SERVICE PROVIDES OVERVIEW OF EXCISE TAXES ON DIESEL FUEL AND AVIATION FUEL.

Notice 88-132

I PURPOSE AND BACKGROUND

The purpose of this notice is to provide interim rules for the administration of the federal excise taxes on diesel and aviation fuel as modified by the Technical and Miscellaneous Revenue Act of 1988, P.L. 100-647 ("1988 Act"). These rules will be reflected in temporary and proposed regulations that the Service intends to issue in 1989.

Section 10502 of the Revenue Act of 1987 (P.L. 100-203, 101 Stat. 1330) ("1987 Act") added section 4091 to the Code, which, beginning on April 1, 1988, moved the point of imposition of the tax on diesel and aviation fuel to the sale by the producer from the sale by the retailer. The 1987 Act also added section 4092, which defines the terms "diesel fuel," "aviation fuel," and "producer," and section 4093, which provides rules concerning exemptions from the tax.

The Service previously has issued the following guidance for the administration of these taxes:

1. Notice 88-30, 198-13 I.R.B. 7, provides basic rules for the registration of certain taxpayers and the procedures for making tax- free sales;

2. Announcement 88-64, 1988-16 I.R.B. 35, makes several corrections to Notice 88-30;

3. Notice 88-44, 1988-16 I.R.B. 26, explains the application of the floor stock taxes on diesel and aviation fuel held on April 1, 1988;

4. Notice 88-55, 1988-19 I.R.B. 25, extends to June 1, 1988, the date by which producers must be registered; and

5. Notice 88-112, 1988-42 I.R.B. 9, extends to February 1, 1989, the date by which heating oil retailers and others must be registered.

The 1988 Act has now made several changes in the diesel and aviation fuel taxes. For sales by producers or importers to off-road users, the 1988 Act generally restores the exemptions that applied before April 1, 1988. It also allows the Service to require registration of, and information reporting by, persons engaging in tax-free or tax-reduced transactions; expands the definition of "producer" to include certain marine retailers; and creates new procedures for the allowance of credits and refunds. In addition, the 1988 Act permits many farmers, fishermen, and other off-road users to file for a special one-time interest-bearing refund of tax paid on diesel fuel.

This notice lists the persons who are now eligible for tax-free or tax-reduced purchases, describes the registration and certification procedures required to effectuate these purchases, defines the terms "marine retailer" and "wholesale distributor," and describes new procedures for claiming the refunds, including the special interest-bearing refund.

The rules of this notice are generally effective for sales after December 31, 1988.

II TAX-FREE AND TAX-REDUCED SALES; DEFINITIONS

A. In General

The 1988 Act amends section 4093(c) of the Code, effective January 1, 1989, to exempt certain sales for "nontaxable uses," as that term is defined in section 6427(1)(2), from tax. Sales of fuel for use in a diesel-powered train or an aircraft may continue to be made at a reduced rate of tax. Sales of fuel for use in a school bus or a qualified local bus, as those terms are defined in section 6427(b), may be made tax free and sales of fuel for use in other specified intercity or local buses may be made at a tax-reduced rate.

Section II of this notice describes the uses for which producers and importers may sell taxable fuel tax free or at a tax-reduced rate after December 31, 1988 (subject to the registration requirements of section III, and the certification procedures of section IV).

B. Heating Oil

(1) In General. Under section 4093(a) of the Code, the tax imposed by section 4091 does not apply to sales of taxable fuel which the Secretary determines is destined for use as heating oil. The term "fuel destined for use as heating oil" is defined in section IV(C)(1)(b) of Notice 88-30.

(2) Sales between heating oil retailers. A registered heating oil retailer, as defined in section IV(C)(l)(a) of Notice 88-30, that buys diesel fuel tax free for resale may make tax-free sales of diesel fuel to, or exchanges with, another registered heating oil retailer if the diesel fuel is for such other retailer's resale as heating oil and such transactions (a) are made only occasionally, and (b) are in the normal course of both retailers' business. Any heating oil retailer that is a party to such a transaction must keep records showing the name, address, and registration number of the other party, date and place of the transfer, and the amount of fuel transferred.

C. Producers

Under section 4093(b) of the Code, taxable fuel may be sold tax free to other producers of taxable fuel. The term "producer," which is defined in section 4092(b) of the Code and section III(B)(1)(a) of Notice 88-30, includes wholesale distributors and certain marine retailers. See section V of this notice for the definition of the term "marine retailer" and a further clarification of the term "wholesale distributor".

