IRS Issues FAQ on Aviation Excise Tax Holiday

The IRS has issued an FAQ offering some guidance on the aviation excise tax holiday under the CARES Act. This includes the aviation fuel tax and the air transportation tax. With respect to the aviation fuel tax, the FAQ confirms that the holiday only applies to aviation fuel used in “commercial aviation” which is aviation fuel removed into the fuel tank of an aircraft. The ultimate purchaser can claim a refund of tax paid during the excise tax holiday or can waive its right to make such a claim which would then allow the registered ultimate vendor to claim the refund. There are no changes to the actual tax rates, the requirement to make semi-monthly deposits or the filing of tax returns. Additionally, the excise tax holiday only applies to kerosene actually used in commercial between March 28, 2020 and December 31, 2020; any kerosene purchased during this time that is not placed into the fuel tank of an aircraft is subject to the tax. The full list of FAQs and responses can be found at:  https://www.irs.gov/newsroom/faqs-aviation-excise-tax-holiday-under-the-cares-act.

Legislation Introduced in Congress to Ensure Receipt of Coronavirus Assistance Does Not Affect Ordinary Business Expenses

Senators Charles Grassley (R-IA) and Ron Wyden (D-OR), the Chairman and Ranking Member of the Senate Finance Committee have introduced legislation to ensure that taxpayers claiming benefit under the Paycheck Protection Program can still deduct normal business expenses from their taxes. The two page bill – S.3612, “The Small Business Expense Protection Act of 2020” – clarifies that paycheck protection loans in the CARES Act (Public Law 116-136) do not affect a taxpayer’s ordinary business expenses and confirms that ordinary business expenses such as wages, rent and employee health benefits can be deducted on the taxpayer’s income tax return. The legislation was introduced after the IRS issued guidance – IRS Notice 2020-32 – that the Senators said interpreted the statute in a manner contrary to what Congress intended (the Notice states that businesses may not take deductions for ordinary expenses covered by Paycheck Protection Program Loans).

The introduction of this legislation is striking in that this is the exact argument the energy industry has been making for years with respect to the alcohol and biodiesel mixture credits. In fact, in 2013 the IRS agreed that the credits were not to be included in income only to backtrack on its own guidance a few months later once the refund requests started rolling in. This change of position appeared to go against Congressional intent which was to confer the full benefit of the mixture credit, not reduce it by the excise tax. However, to date, Congress has not made any attempt to clarify the statute relating to the mixture credits. Here, the IRS appeared to do the exact same thing, by reducing the benefit of the payment protection loan through not allowing ordinary business expenses to be deducted. Congress has stepped in, saying that it intended to for the taxpayer to have the full benefit and if the IRS is not going to interpret it that way, Congress will need to clarify the language in the statute to ensure that the benefit is not reduced by the taxes.

Alabama Temporarily Suspends Motor Fuel License Requirements for Taxpayers Assisting in Disaster Relief Efforts

Alabama has temporarily suspended the motor fuel importer, exporter and transporter licensing requirements for taxpayers engaged in the business of exporting fuel from Alabama to surrounding states impacted by severe weather for which a state of emergency has been declared. The suspension also applies with respect to the import of fuel into areas of Alabama under a state of emergency or disaster declaration. This temporary license requirement suspension is effective until May 13, 2020.

Retroactive Biodiesel/Alternative Fuel Claim Status

TASG has received numerous calls regarding the retroactive claims asking if we know if there were any processing delays for these refunds. We contacted the IRS and learned that IRS personnel are processing claims and issuing refunds. If you haven’t received a refund let’s remember that the IRS has 60 days from receipt of a claim to pay it before interest is applied to the claim amount. Since the IRS only began accepting claims on February 14, 2020, they have until April 14, 2020 at a minimum to pay a claim before interest starts. So be patient as the processing window is still open and they are working.

Below is a summary of the key IRS points:

• IRS personnel are processing retroactive claims and issuing refunds – status could change due to COVID-19.
• Phone lines are currently down so IRS claim status inquiries are not available.
• Potential delay reasons:
  • Claims referred to field for exam – letter will be issued indicating the transfer.
  • IRS could pay a little late with interest.
  • Claim returned to claimant for additional information.
  • All correspondences may be delayed due to COVID-19

In conclusion, the good news is that IRS staff are working diligently. The bad news the status could understandably change and that patience is required. We know it is tough out there so hang in there. Best wishes to everyone.

IRS Guidance on Electronic Signatures and Filings

The IRS Deputy Commissioner for Services and Enforcement on Friday, March 27, 2020, issued guidance to all IRS Service and Enforcement employees advising that – for the time being – electronic and digital signatures and emailed documents are to be accepted in lieu of original signatures and documents that would require submission via mail. The guidance has immediate effect and though is only temporary in nature does not have a firm end date.

