Good Faith Efforts
Because of the difficulties companies will face determining the amount of tax that must be paid semimonthly, even under the deposit safe harbor rules, the IRS issued Notice 2022-15 to provide relief for the third and fourth calendar quarters of 2022, and the first calendar quarter of 2023, from penalties that otherwise would apply for failing to deposit the required amount of tax on a semimonthly basis. For these semimonthly periods, a company owing the Superfund Tax will be deemed to have satisfied the deposit requirement if:
- the company makes timely deposits of applicable Superfund Tax, even if the deposit amounts are computed incorrectly, and
- the amount of any underpayment of the applicable Superfund Tax for each calendar quarter is paid in full by the due date for filing the Form 720 return for that quarter.
The key takeaway from Notice 2022-15 for companies subject to the Superfund Tax is to make a deposit of some amount by July 29, 2022.
Companies should use reasonable judgment in determining the amount of tax due by July 29, but the critical point is to make a payment.
De Minimis Exception
Notice 2022-15 does not mention the de minimis exception in the deposit regulations that apply to the Superfund Tax. Under the de minimis exception, no deposit is required if the liability does not exceed $2,500 for a particular quarter. The tax can be paid when the Form 720 is filed. Having said that, caution should be exercised when applying the de minimis exception, except for companies that will rarely exceed the $2,500 threshold.
First, there is always the potential of miscalculating the amount of tax due. It is better to be in the position of having made an estimated payment that is too small (and argue that reasonable cause exists for making too small a deposit) than not having made an estimated payment at all. Second, the IRS system may be set up to expect estimated payments (for a company that regularly makes them) and may send out a notice if it does not see an estimated payment in the system. Finally, once a company sets up its system to make estimated payments based on the liability for the second preceding quarter, designing the system not to make an estimated payment if the quarterly liability is $2,500 or less adds another computation for possible error. Remember, the estimated payments are made on the basis of the tax liability for the second preceding quarter, but the de minimis exception applies to the existing quarter.
The Superfund Tax existed before 1996, so it is not a new tax for companies that manufactured, produced, or imported taxable chemicals and substances before 1996. For many companies, however, the reinstatement of the Superfund Tax is a new tax for them, and complying with it is going to present new challenges. Even for older companies, the reinstatement of a tax after more than twenty-five years will present challenges. The Superfund Tax also will present challenges for the IRS.
The IRS is open to receiving comments from affected companies, and it is important for companies to be actively engaged with the IRS in its development of the rules and regulations that apply to taxable chemicals and substances.