On March 27, 2023, the Treasury Department (Treasury) and the Internal Revenue Service (IRS) issued much anticipated proposed regulations, REG-105954-22 (Proposed Regulations), and additional guidance in the form of Revenue Procedure 2023-20 (Rev. Proc.), and Notice 2023-28 (Notice) (collectively, the Guidance), related to excise taxes imposed on certain chemicals and imported chemical substances – commonly referred to as the Superfund chemical taxes (Superfund Chemical Taxes).

The comprehensive guidance package is the IRS’s first significant step toward formally fleshing out the bare-bones structural rules and definitions in Sections 4661, 4662, 4671 and 4672 of the Internal Revenue Code (Code),¹ which generally impose tax on “taxable chemicals” sold or used by a manufacturer, producer or importer and tax on any “taxable substance” sold or used by an importer of such substance.

At-a-glance: What you need to know

• Proposed Regulations provide:
  • Definitions of “Export”, “Exporter”, “Manufacturer”, “Sale”, “Use.”
  • Clarification that the definition of “Importer” does not include persons acting as an agent or customs broker.
  • How to identify the importer if the sale involves drop shipping a taxable chemical when the shipper is outside of the United States.
  • Section 4661 excise tax attaches to the first sale or use of a taxable chemical and to certain:
    • Domestically-produced chemical mixtures and compounds
    • Imported chemical mixtures containing taxable chemicals.
  • Section 4661 excise tax does not attach to certain:
    • Foreign manufacturers’ sale of a taxable chemical to an importer
    • Previously taxed chemical mixtures that are diluted with a non-taxable solvent
    • Taxable chemicals used in the production of imported compounds.
  • Addition of taxable chemical molecular formulas and clarification that all isomeric forms of a substance are treated as having the same name and molecular formula of the substance (except with respect to xylene).
  • When there are multiple taxable chemicals in a chemical mixture, the amount of tax is calculated separately for each taxable chemical in the chemical mixture.
  • Model certificates and supporting information required for credit or refund claims.
  • Model certificates for statutory exceptions to Superfund Chemical Taxes and tax free-sales for organic taxable chemicals that are part of an intermediate hydrocarbon stream.
  • Synthetic organic and inorganic substances are not eligible to be added to the list of taxable substances if they are textile fibers (other than polymers extruded in fiber form), yarns, and staples, or fabricated products that are molded, formed, woven, or otherwise finished into an end-use product.
  • No expansion of “G” registration or an allowance for tax-free sales among all “G” registrants.
  • Modifications to the Taxable Substances List requested in taxpayer comments must be made using Revenue Procedure 2022-26.
  • No delay of implementation of the Superfund Chemical Taxes.
  • Further comment requested on the following:
    • Application of Section 4661 to taxable chemicals used in the production of imported compounds;
    • Additional or alternative rules for application of Section 4661 to metals;
    • Appropriate methods that could be used to measure tonnage;
    • Industry documentation that can be used as records to support weight measurements;
    • Credit and refund claims for taxable chemicals used in substances not yet added to the taxable substances list, but meet the 20% weight or value requirement;
    • Predominate method of production or any other relevant information (such as weight or value of the taxable chemicals used in the manufacture or production of a taxable substance); and
    • Provision of HTS and CAS numbers for all taxable chemicals and substances, specifically the appropriate number of decimal places that would be used to identify the taxable chemicals and substances.

• Revenue Procedure 2023-20
  • Provides effective date of newly added taxable substances for purposes of claiming tax refunds.

• Notice 2023-38
  • Extends penalty relief to include deposits made Q2 through Q4 of 2023.

1. Background

On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act, Pub. L. No. 117-58 (the Jobs Act), which reinstated and expanded the Superfund Chemical Taxes after a 25-year hiatus. The Superfund Chemical Taxes apply to a long list of chemicals and chemical-containing substances, through December 31, 2031 -absent extension, and are used to fund the Hazardous Substance Response Trust Fund, the “Superfund”. Quarterly, taxpayers are required to file excise tax returns on Form 720, Quarterly Federal Excise Tax Return. Semi-monthly, taxpayers are required to make electronic deposits of the excise taxes, as applicable.

