Rev. Rul. 81-99

1981-1 C.B. 312, 1981-13 I.R.B. 32.

                       Internal Revenue Service
                                 Revenue Ruling

                      WINDFALL PROFIT TAX; WHEN DEDUCTIBLE

                           Published: March 30, 1981

SECTION 461.--GENERAL RULE FOR TAXABLE YEAR OF DEDUCTION, 26 CFR 1.461-1: General rule for taxable year of deduction

(Also Sections 164, 4995; 1.164-1, 150.4995-1.)

  Windfall profit tax; when deductible. A producer of crude oil who uses the cash method of accounting may deduct windfall profit tax withheld from payments received from crude oil purchasers for the year in which the tax is withheld.

ISSUE

  When is the crude oil windfall profit tax properly deductible for federal income tax purposes for a taxpayer who uses the cash receipts and disbursements method of accounting?

FACTS

  P, a producer of crude oil, uses the cash receipts and disbursement method of accounting and files its federal income tax returns on a calendar year basis. During the calendar year ending December 31, 1980, P receives payments from which have been withheld by purchasers amounts representing windfall profit tax.  P is uncertain when these amounts are deductible for federal income tax purposes because of the language of section 4995(a)(4)(B) of the Internal Revenue Code.

LAW AND ANALYSIS

  Section 6011 of the Internal Revenue Code provides that any person made liable for any tax imposed by the Code, or for the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary.

  Section 4986(a) of the Code imposes an excise tax on the windfall profit from taxable crude oil removed from the premises.

  Section 4986(b) of the Code provides that the tax imposed by section 4986(a) shall be paid by the producer of the crude oil.

  Section 164(a)(5) provides that the windfall profit tax imposed by section 4986 of the Code shall be allowed as a deduction for the taxable year within which paid or accrued.

  Section 461 of the Code provides that the amount of any deduction allowed shall be taken for the taxable year which is the proper taxable year under the method of accounting used in computing taxable income.

  Section 1.461-1(a) of the Income Tax Regulations provides that under the cash receipts and disbursements method of accounting allowable deductions shall, as a general rule, be taken into account for the taxable year in which paid.

  Section 4995(a)(1) provides generally that the first purchaser of any domestic crude oil shall withhold an amount equal to the windfall profit tax from amounts payable by the purchaser to the producer of such oil.

  Section 4995(a)(4)(A) provides that the producer of any domestic crude oil shall be treated as having paid any amount withheld with respect to such oil as windfall profit tax.  Section 4995(a)(4)(B) provides that the producer shall be treated as having paid this amount on the last day of the first February after the calendar year in which the oil is removed from the premises.

  Section 4995(a)(4)(B) of the Code establishes the last day of February of the following calendar year as the date the windfall profit tax is deemed paid for purposes of credit or refund.  It does not affect the rule in section 164 relating to year of deductibility.

HOLDING

  The windfall profit tax withheld from P in calendar year 1980 is properly deductible on the income tax return for 1980.

Rev. Rul. 81-99, 1981-1 C.B. 312, 1981-13 I.R.B. 32.