Section 4. AVIATION-GRADE — Internal Revenue Bulletin 2005-2

KEROSENE

(a) Overview . Effective January 1, 2005, the tax imposed by § 4091 on the sale of aviation fuel by the producer thereof is repealed. In its place, § 4081 provides reduced rates and special rules for aviation-grade kerosene, which is taxed as taxable fuel. Also, § 4082(d)(1), which allowed for the tax-free removal of undyed aviation-grade kerosene if the Secretary determined that such kerosene was destined for use as a fuel in an aircraft, is repealed effective January 1, 2005.

(b) Definitions . Aviation-grade kerosene means kerosene-type jet fuel covered by ASTM specification D 1655 or military specification MIL-DTL–5624T (Grade JP–5) or MIL-DTL–83133E (Grade JP–8).

Commercial aviation has the meaning given to the term by § 4083(b).

Position holder includes a receiving person that is liable for tax under § 4105

(relating to two-party exchanges) and section 8 of this notice.

(c) Imposition of tax; rate of tax; gen- eral rules —(1) In general . Aviation-grade kerosene is taxable fuel and the provisions of §§ 48.4081–2 (relating to imposition of tax at the terminal rack) and 48.4081–3 (relating to other taxable events) apply unless the Code or this notice provides differently. The rate of tax on the removal, entry, or sale of aviation-grade kerosene is $0.219 per gallon unless a reduced rate of tax applies as described in this section.

(2) Tax on each removal . Taxpayers are reminded that, unless otherwise provided by § 4082, tax is imposed on each removal of aviation-grade kerosene from a terminal at the terminal rack even if that kerosene had previously been taxed on a removal from another terminal. For the conditions under which a refund (but not a credit) is allowable to the person that paid a second tax to the government, see § 48.4081–7.

(d) Commercial aviation; liability for tax; rate of tax —(1) In general . Under § 48.4081–2(c), the position holder is liable for tax with respect to the removal of taxable fuel from a terminal at a rack. However, the position holder is not liable for tax on the removal of aviation-grade kerosene from a terminal at the terminal rack if the kerosene is removed directly into the fuel tank of an aircraft for use in commercial aviation. In such a case, the operator of the aircraft in commercial aviation is liable for the tax on the removal at the rate of $0.044 per gallon. For purposes of determining whether a position holder is liable for tax under these rules, kerosene that is removed directly into the fuel tank of an aircraft will be treated as removed for use in commercial aviation if the position holder—

(i) Is a taxable fuel registrant, (ii) Has an unexpired certificate (in the form described in section 4(g) of this notice) from the operator of the aircraft, and

(iii) Has no reason to believe that any information in the certificate is false.

(2) Certain refueler trucks, etc .—(i) In general . For purposes of the tax imposed on aviation-grade kerosene removed di

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(3) Full rate buyers; in general . Under this notice, effective July 1, 2005, each person that buys aviation-grade kerosene in connection with a removal from a terminal (other than a removal directly into the fuel tank of an aircraft) (full rate buyer) must be registered by the Service. Application for registration is made on Form 637, Application for Registration (For Cer- tain Excise Tax Activities), in accordance with the instructions for that form.

(4) Full rate buyers; requirements . The Service will register an applicant as a full rate buyer of aviation-grade kerosene only if the Service—

(i) Determines that the applicant buys aviation-grade kerosene in connection with the removal from a terminal (other than a removal directly into the fuel tank of an aircraft), or is likely to become such a buyer within a reasonable time after being registered under § 4101; and

(ii) Is satisfied with the filing, deposit, payment, reporting, and claim history for all federal taxes of the applicant and any related person (as defined in § 48.4101–1(b)(5)).

(g) Certificate for commercial aviation and exempt use —(1) In general . The certificate referred to in paragraphs (d)(1) and (e) of this section is a statement that is signed under penalties of perjury by a person with authority to bind the buyer, is in substantially the same form as the model certificate provided below, and contains all information necessary to complete the model certificate. A new certificate or notice that the current certificate is invalid must be given if any information in the current certificate changes. The certificate may be included as part of any business records normally used to document a sale. The Service may withdraw the right of a buyer of aviation-grade kerosene to provide a certificate under this section if the buyer uses the aviation-grade kerosene to which a certificate relates other than as stated in the certificate. The Service may notify any seller to whom the buyer has provided a certificate that the buyer’s right to provide a certificate has been withdrawn. The certificate expires on the earliest of the following dates:

(i) The date one year after the effective date of the certificate (which may be no earlier than the date it is signed).