D. Nontaxable Uses

Under section 4093(c) of the Code, as amended by the 1988 Act, a producer (including a wholesale distributor) may sell taxable fuel tax free for any use of such fuel that is exempt from the taxes imposed by sections 4041(a)(1) and (c)(1) (other than by reason of the imposition of tax on any sale thereof). Such uses are described below, except for use in buses, which is described in section II(F).

(1) Use of diesel fuel by any person other than as a fuel in a diesel-powered highway vehicle or diesel-powered train. See sections 4041(a)(1) and 4041(d)(2). See section II(E)(1) of this notice for a special rule regarding reduced-rate sales of diesel fuel sold for use in a diesel-powered train. See section 48.4041-8(b)(4) of the Manufacturers and Retailers Excise Tax Regulations for the definition of "diesel-powered highway vehicle."

(2) Use by any person in an off-highway business use under section 4041(b)(1). See section 6421(e) for the definition of "off- highway business use."

(3) Use on a farm for farming purposes under section 4041(f). See section 6420(c) and section 48.6420-4 of the regulations for the definition of "on a farm for farming purposes."

(4) Use as supplies for vessels and aircraft under section 4041(g)(1). See section 4221(d)(3) and section 48.4221-4 of the regulations for the definition of "supplies for vessels and aircraft."

(5) Exclusive use by a state, political subdivision of a state, or the District of Columbia under section 4041(g)(2).

(6) Export or shipment to a possession of the United States under section 4041(g)(3). See section 48.0-2(a)(10) of the regulations for the definition of "exportation" and section 48.0- 2(a)(11) for the definition of "possession of the United States." See section 48.4041-16 for the requirements for proof of exportation.

(7) Exclusive use by a nonprofit educational organization under section 4041(g)(4).

(8) Use by an aircraft museum under section 4041(h)(1). See section 4041(h)(2) for the definition of "aircraft museum."

(9) Use in certain helicopters used in mining, forestry, oil and gas development, or emergency medical transportation under section 4041(1). See sections 4261(e) and (f) for a description of these uses.

E. Tax-Reduced Sales

Under section 4093(c) of the Code, a producer (including a wholesale distributor) may sell taxable fuel at a tax-reduced rate for use in certain trains, aircraft and buses. Such uses are described below, except for use in buses, which is described in section II(F).

(1)(a) Trains. Under section 4093(c), diesel fuel may be sold free of tax at the Highway Trust Fund Financing rate (15 cents a gallon) for use in a diesel-powered train. However, under section 4093(c)(2)(A)(i) the 0.1 cent Leaking Underground Storage Tank Trust Fund ("LUST") tax applies to such sales. See section IV(D)(1) of Notice 88-30 for the definition of "train."

(b) Sales between railroads. A registered railroad that buys diesel fuel at a tax-reduced price may make, without payment of additional tax, sales of diesel fuel to, or exchanges with, another registered railroad, if the diesel fuel is for such other railroad's use as a fuel in a diesel-powered train and such transactions (a) are made only occasionally, and (b) are in the normal course of both railroads' business. Any railroad that is a party to such a transaction must keep records showing the name, address, and registration number of the other party, the date and place of the transfer, and the amount of fuel transferred.

(2)(a) Aircraft. Under section 4093(c), aviation fuel may be sold free of the tax at the Airport and Airway Trust Fund Financing rate (14 cents a gallon) for use in an aircraft not in noncommercial aviation. See section 4041(c) (4) for the definition of "noncommercial aviation."

(b) Special rule for the LUST tax. Regulations will provide that the 0.1 cent LUST tax applies to sales of aviation fuel for use in an aircraft after March 31, 1988, unless such sales are for "supplies for vessels and aircraft" within the meaning of section 4221(d)(3). See section 4093(d).

Thus, aviation fuel sold to a state for use in the state's police helicopter is subject to tax of 0.1 cent a gallon. Aviation fuel sold to a domestic air carrier for use as a fuel in an aircraft in foreign trade is exempt from the LUST tax.

(c) Sales between commercial airlines. A registered commercial airline that buys aviation fuel at a tax-reduced rate may make, without payment of any additional tax, sales of aviation fuel to, or exchanges with, another registered airline, if the aviation fuel is for such other airline's use as a fuel in an aircraft and such transactions (a) are made only occasionally, and (b) are in the normal course of both airlines' business. Any airline that is a party to such a transaction must keep records showing the name, address, and registration number of the other party, the date and place of the transfer, and the amount of fuel transferred.

F. Buses

(1) School Buses. Under sections 4093(c) and 6427(b) of the Code, diesel fuel may be sold tax free to any buyer for use in an automobile bus while engaged in the transportation of students and employees of schools. See section 4221(d)(7)(C) for the definition of "school."

