GUIDANCE RELEASED FOR DETERMINING NEW OZONE-DEPLETING CHEMICALS TAX.

Notice 90-8

This Notice informs the public of the rules relating to the tax on chemicals that deplete the ozone layer and on imported products containing such chemicals. These rules reflect amendments made by section 7506 of the Revenue Reconciliation Act of 1989 (Act) to the Internal Revenue Code (Code). Section 7506 of the Act added sections 4681 and 4682 (relating to the tax on ozone-depleting chemicals) to the Code. The substance of these rules will be issued as temporary regulations at a later date. The initial Imported Products Table referred to in section IV(f)(4)(i) of this Notice will be issued as a separate Notice. The exemption certificates referred to in section III(d) of this Notice will be set forth in the temporary regulations and not in either Notice. These rules are effective on January 1, 1990.

SECTION I

GENERAL INFORMATION ON THE TAXES IMPOSED WITH RESPECT TO OZONE- DEPLETING CHEMICALS

(a) TAXES IMPOSED. Sections 4681 and 4682 of the Code impose the following taxes with respect to ozone-depleting chemicals:

(1) TAX ON OZONE-DEPLETING CHEMICALS. Section 4681(a)(1) of the Code imposes a tax on ozone-depleting chemicals that are sold or used by the manufacturer or importer thereof. Except as provided in section II of this Notice (relating to rigid foam insulation, feedstock use, and halons), the amount of the tax is equal to the product of --

(i) The weight (in pounds) of the chemical;

(ii) The base tax amount (determined under section 4681(b)(1)(B) or (C)) of the Code for the calendar year in which the sale or use occurs; and

(iii) The ozone-depletion factor (determined under section 4682(b) of the Code) for the chemical.

(2) TAX ON IMPORTED TAXABLE PRODUCTS. Section 4681(a)(2) of the Code imposes a tax on imported taxable products that are sold or used by the importer thereof. Except as provided in section IV of this Notice, the amount of the tax is determined by reference to the weight of the ozone-depleting chemicals used as materials in the manufacture of the imported taxable product and is equal to the tax that would have been imposed on the chemicals under section 4681(a)(1) of the Code if the chemicals had been sold in the United States on the date of the sale or use of the imported product.

(3) FLOOR STOCKS TAX.

(i) IMPOSITION OF TAX. Section 4682(h) of the Code imposes a floor stocks tax on ozone-depleting chemicals that --

(A) Are held by any person (other than the manufacturer or importer of the chemical) on a date specified in paragraph (a)(3)(ii) of this section; and

(B) Are held on such date for sale or for use in further manufacture.

(ii) DATES ON WHICH TAX IMPOSED. The floor stocks tax on ozone- depleting chemicals is imposed on January 1 of 1990, 1991, 1992, and 1993.

(iii) AMOUNT OF TAX. Except as provided in section V of this Notice, the amount of the floor stocks tax on an ozone-depleting chemical is equal to the excess of --

(A) The tax that would be imposed on the chemical under section 4681(a)(1) of the Code if the sale or use of the chemical by the manufacturer or importer had occurred on the date the tax is imposed (the tentative tax amount), over

(B) The sum of the taxes previously imposed on the chemical under sections 4681 and 4682 (zero for the floor stocks tax imposed on January 1, 1990).

(b) CROSS-REFERENCES.

(1) TAX ON OZONE-DEPLETING CHEMICALS. Additional rules relating to the tax on ozone-depleting chemicals are contained in sections II and III of this Notice.

(2) TAX ON IMPORTED PRODUCTS. Additional rules relating to the tax on imported taxable products are contained in section IV of this Notice.

(3) FLOOR STOCKS TAX. Additional rules relating to the floor stocks tax are contained in section V of this Notice.

(c) DEFINITIONS OF GENERAL APPLICATION. The following definitions set forth the meaning of certain terms for purposes of the regulations under sections 4681 and 4682 of the Code:

(1) OZONE-DEPLETING CHEMICAL. The term "ozone-depleting chemical" means any chemical listed in section 4682(a)(2) of the Code.

