 30. Taxslayer login 0 5. Taxslayer login Go to Table 5-1. Taxslayer login Using your age on the last day of the tax year, find your age group in the left column, and enter the cost from the column on the right for your age group 5. Taxslayer login . Taxslayer login 23 6. Taxslayer login Multiply line 4 by line 5 6. Taxslayer login 6. Taxslayer login 90 7. Taxslayer login Enter the number of full months of coverage at this cost. Taxslayer login 7. Taxslayer login 12 8. Taxslayer login Multiply line 6 by line 7 8. Taxslayer login 82. Taxslayer login 80 9. Taxslayer login Enter the premiums you paid per month 9. Taxslayer login 4. Taxslayer login 15     10. Taxslayer login Enter the number of months you paid the premiums 10. Taxslayer login 12     11. Taxslayer login Multiply line 9 by line 10. Taxslayer login 11. Taxslayer login 49. Taxslayer login 80 12. Taxslayer login Subtract line 11 from line 8. Taxslayer login Include this amount in your income as wages 12. Taxslayer login 33. Taxslayer login 00 Entire cost excluded. Taxslayer login   You are not taxed on the cost of group-term life insurance if any of the following circumstances apply. Taxslayer login You are permanently and totally disabled and have ended your employment. Taxslayer login Your employer is the beneficiary of the policy for the entire period the insurance is in force during the tax year. Taxslayer login A charitable organization (defined in chapter 24) to which contributions are deductible is the only beneficiary of the policy for the entire period the insurance is in force during the tax year. Taxslayer login (You are not entitled to a deduction for a charitable contribution for naming a charitable organization as the beneficiary of your policy. Taxslayer login ) The plan existed on January 1, 1984, and You retired before January 2, 1984, and were covered by the plan when you retired, or You reached age 55 before January 2, 1984, and were employed by the employer or its predecessor in 1983. Taxslayer login Entire cost taxed. Taxslayer login   You are taxed on the entire cost of group-term life insurance if either of the following circumstances apply: The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. Taxslayer login You are a key employee and your employer's plan discriminates in favor of key employees. Taxslayer login Retirement Planning Services If your employer has a qualified retirement plan, qualified retirement planning services provided to you (and your spouse) by your employer are not included in your income. Taxslayer login Qualified services include retirement planning advice, information about your employer's retirement plan, and information about how the plan may fit into your overall individual retirement income plan. Taxslayer login You cannot exclude the value of any tax preparation, accounting, legal, or brokerage services provided by your employer. Taxslayer login Transportation If your employer provides you with a qualified transportation fringe benefit, it can be excluded from your income, up to certain limits. Taxslayer login A qualified transportation fringe benefit is: Transportation in a commuter highway vehicle (such as a van) between your home and work place, A transit pass, Qualified parking, or Qualified bicycle commuting reimbursement. Taxslayer login Cash reimbursement by your employer for these expenses under a bona fide reimbursement arrangement is also excludable. Taxslayer login However, cash reimbursement for a transit pass is excludable only if a voucher or similar item that can be exchanged only for a transit pass is not readily available for direct distribution to you. Taxslayer login Exclusion limit. Taxslayer login   The exclusion for commuter vehicle transportation and transit pass fringe benefits cannot be more than $245 a month. Taxslayer login   The exclusion for the qualified parking fringe benefit cannot be more than $245 a month. Taxslayer login   The exclusion for qualified bicycle commuting in a calendar year is $20 multiplied by the number of qualified bicycle commuting months that year. Taxslayer login   If the benefits have a value that is more than these limits, the excess must be included in your income. Taxslayer login You are not entitled to these exclusions if the reimbursements are made under a compensation reduction agreement. Taxslayer login Commuter highway vehicle. Taxslayer login   This is a highway vehicle that seats at least six adults (not including the driver). Taxslayer login At least 80% of the vehicle's mileage must reasonably be expected to be: For transporting employees between their homes and work place, and On trips during which employees occupy at least half of the vehicle's adult seating capacity (not including the driver). Taxslayer login Transit pass. Taxslayer login   This is any pass, token, farecard, voucher, or similar item entitling a person to ride mass transit (whether public or private) free or at a reduced rate or to ride in a commuter highway vehicle operated by a person in the business of transporting persons for compensation. Taxslayer login Qualified parking. Taxslayer login   This is parking provided to an employee at or near the employer's place of business. Taxslayer login It also includes parking provided on or near a location from which the employee