Excise Tax 102

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					    Excise Tax 102

Energy & Environmental Taxes




                   January 21, 2011
        Frank Boland
       Chief, CC:PSI:7
• BA, TCU; JD, SMU
• IRS since 1977
• Branch chief of excise tax branch in
IRS Counsel since 2003
• Principal author or reviewer of most
of fuel tax guidance since 1988
    –(202) 622-3130
  –Frank.K.Boland@IRSCounsel.treas.gov
      Deborah Karet Gordon
• Senior Manager, KPMG Washington
  National Tax
  – (202) 533-5965
  – dkaret@kpmg.com
• Formerly--
  – IRS Chief Counsel Office
  – Clerk, United States Tax Court
• J.D. State University of New York; LLM
  New York University
           Word of Caution
• This is the Big Picture overview
• There are different rules for different taxes
• Federal excise tax law has a lot of
  exceptions to the general rules…and
  special rules for special cases on top of
  that
• Many terms are terms of art
          Today’s Agenda
• Overview of Excise Taxes and Procedural
  Rules
• Energy Taxes
• Environmental Taxes
                Overview
         Retailers & Mfg Taxes
         IRC Chapters 31 & 32
• Retailers                  • Manufacturers
  – Alternative fuels          –   Gas guzzler cars
  – Inland waterway trans.     –   Tires
  – Tractors, trucks,          –   Taxable fuel
    trailers                   –   Coal
                               –   Vaccines
                               –   Sport fishing equip.
                               –   Bows & arrows
                               –   Medical devices
            Overview
 Retailers & Mfg Taxes (cont’d)
• 26 CFR 48.0-2
  – Definitions and attachment of tax
• 26 CFR part 40
  – Procedural rules: time for filing Form 720;
    deposits
• IRC 6416(a) & (b)
  – Conditions to allowance
  – Certain uses & resales treated as
    overpayments
               Overview
     Facilities & Services Taxes
            IRC Chapter 33
• Amounts paid for:
  – Local-only telephone service
  – Transportation of persons or property by air
• Collected tax
  – Taxpayer is person paying for service; tax is
    collected & paid over by person receiving
    payment; IRC 6672 penalty applies to the
    collector
• 26 CFR part 40; IRC 6415
               Overview
         Environmental Taxes
           IRC Chapter 38
• Oil spill
   – IRC 4611
   – Form 720 and Form 6627
• Ozone-depleting chemicals
   – IRC 4681
   – Form 720 and Form 6627
           Overview
 Certain Other Taxes and Fees
• Transportation by   • Tanning
  water                 – IRC 5000B
  – IRC 4471            – Form 720
  – Form 720
                      • Branded prescription
• Highway use
                        drug fee
  – IRC 4481
                        – 9008 of ACA
  – Form 2290
• Wagering
  – IRC 4401, 4411
  – Forms 730, 11-C
              Overview
    Excise Taxes Outside of PSI:7
•   Foreign insurance (4371)
•   Obligations not in registered form (4701)
•   Firearms (4181)
•   Harbor Maintenance (4461)
•   Charities, employee plans, REITs
•   Alcohol, tobacco (subtitle E)
           Overview
      Where Does the $ Go?
• Truck and most fuel taxes
  – Highway Trust Fund
• Air transportation taxes (including av gas
  and jet fuel)
  – Airport and Airway Trust Fund
• General fund and other trust funds
• IRC uses “trust fund” in 2 different ways
  – Funds held by the U.S.
  – Collected taxes held “in trust” by the collector
            Overview
     General Procedural Rules
• Rules in subtitle F that refer to “this title” or
  “internal revenue taxes” apply to excise taxes
• So…usual assessment, collection, limitations, &
  enforcement rules apply
• But…the deficiency procedures don’t apply so
  taxpayers can’t petition Tax Court on excise tax
  assessment
• Instead, excise tax disputes are generally refund
  litigation in U.S. District Court or Claims Court
  – Excise taxes are divisible under Flora
             Overview
     Special Procedural Rules
• Retailers & mfg, facilities & services,
  environmental taxes…
  – 26 CFR part 40
  – Form 720 filed quarterly
  – Semi-monthly deposits by EFT
     •   95% of actual net liability, or
     •   1/6 of look-back quarter
     •   Special September rules
     •   Alternative method for Chapter 33 taxes
            Energy Taxes
• Taxable fuel
• Alternative fuels
• Renewable fuel incentives
              Taxable Fuel
            IRC 4081 & 4101
• Gasoline, diesel fuel, and kerosene
• Generally, tax on:
  – Removal from a terminal at rack, or
  – Non-bulk entry into U.S.
• Exemption from those taxable events for
  dyed diesel fuel & dyed kerosene
• IRS registration requirements
  – 26 CFR 48.4101-1
              Taxable Fuel
                Gasoline
• Gasoline means finished gasoline and
  gasoline blendstocks
  – Finished gasoline: Products commonly or
    commercially known or sold as gasoline
    suitable for use as a fuel in a motor vehicle
  – Gasoline blendstocks are products listed in 26
    CFR 48.4081-1(c)(3)
          Taxable Fuel
       Gasoline Blendstocks
• Includes butane, natural gasoline, straight-
  run gasoline, straight-run naphtha, toluene
• Excludes any product that cannot, w/o
  further processing, be used in production
  of finished gasoline
• Above-the-rack rules that apply to gasoline
  apply to gasoline blendstocks
• Special rules below the rack (26 CFR
  48.4081-4)
                    Taxable Fuel
                     Hot Topics
• Does entity deal in “taxable fuel”?
• Is the taxable fuel in the bulk system?
  – Persons dealing in taxable fuel above-the-rack before removal
    from the terminal rack may have excise tax responsibilities,
    including registration and information-reporting requirements, even
    though they have no excise tax liabilities

