T.C. Summary Opinion 2001-90

UNITED STATES TAX COURT

GARY ALLEN KLEINSMITH, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11566-99S. Filed June 21, 2001. 

Gary Allen Kleinsmith, pro se.

Robert V. Boeshaar, for respondent.

CARLUZZO, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority. Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
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Respondent determined a deficiency of $959 in petitioner’s

1997 Federal income tax. The issue for decision is whether

petitioner is entitled to a fuel tax credit in excess of the

amount allowed by respondent.

Background

Some of the facts have been stipulated and are so found. At

the time the petition was filed, petitioner resided in Weippe,

Idaho. 

Petitioner is and was during 1997, self-employed. His

business involves removing and transporting timber logs from the

location of harvest to lumber mills. During the year in issue,

petitioner transported the timber logs in a truck specifically

designed for that purpose (the truck). The truck, which is

powered by a diesel engine, was licensed for highway use during

1997 and was so used. The truck is equipped with 2 separate fuel

tanks that service its diesel engine.

The truck is also equipped with a mechanical loader that is

permanently mounted behind the cab (the loader). The loader is 

used to load the logs at the harvest sites and to unload the logs

at the lumber mills. The loader is powered by a power take-off

connected to the truck’s diesel engine. Consequently, the same

diesel engine that propels the truck also powers the loader. 

Although there are 2 fuel tanks, neither tank is dedicated to one

or the other usages of the diesel engine.
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1 The credit is equal to the sum of the amounts otherwise

payable to the taxpayer under section 6427(a) (fuels not used for

taxable purposes). See also sec. 6427(k); sec. 48.6427-1,

Manufacturers & Retailers Excise Tax Regs. 

Petitioner filed a timely 1997 Federal income tax return. 

On a Form 4136, Credit for Federal Tax Paid on Fuels, included

with that return, petitioner claimed a fuel tax credit of $1,098. 

According to the form, $959 of that amount is attributable to the

diesel fuel consumed by the operation of the loader. 

In the notice of deficiency, respondent disallowed the

portion of the fuel tax credit relating to the diesel fuel used

to operate the loader. 

Discussion

Section 4041(a)(1) imposes a tax on diesel fuel:

 (i) sold by any person to an owner, lessee, or other

operator of a diesel-powered highway vehicle or a

diesel-powered train for use as a fuel in such vehicle

or train, or

 (ii) used by any person as a fuel in a diesel-powered

highway vehicle or a diesel-powered train unless there

was a taxable sale of such fuel under clause (i).

The tax is not imposed if diesel fuel is “sold for use or used in

an off-highway business use”, as defined in section 6421(e)(2). 

Sec. 4041(b)(1)(A), (C). If a tax has been imposed under section

4041 on a sale of diesel fuel, and the fuel is used by the

purchaser for a nontaxable purpose, such as an off-highway

business use, section 34 allows a credit against income tax for

the section 4041 tax imposed on the sale. See sec. 34(a)(3)1.
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2 We accept petitioner’s testimony that no portion of the

claimed fuel tax credit amount was attributable to diesel fuel

consumed by the truck while driving on the highway. 

Section 6421(e)(2)(A)(i) defines “off-highway business use” as

any use by a person in a trade or business other than as a fuel

in a highway vehicle “which (at the time of such use) is

registered, or is required to be registered, for highway use

under the laws of any State or foreign country”. 

According to petitioner, the diesel fuel tax imposed under

section 4041(a)(1) is a “highway tax” and applies only to diesel

fuel consumed to propel a vehicle on the highway. Petitioner

argues that the credit here in dispute was calculated with

reference only to the amount of diesel fuel used to power the

loader, which in petitioner’s view constitutes “off-highway

business use” because loading and unloading the truck did not

take place on public roads or highways.2 

Respondent points out that the truck was registered for

highway use during 1997 and was so used. Respondent also points

out that the same diesel engine that provides power to the loader

also propels the truck. According to respondent, the diesel fuel

allocated to the use of the loader does not constitute an “offhighway business use” within the meaning of section

6421(e)(2)(A). 

Respondent’s position is entirely consistent with (and

petitioner’s position is entirely contrary to) section 48.4041-7,
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Manufacturers & Retailers Excise Tax Regs., which provides, in

part: 

[The section 4041 fuel tax] applies to all taxable

liquid fuel sold for use or used as a fuel in the motor

which is used to propel a diesel-powered vehicle or in

the motor used to propel a motor vehicle, * * * even

though the motor is also used for a purpose other than

the propulsion of the vehicle * * *. Thus, if the

motor of a diesel-powered highway vehicle * * *

operates special equipment by means of a power take-off

or power transfer, tax applies to all taxable liquid

fuel sold for this use or so used, whether or not the

special equipment is mounted on the vehicle * * *. For

example, tax applies to diesel fuel sold to operate the

mixing unit on a concrete mixer truck if the mixing

unit is operated by means of a power take-off from the

motor of the vehicle. * * * However, tax does not apply

to liquid fuel sold for use or used in a separate motor

to operate special equipment (whether or not the

equipment is mounted on the vehicle). If the taxable

liquid fuel used in a separate motor is drawn from the

same tank as the one which supplies fuel for the

propulsion of the vehicle, a reasonable determination

of the quantity of taxable liquid fuel used in such

separate motor or during such period is acceptable for

purposes of application of the tax. * * *

See also Western Waste Indus. v. Commissioner, 104 T.C. 472

(1995)(upholding the regulation as a valid interpretation of the

phrase “used * * * as a fuel in”, as set forth in section

4041(a)(1)).

During 1997, the truck was registered for highway use. The

same diesel engine that propelled the truck also provided power,

via a power take-off, to the loader. Although a portion of the

fuel consumed by the truck’s diesel engine was used for purposes

other than propulsion of the truck, section 48.4041-7,

Manufacturers & Retailers Excise Tax Regs., provides that all
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fuel consumed under those circumstances is subject to tax under

section 4041. Therefore, petitioner is not entitled to a section

34 credit for Federal tax paid on diesel fuel consumed by the

operation of the truck even though a portion of that fuel was

used to power the loader. See Western Waste Indus. v.

Commissioner, supra at 486; Williams v. Commissioner, T.C. Memo.

1997-540; High-Way Dispatch v. United States, 858 F. Supp. 880

(N.D. Ind. 1994). Respondent’s determination disallowing a

portion of the fuel tax credit claimed on petitioner’s 1997

return is therefore sustained.

Reviewed and adopted as the report of the Small Tax Case

Division.

Based on the foregoing,

Decision will be

entered for respondent.