In 2005, Congress enacted the Safe, Accountable, Flexible and Efficient Transportation Equity Act of 2005, also known as the Highway Bill (P.L. 109-59).  Among other things, this legislation provides for a $0.50 per gallon tax credit for companies that use propane-powered forklifts, and other similar type of equipment such as airport tugs.  Although fuel used in forklifts is normally exempt at the time of purchase from the federal excise tax on propane, they are still eligible for the full $0.50 per gallon credit for business use.  Also important to keep in mind, this credit is a refundable tax credit, so it is available as a cash refund even if the business is in a loss situation and does not have taxable income.


Industries that may be impacted the most by this alternative fuel tax credit are warehousing and manufacturing operations that use many forklifts in their operations; often times with multiple shifts using them for an entire day.  This alternative fuel tax credit is claimed on the taxpayer’s federal income tax return each year while the alternative fuel tax credit is in effect. 


What is the registration process?


There are various steps that a forklift operator must take before they can receive the alternative fuel tax credit.  First, the forklift operator needs to file IRS Form 637 in order to be registered as an “Alternative Fueler”, the IRS will then issue the forklift operator a registration number identifying the forklift operator as an Alternative Fueler.  IRS Notice 2006-92 provides guidance on the excise tax credit, how to register and how to claim the tax credit.


How do I claim the AFT Credit?


To claim the alternative fuel tax credit, taxpayers use form 4136, Credit for Federal Tax Paid on Fuels, and include this form with their income tax return for the tax year during which the fuel was used.  However, before a claim for alternative fuel tax credit can be made, the registration application for an Alternative Fueler must be approved by the IRS; it is not sufficient to have filed an application.  A claimant that is not properly registered as an Alternative Fueler when its income tax return is filed may, upon being properly registered, file an amended return as long as the amended income tax return is filed within the statute of limitations for refunds.  Generally the statute of limitations for income tax refunds is three years from the time the original income tax return was filed.


Other Considerations


We urge propane-powered forklift operators to consult their own tax advisors regarding claims for alternative fuel tax credits.  And, other matters that your tax advisor should consider are: 1) Do the reportable transactions rules apply to the AFT Credit, and 2) Is the AFT Credit includible in income?


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