The IRS has issued limited penalty relief (Notice 2022-15) for failure to deposit new Superfund taxes that are scheduled to take effect on July 1.
The Superfund excise taxes under Section 4661 and 4671 were last effective in 1995 and were imposed on the sale or use of 50 identified chemicals as well as certain substances manufactured or produced from such chemicals. The Infrastructure Investment and Jobs Act (Pub. L. No. 117-58), enacted Nov. 15, 2021, reinstated the tax at new rates, and modified applicable chemicals, including lowering the taxable threshold for substances containing the covered chemicals.
The taxes are generally imposed on the manufacturer or importer of the chemicals. They are reported on Form 720 and must be deposited on a semi-monthly basis. Deposits generally must include at least 95% of the net liability for the period unless using a safe harbor provision.
The IRS provided the limited penalty relief shortly after 13 House Republicans wrote a letter to the IRS asking for even broader penalty forgiveness. The IRS acknowledged the difficulty in computing the taxes in the short time frame between enactment and reinstatement, especially with the number of new taxpayers who will tax and have not needed to comply with deposit requirements before.
Under the transition relief, the IRS will waive penalties for failing to deposit the taxes in 2022 and the first two quarters of 2023 for taxpayers that “make an affirmative showing that such failure is due to reasonable cause and not due to willful neglect.” Taxpayers will be deemed to meet this reasonable cause standard if they make timely deposits (even if incorrect), and the amount of any underpayment is paid in full by the quarterly due date for filing the Form 720. The IRS will also forgo its authority to withdraw the right to use the safe harbor deposit method for incorrect deposits.
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