For trucking businesses and for owner-operators who acquire a heavy highway vehicle after the annual Form 2290 filing deadline, usually on August 31st, the tax liability is not the full annual amount. Instead, the tax owed for the taxable vehicle is determined on the First Used Month (FUM).

Of all the factors that come into play when a vehicle is put into service midyear, the FUM is arguably the most important because it will determine how much of the Heavy Highway Vehicle Use Tax (HVUT) is owed for the remainder of the tax period, which runs from July 1st to June 30th.

The Proration Principle: Why the FUM Matters

The IRS realizes that a vehicle that comes into service during the middle of the tax period does not benefit, nor cause wear and tear on, the federal public highways for the entire twelve months. The FUM ensures the taxpayer only pays for the months the vehicle is actually in use.

• Calculating Liability: FUM becomes the basis of the prorating calculation of liability. The HVUT is computed by first determining the vehicle's regular annual tax rate based upon its taxable gross weight and then performing a pro-rata reduction for those months before the FUM.
• Tax Savings: Proper identification of the FUM prevents overpayment of the tax by the owner-operator. For example, a vehicle that was placed in service in January would only pay for six months of the tax, saving a substantial amount compared with the annual amount.

Defining the FUM and the Filing Deadline

The FUM is simply the calendar month during the tax period in which the heavy highway vehicle is first used on a public highway under the current owner's registration.

The Deadline Rule: The FUM is directly related to the filing deadline. The Form 2290 and the prorated tax payment must be filed on or before the last day of the month following the FUM. Failure to file by this particular deadline may immediately trigger IRS penalties and interest charges.

Compliance relevance

Precise reporting of the FUM is crucial for HVUT compliance:

• State Registration: Accurately determining and paying the prorated tax, using the FUM information, generates the IRS-stamped Schedule 1. This is the non-negotiable proof of payment that state DMV offices require to obtain and/or maintain truck registration.
• Avoidance of Penalties: Application of an incorrect, lower FUM to reduce the tax might trigger audits and underpayment penalties back-dated from when the asset was first used.

The easiest way is to use an e-file solution where the software will automatically reference the FUM for the appropriate tax liability calculation, plus confirm that the taxpayer is meeting the unique prorated filing deadline.

Note: For more information, visit IRS website