Good record keeping is the key to successfully managing and complying with the International Fuel Tax Agreement (IFTA) and International Registration Plan (IRP). But the reality of keeping good records on an ongoing basis is a serious challenge for most owner-operators.
Record Keeping Requirements for IFTA and IRP Compliance
To meet IFTA requirements, owner-operators must maintain accurate records from the current year (of quarterly tax returns) plus the three previous mileage years. Or, in some cases, four years from the tax return deadline or tax filing date (whichever is later) plus records for any time included as a result of waivers or jeopardy assessments.
And that is just for IFTA – the easier of the two. To meet IRP requirements, carriers must keep mileage records for up to six and a half years. This includes monthly and quarterly summaries.
Although the reporting is similar for both programs, it can be arduous to maintain good records for both. Drivers must keep detailed distance records that show the distance traveled and to which destinations. Owner-operators must provide reporting for each vehicle for each jurisdiction in which each vehicle is operated. GPS data and vehicle tracking systems can be used to record the mileage data but they must meet both IFTA and IRP program requirements.
Additional information must also be provided by the driver to corroborate their mileage and routes. Specifically, fuel purchases and tolls paid.
The Pitfalls and Potholes of Record Keeping
Regions and Requirements
IFTA and IRP jurisdictions both include the lower 48 states and the 10 Canadian provinces. But IRP also includes the District of Columbia – a detail that can be easily overlooked.
New entrants often underestimate the time and attention involved in managing each state’s quarterly filing requirements which may be different. But when you sign up for your IFTA license with your state, you agree to abide by the state’s record-keeping contract and their set of acceptable forms of record-keeping. You also agree to their terms as to how long you must keep those records, which also may vary by state.
To add further stress to the IFTA and IRP compliance process, not all jurisdictions offer online tax filing. For a list of which states offer online filing go to iftach.org.
The biggest pitfall here, in addition to maintaining accurate records that comply with each state, is that you must also file each quarter by the deadline. Unlike personal or business income taxes, there are no extensions granted for IFTA and IRP compliance.
Differences in Electronic Logging Devices (ELDs)
While electronic logging devices (ELDs) often seem like a silver bullet to ensure accurate reporting for IFTA and IRP compliance, that is not the reality. ELDs were originally created to track hours of operation. They were not specifically designed for IFTA reporting and managing IFTA records. They also were not developed by anyone in the trucking industry.
The good news is ELD software has evolved. Nowadays most ELD service providers offer IFTA mileage reporting as an add-on service that allows the user to pull IFTA reporting on a quarterly basis. This is so long as the user has opted into the additional service. The bad news is that some users may assume they have IFTA reporting capability simply because it is available through their provider but they neglect to actually turn it on.
If your trucking business uses ELDs, check your account to be sure you are paying for this additional reporting service and that it is turned on. It’s too late to discover this missed opportunity once you’ve already filed.
Not all ELDs are created equal, and some ELDs in use can become obsolete as a result of software and network updates. For example, 3G networks that power some ELDs are currently being sunsetted.
ELDs run on wireless networks and we’re pretty sure every truck driver has discovered areas on their route that are out of range of cell service.
If you were to receive an IFTA audit, the DOT does not care which ELD you use or if your ELD fails. The responsibility falls to the owner-operator to ensure that their ELD of choice is capturing, maintaining, and reporting accurate records. It’s imperative that you have a solid backup plan for when (not if) the ELD fails to capture data. The bottom line is that owner-operators can’t rely solely on ELDs for IFTA or IRP record-keeping should they be audited.
Remember: ELD software companies will not be able to provide support specific to the trucking industry and federal compliance issues. ELD providers are in the software and communications industry, not the trucking industry.
Overwhelming Spreadsheet Management
Typically, those owner-operators who are not required to use ELDs use spreadsheets to capture and maintain their IFTA reporting data. This manual process requires all drivers within your business to diligently and accurately capture odometer readings, fuel stops, tolls, and other route information.
While spreadsheets as a reporting method will hold up in an audit, IFTA spreadsheet reports are only as accurate as the person entering the data. The data in the spreadsheet needs to be backed up with receipts – e.g., tolls, fuel purchases, bill of lading, etc. An auditor will ask which route the driver took. You’ll want to be able to confidently say, ”Here’s the spreadsheet, and here are the receipts for where they picked up their loads. Here are the fuel receipts, and here are the tolls paid along the route.”
Managing and maintaining an accurate spreadsheet with accompanying receipt reporting can be overwhelming for most busy owner-operators. When the requirement is to present that data on a quarterly basis and the risk of human error and inaccuracies is high, this can be a terrible option given the complexity of the data and the consequences of getting it wrong.
If you have to use spreadsheets, we highly encourage you to download and use our IFTA and IRP Reporting Spreadsheet.