• Who may have excise tax responsibilities?
  – Operator of a butane storage facility
  – Commodities traders such as banks
            Alternative Fuels
                IRC 4041
• Formerly known as special fuels
• Liquids (and CNG) sold for use or used as
  fuel in motor vehicle or motorboat
  – Includes biodiesel (B100) and LPGs such as
    propane
  – Excludes fuel taxable under 4081
             Alternative Fuels
             When and Who
1. Delivery into fuel supply tank of vehicle
 in connection with sale
  – Seller liable
2. Sale in bulk & buyer gives seller
 certificate saying it’s all for a taxable use
  - Seller liable
3. Delivery into fuel supply tank by vehicle
 operator when #1 and #2 didn’t apply
  - Operator liable
           Alternative Fuels
              Exemptions
• Alternative fuel tax doesn’t apply to fuel
  used:
  – In farming
  – By states and nonprofit schools
  – In an off-highway business use
• CNG tax doesn’t apply to fuel used in
  certain buses
           Alternative Fuels
              Hot Topics
• Does taxpayer deliver alternative fuel into
  the fuel supply tank of a motor vehicle?
• Are sales made to exempt users?
       Renewable Fuel Incentives
        IRC 40, 40A, 6426, 6427
•   Alcohol fuels
•   Biodiesel and renewable diesel
•   Small ethanol and small agri-biodiesel producers
•   Cellulosic biofuel producers
•   Alcohol fuel mixtures
•   Biodiesel and renewable diesel mixtures
•   Alternative fuels
•   Alternative fuel mixtures
Renewable Fuel Incentives (cont’d)
    IRC 40, 40A, 6426, 6427
• All the renewable fuel incentives have been
  extended through 2011
• The incentive amounts vary
• Each incentive has different claim rules
  –   Some are nonrefundable income tax credits
  –   Some are excise tax credits
  –   Some may be excise tax payments
  –   Some may be refundable income tax credits
      Renewable Fuel Incentives
            Hot Topics
• Is taxpayer the proper claimant for the renewable
  fuel incentives?
• Has taxpayer complied with IRS registration
  rules?
  – Required registration for producers of alcohol,
    biodiesel, and cellulosic biofuel to avoid failure to
    register penalty
  – Alternative fuel claimants must be registered before
    claim may be allowed
• IRS to issue guidance on claims covering periods
  during 2010
       Environmental Taxes
• Ozone-depleting chemicals (ODCs)
• Oil spill
• Expired Superfund
                     ODCs
                Montreal Protocol
• Montreal Protocol is a series of international agreements
  relating to stratospheric ozone
   – Intent is to eliminate production and use of specified ODCs
     worldwide
   – Initial agreement effective January 1, 1989
• Under current Montreal Protocol
   – Developed countries would not produce or use specified ODCs
     after 1995
   – Developing countries would not produce or use those chemicals
     after 2009
• Congress implemented Montreal Protocol by imposing
  excise tax on certain ODCs and imported products
  manufactured using those ODCs, effective January 1,
  1990
   – IRC 4681
                      ODCs
                  IRC 4681-4682
• Imposes tax on importer’s sale or use of “imported
  taxable products”
   – Imported taxable product is any product entered into United
     States for consumption, use, or warehousing if any listed ODC
     was used in the manufacture of the product
   – Amount of tax based on weight of ODCs used in manufacture of
     product
• Who is liable for tax?
   – The importer; that is, the person that entered the product into the
     United States for consumption, use, or warehousing
                ODCs
         IRC 4681-4682 (cont’d)
