News Alerts

Federal Oil Spill Tax Imposed on Exports Found Unconstitutional

The United States District Court for the Southern District of Texas has found the federal oil spill tax unconstitutional when imposed on exports of crude oil from the United States. The Court deferred judgment on the question of refunding taxes paid to a later date.

26 U.S.C. § 4611(b) states:

(1) IN GENERAL If—
(A) any domestic crude oil is used in or exported from the United States, and
(B) before such use or exportation, no tax was imposed on such crude oil under subsection (a), then a tax at the rate specified in subsection (c) is hereby imposed on such crude oil.

For years, this provision wasn’t imposed as exports of crude oil from the United States were heavily controlled and licenses rarely issued. When the export ban was lifted at the end of 2015, exports of domestic crude oil rose significantly, and the IRS started collecting the oil spill tax on these exports.

Plaintiff, Trafigura Trading, LLC filed suit, arguing that under the decision in United States v. U.S. Shoe Corp., 523 U.S. 360 (1998) the tax as imposed was unconstitutional as being in violation of the Export Clause. The U.S. Shoe case concerned the imposition of the Harbor Maintenance Fee (a Customs ad valorem charge on the value of cargo loaded at U.S. ports) on cargoes that were loaded at U.S. ports for export out of the United States. The Export Clause of the U.S. Constitution states that “No Tax or Duty shall be laid on Articles exported from any State.” In a unanimous opinion, the U.S. Supreme Court held that “the [Harbor Maintenance Tax], which is imposed on an ad valorem basis, is not a fair approximation of services, facilities, or benefits furnished to the exporters, and therefore does not qualify as a permissible user fee.”  U.S. Shoe applied the principals from a much older case, Pace v. Burgess, 92 U.S. 372 (1875). There, the Supreme Court upheld a stamp charge on exported tobacco on the basis that it was a set fee not contingent on the quantity or value of the package and was not excessive taking into account the costs involved in giving the exporter an exemption from the tobacco tax and to ensure against fraud.

Applying the U.S. Shoe case, the District Court determined that the federal oil spill tax is a tax that “does not fairly match the exporter’s use of the services provided by the funds raised from the charge.” (Funds from the oil spill tax go into the Oil Spill Liability Trust Fund to be used to assist in spill cleanup). The Court found that it failed both prongs of the Pace test, namely that the tax is proportionate to the quantity or value (it is a per barrel tax rather than a set fee) and that it was excessive with respect to the exporter’s use of the service provided. Granting Trafigura’s motion for summary judgment, the District Court held that the oil spill tax as imposed on exports is unconstitutional.

See “View PDF” for the full text of the decision.

Letter to IRS Commissioner to Stop Issuing Delinquency Notices Until Mail Backlog is Resolved

Rep. Richard Neal issued the attached letter to Commissioner Rettig requesting a stop to IRS notices for unpaid taxes to taxpayers. Many taxpayers have received delinquent notices even though returns and payments have been submitted. A large accumulation of mail sitting in trailers outside IRS facilities are at issue. The letter emphasizes that the notices should stop until the mail backlog is under control and taxpayer service is restored.

TASG encourages everyone to respond to IRS correspondence as warranted, even those notices that may appear to be in error. Taxpayers are required to exercise care and prudence, so it is important to consistently communicate in a timely and complete fashion. Make sure to mail responses with a tracking number or certified return receipt and retain copies of all responses.

IRS Notices Regarding Q1 Form 720

As a result of an extreme backlog of mail at the IRS Service Center, some taxpayers may receive a notice from the IRS stating that their Q1 Form 720 has not been received. Taxpayers who receive such a notice should do the following:

1. Check that any amounts on the notice (debits or credits) are correct;
2. Resend the tax return to the Department of the Treasury (include EFTPS confirmations if the amounts on the notice are incorrect).

These notices are not unexpected as the IRS Service Center was closed for a period due to the coronavirus pandemic and mail that was received during that time was not opened.

July 2 2020 Update on IRS Operations During COVID-19

The Internal Revenue Service issued an operations update on July 2, 2020. In that information they remind taxpayers and tax professionals to use electronic options to support social distancing and speed the processing of tax returns, refunds and payments where possible.

In addition, the news update (see attachment) reiterated that taxpayer services such as live assistance on telephones, processing paper tax returns and responding to correspondence continue to be extremely limited. The processing of paper tax returns are taking additional time due to limited staffing levels and will be processed in the order received. The IRS asks that you do not file a second tax return or contact them about the status of your return.

The IRS is continuing to assess the impact of COVID-19 on a range of compliance activity across the agency and will continue working cases where a statute of limitation is pending. In some of these situations, the IRS will work with the taxpayer or their representative to obtain an extension of the statute.

IRS COVID-19 Update – Reopening Steps

In a message from IRS Commissioner dated June 3, 2020, the Commissioner communicated the next steps to reopening operations. The National Treasury Employees Union (NTEU) which represents IRS employees, issued a press release (see attachment) in response to the Commissioner’s message. The NTEU press release provides additional details not included in the Commissioner’s message, so we thought we would share the NTEU document with you.

The NTEU letter states in part,

After IRS employees in Utah, Texas and Kentucky started reporting back to their buildings this week, the next wave is scheduled to report June 15 in Michigan, Georgia, Missouri and Tennessee, which includes the large campuses in Atlanta and Kansas City.

Employees in California, Indiana, Ohio, Puerto Rico and Oregon, including the large campus in Fresno, are due to report on June 29. The IRS Commissioner announced the call backs to employees in a message Wednesday night.

Not all frontline workers in those states will be recalled. Employees who are currently teleworking will continue to do so, according to the IRS. And those who are considered a medical high risk also do not have to return to their work stations and will either continue to telework or remain on administrative leave. Finally, the IRS intends to limit the recalls so they can ensure proper physical distancing between employees in the workplace.

NTEU is awaiting information from the IRS about how many employees it intends to call back for each location and business division.

“We understand that the IRS has a backlog of important work that cannot be done remotely and they need to restart systems as soon as possible, but our concerns about the coronavirus pandemic have not changed,” said NTEU National President Tony Reardon. “Employees remain anxious about the risks posed by taking public transportation, being in enclosed facilities with hundreds of coworkers and whether their work stations will be consistently and properly cleaned and disinfected.”[End of NTEU excerpt.]

So while we anticipate the start of IRS communications to claims and return notices, the NTEU response indicates that delays will continue as the IRS moves towards full staffing levels.

Virginia Sales Tax on Fuel

Virginia fuel wholesale tax will be levied in every cities and counties of VA starting July 1, 2020. See attached for reference.

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.