(2) Intracity Buses. Under sections 4093(c)(2) and 6427(b)(2) of the Code, diesel fuel may be sold tax free to any buyer for use in an automobile bus while engaged in furnishing (for compensation) intracity passenger land transportation --

(a) which is available to the general public; and

(b) which is scheduled and along regular routes, but only if such bus is a qualified local bus. The term "qualified local bus" means any local bus which has a seating capacity of at least 20 adults (not including the driver), and which is under contract (or receiving more than a nominal subsidy) from any state or local government to furnish such transportation. See section 48.6427-6 of the regulations for the definition of "contract with a state or local government," "more than a nominal subsidy," and "intracity passenger land transportation."

(3) Other buses. Under section 4093(c)(2) and 6427(b)(1), diesel fuel may be sold at a reduced rate of 3.1 cents a gallon to any buyer for use in an automobile bus that --

(a) does not qualify for tax-free purchases under this section II(F),

(b) is engaged in furnishing (for compensation) passenger land transportation available to the general public, and

(c) is not engaged in furnishing transportation which is not scheduled and not along regular routes unless the seating capacity of such bus is at least 20 adults (not including the driver).

III REGISTRATION REQUIREMENTS

A. Producers and Importers

(1) Producers previously registered. Under section 4101 of the Code and section III(B)(1) of Notice 88-30, producers and importers must be registered with the Service before incurring any tax liability and before buying taxable fuel tax free. These rules will remain in force on and after January 1, 1989. See section IV(B)(2) of Notice 88-30 for registration procedures for diesel fuel producers and importers on Form 637, "Registration for Tax-Free Transactions Under Chapters 31, 32 and 38 of the Internal Revenue Code." See section IV(B)(3) of Notice 88-30 for registration procedures for aviation fuel producers and importers on Form 637A, "Registration for Tax-Free Sales and Purchases of Fuel Used in Aircraft Under Chapter 31 of the Internal Revenue Code."

(2)(a) Marine retailers. A marine retailer who qualifies as a producer under section 4092(b)(1)(B)(iii) of the Code and section V(B) of this notice will be required to be registered with the Service by January 1, 1990. Procedures for application for registration are explained below in section III(A)(2)(c) of this notice.

(b) During 1989, diesel fuel may be sold tax free to a marine retailer who qualifies as a producer if such retailer gives to its seller the following certification, signed under penalties of perjury by a person having authority to bind the retailer:

"Date _______

"The undersigned marine retailer ("Purchaser") hereby certifies that Purchaser qualifies as a producer under the provisions of section 4092(b)(1)(B)(iii) of the Internal Revenue Code and section V(B) of Notice 88-132. Purchaser is thus allowed to buy the diesel fuel to which this certificate relates tax free.

"If Purchaser sells this diesel fuel to a person who is not qualified to buy tax free, Purchaser will pay the tax imposed by section 4091 of the Code on the sale of such fuel.

"Purchaser understands that any fraudulent use of this certification to buy any diesel fuel tax free may subject Purchaser to penalties of perjury which may include fine and imprisonment.

     "E.I.N. ___________________

A marine retailer who is described in section 4092(b)(1) (B)(iii) of the Code and section V(B) of this notice and meets the definition of producer in section 4092(b)(1)(A) (but for not being registered under section 4101) and who uses this certification to buy diesel fuel tax free shall be deemed to be a producer during 1989.

(c) After December 31, 1989, marine retailers will be required to be registered in order to buy diesel fuel tax free and before incurring liability for tax.

Application for registry must be made on Form 637. If the form does not have a check box that applies to the applicant, the applicant should check the box "other (specify)" and write in "marine retailer."

The application must also include the following information:

(i) Total diesel fuel storage capacity.

(ii) Percentage of total gallons sold for water vessel use.

(iii) Type of sales made for other than water vessel use and the percentage sold for each such use.

(iv) Percentage of total gallons used by the applicant.

(v) Type(s) of usage made by the applicant.

In order to enable the District Director to process the application before January 1, 1990, the applicant should submit a completed application no later than August 1, 1989.

B. Heating Oil Retailers

Section III(B)(2)(b) of Notice 88-30, as modified by Notice 88-112, provides that, beginning February 1, 1989, heating oil retailers must be registered with the Service in order to buy taxable fuel tax free as fuel destined for use as heating oil. This rule will remain in effect. See section IV(C) of Notice 88-30 for the procedures for registration and the definition of "heating oil" and "heating oil retailer."