• Lists taxable ODCs
   – Includes CFC-11 (foams), CFC-12 (air conditioners and
     refrigerators), and CFC-113 (electronics)
• Assigns an ozone-depletion factor to each listed ODC
   – Congress set ozone-depletion factor for each ODC in accordance
     with each ODC’s risk of depleting the ozone layer
   – The ozone-depletion factor for CFC-11 and CFC-12 is 1.0; the
     ozone-depletion factor for CFC-113 is 0.8
• Sets base tax amount for each year
   – In 1990, the base tax amount was $1.37 per pound
   – In 2011, the base tax amount is $12.55 per pound
• For each year, the rate of tax for each ODC (per pound) is
  the product of the base tax amount and the ozone-
  depletion factor for that ODC
                       ODCs
                   26 CFR part 52
• Regulations under 26 CFR part 52, Environmental Taxes
   – Imported products rules have not been updated since 1993
• What is an “imported taxable product”?
   – Any product entered into the United States for consumption, use,
     or warehousing, AND
   – Listed in the Imported Products Table (Table) in the regulations
• Products listed in the Table include:
   –   Electronics
   –   Refrigerators and freezers
   –   Foam sofas and chairs
   –   Cars and trucks
               ODCs
        26 CFR part 52 (cont’d)
• Generally, how is ODC weight determined for imported
  taxable products?
   – Exact method: the actual weight of each ODC used in
     manufacturing the product
   – Table method: the ODC weight listed in the Table for the
     product, if exact method is not used
• Under the Exact Method how does importer determine
  whether ODCs were used in manufacture of product?
   – Exact method must be supported by sufficient and reliable
     information, such as a letter to the importer signed by the
     manufacturer that adequately identifies the product and states
     the weight of each ODC used in the product’s manufacture
                          ODCs
                        Hot Topics
• Does taxpayer import articles that may be subject to the
  ODC tax?
   –   Electronics
   –   Refrigerators and freezers
   –   Foam sofas and chairs
   –   Cars and trucks
• Recent IRS examination focus on ODC tax
   – IRS agreement with the U.S. Customs and Border Protection
     agency to receive import information on potentially taxable
     articles, by Harmonized Tariff Schedule (HTS) number
   – Issuance of IRS ODC Excise Tax Audit Techniques Guide in
     September 2008
                  Oil Spill
                 IRC 4611
• Tax on crude oil and imported petroleum
  products (IRC 4611)
  – Crude oil received at a U.S. refinery
  – Petroleum products entered into the U.S. for
    consumption, use, or warehousing
• Oil spill rate of tax is $.08 per barrel
  – IRC 4611(c)(1)(B)
• Person liable for tax is:
  – Operator of refinery for crude oil received
  – Enterer of petroleum products
                Oil Spill
               Hot Topics
• Legislative proposals could increase oil
  spill tax to as much as $.78 per barrel
• No published guidance on scope of
  “petroleum products”
                     Superfund
                     Hot Topics
• Legislative proposals could reinstate the
  superfund taxes:
  – Tax on crude oil and imported petroleum products
    (IRC 4611)
  – Tax on certain chemicals (IRC 4661)
     • Lists the chemicals subject to tax
  – Tax on certain imported substances (IRC 4671)
     • Imported substances made using the chemicals listed in IRC
       4661
  – Corporate environmental tax (IRC 59A)
• Taxes would fund the Hazardous Substance
  Superfund Trust Fund
Questions?

				
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