(2) UNITED STATES. Section 4682(e)(2) of the Code defines the term "United States".

(i) IN GENERAL. The term "United States" means the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, any possession of the United States, the Commonwealth of the Northern Mariana Islands, and the Trust Territory of the Pacific Islands.

(ii) CONTINENTAL SHELF AREAS AND FOREIGN TRADE ZONES. The term "United States" includes --

(A) Submarine seabed and subsoil that would be treated as part of the United States (as defined in paragraph (c)(2)(i) of this section) under the principles of section 638 of the Code relating to continental shelf areas; and

(B) Foreign trade zones of the United States.

(3) MANUFACTURE; MANUFACTURER. The term "manufacture" when used with respect to any chemical or product includes its production, and the term "manufacturer" includes a producer.

(4) IMPORTER.

(i) IN GENERAL. The term "importer" means the person who enters (or should have entered) an ozone-depleting chemical or imported taxable product into the United States for consumption, use, or warehousing.

(ii) ENTRY INTO UNITED STATES. An ozone-depleting chemical or imported taxable product is entered into the United States when an entry summary (Customs Form 7501) is filed with the appropriate customs officer, in proper form, with estimated duties attached.

(iii) ENTRY SUMMARY FILED BY PRINCIPAL. Except as provided in paragraph (c)(4)(iv) of this section, the person entering the chemical or product is the person who files the entry summary with respect to the chemical or product.

(iv) ENTRY SUMMARY FILED BY AGENT. If the person filing the entry summary is filing as an agent for another person (for example, the person filing the entry summary is a customs broker engaged by the owner), the person entering the chemical or product is the principal for whom the agent is acting.

(5) SALE. The term "sale" means the transfer of title or of substantial incidents of ownership (whether or not delivery to, or payment by, the purchaser has been made) for consideration which may include money, services, or other such chemicals or products. The determination as to the time a sale occurs shall be made under applicable local law.

(d) EFFECTIVE DATE. Except as otherwise provided in section V of this Notice and paragraph (a)(3) of this section (relating to the floor stocks tax), the regulations under sections 4681 and 4682 of the Code will apply to --

(1) Ozone-depleting chemicals that the manufacturer or importer thereof sells or uses after December 31, 1989; and

(2) Imported taxable products that the importer thereof sells or uses after December 31, 1989.

SECTION II

OZONE-DEPLETING CHEMICALS

(a) IN GENERAL. This section provides rules for identifying ozone-depleting chemicals that are subject to tax under section 4681(a)(1) of the Code (taxable ozone-depleting chemicals). See section I(a)(1) and (c) of this Notice for general rules and definitions relating to the tax on ozone-depleting chemicals.

(b) TAXABLE OZONE-DEPLETING CHEMICALS.

(1) IN GENERAL. Except as provided in paragraphs (c) through (g) of this section, a chemical is a taxable ozone-depleting chemical if the chemical --

(i) Is an ozone-depleting chemical (within the meaning of section I(c)(1) of this Notice) at the time of its sale or use by the manufacturer or importer of the chemical; and

(ii) Was manufactured in the United States or entered into the United States for consumption, use, or warehousing.

(2) TAXABLE EVENT.

(i) IN GENERAL. The tax on an ozone-depleting chemical is imposed when the chemical is sold or used by the manufacturer or importer of the chemical. The loss or destruction of a chemical is treated as a use for this purpose.

(ii) MIXTURES. Except as provided in paragraph (b)(2)(iii) of this section, the creation of a mixture containing two or more chemicals is treated as a use of the ozone-depleting chemicals contained in the mixture. Thus, except as provided in paragraph (b)(2)(iii) of this section --

(A) The tax on the ozone-depleting chemicals contained in mixtures created after December 31, 1989, is imposed when the mixture is created and not on any subsequent sale or use of the mixture; and

(B) No tax is imposed under section 4681 of the Code on the ozone-depleting chemicals contained in mixtures created before January 1, 1990.