C. Railroads

Section III(B)(2)(b) of Notice 88-30, as modified by Notice 88-112, provides that, beginning February 1, 1989, railroads must be registered with the Service in order to buy diesel fuel at a tax- reduced rate for use as a fuel in a diesel-powered train. This rule will remain in effect. See section IV(D) of Notice 88-30 for the procedures for registration and the definition of "train."

D. Commercial Airlines

Section III(B)(2)(b) of Notice 88-30, as modified by Notice 88-112, provides that, beginning February 1, 1989, commercial airlines must be registered with the Service in order to buy aviation fuel at a tax-reduced rate for use as a fuel in an aircraft not in noncommercial aviation. This rule will remain in effect. See section IV(E) of Notice 88-30 for the procedures for registration and section 4041(c)(4) of the Code for the definition of "noncommercial aviation."

E. Buyers of Fuel for Use Other than as a Motor Fuel

Section IV(F)(1)(a) of Notice 88-30 provides that "use of taxable fuel 'other than as a motor fuel' shall include use as a chemical feedstock, solvent, cleaner, or for explosives." Section III(B)(2)(b) of Notice 88-30, as modified by Notice 88-112, provides that, beginning February 1, 1989, buyers of taxable fuel for use other than as a motor fuel must be registered with the Service in order to buy such fuel tax free. This rule as announced is hereby revoked. Such users will be treated as tax-free users described in section III(F) of this notice and will not now be required to be registered. See section IV of this notice for procedures to be used to effectuate tax-free sales to such users.

F. Tax-free users

Except as provided in section III(G) (relating to buses) and section III(H) (relating to abusive situations), persons who buy taxable fuel for their own nontaxable use will not now be required to register with the Service. Thus, state and local governments, farmers, fishermen and other off-road users will not now be required to be registered with the Service before they can buy taxable fuel tax free.

G. Buses

(1) Registration requirement. Bus operators who qualify to buy diesel fuel tax free or at a tax-reduced rate under section 6427(b) of the Code and section II(F) of this notice will be required to register with the Service by January 1, 1990.

Procedures for application for registration are explained below in section III(G)(3) of this notice.

(2) During 1989. During 1989, diesel fuel may be sold tax free or at a tax-reduced rate (as applicable) if the bus operator complies with the certification procedures of section IV of this notice.

(3) Application. Application for registry must be made on Form 637. If the form does not have a check box that applies to the applicant, the applicant should check the box "other (specify)" and write in "bus operator." The application must also include the following information:

(a) A brief statement reflecting the type(s) of bus operation and use.

(b) Total diesel fuel storage capacity.

(c) Percentage of average annual gallons used for qualified bus use.

(d) Total number of buses operated by the applicant.

(e) Average total miles and average miles per bus during a year.

(f) A description of the contract with the state or local government, if the applicant operates qualified local buses.

In order to enable the District Director to process the application before January 1, 1990, the applicant should submit a completed application no later than August 1, 1989.

H. Users Who Abuse Tax-Free Purchases

(1) Standards for registration. The District Director may require the registration and bonding of any person who --

(a) buys taxable fuel tax free under he certification procedures of section IV of this notice, and

(b) consistently or intentionally abuses such tax-free purchases, as determined by the District Director.

For example, X, a forest products company, regularly buys 1,000 gallons of diesel fuel tax free for use in its milling machinery. The District Director determines that X actually uses most of the fuel as fuel in its trucks used on the highway. The District Director may require X to register and post bond before it may buy diesel fuel tax free in the future. In lieu of requiring X to register and post bond, the District Director may deny X the right to buy taxable fuel tax free in the future. In either event, X would be liable for tax on diesel fuel it bought tax free and used for a taxable purpose and X may be subject to penalties of perjury for any fraudulent use of its certification.

(2) Amount of Bond. If a bond is required under the provisions of this section III(H) of this notice, the amount of the bond will be no greater than $500,000.

The bond shall be filed on Form 928, modified to apply to the tax imposed by section 4091. The surety on the bond must be a company approved for inclusion on the Department of Treasury Circular 570 as an acceptable surety or reinsurer on federal bonds. The District Director may relieve the buyer from the duty to register and release the buyer from the bond if the buyer satisfies the District Director that the buyer will no longer abuse its right to buy taxable fuel tax free.

