Modifications to Superfund List Could Change Tax Liability

The Internal Revenue Service (IRS) recently issued guidance on the procedure to request that a substance be added to or removed from the list of substances subject to the Superfund excise taxes. Revenue Procedure 2022-26 provides the exclusive process for making the request, including the specific information that is required in a petition. (See the list of required information below).

The reinstated Superfund tax, effective July 1, 2022, decreased the weight or value tests required for a chemical to be taxable from 50 percent to 20 percent. This decrease could bring a number of modifications to the list, and taxpayers must be aware of any resulting tax changes.

Petition to Modify the List of Taxable Substances

An importer or exporter of any substance, or an interested party, may petition the IRS to make a determination that the substance be added to or removed from the list of taxable substances. A petitioner requesting to add a substance to the list must show that the taxable chemical constitutes more than 20 percent of the weight or value of the materials used to produce the substance, and a petitioner requesting to remove a substance from the list must show that the substance does not meet the weight or value tests. The Treasury Department must make the determination within 180 days after the request was filed. Separate petitions are required for each substance.

Effective Dates and Refund Claims

The date the Treasury files a determination with the Federal Register is not the date that a change is effective. Instead, determinations to remove or add a substance that are made during a calendar quarter are effective as of the first day of the second quarter following the quarter in which the determination is made. This gives a minimum of a 90-day notice of the change to both importers and exporters.

Importers will then be liable for the tax imposed by IRC Section 4671(a) on a taxable substance that is added to the list. Exporters of substances removed from the list will no longer be eligible to claim a credit or refund of the IRC Section 4661(a) tax paid on the sale by the manufacturer of any exported taxable chemical.

However, for purposes of refund claims for exported substances under IRC Section 4662(e), a determination to add a substance to the list is deemed to have added the substance to the list as of the date the petition was filed. As a result, a taxpayer who paid the Section 4661(a) tax on chemicals exported on or after the filing date of the petition may be entitled to a refund if a determination is made to add the substance to the list. A taxpayer in this situation that paid the Section 4661(a) tax may file a protective claim for refund of the tax while the petition is pending.

How Weaver Can Help

Weaver can provide information or assistance in complying with these changing requirements. This includes calculating the tax liability, filing and reporting requirements, and filing for a refund or a protective claim. For more information, contact us. We are here to help.

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Appendix: Required Information to Request a Determination

An importer, exporter, or interested person may submit a petition using electronic facsimile, email, or certified mail. Submission by electronic facsimile is preferred. A petition must include the following information:

1. A statement identifying whether the petitioner is an importer or exporter of the substance, or an interested person.
2. The name, address, taxpayer identification number (TIN) of the petitioner; if someone is filing the petition on behalf of the petitioner, the name of the person filing the petition and that person’s relationship to the petitioner. An interested person submitting a petition is not required to provide a TIN.
3. A Form 2848, Power of Attorney and Declaration of Representative, if the petition is submitted by the petitioner’s authorized representative.
4. The name of the substance.
5. A description of the substance and its use.
6. The molecular formula of the substance, the structural formula of the substance, and the physical form of the substance, as determined by the physical state of the substance (gas, liquid, solid).
7. The HTSUS number and the Schedule B number of the substance; the Chemical Abstract Service Registry (CAS) number of the substance, if applicable.
8. The name of the production process that the petitioner has identified as the predominant method of production of the substance.
9. The data supporting the petitioner’s position that the production process identified is the predominant method of production.
10. An explanation of the production process identified as the predominant method of production of the substance that emphasizes the overall chemical reaction used to process the underlying taxable chemical or chemicals into the substance.
11. The names, HTSUS numbers, Schedule B numbers, and CAS numbers (to the extent CAS numbers are applicable), of all taxable chemicals used as materials in the production of the substance, based on the process identified as the predominant method of production of the substance.
12. The molecular formula and the structural formula for each material used in the production of the substance, based on the process identified as predominant method of production of the substance.
13. The stoichiometric material consumption equation based on the process identified as the predominant method of production of the substance, assuming a 100-percent yield. The equation must include all materials that are consumed in the process.
14. The conversion factor for each taxable chemical used to produce the substance, based on the process identified as the predominant method of production of the substance.
15. If the substance is a mixture, the percent composition by weight of each component in the mixture, including solvents, stabilizers, and additives, as well as a description of each component’s function in the mixture.
16. Any tariff classification rulings the petitioner has received from CBP under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177) with regard to the substance.
17. A statement identifying the extent to which any information included in the petition, other than the information described in section 9.02 and 10.04 of this revenue procedure, is confidential business information that should not be published as part of the Notice of Filing or Notice of Determination.
18. A statement, signed under penalties of perjury, that the petitioner has examined the petition and to the best of petitioner’s knowledge and belief, the information in the petition is true, correct, and complete.

Petitions Based On Value

For petitions based on value, the following additional information is required:

1. The per-unit value of each taxable chemical used in the production of the substance, based on the predominant method of production.
2. The total value of all materials used in the production of the substance, based on the per-unit value of each material used in the predominant method of production.