The reinstatement of the Superfund Chemical Taxes in modified form prompted manufacturers, producers and importers of chemicals to question if they were subject to the tax. Advances in the chemical and manufacturing industries since the 1990s coupled with the Jobs Act’s expansion of what substances qualify as a “taxable substance” created substantial uncertainty with all taxpayers that sell or use chemicals as to whether the sale or use of a certain chemical would cause the tax to apply. The Guidance goes a long way toward helping taxpayers answer the threshold questions of: “What are the Superfund taxes,” and “Do they apply to the chemicals I sell or use in my business?” For those taxpayers that have determined they are subject to tax, the Guidance answers many questions about how the Superfund Chemical Taxes are intended to apply.

2. Proposed Regulations

1. Overview

To set the stage, the Proposed Regulations’ preamble (Preamble) does an admirable job of chronicling the history of the Superfund Chemical Taxes. The Preamble considers taxpayer comments and contextualizes the Proposed Regulations, taking into account legislative history, prior guidance, the existing excise tax rules, and tax policy and fairness concerns. The result is a straightforward and reasoned explanation of a complex proposed framework to carry out relatively cryptic sections of the Code.

In practice, the Proposed Regulations will hopefully begin to ease compliance (or at the very least clarify how to comply) for those taxpayers most impacted. However, it should be noted that the Preamble recognizes the need for more guidance and outlines particular areas where taxpayer comments are requested, thus suggesting that there is more guidance to come.

Taxpayers will want (and expect) additional guidance with respect to the application of Section 4671 (taxable substances) – of the two Superfund Chemical Taxes arguably the tax more prone to head-scratching – which the Proposed Regulations only lightly address (mostly where Section 4671 overlaps with or refers to rules in Section 4661 (taxable chemicals) or rules set forth in prior IRS guidance).

That being said, tax practitioners have taken note of Treasury and IRS’s methodical and efficient efforts to release substantial relevant guidance to taxpayers and they should be commended for their ability to produce a comprehensive packet essentially only one year and some months after the law was enacted.

2. Nuts & Bolts

1. Taxable Chemicals – Section 4661

1. Imposition of Tax

Section 4661(a) imposes excise tax on taxable chemicals (i.e. those 42 chemicals listed in Section 4661(b) of the Code sold or used by the manufacturer, producer, or importer of the taxable chemical). Proposed Regulation Section 52.4661-1 provides rules clarifying Section 4661:

• Attaches to the first sale or use of a taxable chemical by the manufacturer, producer, or importer.
• Does not attach when a manufacturer, producer, importer, or subsequent purchaser of a chemical mixture dilutes the mixture, but only if the mixture contains tax-paid chemicals and the solvent used to dilute the mixture is not itself a taxable chemical.
• Does not attach to a foreign manufacturer’s sale of a substance listed in Section 4661(b) to an importer because the substance is not a taxable chemical at the time of the sale. Rather, the tax attaches to the importer’s first sale or use of the taxable chemical.
• In the case of taxable chemicals that are part of an imported chemical mixture that is not a taxable substance (as defined in Section 4672(a)), the Section 4661 tax attaches to the importer’s first sale or use of the chemical mixture.
• Attaches upon the first sale or use of chromite by the manufacturer, producer, or importer only after it is mined. For chromite, mining is not a taxable event.

2. Calculation of the Tax

Section 4661 tax applies at a specific rate per ton. The weight of the taxable chemical is the actual weight of the taxable chemical at the time of the sale or use by the manufacturer, producer, or importer. Proposed Regulation Section 52.4661-1(f)(2)(i). If there are multiple taxable chemicals in the chemical mixture, the amount of tax is calculated separately for each taxable chemical in the mixture. Proposed Regulation Section 52.4661-1(f)(2)(ii).

3. Definitions

The Proposed Regulations flesh out many undefined terms in the Code. We highlight some of the most significant below:

1. Taxable Chemical

A substance is a “taxable chemical” only if it satisfies both prongs of the definition: (i) it is listed in the Section 4661(b) table; and (ii) it is manufactured or produced in the United States, or entered into the United States for consumption, use, or warehousing.

