Over the past 50 years, we have dealt with several IRS audits involving the fuel tax credit claimed by our school bus company clients. Here are frequently asked questions we hear from School Bus Company owners:
BELOW ARE FREQUENTLY ASKED QUESTIONS WE HEAR FROM SCHOOL BUS COMPANY OWNERS:
Q: What fuel and what vehicles qualify for the fuel tax credit?
A: Gasoline, diesel, and alternative fuels used in school buses and qualified local buses qualify.
Q: What is the definition of a school bus and a qualified local bus for fuel tax credit purposes?
A: The Federal statute does not give a specific definition as to what a school bus is. However, the IRS does not allow the fuel credit for fuel used in any vehicle used to transport school students; it specifically says the credit is available “in a bus transporting students and employees of schools (school buses).” This means the school bus fuel tax credit is not available for traditional passenger vehicles, such as minivans or other automobiles registered as a van or private cars. These smaller vehicles must be modified by installing accordion doors and other safety modifications to qualify for the fuel tax credit.
A qualified local bus meets all of the following requirements:
- Engaged in furnishing for compensation transportation that is available to the general public
- Operates along regularly scheduled routes
- It has a seating capacity of at least 20 adults (excluding the driver)
- Is under contract with (or is receiving more than a nominal subsidy from) any state or local government to furnish the transportation
Q: What is the difference between a qualified local bus and a school bus?
A: A school bus is generally the traditional “yellow bus,” which has the distinctive accordion doors and school bus safety features you would recognize, such as stop arms and flashing lights. Another distinct difference is that a qualified local bus must provide available transportation to the general public.
Q: What information is needed to claim the credit?
A: To claim the fuel tax credit, you will need to know the number of gasoline gallons and the number of undyed diesel gallons used in your school buses and any local buses.
Q: Why do the gallons and type of fuel matter?
A: The credit is calculated based on the number of gallons used a year. However, the fuel and type of bus determine the rate used to calculate the credit. For example, in 2021, the rate for gasoline used in a school bus was $0.183, while the rate for diesel used in local buses was $0.17.
Q: How do I claim the fuel tax credit? What is the deadline for filing a claim?
A: Generally, you can claim the credit on Form 4136, which is filed annually along with your company’s business income tax return. However, Form 8849 can be used any time to request a refund of excise taxes paid.
Q: Do you need a vehicle fueling log and/or receipts to obtain credit?
A: As we have gone through audits over the years, the IRS has typically asked for a listing of the company vehicles, the fuel type, and the seating capacity of each. The IRS may also ask for fuel cards or logs by vehicle if there are vehicles other than school buses involved.
The audit process typically includes providing fuel invoices from bulk deliveries or receipts for fuel purchased at the pump to demonstrate that federal fuel taxes have been paid. The audit will typically require you to reconcile the gallons claimed as a fuel tax credit against the total gallons purchased.
Q: WHAT IF I HAVE MY OWN TANK AND SELL FUEL?
A: Vendors that sell diesel to local buses must register for excise tax activities using Form 637. After your registration has been approved, you will need to file a quarterly federal excise tax return using Form 720.
Questions?
Transportation has been a key practice area of Smith Schafer’s for more than 50 years. We have qualified professionals to assist you with identifying and claiming these credits. For more information on tax strategies that may benefit your business, contact the Smith Schafer Transportation Team. We look forward to speaking with you soon.
