U.S. Representative Rick Larsen (WA-02) called on the Internal Revenue Service to halt diesel fuel audits after being contacted by a number of farmers throughout Washington state expressing concern about discrepancies in IRS regulations.
A number of Washington state agricultural groups contacted Rep. Larsen on behalf of Robert Engle, of Engle Family Farms in Coupeville, after he received a fine for using tax-exempt diesel fuel to operate his harrow bed on a public highway. Mr. Engle, like many local famers, has been operating his harrow bed with dyed fuels under the impression that he is complying with federal law. Rep. Larsen is calling on the IRS to clarify this policy for local farmers.
“Many local farmers need to transport vehicles between multiple fields on their farms. This can sometimes necessitate traveling a short distance on public roads, which Washington state law allows,” said Rep. Larsen. “I am calling on the IRS to halt diesel fuel audits until they examine whether there are discrepancies in this policy and clarify it for the farming community.”
The text of the letter Rep. Larsen and Rep. Inslee sent to the IRS follows:
Commissioner Douglas Shulman
Internal Revenue Service
U.S. Department of the Treasury
1111 Constitution Avenue, NW, Room 3241
Washington, DC 20224
Dear Commissioner Shulman,
We have recently been contacted by a number of farmers throughout the state regarding fuel audits by Internal Revenue Service (IRS) inspectors on farms. One of them, Robert Engle, received a fine for the use of dyed fuel in a harrow bed, used to collect and stack hay. We are concerned that the vehicles being tested appear to match the proposed nontaxable uses defined by the IRS.
Mr. Engle operates Engle Family Farms on Whidbey Island in Washington State. The farm was visited July 26, 2010 by IRS agent Jeffrey Thompson for a fuel audit. Sampling found dyed diesel fuel in the farms harrow bed, while other vehicles, semi-trucks and dump trucks, were operating with clear fuels. Mr. Engle was fined $9,000 for the fuel in the harrow bed and the 800 gallons of dyed fuel in storage.
According to the Definitions of Nontaxable Uses in Part 1, Chapter 2 in Publication 510 on Excise Taxes, vehicles using dyed fuel “in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes” are permitted to use dyed fuels. The farming purposes definition includes vehicles used “to handle, dry, pack, grade, or store any raw agricultural or horticultural commodity.” Hay, the only commodity that is handled and stored by a harrow bed, is a commodity that fits within this definition. There is no commercial use of a harrow bed, it is used to bring hay in from the field.
The harrow bed also fits within the definitions of “Off-Highway Business Use.” Since the harrow bed is recognized as a farm vehicle, it is not licensed by the State of Washington and is still permitted by the licensing authority of the state to operate in a limited capacity on the roadway. The state allows harrow beds to operate on roadways so that it may move from field to field in the vicinity of the farm. It is not a registered vehicle, nor is it required to be by the state. For this reason, it fits in the IRS’ definition of an Off-Highway Business Use. The definition also includes specially designed mobile machinery for non-transportation functions and goes on to say that “the chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation.”
The use of limited transportation on the roadway with a harrow bed seems to overlap multiple definitions of nontaxable uses while solidly fitting the IRS definition, and is explicitly listed by Washington State as a farm-use vehicle. The transportation of hay using a harrow bed burning dyed fuel fits the definition of farming purposes for both the IRS and Washington State. Mr. Engle and farmers throughout the state have no intention of deliberately violating laws enforcing dyed fuel use. We are writing to ask that clarification be provided to explain the harrow beds exclusion by the IRS from legal use of exempt fuels.
According to local famers, they are operating harrow beds with dyed fuels under the impression that they are complying with federal law. For that reason, please clarify how a harrow bed’s function on the farm is not covered in the definitions of nontaxable uses. Specifically, we would ask that the IRS clarify why a harrow bed is not considered a farm vehicle that can operate with exempt dyed fuel. The IRS also needs to clearly explain how a harrow bed, recognized by Washington State as the regulating authority on highway vehicles, fits within the definition of a “highway vehicle.” Until a thorough explanation of a harrow bed’s “highway vehicle status” is provided, the IRS, in good faith to the operators trying to interpret IRS definitions, should immediately postpone agriculture related fuel audits.
Thank you for your consideration. We look forward to your response.
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