The Proposed Regulations clarify that all isomeric forms of the 42 substances listed in Section 4661(b) table are treated as having the same name and molecular formula. Therefore, except with respect to xylene, an isomer of a substance listed Section 4661(b) is a substance listed in Section 4661(b). The Proposed Regulations further provide the molecular formula or chemical symbol for each of the 42 substances listed in Section 4661(b). The physical state of a substance, whether solid, liquid, gas, is immaterial.

2. Manufacturer

Proposed Regulation Section 52.4662-1(c)(6)(i) defines persons that are and are not manufacturers for purposes of Section 4661 tax.

“Manufacturer” includes:

• A producer;
• A recycler;
• Any person that produces a taxable chemical from new or raw material, feedstocks, or other substances, or from scrap, salvage, waste, or recycled substances;
• Any person that produces a taxable chemical from the mining process, or extracts, isolates, separates, or otherwise removes a taxable chemical from an ore or from another substance.

“Manufacturer” does not include:

• A person that dilutes a chemical mixture comprised of one or more tax-paid chemicals with a solvent that is not a taxable chemical.

3. Contract Manufacturing

“Contract manufacturing” occurs if a person manufactures or produces a taxable chemical for a second person, pursuant to a contract, order or agreement, and in accordance with the second person’s specifications; or if a person manufactures or produces a taxable chemical for a second person from materials owned by the second person, the second person is treated as the manufacturer of the taxable chemical manufactured by the first person. Proposed Regulation Section 52.4662-1(c)(6)(ii).

4. Importer

An “importer,” is defined in the Code as the person entering the taxable chemical for consumption, use or warehousing. If the person entering the taxable chemical is merely acting as an agent or customs broker for another person, then the Proposed Regulations clarify that the agent or customs broker is not the importer, rather, the importer is the first person in the United States to sell or use the taxable chemical after entry of the taxable chemical for consumption, use or warehousing. Proposed Regulation Section 4662-1(c)(5)(i).

The Proposed Regulations further define in the context of importer, “drop ship business”, in and outside of the United States. Such that if a drop ship business in the United States purchases or otherwise arranges for a person outside the United States to ship a chemical listed in Section 4661(b) directly to a purchaser in the United States, the drop shipper is the importer. Proposed Regulation Section 4662-1(c)(5)(ii).

5. Sale

“Sale” means the transfer of title or substantial incidents of ownership (whether or not delivery to, or payment by, the purchaser has been made) in a taxable chemical for a consideration, which may include, but is not limited to, money, services or property. Proposed Regulation Section 52.4662-1(c)(8).

6. Use

A taxable chemical is used when it is consumed, when it functions as a catalyst, when its chemical composition changes, when it is used in the manufacture or production of a chemical mixture or other substance (including by mixing or combining the taxable chemical with other substances), or when it is put into service in a trade or business for the production of income. The mere manufacture or production of a taxable chemical is not a use of that chemical. Proposed Regulation Section 52.4662-1(c)(15).

7. Entry for consumption, use or warehousing

“Entry for consumption, use or warehousing,” when used in respect to any goods, means:

• Brought into the customs territory of the United states (customs territory) if applicable customs law requires that the goods be entered into the customs territory for consumption, use or warehousing;
• Admitted into a foreign trade zone for any purpose if like goods brought into the customs territory would be entered into the customs territory for consumption, use, or warehousing; or
• Imported into any other part of the United States for any purpose if like goods brought into the customs territory would be entered into the customs territory for consumption, use or warehousing. Proposed Regulation Section 52.4662-1(c)(2).

4. Export Exception

Section 4662(e)(1)(A) provides that no tax under Section 4661 is imposed on the sale by the manufacturer or producer of any taxable chemical for export, or for resale by the purchaser to a second purchaser for export. The Proposed Regulations clarify that a manufacturer or producer may not sell a taxable chemical tax free to a first purchaser for resale to a second purchaser that does not intend to export the taxable chemical itself but instead plans to sell it to a third purchaser that will resell or export it.