IV HOW TO MAKE TAX-FREE AND TAX-REDUCED SALES

A. General requirements

Producers (including wholesale distributors) and importers may make tax-free or tax-reduced sales of taxable fuel to buyers for the uses described in section II of this notice if --

(1) The producer or importer in the normal course of its business maintains on file copies of records of sales of taxable fuel showing the name of the buyer, the date of sale, and type and volume of product sold;

(2) The producer or importer obtains from the buyer and keeps on file a certification, in the form provided below and signed under penalties of perjury by a person having authority to bind the buyer, that states the name, address, employer identification number of the buyer, the title of the person signing the certification, and the basis for claiming an exemption, or partial exemption, from the tax imposed under section 4091;

(3) The producer or importer's record of the sale contains a written statement clearly indicating that the entire quantity of the fuel purchased is purchased for the nontaxable use specified in the buyer's certification; and

(4) The District Director has not determined that the purchaser may not make tax-free purchases of taxable fuel under the rules of the last paragraph of section III(B)(2)(a)(ii) of Notice 88-30.

B. Exemption Certificate

The following form of exemption certificate is acceptable and must be adhered to in substance.

"Date ____

"The undersigned purchaser ("Purchaser") hereby certifies that --

(check applicable type of certificate)

____ The diesel or aviation fuel specified in the accompanying order, or on the reverse side hereof, (or)

____ all fuel ordered by the Purchaser for a period beginning on (Date) ____ and ending ____ (period not to exceed 12 calendar months)

will be used for the following tax-exempt or tax-reduced purposes:

(Check one:)

____ (1) Use as a fuel in a diesel-powered train.

____ (2) Use as a fuel in an aircraft in commercial aviation.

____ (3) Use as a fuel in a school bus or qualified local bus.

____ (4) Use as a fuel in a local or intercity bus (other than a school bus or a qualified local bus).

____ (5) Use as a fuel in a "nontaxable use" as that term is defined in section 6427(1)(2) of the Internal Revenue Code. (Such uses include off-highway business uses and use on a farm for farming purposes.)

"If Purchaser is a railroad or a commercial airline (after January 31, 1989), or Purchaser has been notified by the District Director of Internal Revenue that Purchaser must register, Purchaser's Certificate of Registry number is ____.

"If this taxable fuel is resold or used for a purpose other than as stated in this certificate, then Purchaser may be subject to tax.

"Purchaser will be prepared to establish by satisfactory evidence the purpose for which Purchaser used the product bought under this certification.

"Purchaser understands that any fraudulent use of this certification to buy any taxable fuel free of tax or at a tax-reduced rate may subject Purchaser to penalties of perjury, which may include fine or imprisonment.

     "E.I.N. ___________________

C. Dual Uses

Buyers who use taxable fuel for both taxable and nontaxable purposes may buy tax free or at a tax-reduced rate only the amount of fuel that they reasonably project, at the time of purchase, to use in a nontaxable use. The following examples illustrate this rule:

Example 1. A, a farmer, has two bulk storage tanks on A's farm. Tank x is used exclusively to store fuel that is used exclusively on A's farm for farming purposes. Tank y is used to store fuel used in A's highway vehicles used on the highway. A may buy diesel fuel tax free that will be delivered into tank x but may not buy fuel tax free that will be delivered into tank y.

Example 2. B, a construction company, stores all of its diesel fuel in one tank. Although B regularly uses a portion of the fuel it buys in an off-highway business use, it cannot reasonably project, at the time of purchase, how much of the fuel it buys will be so used. B may not buy tax free any of the fuel that is delivered into its bulk storage tank.

Example 3. C, a mining company, buys 1,000 gallons of diesel fuel for delivery into its one bulk storage tank. At the time of purchase, C reasonably projects, based on past usage and expected needs, that it will use at least 700 gallons in an off-highway business use and 300 gallons in a diesel-powered highway vehicle. C may buy 700 gallons of diesel fuel tax free. If, however, C in fact uses 400, rather than 300, of the 1000 gallons of diesel fuel for a taxable purpose, C must file a return and pay tax on the additional 100 gallons it so used. A pattern of either (1) overstating projected tax-free needs or (2) failing to pay tax on the additional gallons used for a taxable purpose will be considered to be an abuse of tax- free purchases under section III(H) of this notice.

V DEFINITION OF MARINE RETAILER AND WHOLESALE DISTRIBUTOR

A. In general

Section 4092(b)(1) of the Code, as added by the 1987 Act, defines the term "producer" as a refiner, compounder, blender, wholesale distributor, or dealer selling any taxable fuel exclusively to producers of such taxable fuel and who elects to register under section 4101.

The 1988 Act adds section 4092(b)(1)(iii) to the Code, effective January 1, 1989, to expand this definition to include certain marine retailers.

B. Marine Retailers

For purposes of the definition of the term "producer," the regulations will provide that the term "marine retailer" includes any retailer who -

(1) sells diesel fuel exclusively to purchasers as supplies for commercial and noncommercial vessels; or

(2) sells diesel fuel, and

(a) at least 98 percent of such sales, by volume, are to purchasers as supplies for commercial and noncommercial vessels, and

(b) not more than one percent of such sales, by volume, is to buyers for taxable uses.