(iii) ELECTION TO TREAT MIXTURES AS OZONE-DEPLETING CHEMICALS.

(A) IN GENERAL. A manufacturer or importer may elect to treat the sale or use of mixtures containing ozone-depleting chemicals as the first sale or use of the ozone-depleting chemicals contained in the mixtures. If an election under this paragraph (b)(2)(iii) applies to a mixture sold or used after December 31, 1989 (including any such mixture created before January 1, 1990), the tax on the ozone- depleting chemicals contained in the mixture is imposed on the date of such sale or use.

(B) APPLICABILITY OF ELECTION. An election under this paragraph (b)(2)(iii) applies to all mixtures created by the manufacturer or importer.

(C) FORM OF ELECTION, ETC. An election under this paragraph (b)(2)(iii) is made on Form 6627, Environmental Taxes, for the first calendar quarter beginning after December 31, 1989. The election may be revoked only with the consent of the Commissioner.

(c) RIGID FOAM INSULATION.

(1) PHASE-IN OF TAX.

(i) IN GENERAL. The amount of tax imposed on an ozone-depleting chemical is determined under section 4682(g) of the Code if the manufacturer or importer of the chemical --

(A) Uses the chemical during 1990, 1991, 1992, or 1993 in the manufacture of rigid foam insulation; or

(B) Sells the chemical in a qualifying sale (as defined in section III of this Notice) during 1990, 1991, 1992, or 1993.

(ii) EXCESS PAYMENTS. Under section 4682(g)(3) of the Code, a credit against income tax or a refund is allowed to a person if --

(A) The person uses an ozone-depleting chemical during 1990, 1991, 1992, or 1993 in the manufacture of rigid foam insulation; and

(B) The amount of any tax imposed on the chemical under section 4681 or 4682 of the Code was not determined under section 4682(g) of the Code.

(2) DEFINITION.

(i) IN GENERAL. The term "rigid foam" means any closed cell polymeric foam (whether or not rigid) in which chlorofluorocarbons are used to fill voids within the polymer. The term "rigid foam insulation" means any rigid foam that is designed for use as thermal insulation in buildings, equipment, appliances, transportation, tanks, or vessels, or on pipes.

(ii) RIGID FOAM PRODUCTS.

(A) COMPOSITION. Rigid foam includes extruded polystyrene foam, polyisocyanurate foam, spray and pour-in-place polyurethane foam, polyethylene foam, phenolic foam, and any other product that the Commissioner identifies as rigid foam in a pronouncement of general applicability.

(B) FORM. Rigid foam includes any product identified under paragraph (c)(2)(ii)(A) of this section whether in the form of a board, sheet, backer rod, or wrapping, or in a form applied by spraying, pouring, or frothing.

(3) USE IN MANUFACTURE. An ozone-depleting chemical is used in the manufacture of rigid foam insulation if it is incorporated into such insulation or is expended as a propellant or otherwise in the manufacture or application of such insulation.

(4) QUALIFYING SALE. A sale of ozone-depleting chemicals is a qualifying sale if the certification requirements of section III(b)(1) of this Notice are satisfied with respect to such sale.

(d) PHASE-IN OF TAX ON HALONS. The amount of tax imposed on halon-1211, halon-1301, or halon-2402 is determined under section 4682(g) of the Code if the manufacturer or importer of the chemical sells or uses the chemical during 1990, 1991, 1992, or 1993.

(e) FEEDSTOCKS.

(1) EXEMPTION FROM TAX.

(i) IN GENERAL. No tax is imposed on an ozone-depleting chemical if the manufacturer or importer of the chemical --

(A) Uses the chemical as a feedstock in the manufacture of another chemical; or

(B) Sells the chemical in a qualifying sale (as defined in section III of this Notice) for use as a feedstock.