1. Exporter and Exportation Defined

“Exporter” means the person named as shipper or consignor in the export bill of lading. Proposed Regulation Section 52.4662-1(c)(4).

“Exportation” means the severance of a taxable chemical from the mass of things belonging within the United States with the intention of uniting it with the mass of things belonging within a foreign country. Proposed Regulation Section 52.4662-1(c)(3).

2. Proof of Export When Manufacturer is Exporter

In order to claim an exemption for export, the Code requires proof of export and provides that rules similar to those of Section 4221(b) shall apply for this purpose. The Proposed Regulations clarify that the following items constitute proof of export when the manufacturer or producer is the exporter:

• A copy of the export bill of lading issued by the delivering carrier;
• A certificate by the agent or representative of the export carrier indicating actual exportation of the taxable chemical;
• A certificate of lading signed by a customs officer of the foreign country to which the taxable chemical was exported;
• Where the foreign country has no customs administration, a statement of the foreign consignee showing receipt of the taxable chemical; or
• Where a department or agency of the United States government is unable to furnish any one of the foregoing types of proof of exportation, a statement or certification on department or agency letterhead, executed by an authorized person, that the taxable chemicals have been exported.

3. Statement of Export When Manufacturer is not Exporter

When the manufacturer or producer is not the exporter of the taxable chemical, it must have in its possession a statement from the first purchaser stating that the taxable chemical was, in fact, exported by the first purchaser, or was resold to a second purchaser that exported the taxable chemical. The statement of export must be received no later than the close of the 6-month period that begins on the earlier of the date the manufacturer or producer sold the taxable chemical to the first purchaser, or the date the manufacturer shipped the taxable chemical to the first purchaser. A Model Statement of Export is provided at Proposed Regulation Section 52.4662-5(ii)(B). The statement of export must be signed under penalty of perjury and maintained in the manufacturer’s business records.

4. Limitation on Export Exemption

Unless the manufacturer or producer has received proof of export in the form of the Model Statement of Export during the 6-month period, the Proposed Regulations provide that the export exemption under Section 4662(e)(1) will cease to apply, after which the manufacturer or producer is liable for tax under Section 4661.

5. Credit or Refund for Export

In general, the person that paid the Section 4661 tax is allowed a credit or refund if the taxable chemical was exported by any person; or the chemical was used as material in the manufacture of a substance that was exported by any person and, at the time of export was a taxable substance. In order to claim such a credit or refund, the Proposed Regulations provide that certain supporting information is required, including the name of the tax-paid chemical, the total number of tons exported, the amount of tax paid and proof of export in the form of the Model Statement. In the case of a tax-paid chemical used to manufacture a taxable substance, the claim must include the name of each taxable substance and the number of tons of each taxable substance exported during the period covered by the claim. Similar rules are provided for credits or refunds paid directly to the exporter of the taxable chemical (or taxable substance).

5. Exceptions from Section 4661 Tax

1. Methane or Butane Used as Fuel

Methane and butane are treated as taxable chemicals only if they are used other than as a fuel, or otherwise than in the manufacture or production of any motor, diesel, aviation, or jet fuel. Proposed Regulation Section 52.4662-2(a)(2), provides that methane or butane is used otherwise than as a fuel when it is used other than in the production of energy. The Proposed Regulations give practical examples of when methane or butane is used other than as fuel. For instance, Example 2 provides that methane is not treated as a taxable chemical until it is used to produce antifreeze.

2. Qualified Fertilizer, Sulfuric Acid, Substances Derived from Coal, Motor Fuel, and Qualified Animal Feed

The Proposed Regulation Sections 52.4662-2(b) - (f), provide rules regarding exceptions from Section 4661 tax for qualified fertilizer substances, sulfuric acid produced solely as a byproduct of air pollution control, substances derived from coal, qualified fuel substances, and qualified animal feed substances, respectively. Tax-free sales of qualified fertilizer, motor fuel, and animal feed substances may be made by the manufacturer, producer or importer (or, in the case or resales, the reseller) if an unexpired exemption certificate in a form substantially the same as the Model Certificate provided in the Proposed Regulations is obtained from the purchaser prior to the time of or at the time of sale. The Proposed Regulations provide that the certificate must be signed under penalties of perjury by a person with authority to bind the purchaser. A new certificate must be given if any information changes or one year has passed since the effective date specified on the certificate.