commutes to work by mass transit, in a commuter highway vehicle, or by carpool. Taxslayer login It does not include parking at or near the employee's home. Taxslayer login Qualified bicycle commuting. Taxslayer login   This is reimbursement based on the number of qualified bicycle commuting months for the year. Taxslayer login A qualified bicycle commuting month is any month you use the bicycle regularly for a substantial portion of the travel between your home and place of employment and you do not receive any of the other qualified transportation fringe benefits. Taxslayer login The reimbursement can be for expenses you incurred during the year for the purchase of a bicycle and bicycle improvements, repair, and storage. Taxslayer login Retirement Plan Contributions Your employer's contributions to a qualified retirement plan for you are not included in income at the time contributed. Taxslayer login (Your employer can tell you whether your retirement plan is qualified. Taxslayer login ) However, the cost of life insurance coverage included in the plan may have to be included. Taxslayer login See Group-Term Life Insurance , earlier, under Fringe Benefits. Taxslayer login If your employer pays into a nonqualified plan for you, you generally must include the contributions in your income as wages for the tax year in which the contributions are made. Taxslayer login However, if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture (you have a good chance of losing it) at the time of the contribution, you do not have to include the value of your interest in your income until it is transferable or is no longer subject to a substantial risk of forfeiture. Taxslayer login For information on distributions from retirement plans, see Publication 575, Pension and Annuity Income (or Publication 721, Tax Guide to U. Taxslayer login S. Taxslayer login Civil Service Retirement Benefits, if you are a federal employee or retiree). Taxslayer login Elective deferrals. Taxslayer login   If you are covered by certain kinds of retirement plans, you can choose to have part of your compensation contributed by your employer to a retirement fund, rather than have it paid to you. Taxslayer login The amount you set aside (called an elective deferral) is treated as an employer contribution to a qualified plan. Taxslayer login An elective deferral, other than a designated Roth contribution (discussed later), is not included in wages subject to income tax at the time contributed. Taxslayer login However, it is included in wages subject to social security and Medicare taxes. Taxslayer login   Elective deferrals include elective contributions to the following retirement plans. Taxslayer login Cash or deferred arrangements (section 401(k) plans). Taxslayer login The Thrift Savings Plan for federal employees. Taxslayer login Salary reduction simplified employee pension plans (SARSEP). Taxslayer login Savings incentive match plans for employees (SIMPLE plans). Taxslayer login Tax-sheltered annuity plans (403(b) plans). Taxslayer login Section 501(c)(18)(D) plans. Taxslayer login Section 457 plans. Taxslayer login Qualified automatic contribution arrangements. Taxslayer login   Under a qualified automatic contribution arrangement, your employer can treat you as having elected to have a part of your compensation contributed to a section 401(k) plan. Taxslayer login You are to receive written notice of your rights and obligations under the qualified automatic contribution arrangement. Taxslayer login The notice must explain: Your rights to elect not to have elective contributions made, or to have contributions made at a different percentage, and How contributions made will be invested in the absence of any investment decision by you. Taxslayer login   You must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to the contributions. Taxslayer login Overall limit on deferrals. Taxslayer login   For 2013, in most cases, you should not have deferred more than a total of $17,500 of contributions to the plans listed in (1) through (3) and (5) above. Taxslayer login The limit for SIMPLE plans is $12,000. Taxslayer login The limit for section 501(c)(18)(D) plans is the lesser of $7,000 or 25% of your compensation. Taxslayer login The limit for section 457 plans is the lesser of your includible compensation or $17,500. Taxslayer login Amounts deferred under specific plan limits are part of the overall limit on deferrals. Taxslayer login Designated Roth contributions. Taxslayer login   Employers with section 401(k) and section 403(b) plans can create qualified Roth contribution programs so that you may elect to have part or all of your elective deferrals to the plan designated as after-tax Roth contributions. Taxslayer login Designated Roth contributions are treated as elective deferrals, except that they are included in income. Taxslayer login Excess deferrals. Taxslayer login   Your employer or plan administrator should apply the proper annual limit when figuring your plan contributions. Taxslayer login However, you are responsible for monitoring the total you defer to ensure that the deferrals are not more than the overall limit. Taxslayer login   If you set aside more than the limit, the excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution. Taxslayer login