Tax alert

IRS to provide penalty relief for Superfund chemical tax deposits

Apr 20, 2022
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Manufacturing Federal tax Energy Excise tax consulting

IRS guidance provides relief from failure to deposit penalties for superfund excise tax.

  • Certain manufacturers and importers of chemicals will be liable for Superfund excise tax beginning July 1, 2022.
  • IRS guidance provides relief from failure to deposit penalties for affected taxpayers meeting certain requirements.

Recently, the IRS issued advanced guidance providing relief from deposit penalties from the soon to be reinstated Superfund excise tax for taxpayers meeting certain conditions. The Superfund excise taxes are imposed on sales by manufacturers and importers of certain listed chemicals and imported substances. The excise taxes are effective July 1, 2022.

Notice 2022-15, states that the IRS will provide relief for the third and fourth calendar quarters of 2022, and the first calendar quarter of 2023, regarding the failure to deposit penalties imposed by section 6656 for affected taxpayers meeting certain requirements. Specifically, the IRS guidance provides taxpayers will be deemed to meet the reasonable cause exception to the penalty if (i) the taxpayer makes timely deposits of applicable Superfund chemical taxes, even if the deposit amounts are computed incorrectly, and (ii) the amount of any underpayment of the applicable Superfund chemical taxes for each calendar quarter is paid in full by the due date for filing the Form 720 return for that quarter.

Additionally, the IRS will not exercise its authority under the excise tax deposit regulations to withdraw the taxpayer’s right to use the deposit safe harbor because of a failure to make deposits of Superfund chemical taxes as required for the first, second and third calendar quarters of 2023 provided the taxpayer satisfies the deemed reasonable cause standards set forth in the notice for the look-back quarter at issue.

This relief will provide taxpayers more time to prepare and comply with the tax and deposit requirements for the Superfund excise tax.

WNT Observations

The Superfund excise taxes will be effective July 1, 2022. Compliance obligations for manufacturers and importers of taxable chemicals include requirements to make semi-monthly deposits of excise tax and file quarterly federal excise tax returns. Failure to deposit at least 95% of the net tax liability can subject the taxpayers to deposit penalties. The IRS guidance provides welcome relief to affected taxpayers by providing the relief from deposit penalties for taxpayers that make timely deposits and pay the full amount of tax due by the filing date for the quarterly excise tax return. This relief is provided through the first quarter of 2023. 

For additional questions, taxpayers should consult their tax advisors.

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