3. Intermediate Hydrocarbon Streams

Section 4662(b)(10)(A) of the Code provides that Section 4661 does not apply to any organic taxable chemical while it is part of an intermediate hydrocarbon stream containing one or more organic taxable chemicals, if certain requirements are met. For this purpose, the Proposed Regulations define intermediate hydrocarbon stream to mean a mixture of organic chemicals that requires further distillation or processing to manufacture or produce a taxable chemical.

If an organic taxable chemical on which no Section 4661 tax was previously imposed, is isolated, extracted or removed, or ceases to be part of (collectively, isolation) an intermediate hydrocarbon stream, such isolation is treated as a use by the person causing the isolation, and the person is treated as the manufacturer of the organic taxable chemical so isolated, meaning Section 4661 tax applies.

• An “organic taxable chemical” is any taxable chemical that is an organic substance, including acetylene, benzene, butane, butylene, butadiene, ethylene, methane, naphthalene, propylene, toluene, and xylene. Note that butane and methane are treated as taxable chemicals only when used other than as a fuel or in the production of a fuel. They are not organic taxable chemicals at the time of isolation from an intermediate hydrocarbon stream.
• When isolation of an organic taxable chemical is a multi-step process, the first process a person uses to isolate the organic taxable chemical is treated as a use by the person causing the isolation and such person is treated as the manufacturer.
• For purposes of calculating Section 4661 tax, unless the person causing the isolation is able to establish, with specificity, the weight of the taxable chemical contained in the chemical mixture, the tax is imposed on the weight of the entire chemical mixture.

The exception to Section 4661 tax applies only if at the time of sale of any intermediate hydrocarbon stream both parties are taxable chemical registrants, the seller has an unexpired notification certificate from the purchaser, substantially similar to the Model Notification Certificate provided in the Proposed Regulations, and the seller has no reason to believe that any information in the notification certificate is false. The notification certificate must be signed under penalty of perjury by someone with authority to bind the person receiving the taxable chemical. The certificate expires on the earlier of the date the person provides a new certificate or the date the person is notified by the IRS that the registration has been revoked or suspended. A copy of the letter of registration issued by the IRS to a taxable chemical registrant may not be used as a substitute for the notification certificate.

4. Inventory Exchanges

Section 4662(c) provides that in the case of an inventory exchange of a taxable chemical the exchange is not treated as a sale and the party receiving the chemical in the exchange is treated as the manufacturer, producer or importer if certain requirements are met. For this purpose, the Proposed Regulations define inventory exchange to mean any exchange in which two persons exchange property that is, in the hands of each person, inventory property. The exception to tax applies if at the time of the exchange both parties are taxable chemical registrants, the manufacturer, producer or importer has an unexpired notification certificate in a form substantially the same as the Model Notification Certificate provided for in the Proposed Regulations from the person receiving the taxable chemical, and the manufacturer, importer or producer has no reason to believe the information in the notification certificate is false. The notification certificate must be signed under penalty of perjury by someone with authority to bind the person receiving the taxable chemical. The certificate expires on the earlier of the date the person provides a new certificate or the date the person is notified by the IRS that the registration has been revoked or suspended. A copy of the letter of registration issued by the IRS to a taxable chemical registrant may not be used as a substitute for the notification certificate.

6. Credits and Refunds

Proposed Regulation Section 52.4662-4 provides rules and procedures for claiming Section 4661 credits and refunds, including an explanation of “conditions to allowance,” required documentation and information to support the claim for a refund or credit.