C. Wholesale Distributor

(1) Definition. For purposes of the definition of the term "producer," the regulations will provide that the term "wholesale distributor" includes any person who -

(a) Holds itself out to the public as being engaged in the trade or business of selling taxable fuel to producers of taxable fuel (including wholesale distributors), to retailers, or to users of taxable fuel who purchase in bulk quantities and accept delivery into bulk storage tanks; and

(b) Actually makes more than casual sales of taxable fuel to the producers, retailers, or users described in paragraph (a).

(2) Special rules. For purposes of the definition of wholesale distributor, the regulations will further provide that -

(a) The term "bulk quantities" means 250 gallons or more and the term "bulk storage tank" means a container that holds at least 250 gallons that is not the fuel supply tank of an aircraft, train, vehicle, or vessel;

(b) The term "more than casual sales" means at least 30 percent of the average number of sales of taxable fuel by the applicant during the preceding 12 months (or some other period as determined by the District Director).

(c) A farmers' cooperative described in section 521 of the Code will not be denied registration as a wholesale distributor merely because it sells taxable fuel only to its members.

(3) Examples. The following examples illustrate these rules:

EXAMPLE 1. A operates a truck stop where diesel fuel is sold at retail. During a representative period (as determined by the District Director), A made 1,000 sales of diesel fuel, 200 of which were to construction companies who filled their 5,000 gallon tank trailers. A does not qualify as a wholesale distributor because it does not make more than casual sales of diesel fuel to users who accept delivery into bulk storage tanks.

EXAMPLE 2. B operates a truck stop where diesel fuel is sold at retail. B has advertised that it will also make bulk sales of diesel fuel. During a representative period (as determined by the District Director), B made 1,000 sales of diesel fuel, 300 of which were to construction companies who filled their 5,000 gallon tank trailers. B qualifies as a wholesale distributor.

EXAMPLE 3. C sells diesel fuel at an unattended location through a "cardlock" system. Ninety percent of C's customers are farmers who buy fuel that is loaded into 250-1000 gallon storage tanks mounted on the back of their trucks. C qualifies as a wholesale distributor.

VI REFUNDS WITH INTEREST

A. In General

Section 3001(c)(2) of the 1988 Act allows a special one-time interest-bearing refund for certain nontaxable uses of taxable fuel. Eligibility for this refund is based on (1) the type of use to which the fuel was put, (2) the status of the user's seller, (3) the time period during which the fuel was bought and used, and (4) the amount of tax paid.

B. Eligibility Standards

Taxable fuel is eligible for the interest-bearing refund if --

(1) It was bought tax paid from a producer (including a wholesale distributor) or importer between April 1, 1988, and December 31, 1988,

(2) It was used by the claimant of the refund in a nontaxable use described in section 6427(1)(2) of the Code and section II(D) of this notice (including, for example, use on a farm for farming purposes),

(3) It was used before the claim was filed but no later than June 30, 1989,

(4) It is fuel on which a credit against other taxes has not been, and will not be, taken,

(5) It was not used by an agency of the United States,

(6) No other claim for an interest-bearing refund has been filed, and

(7) One of the following additional requirements is met:

(a) It was used by a calendar year taxpayer between April 1, 1988, and June 30, 1988, and less than $1,000 excise tax was paid,

(b) It was used by a calendar year taxpayer between July 1, 1988, and September 30, 1988, and less than $1,000 excise tax was paid,

(c) It was used by a calendar year taxpayer after September 30, 1988, and any amount of excise tax was paid,

(d) It was used by a fiscal year taxpayer during any of its first three quarters and less than $1,000 excise tax was paid during such quarter, or

(e) It was used by a fiscal year taxpayer during the last quarter of its taxable year and any amount of excise tax was paid during such quarter.

C. Examples

The following examples illustrate the rules of section VI(B) of this notice.

EXAMPLE 1. A a calendar year taxpayer, bought diesel fuel from a producer in April 1988 and used it before June 30, 1988, in a nontaxable use. Tax of $900 was paid on this fuel. A is eligible for the interest-bearing refund of $900.

EXAMPLE 2. B, a calendar year taxpayer, bought diesel fuel from a producer in April 1988 and used it in a nontaxable use before June 30, 1988. Tax of $5,000 was paid on this fuel and B filed a timely quarterly claim for this amount. B is not eligible for the interest- bearing refund.