rectly into the fuel tank of an aircraft for use in commercial aviation, the Act provides that certain refueler trucks, tankers, and tank wagons are treated as part of a terminal if the conditions described in § 4081(a)(3)(A) and (B) are met. One such condition is that, except in the case of exigent circumstances identified by the Secretary in regulations, no vehicle registered for highway use is loaded with aviation-grade kerosene at such terminal. This notice does not describe any such exigent circumstances. Also, § 4081(a)(3)(C) provides for reporting by terminal operators with respect to certain deliveries by refueler trucks, etc. This notice does not prescribe any such reporting. The reporting requirements under § 4081(a)(3)(C) will be prescribed in subsequent guidance. Until the issuance of this guidance, taxpayers are required to retain records containing the information described in § 4081(a)(3)(C) but are not required to report such information.

(ii) Terminals within secured areas of airports . Another condition for treating certain refueler trucks as part of a terminal is that the terminal must be located within a secured area of an airport. Section 4081(a)(3)(A)(i). The conference report to the Act, H.R. Conf. Rep. No. 755, 108th Cong., 2d Sess. 692 n.718 (2004), provides an initial list of qualifying terminals and the airports at which they are located. The conference report also provides that this list is subject to the Secretary’s verification. This notice adopts the list in the conference report except for the following airport terminals, which the Commissioner has determined are not located within a secure area of the airport they serve: San Jose Municipal Airport, T–77–CA–4650; John Wayne Airport/Orange County, T–33–CA–4772; and Eppley Airfield, T–47–NE–3608. This list identifies airport fueling operations that are not susceptible to avoidance of the federal excise tax on taxable fuel, and has nothing to do with the general security of airports either included or not included on the list.

(e) Exceptions . Under the Act and this notice, in the case of aviation-grade kerosene that is exempt from the tax imposed by § 4041(c) (other than by reason of a prior imposition of tax) and that is removed from any refinery or terminal directly into the fuel tank of an aircraft, the rate of tax under § 4081 is zero. For

purposes of determining the tax liability of the position holder under this rule, aviation-grade kerosene that is removed directly into the fuel tank of an aircraft will be treated as exempt from the tax imposed by § 4041(c) (other than by reason of a prior imposition of tax) if the position holder: (1) is a taxable fuel registrant; (2) has an unexpired certificate (described in section 4(g) of this notice) from the operator of the aircraft; and (3) has no reason to believe that any information in the certificate is false. Exemptions from the tax imposed by § 4041(c) include an exemption for aviation-grade kerosene sold for use or used as supplies for vessels or aircraft (within the meaning of § 4221(d)(3)), including fuel sold for use or used in aircraft actually engaged in foreign trade, and an exemption for aviation-grade kerosene sold for the exclusive use of a state or political subdivision of a state.

(f) Registration —(1) Commercial air- craft operators; in general . Under this notice, effective July 1, 2005, each commercial aircraft operator (other than an operator engaged exclusively in foreign trade) must be registered by the Service as a condition of providing the certificate that aviation-grade kerosene will be used in commercial aviation. Application for registration is made on Form 637, Application for Registration (For Certain Excise Tax Ac- tivities), in accordance with the instructions for that form. A commercial aircraft operator that is registered under Activity Letter “Y” (Buyer of aviation fuel for its use in commercial aviation (other than foreign trade)) will be treated as being registered for this purpose and will not have to apply to be reregistered unless notified to do so by the Service.

(2) Commercial aircraft operators; re- quirements . The Service will register an applicant as a commercial aircraft operator only if the Service—

(i) Determines that the applicant is, in the course of its trade or business, regularly engaged as an operator of an aircraft in commercial aviation, or is likely to become so engaged within a reasonable time after being registered under § 4101; and

(ii) Is satisfied with the filing, deposit, payment, reporting, and claim history for all federal taxes of the applicant and any related person (as defined in § 48.4101–1(b)(5)).

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(ii) The date the buyer provides the seller a new certificate or notice that the current certificate is invalid.

(iii) The date the Service or the buyer notifies the seller that the buyer’s right to provide a certificate has been withdrawn.

(2) Model certificate .

CERTIFICATE OF PERSON BUYING AVIATION-GRADE KEROSENE FOR

COMMERCIAL AVIATION OR NONTAXABLE USE

(To support operator liability for tax on removals of aviation-grade kerosene directly into the fuel tank of an aircraft in commercial aviation pursuant to § 4081 of the Internal Revenue Code or to support a tax rate of zero pursuant to §§ 4041 and 4082.)