See Publication 525 for a discussion of the tax treatment of excess deferrals. Taxslayer login Catch-up contributions. Taxslayer login   You may be allowed catch-up contributions (additional elective deferral) if you are age 50 or older by the end of your tax year. Taxslayer login Stock Options If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option (use it to buy or sell the stock or other property), or when you sell or otherwise dispose of the option. Taxslayer login However, if your option is a statutory stock option, you will not have any income until you sell or exchange your stock. Taxslayer login Your employer can tell you which kind of option you hold. Taxslayer login For more information, see Publication 525. Taxslayer login Restricted Property In most cases, if you receive property for your services, you must include its fair market value in your income in the year you receive the property. Taxslayer login However, if you receive stock or other property that has certain restrictions that affect its value, you do not include the value of the property in your income until it has substantially vested. Taxslayer login (You can choose to include the value of the property in your income in the year it is transferred to you. Taxslayer login ) For more information, see Restricted Property in Publication 525. Taxslayer login Dividends received on restricted stock. Taxslayer login   Dividends you receive on restricted stock are treated as compensation and not as dividend income. Taxslayer login Your employer should include these payments on your Form W-2. Taxslayer login Stock you chose to include in income. Taxslayer login   Dividends you receive on restricted stock you chose to include in your income in the year transferred are treated the same as any other dividends. Taxslayer login Report them on your return as dividends. Taxslayer login For a discussion of dividends, see chapter 8. Taxslayer login    For information on how to treat dividends reported on both your Form W-2 and Form 1099-DIV, see Dividends received on restricted stock in Publication 525. Taxslayer login Special Rules for Certain Employees This section deals with special rules for people in certain types of employment: members of the clergy, members of religious orders, people working for foreign employers, military personnel, and volunteers. Taxslayer login Clergy Generally, if you are a member of the clergy, you must include in your income offerings and fees you receive for marriages, baptisms, funerals, masses, etc. Taxslayer login , in addition to your salary. Taxslayer login If the offering is made to the religious institution, it is not taxable to you. Taxslayer login If you are a member of a religious organization and you give your outside earnings to the religious organization, you still must include the earnings in your income. Taxslayer login However, you may be entitled to a charitable contribution deduction for the amount paid to the organization. Taxslayer login See chapter 24. Taxslayer login Pension. Taxslayer login    A pension or retirement pay for a member of the clergy usually is treated as any other pension or annuity. Taxslayer login It must be reported on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Taxslayer login Housing. Taxslayer login    Special rules for housing apply to members of the clergy. Taxslayer login Under these rules, you do not include in your income the rental value of a home (including utilities) or a designated housing allowance provided to you as part of your pay. Taxslayer login However, the exclusion cannot be more than the reasonable pay for your service. Taxslayer login If you pay for the utilities, you can exclude any allowance designated for utility cost, up to your actual cost. Taxslayer login The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister. Taxslayer login However, you must include the rental value of the home or the housing allowance as earnings from self-employment on Schedule SE (Form 1040) if you are subject to the self-employment tax. Taxslayer login For more information, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Taxslayer login Members of Religious Orders If you are a member of a religious order who has taken a vow of poverty, how you treat earnings that you renounce and turn over to the order depends on whether your services are performed for the order. Taxslayer login Services performed for the order. Taxslayer login   If you are performing the services as an agent of the order in the exercise of duties required by the order, do not include in your income the amounts turned over to the order. Taxslayer login   If your order directs you to perform services for another agency of the supervising church or an associated institution, you are considered to be performing the services as an agent of the order. Taxslayer login Any wages you earn as an agent of an order that you turn over to the order are not included in your income. Taxslayer login Example. Taxslayer login You are a member of a church order and have taken a vow of poverty. Taxslayer login You renounce any claims to your earnings and turn over to the order any salaries or wages you earn. Taxslayer login You are a registered nurse, so your order assigns you to work in a hospital that is an associated