Not All Fuel Cards are Created Equal
Even if you are using a dedicated company credit card solely for fuel purchases and tolls for your business, this may not be enough to satisfy the level of detail required for IFTA and IRP reporting.
Like ELDs, not all credit cards and fuel cards are created equal. There are big differences in the data captured for expense reporting to meet IFTA and IRP reporting requirements.
Where we see things take a wrong turn for owner-operators is when their “fuel card” is used for other non-fuel, non-reporting expenses. Or they unknowingly assume a dedicated fuel card is enough to meet IFTA and IRP requirements. Only too late do they discover they are not capturing the right data.
It’s a terrible situation for a trucking business owner to be under a deadline without possibility of extension and desperately trying to quickly and accurately separate out fuel for IFTA from personal use and track down and add the required level of detail for each IFTA fuel purchase.
Remember not all credit card statements will hold up to an IFTA audit.
IRS Form 2290 – The Heavy Highway Use Tax
As if IFTA and IRP record keeping requirements weren’t complicated enough, the government also requires owner-operators to file the IRS Form 2290. This is the Heavy Highway Vehicle Use Tax (HVUT) for vehicles operating on public highways with a gross weight of 55,000 pounds or more.
HVUT ties in with your annual federal income taxes. But you must renew on a fiscal calendar basis – not an annual calendar basis. This can be confusing for most owner-operators or entirely overlooked by new entrants into the trucking industry.
In many cases, new entrants don’t find out about this 2290 form filing until after the fact. But a missed deadline on the 2290 form results in a major service interruption. It’s not uncommon for a truck owner to have to drive for two to three hours to a department of motor vehicles office to attempt to renew their vehicle registration only to find out they can’t renew their truck’s registration. And it may take another month before they can get the missed 2290 form submitted. Without valid vehicle registration, this missed 2290 filing often results in the canceling of scheduled loads and potentially lost customers.
Make sure 2290 deadlines are on your calendar. Set up a reminder at least one week prior to the deadline.
Filing Deadlines & Inaccurate IFTA or IRP Records
Again, we can’t state this enough: there are no extensions granted for IFTA and IRP deadlines. If you manage to file by the IFTA and IRP deadline, but somehow misfiled or submitted inaccurate data, this will trigger an audit.
For example, IFTA and IRP representatives know how many miles to gallon a truck should get. If your IFTA filing shows 16 mpg and they know that the make and model of the vehicle should get 4-6 mpg this will flag an audit.
Misreporting or inaccurate records bring unwanted attention to your business. Your IFTA and IRP reporting should have some level of consistency over the years. Ideally, you’re reporting data will be within a similar range each year. Most auditors can tell at a glance what looks normal and what does not.
No extensions and no exceptions. You are expected to know the IFTA and IRP quarterly deadlines and you will not receive reminders.
The Consequences of Misfiling or Missing Deadlines for IFTA and IRP Filing
If you didn’t file your IFTA, and you’re stopped for inspection, the ticket will be the least of your problems. Fines can range from a few hundred to a few thousand dollars and vary from state to state.
But if you are found in violation of IFTA filing requirements, the State’s Highway Patrol may also impound your vehicle. If that happens when you have a full load, you probably won’t haul for that shipper again any time soon. You also may risk a lawsuit from the shipper.
Using Ohio as an example, failure to file your IFTA in that state means your IFTA fuel tax license is revoked and you’re off the road until it’s reinstated.
A failed IFTA inspection that leads to corrective action is a serious threat to your business. If you do not comply and fix the problems within the given timeframe, you can be put out of business. If your DOT number is deactivated, you cannot operate. This often results in more lost customers and possible lawsuits for contract violations.
Set up Guardrails for IFTA and IRP Compliance
A hefty 26% of new trucking start-ups fail within the first year. IFTA and IRP misfilings contribute to that number each quarter.
Even if you enjoy accounting, data entry, paperwork, and filing taxes, IFTA and IRP compliance is a never-ending challenging process for even the most savvy owner-operator. There are so many variables and requirements for each state and so many ways in which things can go wrong, It makes good business sense to look to a professional partner to manage your IFTA and IRP compliance.
At TCS, we serve more than 15,000 trucking businesses every year. Our customers stay on the road because of our IFTA and IRP compliance expertise. Our compliance managers are dedicated to helping owner-operators manage all aspects of the IFTA and IRP reporting and filing process.
We’ve also innovated new technologies and solutions to make capturing IFTA and IRP data easier and automated reporting more reliable. IFTAPlus is the fastest and easiest way to prepare your fuel tax returns.
At TCS, we’ve made it our business to take care of yours. Let our Managed Services Compliance Specialists help you keep your business on the road for the long haul.
