At a rulemaking hearing for proposed rules on the reinstated Superfund excise taxes, the IRS heard from industry representatives that the requirement to make deposits on a semi-monthly basis imposes a severe administrative burden on taxpayers and that the frequency should be spaced out.
The Infrastructure, Investment, and Jobs Act (IIJA; PL 117-58) reinstated, as of July 1, 2022, the excise tax under Code Sec. 4661 on certain chemicals and the excise tax under Code Sec. 4671 on certain imported substances. Originally established by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the “Hazardous Substance Response Trust Fund” was in part bankrolled by these taxes, which expired December 31, 1995.
In March, the IRS issued proposed regs and other guidance on the new iteration of the Superfund excise taxes under the IIJA. See IRS Issues Proposed Regs, Other Guidance on Superfund Excise Taxes (03/28/2023).
A public hearing on the regs and the taxes in general was held October 25. Of the several administrative issues speakers from various organizations, trade groups, or corporations brought to the table during the hour-and-a-half meeting, a reoccurring point was raised. That being, how often taxpayers subject to the Superfund taxes are expected to make deposits equal to 95% of their liability to avoid penalty.
Currently, deposits are due on a semi-monthly basis, meaning generally deposits are due twice a month 14 days after the taxable period. Gus Makris of Michigan-based Dow Inc. explained that the chemical company, “presumably like many other companies, faces significant challenges in meeting the semi-monthly deposit requirements.”
“Our systems, processes, and reports are all designed to operate on a monthly basis in accordance with month-end close,” said Makris in his remarks at the hearing. “It’s therefore very challenging to calculate and pay tax based on the first 15 days of activity of the month by the 29th of the same month, which is before the month-end books have closed. And so accordingly Dow requests that in the final regulations, the IRS permit taxpayers to make deposits for payments payments or should at alternative times.”
Citing Code Sec. 6302A, Makris said the Treasury Department should exercise its authority to allow Superfund excise taxpayers to make monthly or quarterly deposits since the time to collect is not “specifically identified by the Code.” He argued that both options would be consistent with other excise tax payments, such as those for “recreational equipment, communication services, and airline tickets.”
This idea was supported by other participants of the hearing, including Steven Skiba, who spoke for Wilbur-Ellis Holdings, Inc. He noted that for a larger company like Dow to have these concerns has broader implications for “companies that may not have as much resources” that may face “even more of a burden” because they are unable to “keep up” with the process. Skiba signed off on a monthly or quarterly cycle as a solution.
“In a way,” Skiba continued, “if the deposit requirement were changed … the penalty abatement could also be impacted because then if they miss their deposits — well, if there’s a more reasonable approach to making those payments — presumably then, the penalties for underpayment should also lessen in that regard.”
The IRS has in place temporary penalty relief for failure to deposit Superfund excise taxes. Notice 2022-15 provided relief for the third and fourth quarters of 2022 and the first quarter of 2023 if taxpayers make “an affirmative showing that such failure is due to reasonable cause and not due to willful neglect.” Notice 2023-28 extended this relief through the end of calendar year 2023.
Jeff Wright, presenting for the National Association of Chemical Distributors, suggested the relief should not expire until 90 days after final regs are issued. “The taxpayers do not yet have the extensive guidance they need to comply with the tax,” said Wright.
For more information about the Superfund excise taxes, see Checkpoint’s Federal Tax Coordinator ¶ W-4500.
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