institution of the church. Taxslayer login However, you remain under the general direction and control of the order. Taxslayer login You are considered to be an agent of the order and any wages you earn at the hospital that you turn over to your order are not included in your income. Taxslayer login Services performed outside the order. Taxslayer login   If you are directed to work outside the order, your services are not an exercise of duties required by the order unless they meet both of the following requirements: They are the kind of services that are ordinarily the duties of members of the order. Taxslayer login They are part of the duties that you must exercise for, or on behalf of, the religious order as its agent. Taxslayer login If you are an employee of a third party, the services you perform for the third party will not be considered directed or required of you by the order. Taxslayer login Amounts you receive for these services are included in your income, even if you have taken a vow of poverty. Taxslayer login Example. Taxslayer login Mark Brown is a member of a religious order and has taken a vow of poverty. Taxslayer login He renounces all claims to his earnings and turns over his earnings to the order. Taxslayer login Mark is a schoolteacher. Taxslayer login He was instructed by the superiors of the order to get a job with a private tax-exempt school. Taxslayer login Mark became an employee of the school, and, at his request, the school made the salary payments directly to the order. Taxslayer login Because Mark is an employee of the school, he is performing services for the school rather than as an agent of the order. Taxslayer login The wages Mark earns working for the school are included in his income. Taxslayer login Foreign Employer Special rules apply if you work for a foreign employer. Taxslayer login U. Taxslayer login S. Taxslayer login citizen. Taxslayer login   If you are a U. Taxslayer login S. Taxslayer login citizen who works in the United States for a foreign government, an international organization, a foreign embassy, or any foreign employer, you must include your salary in your income. Taxslayer login Social security and Medicare taxes. Taxslayer login   You are exempt from social security and Medicare employee taxes if you are employed in the United States by an international organization or a foreign government. Taxslayer login However, you must pay self-employment tax on your earnings from services performed in the United States, even though you are not self-employed. Taxslayer login This rule also applies if you are an employee of a qualifying wholly owned instrumentality of a foreign government. Taxslayer login Employees of international organizations or foreign governments. Taxslayer login   Your compensation for official services to an international organization is exempt from federal income tax if you are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Taxslayer login   Your compensation for official services to a foreign government is exempt from federal income tax if all of the following are true. Taxslayer login You are not a citizen of the United States or you are a citizen of the Philippines (whether or not you are a citizen of the United States). Taxslayer login Your work is like the work done by employees of the United States in foreign countries. Taxslayer login The foreign government gives an equal exemption to employees of the United States in its country. Taxslayer login Waiver of alien status. Taxslayer login   If you are an alien who works for a foreign government or international organization and you file a waiver under section 247(b) of the Immigration and Nationality Act to keep your immigrant status, different rules may apply. Taxslayer login See Foreign Employer in Publication 525. Taxslayer login Employment abroad. Taxslayer login   For information on the tax treatment of income earned abroad, see Publication 54. Taxslayer login Military Payments you receive as a member of a military service generally are taxed as wages except for retirement pay, which is taxed as a pension. Taxslayer login Allowances generally are not taxed. Taxslayer login For more information on the tax treatment of military allowances and benefits, see Publication 3, Armed Forces' Tax Guide. Taxslayer login Differential wage payments. Taxslayer login   Any payments made to you by an employer during the time you are performing service in the uniformed services are treated as compensation. Taxslayer login These wages are subject to income tax withholding and are reported on a Form W-2. Taxslayer login See the discussion under Miscellaneous Compensation , earlier. Taxslayer login Military retirement pay. Taxslayer login   If your retirement pay is based on age or length of service, it is taxable and must be included in your income as a pension on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Taxslayer login Do not include in your income the amount of any reduction in retirement or retainer pay to provide a survivor annuity for your spouse or children under the Retired Serviceman's Family Protection Plan or the Survivor Benefit Plan. Taxslayer login   For more detailed discussion of survivor annuities, see chapter 10. Taxslayer login Disability. Taxslayer login   If you are retired on