Rev. Rul. 86-96

1986-2 C.B. 181, 1986-32 I.R.B. 5.

COAL; EFFECT OF MOISTURE CONTENT ON TONNAGE DETERMINATION

Published: August 11, 1986

Section 4121.-Imposition of Tax, 26 CFR 48.4121-1: Imposition and rate of tax on coal

  Coal; effect of moisture content on tonnage determination. The Service will allow a calculated reduction of the taxable weight of excess moisture. Rev. Rul. 82-222 modified.

  Rev. Rul. 82-222, 1982-2 C.B. 295, holds that the federal excise tax imposed by section 4121 of the Internal Revenue Code on a producer's sale of coal applies to the full amount of coal sold by the producer. This amount was to be determined at the point of sale with no reduction for moisture content.

  In A.J. Taft Coal Co. v. U.S., 605 F.Supp. 366 (N.D. Ala. 1984), aff'd without opinion, 760 F.2d 280 (11th Cir. 1985), the court held that, for purposes of section 4121 of the Code, the term 'coal' does not include water that is in excess of the coal's inherent moisture content and that is reasonably measurable.

  For purposes of the tax imposed by section 4121 of the Code, the Internal Revenue Service will follow the Taft Coal Co. decision regarding the moisture content of coal. The Service will allow a calculated reduction of taxable weight of coal for the weight of excess moisture, but only where the taxpayer can demonstrate through competent evidence that there is a reasonable basis for its determination of the existence, and amount, of excess moisture.

EFFECT ON OTHER REVENUE RULINGS

  Rev. Rul. 82-222 is modified.

Rev. Rul. 86-96, 1986-2 C.B. 181, 1986-32 I.R.B. 5.