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The Future of Superfund Taxes Lies in IRS Flexibility

Now that the Biden administration has resurrected Superfund excise taxes on dozens of hazardous chemicals and substances, the countdown is on for the IRS to release long-awaited rules before the taxes begin July 1.

Meanwhile, chemical industry groups are pushing for the agency to ease taxpayers into the new regime. Some, including Battery Council International, are even supporting legislation that would eliminate reinstated Superfund taxes on chemicals like lead oxide and sulfuric acid.

That feedback underscores that the Biden administration and the IRS are in a crucial period. The original Superfund taxes, used to finance the cleanup of hazardous waste sites, including landfills and abandoned factories, expired in 1995, and their reinstatement is a success, both for environmental justice in the United States and for the country's international reputation.

For years, the US has lagged behind its peers on environmental taxes.

But restoring the taxes was one battle and managing them is another. The responses the IRS has received so far strongly suggest that the success of the Superfund excise taxes will lie partially in the government's ability to ease the transition for taxpayers so that Congress does not decide again to let the taxes lapse when the time comes. The renewal. in 2031.

The original Superfund taxes targeted three areas: petroleum excise taxes, chemical feedstock excise taxes, and environmental income taxes. The reinstated taxes focus on imported chemicals and hazardous substances and will have much higher rates for a broader group of substances. Tax rates on hazardous substances entering the US for consumption, use, or storage will be doubled.

Several industry groups are particularly concerned about the reinstatement of an excise tax on hazardous substances in IRC section 4671. Last December, the IRS published a preliminary list of taxable substances that, if finalized, would apply to 152 chemicals, including glycerin and acetic acid. That's a sizable expansion: The previous regimen covered 50 chemicals, and the IRS has since had a few tips from taxpayers.

In comments submitted by Baker & Hostetler LLP on its behalf, Battery Council International and the Association of Battery Recyclers expressed concern that there is only "minimal guidance" on Superfund taxes, saying the industry will need a gradual transition because the taxes last entered into force. more than 25 years ago.

The American Chemistry Council is also concerned about the lack of guidance, noting that in 1983 the IRS issued proposed regulations that were later withdrawn so the agency could work on other priorities.

Therefore, some issues addressed in the proposed regulations, such as the definitions of the terms “manufacturer or producer,” “importer,” “sale,” and “use,” were left unresolved under the old Superfund regime. This time, the IRS should issue regulations that address those issues and more, the council said.

The American Petroleum Institute has said it is concerned that the list of taxable substances could be expanded without proper due process. He said the process for expanding or reducing the list is unclear, asking the IRS and Treasury to share their anticipated method for doing so.

That would include clarifying the government agencies responsible for making the decision, the documentation the government will rely on in the decision-making process, the possible time frame for changing the list, and whether there will be a notice and comment period for taxpayers. .

The comments show that reinstatement involves much more than simply activating old taxes. The IRS is updating the regimen and has asked taxpayers to identify areas that need clarification or additional instruction.

Any guidance that is issued will be important in both the short and long term because the IRS has an opportunity to build a stable infrastructure so that the Superfund excise taxes can be renewed for decades to come. The IRS is expected to rise to the challenge.

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