Rev. Rul. 83-72

Caution: Revoked by 85-17

                       Internal Revenue Service
                                 Revenue Ruling

                        WINDFALL PROFIT TAX; WITHHOLDING

                           Published: April 25, 1983

Section 4995. - -Withholding Depositary Requirements, 26 CFR 51.4995-1: Requirement of withholding.

(Also Section 4997; 51.4997-2.)

  Windfall profit tax;  withholding.  First purchasers must withhold windfall profit tax when, after the purchaser has furnished Form 6248 to the producer, a payment is made to the producers for oil removed in a prior year as a result of volume adjustments or retroactive price increases.

ISSUE

  Is withholding of windfall profit tax required in the situations described below?

FACTS

  In November 1982 A purchased crude oil from B, a producer of taxable crude oil, in a transaction in which A was required to withhold windfall profit tax.

  Situation 1. In December 1982 A paid B for the oil removed in November 1982 and computed and withheld the proper amount of windfall profit tax based on that quantity.  A deposited the tax and reported the transaction on Form 720, Quarterly Federal Excise Tax Return, for the quarter ended December 31, 1982, with Form 6047, Windfall Profit Tax, attached.  By March 31, 1983, A furnished B Form 6248, Annual Information Return of Windfall Profit Tax, also reflecting this transaction.  In April 1983 it was determined that more oil was removed in November 1982 than had originally been computed, resulting in a volume adjustment.  A now owed an additional amount to B for the oil removed in November.  Thus, neither the Form 6047 attached to Form 720 nor the Form 6248 reflected the correct volume of oil A purchased from B in November 1982.

  Situation 2. In December 1982 A paid B for oil removed in November 1982 and withheld the proper amount of windfall profit tax from the payment.  The tax was deposited and reported on time on Forms 720 and 6047.  By March 31, 1983, A furnished B Form 6248 reflecting this transaction.  Because of a retroactive price increase in April 1983, A owed B an additional $2 per barrel for the oil removed in November 1982.  Thus, the Form 6047 attached to Form 720 and the Form 6248 A furnished to B showed the correct amount of oil removed but at the price before the April 1983 adjustment.

LAW AND ANALYSIS

  Section 4986 of the Internal Revenue Code imposes an excise tax on the producer of crude oil on the windfall profit from taxable crude oil removed from the premises during each taxable period.  Section 4996(b)(7) of the Code defines taxable period as March 1980 and each calendar quarter beginning after March 1980.

  Section 4995(a)(1) of the Code provides that, except to the extent provided in regulations, the first purchaser of any domestic crude oil must withhold a tax equal to the amount of tax imposed by section 4986 from amounts payable by the purchaser to the producer of the oil.

  Section 4995(a)(3)(A) of the Code provides that, to the extent provided in regulations, the purchaser must correct withholding errors with respect to crude oil of a producer removed during any calendar year by making proper adjustments in the amounts withheld from subsequent payments to the producer for crude oil.  Under section 4995(a)(3)(B), there is a withholding error if the amount withheld by the purchaser for any payment of any crude oil is more than or less than the tax imposed by section 4986 with respect to the oil.

  Section 51.4995-1(c)(1) of the Excise Tax Regulations Under the Crude Oil Windfall Profit Tax Act of 1980 provides that a purchaser who ascertains that such a withholding error has been made must make adjustments in the amount to be withheld from subsequent payments to the same person.  The purchaser must make a full adjustment by underwithholding or overwithholding in subsequent payments to the same person so that the total amount withheld is equal to the tax imposed by section 4986 of the Code.  However, no adjustment may be made in the amount withheld from payments made after Form 6248 is furnished.

  Section 51.4997-2(c) of the regulations requires, as a general rule, that purchasers of crude oil furnish statements to producers and file information returns with the Internal Revenue Service on Form 6248.  The information required to be shown on Form 6248 includes the total quantity of oil removed during the year, the total amount of the windfall profit tax liability incurred on the oil removed during the year, and the total amount of windfall profit tax withheld on the oil removed during that year.  Form 6248 generally must be furnished by March 31 and filed by April 30 of the year following the year in which the oil was removed.  If a person required to furnish Form 6248 ascertains, after the statement has been furnished, that it contains an error, that person must correct the error within 60 days of ascertaining the error by furnishing a corrected statement and filing a corrected return.  If it is ascertained that the statement or return contains an inaccuracy not within the control of the person filing it, however, the person must correct the inaccuracy by March 31 of the following year.

  Thus, unless there is a specific exception in the regulations, the first purchaser must withhold windfall profit tax from payments made directly or indirectly to producers.  If the purchaser withholds an incorrect amount, or fails to withhold, from such a payment, adjustments must be made in subsequent payments to make up the difference.  No adjustment may be made, however, from payments made after Form 6248 is furnished to the producer.

  The situations in this case are not withholding errors that need be corrected by "adjustments" to the amounts withheld from subsequent payments described in section 51.4995-1(c)(1) of the regulations.  In Situation 1, the correct amount was withheld in December 1982 from the payment for the quantity of oil believed to have been removed.  There was no payment and no withholding in December 1982 on those additional barrels later determined to also have been removed. Similarly, in Situation 2, the amount withheld in December 1982 would have been correct but for the subsequent retroactive price increase.

  In both situations, A has amounts payable to B for the oil removed in the prior year from which A can withhold.  Unlike the situations contemplated in section 51.4995-1(c)(1) of the regulations, additional withholding need not be made from subsequent payments for different oil.  Rather, withholding can be made from payments made for the specific oil in question.

  Because there is no applicable exception, the general rule in section 4995(a)(1) of the Code requiring withholding from amounts payable by the purchaser to the producer applies.

  Under section 4986 of the Code, the taxable event that gives rise to windfall profit tax liability for the producer is the removal of the oil, not the receipt of payment for it.  In both situations, B 's liability is for 1982, the year of removal, not 1983, the year the additional amount became due.  Thus, it is necessary for A to correct the Form 6248 for 1982 furnished to B and filed with the Service.

  Situation 1, involving a volume adjustment, was within A 's control.  Situation 2, involving a retroactive price increase, was not within A 's control.

HOLDING

  Situation 1. A must recompute the windfall profit tax for the oil removed in November 1982 and withhold the correct additional amount of tax from the payment to be made to B.  In addition, A must furnish a corrected Form 6248 to B and file a corrected Form 6248 with the Service within 60 days of ascertaining the additional liability.

  Situation 2. A must recompute the windfall profit tax for the oil removed in November 1982 and withhold the correct additional amount of tax from the payment to be made to B.  In addition, A must furnish a corrected Form 6248 to B by March 31, 1983, and file a corrected Form 6248 with the Service by April 30, 1983.  However, because the information on Form 6248 may be material to a producer claiming a refund or reporting additional tax for 1982, first purchasers are encouraged to furnish the corrected Form 6248 as soon as possible.

  The Forms 720 and 6047 filed by A for the taxable period ended December 31, 1982, need not be amended.  For the procedure concerning how A should report and deposit the tax to be withheld in the two situations, see Rev. Proc. 83-27, page 53, this Bulletin.

Rev. Rul. 83-72, 1983-1 C.B. 300, 1983-17 I.R.B. 49.