disability, see Military and Government Disability Pensions under Sickness and Injury Benefits, later. Taxslayer login Veterans' benefits. Taxslayer login   Do not include in your income any veterans' benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA). Taxslayer login The following amounts paid to veterans or their families are not taxable. Taxslayer login Education, training, and subsistence allowances. Taxslayer login Disability compensation and pension payments for disabilities paid either to veterans or their families. Taxslayer login Grants for homes designed for wheelchair living. Taxslayer login Grants for motor vehicles for veterans who lost their sight or the use of their limbs. Taxslayer login Veterans' insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran's endowment policy paid before death. Taxslayer login Interest on insurance dividends you leave on deposit with the VA. Taxslayer login Benefits under a dependent-care assistance program. Taxslayer login The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001. Taxslayer login Payments made under the compensated work therapy program. Taxslayer login Any bonus payment by a state or political subdivision because of service in a combat zone. Taxslayer login Volunteers The tax treatment of amounts you receive as a volunteer worker for the Peace Corps or similar agency is covered in the following discussions. Taxslayer login Peace Corps. Taxslayer login   Living allowances you receive as a Peace Corps volunteer or volunteer leader for housing, utilities, household supplies, food, and clothing are exempt from tax. Taxslayer login Taxable allowances. Taxslayer login   The following allowances must be included in your income and reported as wages: Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States. Taxslayer login Living allowances designated by the Director of the Peace Corps as basic compensation. Taxslayer login These are allowances for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses. Taxslayer login Leave allowances. Taxslayer login Readjustment allowances or termination payments. Taxslayer login These are considered received by you when credited to your account. Taxslayer login Example. Taxslayer login Gary Carpenter, a Peace Corps volunteer, gets $175 a month as a readjustment allowance during his period of service, to be paid to him in a lump sum at the end of his tour of duty. Taxslayer login Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account. Taxslayer login Volunteers in Service to America (VISTA). Taxslayer login   If you are a VISTA volunteer, you must include meal and lodging allowances paid to you in your income as wages. Taxslayer login National Senior Services Corps programs. Taxslayer login   Do not include in your income amounts you receive for supportive services or reimbursements for out-of-pocket expenses from the following programs. Taxslayer login Retired Senior Volunteer Program (RSVP). Taxslayer login Foster Grandparent Program. Taxslayer login Senior Companion Program. Taxslayer login Service Corps of Retired Executives (SCORE). Taxslayer login   If you receive amounts for supportive services or reimbursements for out-of-pocket expenses from SCORE, do not include these amounts in income. Taxslayer login Volunteer tax counseling. Taxslayer login   Do not include in your income any reimbursements you receive for transportation, meals, and other expenses you have in training for, or actually providing, volunteer federal income tax counseling for the elderly (TCE). Taxslayer login   You can deduct as a charitable contribution your unreimbursed out-of-pocket expenses in taking part in the volunteer income tax assistance (VITA) program. Taxslayer login See chapter 24. Taxslayer login Sickness and Injury Benefits This section discusses sickness and injury benefits including disability pensions, long-term care insurance contracts, workers' compensation, and other benefits. Taxslayer login In most cases, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. Taxslayer login If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. Taxslayer login However, certain payments may not be taxable to you. Taxslayer login Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. Taxslayer login In addition to disability pensions and annuities, you may be receiving other payments for sickness and injury. Taxslayer login Do not report as income any amounts paid to reimburse you for medical expenses you incurred after the plan was established. Taxslayer login Cost paid by you. Taxslayer login   If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. Taxslayer login If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income. Taxslayer login See Reimbursement in a later year in chapter 21. Taxslayer login Cafeteria plans. Taxslayer login   In most cases, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, you are not considered to have paid the premiums and you must include any benefits you receive in your income. Taxslayer login If the amount of the premiums was included in your income, you are considered to have paid the premiums, and any benefits you receive are not taxable. Taxslayer login Disability Pensions If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. Taxslayer login You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A, until