Rev. Rul. 85-17

1985-1 C.B. 338, 1985-8 I.R.B. 37.

WINDFALL PROFIT TAX; WITHHOLDING REQUIREMENTS; RETROACTIVE ADJUSTMENTS

Published: February 25, 1985

Section 4995._Withholding; Depositary Requirements, 26 CFR 51. 4995-1:r Requirement of withholding,

(Also Section 4997; 51.  4997-2.)

  Windfall profit tax; withholding requirements; retroactive adjustments. 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. Rev. Rul. 83-72 revoked.

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 Form 6248, Annual Information Return of Windfall Profit Tax, to B 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. A determined that the windfall profit tax liability for the additional oil was $200. Thus, neither the Form 6047 attached to Form 720 nor the Form 6248 reflected the correct volume oil A purchased from B in November 1982 or the correct tax liability.

  SITUATION 2. In December 1982, A paid B for 50 barrels of 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 July 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 July 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, 1980-3 C.B. 1, 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. 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.

  Under section 51.4997-2(c)(5)(i) of the regulations, if a person required to furnish a yearly statement or file an information return under sections 51.4997-2(a) or 51.4997-2(c) ascertains not later than June 30 of the year following the year to which the statement relates that the statement or return is not correct, such person shall correct the error by furnishing a correct statement and filing a corrected return not later than the following July 31. However, the preceding sentence will not apply (A) in the case of an intermediary for which the intermediary is required to give a notification of error, of (B) if the corrected statement or return would reflect a change of less than $100 in each of the following items:  windfall profit tax liability, windfall profit tax withheld, and amount of underwithheld or overwithheld tax.

  Section 51.4997-2(c)(5)(ii) of the regulations provides that if at the time that a person is required to furnish an original yearly statement and file a return under section 51.4997-2(c) for any year, it has been ascertained that the statement of an earlier year was not correct and has not been corrected, such person shall furnish a corrected statement and file a corrected return by the time that the next original statement and return is required. However, the preceding sentence will not apply (A) in the case of an intermediary for an error for which the intermediary is required to give a notification of error, or (B) if the corrected statement or return would reflect a change of less than $1.00 in each of the following items:  windfall profit tax liability, windfall profit tax withheld, and amount of underwithheld or overwithheld tax.

  Thus, unless there is a  specific exception in the regulations, the first purchaser must withhold windfall profit tax from payments made directly or directly 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 not 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 Form 6248 for 1982 furnished to B and filed with the Service.

  In SITUATION 1, the error in the Form 6248 resulting from the computation based on an incorrect volume of oil was ascertained prior to June 30, 1983 (the year following the year to which the statement relates), is not an error of which an intermediary is required to give notice, and reflects a change of $100 or more in windfall profit tax liability. In SITUATION 2, the error in the Form 6248 resulting from the retroactive price increase was not ascertained prior to June 30, 1983, (the year following the year to which the statement relates), is not an error of which an intermediary is required to give notice, and reflects a change of $1 or more in windfall profit tax liability.

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 1983 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 not later than July 31, 1983.

  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 1983 payment to be made to B. In addition, A must furnish a corrected Form 6248 to B by March 31, 1984, and file a corrected Form 6248 with the Service by April 30, 1984. 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, 1983-1 C.B. 703.

EFFECT ON OTHER REVENUE RULINGS

  Rev. Rul. 83-72, 1983-1 C.B. 300, which was based on a substantially similar set of facts, is revoked in order to correctly state the contents of section 51.4997-2(c) of the regulations and its application to the facts in SITUATION 1 of this revenue ruling.

Rev. Rul. 85-17, 1985-1 C.B. 338, 1985-8 I.R.B. 37.