Rev. Rul. 84-47

1984-1 C.B. 231, 1984-13 I.R.B. 15.

                       Internal Revenue Service
                                 Revenue Ruling

       WINDFALL PROFIT TAX; WITHHOLDING ADJUSTMENTS FOR SUSPENSE ACCOUNTS

                           Published: March 26, 1984

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

(Also Section 4997;  51.4997-2.)

  Windfall profit tax; withholding adjustments for suspense accounts.  First purchasers must make withholding adjustments for crude oil sales proceeds held in suspense accounts until Form 6248, Annual Information Return of Windfall Profit Tax, is provided to the producer.

ISSUE

  Is a first purchaser of crude oil required to make windfall profit tax withholding adjustments for crude oil sales proceeds held in a suspense account under the circumstances described below?

FACTS

  In October, 1982, X, a first purchaser of crude oil, bought taxable crude oil produced from property B.  Because the title to the royalty interest in B was being litigated, X was unable to identify the owner of that interest. Therefore, X withheld windfall profit tax from the proceeds attributable to that interest and placed the balance of the proceeds in a suspense account.

  On April 30, 1983, X filed with the Internal Revenue Service Form 6248, Annual Information Return of Windfall Profit Tax, for the suspense account.  On May 15, 1983, X discovered that too little windfall profit tax had been withheld and that the amount reported on the filed Form 6248 with respect to the October purchase was, thus, incorrect.  As of May 15, 1983, the proceeds held in the suspense account had not been distributed.

LAW AND ANALYSIS

  Section 4986 of the Internal Revenue Code imposes a tax on the windfall profit from taxable crude oil removed from the premises during each taxable period.  The tax is to be paid by the producer of the crude oil.

  Under section 4955(a)(1)(A) of the Code, except to the extent provided in regulations prescribed by the Secretary, the first purchaser of any domestic crude oil is required to withhold a tax equal to the amount of tax imposed by section 4986 with respect to such oil from amounts payable by such purchaser to the producer of such oil.  Under section 4995(a)(2)(B), the net income limitation is not to be applied for this purpose.

  Under section 4955(a)(3) of the Code, to the extent provided in regulations prescribed by the Secretary, withholding errors made by a purchaser with respect to the crude oil of a producer shall be corrected by that purchaser by making proper adjustments in the amounts withheld from subsequent payments to such producer for crude oil.

  Section 51.4995-1(c)(1)(ii) of the Excise Tax Regulations (relating to withholding adjustments) provides the full adjustment must be made, if possible, in the next payment.  If it is not possible to complete the adjustment in the next payment, the purchaser shall adjust to the fullest extent possible in each subsequent payment until the adjustment is completed. However, no adjustment is to be made in the amount withheld from payments made after the statement required by section 51.4997-2(c) (relating to annual statement of windfall profit tax liability) is furnished.

  Under Section 51.4997-2(c) of the regulations, for each calendar year purchasers must furnish a statement to each producer, operator, partnership, or disburser to whom the purchaser made payments and file with the Service a separate information return on Form 6248. Generally, the yearly statement is to be furnished by March 31 of the year immediately following the calendar year to which the statement applies, and the information return is to be filed with the Service by April 30 of that year.

  Under section 51.4997-2(e) of the regulations, if, due to the fact that the identity of the producer is not known or is in dispute, the sales proceeds from crude oil have been placed in escrow or otherwise held in suspense and have not been distributed to the producer at the time the information return is required to be filed under section 51.4997-2(c), a return (on Form 6248), clearly identified as relating to suspended funds, shall be filed for each account. Not later than 60 days after the sales proceeds have been released to the producer, a return shall be filed identifying the producer and the statements required by section 51.4997-2(c) (and section 51.4997-2(d) if requested by the producer) for past periods shall be furnished to the producer.

  Generally, a first purchaser of crude oil making payments to producers is not permitted to adjust errors in windfall profit tax withholding after providing the producer an annual statement on Form 6248 for the calendar year to which the error relates.  Under ordinary circumstances the annual statement must be provided not later than March 31 of the year following the year to which it

relates.  When the sales proceeds of crude oil are not paid to the producer because the identity of the producer is not known or is in dispute and the proceeds are placed by the purchaser in a suspense account and have not been distributed to the producer at the time the annual information return required by section 51.4997-2(c) of the regulations is required to be filed, the time for furnishing the annual statement to the producer is extended not to exceed 60 days from the date the suspended proceeds are distributed.  By that date another information return identifying the producer must also be furnished to the Service.

  In the situation described above, the statement has not been furnished to the producer as of the date the withholding error is discovered because there is a dispute over the identity of the producer, the holder of the royalty interest, and the sales proceeds held in the suspense account were for that reason not distributed as of that date.  Therefore, a withholding adjustment must be made with respect to the suspended funds.

HOLDING

  The first purchaser must adjust the underwithholding error by withholding additional tax from the amounts payable for the October production held in the suspense account and deposit the additional tax on or before the next regular deposit date.

Section 4997. - -Records and Information;  Regulations, 26 CFR 51.4997-2:  Certain information to be furnished by purchaser and others.

Rev. Rul. 84-47, 1984-1 C.B. 231, 1984-13 I.R.B. 15.