EXAMPLE 3. C, a calendar year taxpayer, bought diesel fuel from a producer in April 1988 and used it in a nontaxable use before June 30, 1988. Tax of $900 was paid on that fuel and C used the $900 as a credit against its next estimated income tax payment. C is not eligible for the interest-bearing refund.

EXAMPLE 4. D, a calendar year taxpayer, bought diesel fuel from a producer in April 1988 and used it in a nontaxable use before June 30, 1988. Tax of $5,000 was paid on this fuel. However, D did not file a timely quarterly claim for a refund and D did not use the amount as a credit against any other tax. D is not eligible for the interest-bearing refund. See section 3001(c)(2)(A)(iii) of the 1988 Act. However, D is eligible for a credit of $5,000 (without interest) on its income tax return.

EXAMPLE 5. E, a calendar year taxpayer, bought diesel fuel in July 1988 both from a producer and from a retailer that is not a producer. All of the fuel was used by E in a nontaxable use before September 30, 1988. Tax of $700 was paid on E's purchases from the producer and $200 tax was paid on E's purchases from the retailer. E is eligible for an interest-bearing refund of $700. A credit for $200 (without interest) may be taken on E's income tax return.

EXAMPLE 6. F, a calendar year taxpayer, bought diesel fuel from a producer in June 1988 and used it in a nontaxable use during July 1988. Tax of $5,000 was paid on this fuel and F has not filed a claim for a refund of this amount. F is not eligible for the interest- bearing refund. However, F is eligible for a credit of $5,000 (without interest) on its income tax return.

EXAMPLE 7. G, a calendar year taxpayer, bought diesel fuel from a producer in October 1988 and used it in a nontaxable use during the same month. Tax of $2,000 was paid on this fuel. G is eligible for the interest-bearing refund of $2,000.

EXAMPLE 8. H, a calendar year taxpayer, bought diesel fuel from a producer in December 1988 and used it in a nontaxable use in January 1989. Tax of $500 was paid on this fuel. H filed a claim for the special one-time refund on February 1, 1989. H is eligible for the interest-bearing refund of $500.

EXAMPLE 9. I is a fiscal year taxpayer whose taxable year begins on August 1. I bought diesel fuel from a producer on April 3, 1988, and used it in a nontaxable use during its fourth quarter, i.e., before August 1, 1988. Tax of $5,000 was paid. I is eligible for the interest-bearing refund of $5,000.

EXAMPLE 10. J is a fiscal year taxpayer whose taxable year begins on August 1. J bought diesel fuel from a producer on October 3, 1988, and used it during its third quarter, i.e., before April 1, 1989. Tax of $5,000 was paid on this fuel. J is not eligible for the interest-bearing refund but may file a claim for a noninterest- bearing refund under section 6427(i).

D. When to File the Claim

Only one claim for an interest-bearing refund may be filed. Thus, claims should not be filed until after December 31, 1988.

Claims must be filed after the fuel to which they relate has been used, but in no case may any claim be filed after June 30, 1989.

E. How to File the Claim

(1) Form 843. Claims for the interest-bearing refund must be filed on Form 843, Claim. This form may be obtained either from a local I.R.S. office or by calling 1-800-424-FORM (3676).

(2) Specific Instructions. All applicable blocks on Form 843 should be completed. In addition, the following instructions apply:

(a) The claimant must write "ONE TIME CLAIM" in red beside the title of Form 843 and on the envelope sent to the I.R.S.

(b) In block 5, the "From" date is the first date on which the claimant bought taxable fuel that is eligible for this refund (but no earlier than April 1, 1988) and the "to" date is the last date on which the claimant bought taxable fuel that is eligible for this refund (but no later than December 31, 1988).

(c) In block 6, the claimant should state the total amount of tax paid that is eligible for the refund. The I.R.S. will add the correct amount of interest to this amount and include it in the check to the claimant.

(d) Blocks 7, 8 and 9 should be left blank.

(e) In block 11 -

(i) The claimant must make the following declaration "All of the fuel to which this claim relates was bought from a producer (including a wholesale distributor) or an importer and I have the name and address of such seller in my records."

(ii) The claimant must then list, by month purchased, the number of gallons of taxable fuel that is eligible for the interest-bearing refund multiplied by the appropriate rate of tax. The sum of the amount of tax here must be the same amount written in block 6.

For example:

           April: 1000 gal. x $.151 = $151

(f) Form 843 must be signed and dated and mailed to the I.R.S. Service Center where the claimant will normally file tax returns during 1989.

F. Interest.

The amount of interest payable under this section VI of this notice shall be determined under section 6611 of the Code except that the date of overpayment with respect to fuel bought during any month shall be treated as being the first day of the succeeding month.

