Executive summary: IRS and U.S. Treasury issue proposed regulations for Superfund Tax
The IRS and U.S. Treasury have issued guidance on the application of the reinstated Superfund Excise taxes imposed on certain chemicals and imported substances. This guidance includes long-awaited proposed regulations implementing many provisions of the tax, as well as a new revenue procedure clarifying the date of which a substance is added or removed from the list of taxable substances and a notice that extends temporary relief on the failure to deposit penalties under section 6556 of the Internal Revenue Code.
Proposed regulations on reinstated Superfund tax
As a result of the Infrastructure Investment and Jobs Act, enacted on Nov. 15, 2021, the Superfund chemical excise tax was reinstated after 25 years of expiration. This tax is imposed on manufacturers, producers or importers who sell or use certain chemicals and imported substances listed under sections 4661 and 4671 of the Internal Revenue Code. The tax became effective July 1, 2022.
On March 27, 2023, the IRS and the U.S. Treasury Department released an advanced copy of proposed regulations for the reinstated Superfund chemical excise tax, also known as the Superfund tax. This provides guidance on various issues for implementation of the tax. The regulations were officially published in the Federal Register on March 29, 2023, spanning 26 pages.
The proposed regulations are set to apply to sales or uses of the applicable chemicals in calendar quarters beginning on or after the date the regulations are to be finalized. In the meantime, taxpayers may rely on the provisions of the regulations prior to them being finalized. Notably, taxpayers interested in commenting on the proposed regulations should submit comments by May 30, 2023.
At a high level, the regulations provide:
- General background information on the Superfund tax
- Rules for exporters to follow in order to claim a credit or refund for chemicals or imported substances that they have exported
- Definitions of terms “importer,” “manufacturer,” “use” and “sale”
- Model certificates for certain tax-free sales, including certain chemicals used to produce animal feed, fertilizer and motor fuel
- Clarification that recyclers are not exempt from the definition of the term “manufacturer”
Notice 2023-28: Extended relief from penalties for failure to deposit
In addition to the proposed regulations, the government on March 27, 2023, also released Notice 2023-28 relating to the failure-to-deposit penalties imposed by section 6556 of the Code for the reinstated Superfund excise taxes. Temporary relief was provided initially by Notice 2022-15. See prior coverage for more information. Notice 2023-28 extends the relief through the fourth calendar quarter of 2023.
The notice also extends the relief provided in Notice 2022-15 with respect to the IRS authority to withdraw a taxpayer’s right to use the deposit safe harbor rules. This relief is extended through the second calendar quarter of 2024.
Revenue Procedure 2023-20
Lastly, along with the proposed regulations and notice, the IRS on March 27, 2023, released Rev. Proc. 2023-20 (“Revenue Procedure”).
Section 4672(a) of the Code allows for an importer or exporter of any taxable substance to request a determination whether a substance should be added as a listed taxable substance or be removed. Notably, Rev. Proc. 2022-26 provides procedures for importers and exporters who wish to petition the government for a substance be added or removed from the list of taxable substances. See prior coverage for more information.
Rev. Proc. 2023-20, modifies the effective date of additions to the list of taxable substances set forth in Rev. Proc.2022-26. Under the modifications, for purposes of refund claims to be filed, the effective date of an addition of a substance to the list will be the first day of the calendar quarter in which the petition is filed, or the day on which the petition is deemed filed (for petitions filed by importers or exporters) For petitions filed by importers or exporters between July 1, 2022 and Dec. 31, 2022, the petition is deemed filed on July 1, 2022. For petitions filed after Dec. 31, 2022, and subsequently accepted by the IRS, the petition is deemed to be filed on the first day of the calendar quarter during which the petition was received. However, Treasury will have 180 days from the date it accepts the petition to make a determination as to whether to accept the petition.
Washington National Tax takeaways
The proposed regulations include welcome guidance for stakeholders. They provided important definitions for terms such as manufacturer, importer, sale and use. Many of the definitions follow the general excise tax rules, but some were expanded and are industry-specific. The proposed regulations provided guidance on issues of importance to the industry, including the treatment of mixtures and the taxability of recycling of chemicals.
Additionally, the proposed regulations provided rules regarding tax-free sales and claims for refund. Of particular importance are the rules related to tax-free sales and export credit claims. This is much-needed guidance for taxpayers to support tax free sales and to be able to begin the process of claiming refunds for chemicals sold for use or used in a nontaxable manner.
Lastly, the Notice extends temporary relief relating to the failure to deposit penalties imposed by section 6556 of the Internal Revenue Code, relating to the Superfund tax. The Revenue Procedure clarifies the date on which a substance is added or removed from the list of taxable substances, for purposes of claiming refunds. Treasury has provided more generous timing rules in the interest of sound tax administration. For petitions filed beginning in 2023, if the petition is filed in the middle of a calendar quarter, if the petition is accepted, the refund claims can generally be made going back to the beginning of that calendar quarter.
Taxpayers should revisit their initial tax determinations in light of the new guidance. To the extent there are still areas that need to be addressed, comments should be submitted to the Treasury Department. For more information on the Superfund excise taxes, please consult with your tax advisor.