Superfund taxpayers granted failure-to-deposit penalty relief

By Paul Bonner

The IRS provided temporary relief from a penalty for failure to deposit Superfund excise taxes and affirmed the availability of a safe harbor for deposits.

The relief in Notice 2022-15 released Friday applies to semimonthly deposits due in the third and fourth calendar quarters of 2022 and the first quarter of 2023. In addition, during the first through third quarters of 2023, the IRS will not withdraw the availability of a deposit safe harbor due to a failure to make required deposits of Superfund taxes, provided certain requirements are met.

The Superfund, or, as it is formally known, the Hazardous Substance Response Trust Fund, was first enacted in 1980. It taxes certain chemicals and chemical substances to fund cleanups of hazardous substances in the environment. The tax provisions sunset in 1995 but remained on the books, in Sec. 4661, which taxes certain chemicals sold by their manufacturer, producer, or importer, and Sec. 4671, which taxes related substances sold or used by importers. The provisions were reenacted in modified form last November by the Infrastructure Investment and Jobs Act, P.L. 117-58.

In Notice 2021-66 in December, the IRS published an initial list of taxable substances supplementing the statutory one, as required under the Infrastructure Act, and solicited comments. One of the seven comment letters received to date pointed out that the deposit safe harbor eligibility calculation for a calendar quarter involves the taxpayer's liability in a lookback quarter two calendar quarters prior. Since the reinstated taxes take effect July 1, 2022, no such lookback quarter will be available until the first calendar quarter of 2023.

The IRS acknowledged that observation in granting the relief, as well as the short time between the taxes' reinstatement and the first deposit's due date (July 29), along with initial difficulties in computing the taxes and making the deposits — in many cases, by taxpayers that have never been required to do so.

The Superfund taxes are reported on a form attached to Form 720, Quarterly Federal Excise Tax Return. Filers of Form 720 must deposit the tax semimonthly (the first 15 days of the calendar month or the portion of a calendar month following the 15th day of the month). The deposit must be at least 95% of the net tax liability incurred in the semimonthly period unless the deposit safe harbor applies.

Under the deposit safe harbor, a taxpayer that filed a Form 720 for the second preceding calendar quarter (the lookback quarter) is considered to have met the semimonthly deposit requirement if the taxpayer meets the following requirements: (1) The deposit for each semimonthly period in the current calendar quarter is at least one-sixth of the net tax liability reported for the lookback quarter; (2) each deposit is made timely; (3) the amount of any underpayment is paid by the due date of the applicable Form 720; and (4) the taxpayer's liability does not include any tax that was not imposed during the lookback quarter.

Generally, the IRS may withdraw the right to use the deposit safe harbor for any taxpayer that fails to make deposits as required. Also, taxpayers that fail to make timely deposits can incur a penalty under Sec. 6656 unless they affirmatively show the failure is due to reasonable cause and not due to willful neglect.

Accordingly, the IRS in Notice 2022-15 provides that taxpayers will be deemed to have satisfied the reasonable-cause standard under Sec. 6656 for semimonthly periods in the third and fourth quarters of 2022 and the first quarter of 2023, and no penalty will be imposed, for taxpayers that (1) make timely deposits of applicable Superfund taxes, even if the deposit amounts are incorrectly computed; and (2) pay in full the amount of any underpayment for any calendar quarter by the due date for the Form 720 for that quarter.

In addition, the IRS stated it will not withdraw a taxpayer's right to use the deposit safe harbor during the first, second, and third calendar quarters of 2023 due to a failure to make required deposits of Superfund taxes, so long as the taxpayer satisfies the reasonable-cause standard described above for the lookback quarter at issue.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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