NEW GASOLINE TAX REGISTRATION AND BONDING REQUIREMENTS WILL BE DEFERRED.

Notice 87-83

The purpose of this notice is to notify taxpayers and other affected persons of changes that the Internal Revenue Service intends to make in regulations recently proposed under sections 4081 and 4101 of the Internal Revenue Code ("the Code"), as amended by section 1703 of the Tax Reform Act of 1986 (P.L. 99-514, 100 Stat. 2774) ("the Act"). These proposed regulations were published in the Federal Register on November 18, 1987 (52 FR 44141). As amended, section 4081 of the Code generally provides that the gasoline excise tax is imposed on the earlier of the removal or sale of gasoline by the refiner or importer thereof or the terminal operator. A bulk transfer of gasoline to a terminal operator by a refiner or importer, however, is not considered a removal or sale of gasoline by such refiner or importer for this purpose. The amendments made by section 1703 of the Act are effective on January 1, 1988.

The proposed regulations provide that all Certificates of Registry (Form 637) issued under section 4101 of the Code prior to January 1, 1988, will be revoked as of the close of business on December 31, 1987. All taxpayers subject to the registration requirements contained in the proposed regulations would be required to hold a new Certificate of Registry effective after December 31, 1987. The proposed regulations also require that taxpayers give a bond (Form 928) as a condition for receiving a new Certificate of Registry. See Proposed Reg. section 48.4101-1.

The Service is concerned that it may not be feasible for district directors to implement, and for taxpayers to comply with, the new registration and bonding requirements by January 1, 1988. Accordingly, when the proposed regulations are issued in temporary or final form, they will provide that Certificates of Registry issued prior to January 1, 1988, will be revoked on March 31, 1988, rather than on December 31, 1987, and that the bonding requirements will be effective April 1, 1988. Therefore, until April 1, 1988, taxpayers may rely on registrations currently in effect for all purposes for which registration is relevant under the proposed regulations, including, but not limited to, the following: (1) determination of whether a particular transaction constitutes a "qualified sale" within the meaning of paragraph 48.4081-1(e)(9); (2) determination of whether a "bulk transfer", as defined in paragraph 48.4081-1(e)(2), involves a "registered taxpayer" within the meaning of paragraph 48.4081-1(a); and (3) determination of whether a terminal operator that does not own gasoline in the operator's terminal (a "for-hire" operator) may be liable under paragraph 48.4081-1(c) for permitting a "nonregistered owner" to remove or sell such gasoline.

Prior to the date that the new registration and bonding procedures take effect, any person that does not own the gasoline that such person handles, and that therefore would not have been required to register under sections 4081 and 4101 of the Code, as in effect prior to amendment by the Act (e.g., a "for-hire" terminal operator), will not be required to register. Any person that owns gasoline, and that may be liable for tax under section 4081 of the Code, as amended by the Act, but that does not currently hold a Certificate of Registry, will be required to register. Such persons might include, for example, an industrial user of gasoline, and a terminal operator who first makes purchases of gasoline in January, 1988. Application for registration by any such person should be made on new Form 637 (Rev. October 1987), if that form is available at the appropriate IRS district office. If that form is unavailable, application for registration should be made as a producer of gasoline on Form 637 as in use under section 4101 of the Code prior to amendment by the Act ("old Form 637"). In either case, the applicant must mark "Priority -- new gasoline excise tax registrant" on the top of the Form 637 and any envelope used for mailing the Form. Due to the time constraints in processing new Certificates of Registry, new registrants are encouraged to submit a Form 637 to the appropriate district director by December 21, 1987. No bond is required for these registrations (until the new registration and bond requirements take effect). Any registration on the old Form 637 will be revoked as of the close of business on March 31, 1988.

As indicated in the preamble to the proposed regulations, the Service is considering adopting a verification procedure whereby a transferor of gasoline will be able to ascertain whether a transferee is currently registered to purchase or remove gasoline tax-free. The Service anticipates that any such procedure, if adopted, will be implemented at the same time that the new registration and bonding rules take effect.

Until the Service implements such a procedure, a transferor of gasoline may treat a transferee as registered if, prior to removal or sale, the transferor obtains a written statement from such transferee that (1) states that the transferee is registered, (2) identifies the district director with which the transferee is registered, and (3) gives the Certificate of Registry number. The preceding sentence does not apply if the transferor knows that such transferee is not currently registered. In lieu of obtaining the written statement described in this paragraph, the transferor may obtain from the transferee a copy of the transferee's Certificate of Registry. It is not necessary that a transferor of gasoline obtain a new statement prior to each individual sale to, or removal by, a particular transferee. The transitional verification procedures described in this paragraph are based on the rules set forth in sections 48.4083- 1(a)(2) and 48.4083-1(d) of the regulations, issued under section 4083 of the Code, as in effect before amendment by the Act.

Until the Service implements the verification procedure described above, a "for-hire" terminal operator will not be liable for tax under paragraph 48.4081-1(c) of the proposed regulations, because of the removal or sale by an unregistered owner of any gasoline, if the operator obtains the written statement described in the preceding paragraph (or a copy of the Certificate of Registry) from each person that, at any time that such gasoline is stored in the terminal, both (1) owns such gasoline or holds the inventory position to such gasoline (as reflected on the records of the terminal operator), and (2) has a contractual relationship with such terminal operator. For example, a terminal operator that has obtained such statement from each such person will not be liable for tax on a sale or removal of gasoline from the terminal by an unregistered owner that has no contractual relationship with the terminal operator, but that has purchased such gasoline from a person that does have such a relationship, even if the terminal operator has notice of such purchase. For purposes of this paragraph, the terminal operator will be deemed to have obtained such statement (or copy of the Certificate of Registry) from any person described in the first sentence of this paragraph if the terminal operator has written evidence that such operator made a good faith effort to obtain such statement (or copy of the Certificate of Registry) from such person, but was unable to do so because (1) such person refused to provide such statement (or copy of the Certificate of Registry), and (2) such operator could not, by reason of its contract with such person, prevent such person from selling or removing gasoline within or from the terminal despite such person's refusal to supply such statement (or copy of the Certificate of Registry).

This notice does not change the effective date of section 1703 of the Act, and involves only the effective date of the bonding requirements and the date by which some new registrations will be required. This notice also does not affect the rule in paragraph 48.4081(a)(1) of the proposed regulations that a removal or sale of gasoline that is neither a "bulk transfer" nor a "qualified sale" generally is taxable even though all parties to the removal or sale are registered persons. For example, this notice does not affect the definition of "bulk transfer" in the proposed regulations. Therefore, as of January 1, 1988, in accordance with the proposed regulations, a sale of gasoline in a quantity of less than 10,000 barrels to a registered person will be taxable unless it is a "qualified sale" within the meaning of paragraph 48.4081-1(e)(9).

The Service is currently considering whether the amounts of the bonds required by the proposed regulations are reasonable, particularly in the case of "for-hire" terminal operators that do not own the gasoline passing through their terminals. The Service requests comments on possible modifications or alternatives (e.g., letters of credit) to the bonding requirements. The Service anticipates that it will announce what changes, if any, will be made in the bonding requirements contained in the proposed regulations shortly after the public hearing relating to the proposed regulations.

As indicated in the preamble to the proposed regulations, the Service is considering procedures whereby gasohol blenders might qualify to buy gasoline at a reduced rate of tax even though alcohol for blending is purchased at a terminal other than the terminal at which the gasoline is purchased. A notice dealing with that question will be issued in the near future.