Name, address, and employer identification number of the position holder

The undersigned aircraft operator (“Buyer”) hereby certifies the following under the penalties of perjury:

The aviation-grade kerosene to which this certificate relates is purchased (check one): for use on a farm for farming purposes; for export; for use in foreign trade (reciprocal benefits required for foreign registered airlines); for use in certain helicopter and fixed-wing air ambulance uses; for the exclusive use of a nonprofit educational organization; for the exclusive use of a state; for use in an aircraft owned by an aircraft museum; for use in military aircraft; or for use in commercial aviation (other than foreign trade).

With respect to aviation-grade kerosene purchased after June 30, 2005, for use in commercial aviation (other than foreign trade), Buyer’s registration number is . Buyer’s registration has not been suspended or revoked by the Internal Revenue Service.

This certificate applies to the following (complete as applicable):

This is a single purchase certificate:

Invoice or delivery ticket number
Number of gallons

This is a certificate covering all purchases under a specified account or order number:

Effective date
Expiration date (period not to exceed 1 year after the effective date)
Buyer account number

Buyer agrees to provide the person liable for tax with a new certificate if any information in this certificate changes.

If the aviation-grade kerosene to which this certificate relates is being bought for use in commercial aviation (other than foreign trade), Buyer is liable for tax on its use of the fuel and will pay that tax to the government.

If Buyer sells or uses the aviation-grade kerosene to which this certificate relates for a use other than the use stated above, Buyer will be liable for tax.

Buyer understands that it must be prepared to establish by satisfactory evidence the purpose for which the fuel purchased under this certificate was used.

Buyer has not been notified by the Internal Revenue Service that its right to provide a certificate has been withdrawn. If Buyer violates the terms of this certificate, the Internal Revenue Service may withdraw Buyer’s right to provide a certificate.

The fraudulent use of this certificate may subject Buyer and all parties making any fraudulent use of this certificate to a fine or imprisonment, or both, together with the costs of prosecution.

Printed or typed name of person signing

Title of person signing

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Name of Buyer

Employer identification number

Address of Buyer

Signature and date signed

(h) Claims by registered ultimate ven- dors (nontaxable uses) —(1) In general . Section 6427(l)(4)(B) provides that if an ultimate purchaser of aviation-grade kerosene used for a nontaxable use waives its right to an income tax credit or payment, in the form and manner prescribed by the Secretary, and assigns such right to the registered ultimate vendor, then the ultimate vendor, and not the ultimate purchaser, may claim a payment or income tax credit. Neither the Code nor this notice requires any vendor to apply for registration or to file any claim.

(2) Definitions . Nontaxable use means any use that is exempt from the tax imposed by § 4041(c) (other than by reason of a prior imposition of tax) and any use in commercial aviation within the meaning of § 4083(b).

Registered ultimate vendor is a person that sells aviation-grade kerosene to the ultimate purchaser for a nontaxable use and is registered as an ultimate vendor under § 4101.

(3) Conditions to allowance of credit or payment . A claim for an income tax credit or payment with respect to aviationgrade kerosene is allowable to an ultimate vendor by § 6427(l)(4)(B) only if—

(i) Tax was imposed on the aviationgrade kerosene under § 4081;

(ii) The claimant sold the aviation-grade kerosene to the ultimate purchaser for use in a nontaxable use;

(iii) The claimant is a registered ultimate vendor;

(iv) The ultimate purchaser has waived its right to a credit or payment as provided in paragraph (h)(6) of this section; and

(v) The claimant has filed a timely claim for a credit or payment and the claim contains all of the information required in paragraph (h)(5) of this section.

(4) Form of claim . A claim under § 6427(l)(4)(B) for a payment is made on Form 8849, Claim for Refund of Excise Taxes, and a claim under § 6427(l)(4)(B) for an income tax credit is made on Form 4136, Credit for Federal Tax Paid on Fu- els .

(5) Content of claim . Each claim for a credit or payment under § 6427(l)(4)(B) must contain the following information with respect to the aviation-grade kerosene covered by the claim:

(i) The total number of gallons. (ii) The claimant’s registration number. (iii) A statement that the claimant— (A) Has not included the amount of the tax in its sales price of the aviation-grade kerosene and has not collected the amount of tax from its buyer;

(B) Has repaid the amount of the tax to the ultimate purchaser of the fuel; or

(iv) A statement that the claimant has in its possession an unexpired waiver described in paragraph (h)(6) of this section and has no reason to believe any information in the waiver is false.