The guidance memorandum – issued to assist IRS employees who work remotely – states that electronic images of signatures (scans or photos) and digital signatures may be accepted on documents received from taxpayers. With respect to the digital signatures, the IRS does not provide a list of what will and will not be accepted but does say that the program must use encryption techniques. In the case of both electronic and digital signatures, the format must be one of the following: tiff, jpg, jpeg, pdf, Microsoft Office Suite or Zip.

With respect to receipt of documents electronically, the guidance memorandum states that eFax and secured electronic transmission are the preferred methods of receiving documents from taxpayers. However, if a taxpayer is not able to use one of these methods, regular e-mail may be used provided that IRS personnel advise taxpayers that this method is not secure and that as little identifying information as possible should be used. The guidance also states that taxpayers must include a statement saying that the document includes the taxpayer’s signature and is intended to be transmitted to the IRS. When the IRS sends documents it should be done via eFax or secured Zip.

The guidance does not apply to every type of document that may be filed with the IRS. The guidance memorandum states that it applies to the following categories of documents: “extensions of statute of limitations on assessment or collection, waivers of statutory notices of deficiency and consents to assessment, agreements to specific tax matters or tax liabilities (closing agreements), and any other statement or form needing the signature of a taxpayer or representative traditionally collected by IRS personnel outside of standard filing procedures (for example, a case specific Power of Attorney).” Note that the guidance does not apply to “standard filing procedures” which would suggest that there is no change to the rules with respect to signatures and filing of tax returns.

Coronavirus Stimulus Bill Includes Jet Fuel Excise Tax Holiday

The $2 trillion stimulus bill passed on Friday by Congress in the wake of the Coronavirus pandemic includes a provision enacting an “excise tax holiday” for federal excise taxes on sales of jet fuel (kerosene) for use in commercial aviation. Under the provision (below), as of the date of enactment (the bill was signed on Friday, March 27, 2020) – and through December 31, 2020 – it seems sales of jet fuel sold directly into the fuel tank of an aircraft for use in commercial aviation are subject only to the $0.01 per gallon LUST Tax. The federal excise tax would not be in effect for those sales. Under the language of the bill, it seems sales of jet fuel at the terminal rack into a refueler truck at an non-secured airport terminal will not be exempt from tax. To the extent that the federal excise tax is charged, it seems the ultimate purchaser (airline) can file for an exempt use refund. Note that per a footnote in the Joint Committee on Taxation Report on the estimated revenue effects of the bill, it seems that any tax paid jet fuel currently in inventory would not be not eligible for a refund of the tax paid prior to enactment of the legislation. This provision (which also provides an “excise tax holiday” for airfare ticket taxes) is designed to provide relief to the airline industry. We understand that there are currently discussions ongoing with the IRS seeking guidance as to the actual application of the bill’s language.

The bill is H.R. 748, the “Coronavirus Aid, Relief and Economic Security Act.” The text of the relevant provision is below. Note that to date, no states have enacted similar legislation.  We understand that there are currently discussions ongoing with the IRS seeking guidance as to the actual application of the bill’s language.

SEC. 4007. SUSPENSION OF CERTAIN AVIATION EXCISE TAXES.

(a) TRANSPORTATION BY AIR.—In the case of any amount paid for transportation by air (including any amount treated as paid for transportation by air by reason of section 4261(e)(3) of the Internal Revenue Code of 1986) during the excise tax holiday period, no tax shall be imposed under section 4261 or 4271 of such Code. The preceding sentence shall not apply to amounts paid on or before the date of the enactment of this Act.

(b) USE OF KEROSENE IN COMMERCIAL AVIATION.—In the case of kerosene used in commercial aviation (as defined in section 4083 of the Internal Revenue Code of 1986) during the excise tax holiday period—

(1) no tax shall be imposed on such kerosene under— (A) section 4041(c) of the Internal Revenue Code of 1986, or (B) section 4081 of such Code (other than at the rate provided in subsection (a)(2)(B) thereof), and

(2) section 6427(l) of such Code shall be applied— (A) by treating such use as a nontaxable use, and (B) without regard to paragraph (4)(A)(ii) thereof.

(c) EXCISE TAX HOLIDAY PERIOD.—For purposes of this section, the term ‘‘excise tax holiday period’’ means the period beginning after the date of the enactment of this section and ending before January 1, 2021.

Nebraska Provides Electronic Submissions of Redetermination (Protest) Petitions