you reach minimum retirement age. Taxslayer login Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Taxslayer login You may be entitled to a tax credit if you were permanently and totally disabled when you retired. Taxslayer login For information on this credit and the definition of permanent and total disability, see chapter 33. Taxslayer login Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Taxslayer login Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A. Taxslayer login The rules for reporting pensions are explained in How To Report in chapter 10. Taxslayer login For information on disability payments from a governmental program provided as a substitute for unemployment compensation, see chapter 12. Taxslayer login Retirement and profit-sharing plans. Taxslayer login   If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. Taxslayer login The payments must be reported as a pension or annuity. Taxslayer login For more information on pensions, see chapter 10. Taxslayer login Accrued leave payment. Taxslayer login   If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. Taxslayer login The payment is not a disability payment. Taxslayer login Include it in your income in the tax year you receive it. Taxslayer login Military and Government Disability Pensions Certain military and government disability pensions are not taxable. Taxslayer login Service-connected disability. Taxslayer login   You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following government services. Taxslayer login The armed forces of any country. Taxslayer login The National Oceanic and Atmospheric Administration. Taxslayer login The Public Health Service. Taxslayer login The Foreign Service. Taxslayer login Conditions for exclusion. Taxslayer login   Do not include the disability payments in your income if any of the following conditions apply. Taxslayer login You were entitled to receive a disability payment before September 25, 1975. Taxslayer login You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975. Taxslayer login You receive the disability payments for a combat-related injury. Taxslayer login This is a personal injury or sickness that Results directly from armed conflict, Takes place while you are engaged in extra-hazardous service, Takes place under conditions simulating war, including training exercises such as maneuvers, or Is caused by an instrumentality of war. Taxslayer login You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it. Taxslayer login Your exclusion under this condition is equal to the amount you would be entitled to receive from the VA. Taxslayer login Pension based on years of service. Taxslayer login   If you receive a disability pension based on years of service, in most cases you must include it in your income. Taxslayer login However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. Taxslayer login You must include the rest of your pension in your income. Taxslayer login Retroactive VA determination. Taxslayer login   If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. Taxslayer login You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period. Taxslayer login You must include with each Form 1040X a copy of the official VA Determination letter granting the retroactive benefit. Taxslayer login The letter must show the amount withheld and the effective date of the benefit. Taxslayer login   If you receive a lump-sum disability severance payment and are later awarded VA disability benefits, exclude 100% of the severance benefit from your income. Taxslayer login However, you must include in your income any lump-sum readjustment or other nondisability severance payment you received on release from active duty, even if you are later given a retroactive disability rating by the VA. Taxslayer login Special statute of limitations. Taxslayer login   In most cases, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed. Taxslayer login However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended by a 1-year period beginning on the date of the determination. Taxslayer login This 1-year extended period applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination. Taxslayer login Example. Taxslayer login You retired in 2007 and receive a pension based on your years of service. Taxslayer login On August 1, 2013, you receive a determination of service-connected disability retroactive to 2007. Taxslayer login Generally, you could claim a refund for the taxes paid on your pension for 2010, 2011, and 2012. Taxslayer login However, under the special limitation period, you can also file a claim for 2009 as long as you file the claim by August 1, 2014. Taxslayer login You cannot file a claim for 2007 and 2008 because those tax years began more than 5 years before the determination. Taxslayer login Terrorist attack or military action. Taxslayer login   Do not include in your income disability payments you receive for injuries resulting directly from a terrorist or military action. Taxslayer login Long-Term Care Insurance Contracts Long-term care insurance contracts in most cases are treated as accident and health insurance contracts. Taxslayer login Amounts you receive from them (other than policyholder dividends or premium refunds) in most cases are excludable from