(6) Waiver —(i) In general . The ultimate purchaser waives its right to a credit or payment for purposes of § 6427(l)(4)(B) by providing a statement that is signed under penalties of perjury by a person with authority to bind the ultimate purchaser, is in substantially the same form as the model waiver in paragraph (h)(6)(ii) of this section, and contains all of the information necessary to complete such model waiver. A new waiver must be given if any information in the current waiver changes. The claimant must have the waiver at the time the credit or payment is claimed under § 6427(l)(4)(B). The waiver may be included as part of any business records normally used to document a sale. The waiver expires on the earlier of the following dates:

(A) The date one year after the effective date of the waiver, or

(B) The date a new waiver is provided. (ii) Model waiver .

WAIVER FOR USE BY ULTIMATE PURCHASERS OF AVIATION-GRADE KEROSENE USED IN NONTAXABLE USES

(To support vendor’s claim for a credit or payment under § 6427 of the Internal Revenue Code.)

Name, address, and employer identification number of ultimate vendor

The undersigned ultimate purchaser (“Buyer”) hereby certifies the following under the penalties of perjury:

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This waiver applies to the following (complete as applicable):

This is a single purchase waiver:

Invoice or delivery ticket number
Number of gallons

This is a waiver covering all purchases under a specified account or order number:

Effective date
Expiration date (period not to exceed 1 year after the effective date)
Buyer account number

Buyer will provide a new waiver to the vendor if any information in this waiver changes.

If Buyer uses the aviation-grade kerosene to which this waiver relates for a use other than the use stated above, Buyer will be liable for tax.

Buyer understands that by signing this waiver, Buyer gives up its right to claim any credit or payment for the aviation-grade kerosene used in a nontaxable use.

Buyer acknowledges that it has not and will not claim any credit or payment for the aviation-grade kerosene to which this waiver relates.

Buyer understands that the fraudulent use of this waiver may subject Buyer and all parties making such fraudulent use of this waiver to a fine or imprisonment, or both, together with the costs of prosecution.

Printed or typed name of person signing

Title of person signing

Name of Buyer

Employer identification number

Address of Buyer

Signature and date signed

(B) Is satisfied with the filing, deposit, payment, reporting, and claim history for all federal taxes of the applicant and any related person (as defined in § 48.4101–1(b)(5)).

(i) Extension of time to file Form 720 for the first quarter of 2005 . Under this notice, a return of tax on Form 720, Quar- terly Federal Excise Tax Return, for the first quarter of 2005 is due May 31, 2005, if the return reports tax for either IRS No. 69, aviation-grade kerosene, or IRS No. 77, aviation-grade kerosene for use in commercial aviation (other than foreign trade).

(7) Registration —(i) In general . Application for registration as a registered ultimate vendor of aviation-grade kerosene is made on Form 637, Application for Reg- istration (For Certain Excise Tax Activi- ties), in accordance with the instructions for that form. A person that is registered under § 4101 under Activity Letter “UV” (Ultimate vendor that sells undyed diesel fuel or undyed kerosene to a state or local government for its exclusive use or for use by the buyer on a farm for farming purposes) is treated as registered for pur

poses of claims filed with respect to aviation-grade kerosene before July 1, 2005.

(ii) Requirements . The Service will register an applicant as an ultimate vendor of aviation-grade kerosene only if the Service—

(A) Determines that the applicant is, in the course of its trade or business, regularly engaged as a seller of aviation-grade kerosene to aircraft operators, or is likely to become so engaged within a reasonable time after being registered under § 4101; and

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tion. The operator of the bus was liable for a backup tax of $0.074 per gallon on dyed fuel used for this purpose. However, effective January 1, 2005, the § 6715 penalty applies to this use and the ability of these bus operators to use dyed diesel fuel and pay the $0.074-per-gallon backup tax is eliminated. As under prior law, an income tax credit or payment of $0.17 per gallon is allowable if undyed diesel fuel or undyed kerosene (which is taxed at $0.244 per gallon) is used for this purpose. In addition, § 6427(b)(4) provides that if the ultimate purchaser of undyed diesel fuel or undyed kerosene used in a bus for this purpose waives its right to an income tax credit or a payment, in the form and manner prescribed by the Secretary, and assigns such right to the registered ultimate vendor, then the ultimate vendor, and not the ultimate purchaser, may claim a payment or income tax credit. Neither the Code nor this notice requires any vendor to apply for registration or to file a claim.

(b) Definitions —(1) Intercity bus trans- portation —(i) In general . An automobile bus is engaged in intercity bus trans- portation if it is engaged in the furnishing (for compensation) of passenger land transportation available to the general public and the bus is engaged in (A) Scheduled transportation along regular routes; or

(B) Nonscheduled transportation if the seating capacity of the bus is at least 20 adults (not including the driver).