VII QUARTERLY REFUND CLAIMS

A. Quarter ending September 30, 1988

Under H.R. Conf. Rep. No. 1104, 100th Cong., 2nd Sess., (Vol. 2) 22, exempt users of diesel and aviation fuel for the quarter ending September 30, 1988, who are eligible for a refund of tax of $1,000 or more paid on these fuels have until June 30, 1989, to file a claim for this refund. This change applies to this quarter only. Prior law would have required the claim to be filed by December 31, 1988.

B. Quarters ending after December 31, 1988

Exempt users of diesel and aviation fuel bought and used tax paid after 1989 may claim a quarterly refund of such tax if -

(1) such fuel was used in a nontaxable use described in section 6427(1) of the Code and section II(D) of this Notice,

(2) such use occurred within the first three quarters of the user's taxable year,

(3) at least $750 is payable with respect to fuel used during any such quarter or any prior quarter, or quarters, during the taxable year,

(4) the claim is filed during the first quarter following the last quarter included in the claim, and

(5) no other claim has been filed for such refund.

The following example illustrates this rule:

EXAMPLE. During the first three months of 1989, A, a calendar year taxpayer, bought diesel fuel on which $500 tax was paid. A used the fuel in an off-highway business use. A is not eligible to file a quarterly claim for a refund during the second quarter of 1989 (April, May and June) because A was not eligible for a refund of at least $750.

Then, in the second quarter of 1989, A bought diesel fuel on which $300 tax was paid and used such fuel in an off-highway business use. A may file a quarterly refund claim during the third quarter of 1989 (July, August, September) for $800 because the total refund for the first two quarters is more than $750.

VIII INFORMATION REPORTING AND RECORDKEEPING

A. Information Reporting

Section 4093(c)(4) of the Code, as added by the 1988 Act, provides for all producers and importers selling taxable fuel tax free or at a tax-reduced rate to submit to the Service a list of the name and address of, and volume of sales to, each exempt user (other than a heating oil user), at such time and in such form as regulations prescribe. This same information is to be reported by the seller to each exempt user (other than a heating oil user) with respect to that person's purchases. Similarly, exempt users (other than heating oil users) allowed to buy taxable fuel tax-free or at a tax-reduced rate are to submit related information.

The information reporting described in the preceding paragraph will not be required in 1989. The Service will issue instructions in 1989 for the information reporting that will be required in 1990.

B. Recordkeeping

(1) Producers and importers. Section VII(B) of Notice 88-30 requires producers and importers to maintain adequate records of all taxable fuel they buy, sell or use. These records include (1) the volume of taxable fuel, (2) the type(s) of taxable fuel, (3) the date of the transaction, (4) the name and status of each person involved, and (5) whether the sale or use is taxable. These records must continue to be maintained for transactions after December 31, 1988. In addition, producers must also retain the registration number, if any, of persons to whom they sell taxable fuel tax free or at a tax- reduced price.

To facilitate the preparation of information returns that may be required in 1990, producers may wish to maintain a separate listing of users (other than heating oil users) to whom they sell taxable fuel tax free or at a tax-reduced price.

(2) Exempt Users. Persons who buy taxable fuel tax free or at a tax-reduced price for their own use (other than use as heating oil) must keep records showing (1) the amount of fuel used in a train, airplane, bus or nontaxable use described in section II(D) of this notice, (2) the date of the purchase of the fuel so used, and (3) the name, address, and registration number of the seller of such fuel.

ADMINISTRATIVE PRONOUNCEMENT

This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the Income Tax Regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure.

The collection of information contained in this notice has been reviewed and approved by the Office of Management and Budget in accordance with the requirements of the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1043. The estimated average burden associated with the collection of information in this notice is 10 minutes per respondent.

These estimates are an approximation of the average time expected to be necessary for a collection of information. They are based on such information as is available to the Internal Revenue Service. Individual respondents/recordkeepers may require greater or less time, depending on their particular circumstances.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Internal Revenue Service, Washington, D.C. 20224, Attention: IRS Reports Clearance Officer TR:FP; and the Office of Management and Budget, Paperwork Reduction Project, Washington, D.C. 20503.

DRAFTING INFORMATION

The principal author of this notice is Frank Boland of Passthroughs and Special Industries of Chief Counsel. For further information, contact Mr. Boland on (202) 566-4077 (not a toll-free call).

The Service welcomes written comments on the rules announced in this notice. Such comments should be addressed to: Internal Revenue Service, Attn: CC:P&SI: Branch 8, 1111 Constitution Ave., N.W., Washington, DC 20224.