Claim Credits on Undyed Kerosene Sales

IRS Form 8849 Schedule 1

What Is the Sales by Registered Ultimate Vendors of Undyed Kerosene Credit?

  • Registered ultimate vendors' sales of undyed kerosene (Schedule C - Line 8) credit is for authorized vendors to reclaim the federal excise tax on undyed kerosene that was sold at a tax-paid rate but was used in eligible non-taxable or exempt purposes. It is a separate credit from the aviation kerosene tax credit that applies under different IRS rules.
  • Fuel Type: Only undyed kerosene that is liable to federal excise tax is covered by this credit; however, kerosene used in aviation is excluded, as it is covered by other provisions, e.g., aviation kerosene tax credit.
  • Eligible Claimant: Must be a registered ultimate vendor recognized by the IRS that sells the fuel to eligible buyers for approved non-taxable or exempt uses.
  • One Claim Per Gallon: The federal excise tax credit can only be used once for each gallon of undyed kerosene. No other person can claim the credit for the same gallon.
  • Submitting Credit Claims: Excise tax credits are claimed on Schedule C (Form 720), Line 8, in accordance with the IRS Form 720 instructions.

Who Is an Eligible Vendor for Kerosene Credit Claims?

An eligible claimant is a registered ultimate vendor of undyed kerosene who sells fuel to qualified buyers for the use of non-taxable or exempt end uses as per the federal excise tax rules, and not for aviation activities that come under the aviation kerosene tax credit category.

Eligibility Criteria

Ultimate Vendor Registration with IRS

  • The vendor must be properly registered with the IRS as an ultimate vendor of kerosene (generally done via Form 637-level processes). Claims made by non-ultimate vendors will be disallowed.

Sale of Tax-Paid Undyed Kerosene

  • The kerosene must be undyed and subject to federal excise tax. The sale price could have either included or excluded the tax, depending on the Schedule C use line. The product must not be dyed and must be distinct from the aviation kerosene tax credit method.

Approved Fuel Usage

  • The kerosene must be used for non-taxable or exempt purposes defined in the IRS type-of-use table (e.g., state/local government, certain intercity or local bus uses, and other specified exempt applications).
  • Heating or non-transport uses can only be considered for credit if they are one of the categories listed by the IRS; standard heating or non-transport uses are generally not exempt.

Buyer Certification / Waiver Requirement

Vendors must obtain and retain either:

  • A Model Certificate P that shows the buyer's usage qualifies for an exempt-use credit, or
  • A valid Model Waiver N (or other similar waivers) has been provided to the vendor, allowing them to claim the credit for the buyer.

Proper Reporting of Schedule C (Form 720)

  • Tax credit claim has to be reported in the Schedule C (Form 720), Line 8, with the correct selection of the type-of-use box, volume in gallons, and credit rate.
  • The vendor also needs to submit proper registration information and make sure the same gallon is not being reported more than once.

Vendor Kerosene Credit Rates

Use Category Credit Rate Eligible Buyers/Use Vendor Requirement
State/Local Government $0.243 per gallon State or local government entities using kerosene for IRS-approved non-taxable purposes Proof of exempt governmental use and valid registration
Qualified Buyers with Waiver (e.g., certain intercity or local bus uses) $0.17 per gallon Approved end users whose use qualifies for an exempt-use credit, typically with a waiver Valid Model Waiver N (or approved waiver) required

Claim Amount and Claim Period

Claim Period

  • Generally, the credit is claimed quarterly through Form 720 (Schedule C). The kerosene must have been sold for at least one week during that quarter (a regular sales pattern would easily meet this requirement).

Minimum Claim Rule

  • For Schedule C (Form 720), the total of the claims on Lines 8 and 9 must add up to $100 or more; the amounts from Lines 8 and 9 can be combined to meet the minimum.

  • The different minimum-threshold rules apply only to Form 8849 refund filings; these thresholds do not eliminate the $100 combined-line requirement for Schedule C credits.

Steps to File Your Vendor Kerosene Credit

STEP 1

Confirm Vendor Registration

  • Check if the business is registered with the IRS as a vendor of undyed kerosene.

  • Verify if all buyer certificates (Model Certificate P) and Model Waiver N / similar waivers for the applicable uses are valid and up-to-date.

STEP 2

Gather Sales Data

Keep detailed and accurate records of:

  • Gallons of undyed kerosene sold for qualifying uses

  • Buyer classification (e.g., local government, qualifying bus operator, etc.)

  • Sale dates, invoice numbers, and values for audit-proof

STEP 3

Calculate Credit Amount

  • Credit = Gallons * $0.243 per gallon

  • For Line 8b-type waiver-based uses (e.g., certain intercity or local bus uses),

  • Credit = Gallons * $0.17 per gallon

  • Many automated systems calculate these amounts on the spot, making sure they are in line with IRS rules rather than aviation kerosene tax credit calculations.

STEP 4

Complete Schedule C (Form 720)

Report the gallons and credit amounts under the appropriate Line 8 box(es), choosing the correct type-of-use line based on the instructions for IRS Form 720.

  • No gallon is claimed more than once (single-claim rule)

  • The right rate (e.g., $0.243 or $0.17) is used for each type of use

  • The total amount on Lines 8 and 9 is at least $100

STEP 5

Submit Electronically

  • Submit your claim through the IRS Modernized e-File (MeF) system by using an IRS-authorized e-filer.

  • Get a confirmation electronically after the submission has been successful.

Advantages of E-Filing Vendor Kerosene Claims

Faster Processing

  • Electronic submission cuts down the processing time of the IRS significantly as compared to paper submissions.

Improved Accuracy

The use of automation for calculations means that errors are prevented in:

  • Line 8 choices and reporting

  • Gallon to rate conversions and summations

Secure Submission

  • Transmissions are conducted by encrypted systems authorized by the IRS, which ensure that the information on fuel tax remains confidential.

Centralized Record Management

All filings, invoices, and certifications are maintained in electronic files, allowing:

  • Accessibility during IRS inquiries or audits with minimal effort

  • Conformity with audit standards with organized records

Common Mistakes to Avoid

Reclaiming fuel that has already been claimed

Submitting waiver-based claims without possessing a valid Model Waiver N

Mixing up undyed kerosene with dyed kerosene

Misapplication of the Form 8849 thresholds to Schedule C

Failure to keep records for a minimum period of 4 years

Start Your Vendor Kerosene Credit Claim Today

File your Schedule C (Form 720) Line 8 entries accurately and recover eligible excise tax credits on undyed kerosene without delays, while ensuring your claims are correctly distinguished from aviation kerosene tax credit filings.

File Form 720 Now

Frequently Asked Questions

It is a mechanism for registered ultimate vendors to get back federal excise tax credits on undyed kerosene (except for aviation use) that is sold for qualifying non-taxable purposes.

The credit is only available to IRS-registered ultimate vendors who have documentation, usage, and compliance records.

Line 8a is mainly for government use, which is charged at $0.243 per gallon, whereas Line 8b is for certain exempt uses and it needs a waiver. This line is charged at $0.17 per gallon.

Yes. You have to get a valid Model Waiver N (or approved equivalent) and keep it for a while.

Yes. The total credit for Lines 8 and 9 should not be less than $100.