(ii) Exceptions . A bus is not engaged in intercity bus transportation if—

(A) The bus is engaged in transportation described in § 6427(b)(2)(B) (relating to the transportation of students and employees of schools); or

(B) The bus is engaged in transportation described in § 6427(b)(2)(C) (relating to intracity transportation in a qualified local bus).

(2) Registered ultimate vendor . A regis- tered ultimate vendor is a person that sells diesel fuel to the ultimate purchaser for use in intercity bus transportation and is registered as an ultimate vendor under § 4101.

(c) Conditions to allowance of credit or payment . A claim for an income tax credit or payment with respect to diesel fuel or kerosene used for intercity bus transportation is allowable under § 6427(b)(4) only if—

A person must file only one return for a quarter. Thus, for example, a return of tax on Form 720 for the first quarter that reports tax for IRS No. 69 and IRS No. 26, transportation of persons by air, is due May 31, 2005. This rule does not extend the time for making deposits or paying any excise tax.

(j) Deposits; application of the safe harbor deposit rule . Section 40.6302(c)–1(b)(2)(ii)(D) of the Excise Tax Procedural Regulations provides that the safe harbor deposit rule for regular method taxes is applicable if, among other conditions, the person’s liability does not include any regular method tax that was not imposed at all times during the look-back quarter. For the first and second quarters of 2005, the tax on aviation-grade kerosene under § 4081 will be treated under this notice as having been imposed during the look-back quarter if: (1) the person was a registered producer of aviation fuel (Activity Letter “H” (Importer or producer of aviation fuel) on Form 637, Application For Registration (For Certain Excise Tax Activities) ) during the look-back quarter; or, (2) the deposit for each semimonthly period for the current quarter (determined under § 40.6302(c)–1(b)(2)) is increased by an amount equal to 95% of the person’s net tax liability for aviation-grade kerosene under § 4081 incurred during the semimonthly period.

(k) Floor stocks tax —(1) Imposition of tax . A one-time floor stocks tax is imposed on aviation-grade kerosene if, on the first moment of January 1, 2005, the kerosene—

(i) Is outside of the bulk transfer/terminal system (as defined in § 48.4081–1(b) after taking paragraph (d)(2) of this section into account) and is not held in the fuel supply tank of an aircraft; and

(ii) Is held by a registered producer of aviation fuel (Activity Letter “H” (Importer or producer of aviation fuel) on Form 637, Application for Registration (For Certain Excise Tax Activities) ) other than for use by the producer in a nontaxable use described in § 6427(l)(2)(B)(i).

(2) Liability for tax . The person holding the kerosene on the first moment of January 1, 2005, is liable for tax. Kerosene is considered held by a person if title thereto has passed to such person (whether or not delivery to the person has been made).

(3) Rate of tax . The rate of tax is $0.219 per gallon except that for aviation-grade kerosene held for the taxpayer’s own use in commercial aviation, the rate of tax is $0.044 per gallon.

(4) Persons holding not more than 2,000 gallons —(i) A person is not liable for the floor stocks tax on aviation-grade kerosene if the amount of such aviation-grade kerosene held by the person on January 1, 2005, does not exceed 2,000 gallons. In determining whether this threshold is crossed, the amount of aviation-grade kerosene a person holds exclusively for an exempt use and the amount of aviation-grade kerosene a person holds in an aircraft fuel tank are not taken into account. If a person holds more than 2,000 gallons of aviation-grade kerosene, then the floor stocks tax is imposed on all aviation-grade kerosene that is held by the person and that is not otherwise exempt.

(ii) Members of controlled groups of corporations (as defined in § 1563(a)) must aggregate the aviation-grade kerosene held by all members in determining whether they hold no more than 2,000 gallons of kerosene. If holdings of all members in aggregate exceed 2,000 gallons, then the exception described in paragraph (k)(4)(i) of this section does not apply to any member of the group. The aggregation rule for controlled groups does not affect the requirement that each separate person liable for the floor stocks tax file a return.

(5) Payment and return . The floor stocks tax must be paid with a return on Form 720, Quarterly Federal Excise Tax Return . The return is due May 31, 2005. Persons that are required to report the floor stocks tax and are also required to report other excise taxes on Form 720 must report both the floor stocks tax and the other excise taxes for the first calendar quarter of 2005 on one Form 720 that is due May 31, 2005. This rule does not extend the time for making deposits or payments of the other excise taxes.