Refunds and credits are available for:

• Tax-paid chemicals used to make taxable chemicals – any Section 4661 tax paid on a taxable chemical by the manufacturer, producer, or importer (initial manufacturer) that is subsequently used by any person (subsequent manufacturer) in the manufacture or production of any other substance that is a taxable chemical (subsequent taxable chemical) will be allowed as a credit or refund to the subsequent manufacturer as if it were an overpayment of the Section 4661 tax.
  • Complex allocation required in certain circumstances. If the subsequent manufacturer uses a tax-paid chemical to manufacture multiple subsequent taxable chemicals, a subsequent taxable chemical and another substance, or one or more subsequent taxable chemical and one or more other substances, the subsequent manufacturer must allocate the over payment of the Section 4661 tax paid on the tax-paid chemical (first tax) among all subsequent taxable chemicals and other substances manufactured or produced with the tax-paid chemical and apply the allocation to the claim for credit or refund.
• Fertilizer Chemicals – Section 4661 tax paid on nitric acid, sulfuric acid, ammonia or methane used to produce ammonia that any person uses as a qualified fertilizer substance will be allowed as a credit or refund (without interest) to the person using the fertilizer chemical as a qualified fertilizer substance.
• Fuel Chemicals - Section 4661 tax paid on acetylene, benzene, butylene, butadiene, ethylene, naphthalene, propylene, toluene, or xylene that any person uses as a qualified fuel substance will be allowed as a credit or refund (without interest) to the person using the fuel chemical as a qualified fuel substance.
• Animal Feed Chemicals – Section 4661 tax paid on nitric acid, sulfuric acid, ammonia, or methane used to produce ammonia that any person uses as a qualified animal feed substance will be allowed as a credit or refund (without interest) to the person using the animal feed chemical as a qualified animal feed substance.
• General Conditions to Allowance. A claim for a refund or credit of Section 4661 is allowed only if with respect to each of the above exceptions to tax:
   
  1. The first tax was paid to the IRS and was not credited or refunded;
  2. After payment of the first tax, the person or subsequent manufacturer used the relevant chemical for the qualified purpose (i.e., (i) to produce subsequent taxable chemicals, (ii) for fertilizer, (iii) for fuel, or (iv) for animal feed);
  3. A claim for credit or refund was timely filed and contained the appropriate supporting information detailed in the Proposed Regulations (such as, in the case of tax-paid chemicals used to make taxable chemicals, the name of each subsequent chemical produced, total number of tons, amount of tax paid, and allocation if required); and
  4. A supporting certificate substantially the same as the model certificate provided in the Proposed Regulations is submitted with the claim or refund that is signed under penalty of perjury, by a person with authority to bind the person that paid the Section 4661 tax.

2. Taxable Substances - Section 4671

1. General Rules

Section 4671 imposes tax on an importer’s sale or use of a taxable substance. Section 4671 tax attaches at the time the importer first sells or uses the taxable substance. Importers of taxable substances are not required to use the rate or rates prescribed by the Secretary, but may instead calculate the amount of Section 4671 tax. The Proposed Regulations provide an example of how to make such a calculation.

Proposed Regulation Section 52.4672-1 provides definitions applicable to the Section 4671 tax. To the extent there is overlap, the definitions proposed with respect to Section 4671 tax track the definitions in Proposed Regulation Section 52.466-1 with respect to Section 4661 tax.

2. Predominant Method of Production

In certain cases, the Secretary may determine that a substance should be added to the list of taxable substances because it exceeds the 20% weight or value threshold, or prescribe a rate for a taxable substance. In such cases, the determination is based on the predominant method of production. Proposed Regulation Section 52.4672(1)(b)(4) defines, “Predominant Method of Production” as the method used to produce the greatest number of tons of a particular substance worldwide, relative to the total amount produced worldwide. Treasury and IRS have requested further comment on the definition of predominant method of production and that taxpayers provide any other relevant information (such as weight or value of the taxable chemicals used in the manufacture or production of a taxable substance) for certain taxable substances listed in the statute in Section 4672(a)(3).

3. Exemption from Section 4671 Tax

The Code provides that no Section 4671 tax is imposed on the importer’s sale or use of any taxable substance if tax is imposed on such sale or use under Section 4611 (imposing an excise tax on crude oil received at a US refinery and on imported petroleum products entered into the United States for consumption, use, or warehousing) or Section 4661. The Proposed Regulations do not provide further guidance regarding how this exemption should apply.