income as amounts received for personal injury or sickness. Taxslayer login To claim an exclusion for payments made on a per diem or other periodic basis under a long-term care insurance contract, you must file Form 8853 with your return. Taxslayer login A long-term care insurance contract is an insurance contract that only provides coverage for qualified long-term care services. Taxslayer login The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract may be used only to reduce future premiums or increase future benefits, and In most cases, not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer or the contract makes per diem or other periodic payments without regard to expenses. Taxslayer login Qualified long-term care services. Taxslayer login   Qualified long-term care services are: Necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and Required by a chronically ill individual and provided pursuant to a plan of care as prescribed by a licensed health care practitioner. Taxslayer login Chronically ill individual. Taxslayer login   A chronically ill individual is one who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: An individual who, for at least 90 days, is unable to perform at least two activities of daily living without substantial assistance due to loss of functional capacity. Taxslayer login Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Taxslayer login An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Taxslayer login Limit on exclusion. Taxslayer login   You generally can exclude from gross income up to $320 a day for 2013. Taxslayer login See Limit on exclusion, under Long-Term Care Insurance Contracts, under Sickness and Injury Benefits in Publication 525 for more information. Taxslayer login Workers' Compensation Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. Taxslayer login The exemption also applies to your survivors. Taxslayer login The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Taxslayer login If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Taxslayer login For more information, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Taxslayer login Return to work. Taxslayer login    If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages. Taxslayer login Other Sickness and Injury Benefits In addition to disability pensions and annuities, you may receive other payments for sickness or injury. Taxslayer login Railroad sick pay. Taxslayer login    Payments you receive as sick pay under the Railroad Unemployment Insurance Act are taxable and you must include them in your income. Taxslayer login However, do not include them in your income if they are for an on-the-job injury. Taxslayer login   If you received income because of a disability, see Disability Pensions , earlier. Taxslayer login Federal Employees' Compensation Act (FECA). Taxslayer login   Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. Taxslayer login However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Taxslayer login Report this income on line 7 of Form 1040 or Form 1040A or on line 1 of Form 1040-EZ. Taxslayer login Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages. Taxslayer login    If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits received, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. Taxslayer login For a discussion of the taxability of these benefits, see Social security and equivalent railroad retirement benefits under Other Income, in Publication 525. Taxslayer login    You can deduct the amount you spend to buy back sick leave for an earlier year to be eligible for nontaxable FECA benefits for that period. Taxslayer login It is a miscellaneous deduction subject to the 2%-of-AGI limit on Schedule A (Form 1040). Taxslayer login If you buy back sick leave in the same year you used it, the amount reduces your taxable sick leave pay. Taxslayer login Do not deduct it separately. Taxslayer login Other compensation. Taxslayer login   Many other amounts you receive as compensation for sickness or injury are not taxable. Taxslayer login These include the following amounts. Taxslayer login Compensatory damages you receive for physical injury or physical sickness, whether paid in a lump sum or in periodic payments. Taxslayer login Benefits you receive under an accident or health insurance policy on which either you paid the premiums or your employer paid the premiums but you had to include them in your income. Taxslayer login Disability benefits you receive for loss of income or earning capacity as a result of injuries under a no-fault car insurance policy. Taxslayer login Compensation you receive for permanent loss or loss of use of a part or function of your body, or for your permanent disfigurement. Taxslayer login This compensation must be based only on the injury and not on the period of your absence from work. Taxslayer login These benefits are not taxable even if your employer pays for the accident and health plan that provides these benefits. Taxslayer login Reimbursement for medical care. Taxslayer login    A reimbursement for medical care is generally not taxable. Taxslayer login However, it may reduce your medical expense deduction. Taxslayer login For more information, see chapter 21. Taxslayer login Prev  Up  Next   Home   More Online Publications