4. Tax-Free Sales: Fuels, Fertilizer, Animal Feed

Section 4671(d) provides that rules similar to those in Section 4662(b)(2), (5), and (9), pertaining to fertilizer, motor fuel, and animal feed, respectively, apply to taxable substances used or sold for use as described in those sections. The Proposed Regulations in Section 52.4671-2(b) contain rules regarding how to effectuate tax-free sales under Section 4671(d)(1) in regard to taxable substances used as materials in the manufacture or production of fertilizer, motor fuel, and animal feed. The Proposed Regulations provide that if all taxable chemicals used as materials in the manufacture or production of a taxable substance would have been exempt from tax under Section 4662(b)(2), (5), and (9), as applicable, if such taxable chemicals had been sold in the United States for use in the manufacture or production of the taxable substances, then no Section 4671 tax is imposed.

To make a tax-free sale of a taxable substance, the importer (or reseller) must (i) obtain an unexpired exemption certificate from the purchaser, (ii) at or prior to the time of the sale, and (iii) have no reason to believe that any information in the certificate regarding the use of the taxable substance is false.

The Proposed Regulations provide that tax-free sale treatment is only available if all taxable chemicals used as materials in the manufacture or production of a taxable substance would have been exempt under Section 4662(b)(2),(5), or (9).

The exemption certificate must be in the substantially same form as the Model Exemption Certificate provided in the Proposed Regulations and be signed under penalty of perjury by an individual with authority to bind the purchaser. A new certificate must be issued anytime the information in the certificate changes. The certificate expires no later than one year from the effective date specified in the certificate. If the purchaser uses the taxable substance for a purpose other than that included in the certificate, the IRS may withdraw the right of the purchaser to submit an exemption certificate.

Credits and refunds for Section 4761 tax paid with respect to a taxable substance are available provided the conditions to allowance are satisfied. Similar rules to those discussed above with respect to Section 4661, are detailed in Proposed Regulations Section 52.4671-2(c).

3. Procedural Rules

Proposed Regulations Sections 52.4661-1(d) and 52.4671(d) provide that the Excise Tax Procedural Regulations in 26 CFR Part 40 apply to the Superfund Chemical Taxes, including rules related to filing excise tax returns, making semi-monthly deposits of tax and making payments of excise tax. Each business unit that has a separate EIN is treated as a separate person for purposes of filing quarterly excise returns, making semi-monthly excise tax deposits, and payments of excise tax.

4. Applicability Dates

Proposed Regulations to apply to sales or uses in calendar quarters beginning on or after the date the Treasury decision adopting the Proposed Regulations as final regulations is published in the Federal Register. Taxpayers may rely on the Proposed Regulations prior to that date, as long as they follow the Proposed Regulations in their entirety and in a consistent manner.

3. Revenue Procedure 2023-20

Revenue Procedure 2023-20 modifies the effective date on which a substance is added to the list of taxable substances under Section 4672(a) (the List) only for purposes of claiming a credit or refund of Section 4661 tax under Section 4662(e) if the substance is exported, as follows:                   

• Petitions submitted and accepted after December 31, 2022: Added to the List, the first day of the calendar quarter during which the petition is filed.
• Petitions submitted by an exporter or importer and accepted by the IRS between July 1, 2022 and December 31, 2022: Added to the List, July 1, 2022.

4. Notice 2023-28

Notice 2023-28 extends the temporary relief provided in Notice 2022-15 concerning deposit penalties for failing to deposit Superfund Chemical Taxes through the fourth quarter 2023.

Notice 2022-15 provides that a taxpayer will be deemed to have satisfied the reasonable cause standard, and no penalty under Section 6656 for underpayment of deposits for the Superfund Chemical Taxes will be imposed, if the taxpayer (i) makes timely deposits of Superfund Chemical Taxes, even if the deposited amounts are computed inaccurately, and (ii) pays in full the amount of any underpayment by the due date for filing the Form 720 return for the applicable quarter.

Finally, during the fourth quarter of 2023, and the first and second quarters of 2024, the IRS will not exercise its authority to withdraw a taxpayer’s rights to use the deposit safe harbor due to a failure to make deposits of Superfund Chemical Taxes, provided the above two requirements are met for the look-back quarter at issue.

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