(ii) EXCESS PAYMENTS. Under section 4682(d)(2) of the Code, a credit or refund is allowed to a person if --

(A) The person uses an ozone-depleting chemical as a feedstock; and

(B) The amount of any tax imposed on the chemical under section 4681 or 4682 of the Code was not determined under section 4682(d)(2) of the Code.

(2) USE AS A FEEDSTOCK. An ozone-depleting chemical is used as a feedstock only if the chemical is entirely consumed in the manufacture of another chemical (within the meaning of 40 CFR 82.3(s) (relating to the definition of production for purposes of Environmental Protection Agency regulations on the protection of atmospheric ozone)). Thus, the transformation of an ozone-depleting chemical into one or more new compounds (such as the transformation of CFC-113 into clorotrifluorethylene (CTFE or 1113) or of CFC-113 into CFC-115 and CFC-116)) is treated as use as a feedstock. On the other hand, the ozone-depleting chemicals used in a mixture (including an azeotrope such as R-500 or R-502) are not used as a feedstock.

(3) QUALIFYING SALE. A sale of ozone-depleting chemicals is a qualifying sale if the certification requirements of section III(b)(2) of this Notice are satisfied with respect to such sale.

SECTION III

QUALIFYING SALES

(a) IN GENERAL.

(1) SPECIAL RULES APPLICABLE TO CERTAIN SALES. Special rules apply to sales of ozone-depleting chemicals in the following cases:

(i) Under section 4682(g) of the Code and sections II(c) and V(2) of this Notice (relating to ozone-depleting chemicals used in the manufacture of rigid foam insulation), ozone-depleting chemicals sold in qualifying sales are not taxed in 1990 and are taxed at a reduced rate in 1991, 1992, and 1993.

(ii) Under section 4682(d)(2) of the Code and sections II(e) and V(2) of this Notice (relating to ozone-depleting chemicals used as feedstocks), ozone-depleting chemicals sold in qualifying sales are not taxed.

(2) REGISTRATION NOT REQUIRED. Registration with the Internal Revenue Service is not required to establish that a sale of ozone- depleting chemicals is a qualifying sale.

(3) CERTIFICATION REQUIRED. A sale of ozone-depleting chemicals is not a qualifying sale unless the certification requirements of this section are satisfied.

(b) CERTIFICATION REQUIREMENTS.

(1) RIGID FOAM INSULATION. A sale of ozone-depleting chemicals is a qualifying sale for purposes of sections II(c) and V(2) of this Notice if the manufacturer or importer of the chemical (the supplier) --

(i) Obtains an exemption certificate in the form set forth in paragraph (d)(2) of this section from the purchaser of the chemical; and

(ii) Relies on the certificate in good faith.

(2) FEEDSTOCKS. A sale of ozone-depleting chemicals is a qualifying sale for purposes of sections II(e) and V(2) of this Notice if the supplier --

(i) Obtains an exemption certificate in the form set forth in paragraph (d)(3) of this section from the purchaser of the chemical; and

(ii) Relies on the certificate in good faith.

(c) GOOD FAITH RELIANCE.

(1) IN GENERAL. The requirement of paragraph (b)(1)(ii) or (2)(ii) of this section (relating to good-faith reliance on a certificate) is not satisfied with respect to a sale of ozone- depleting chemicals and the sale is not a qualifying sale if at the time of the sale --

(i) The supplier has reason to believe that the ozone-depleting chemicals will not be used for the purpose stated in the certificate; or

(ii) The Internal Revenue Service has notified the supplier that the purchaser's right to provide a certificate has been withdrawn.

(2) WITHDRAWAL OF RIGHT TO PROVIDE A CERTIFICATE. The Internal Revenue Service may withdraw the right of a purchaser to provide a certificate to its seller if such purchaser uses the ozone-depleting chemicals covered by its certification other than as set forth in such certificate. The Internal Revenue Service may notify the seller to whom the purchaser provided the certificate that the purchaser's right to provide a certificate has been withdrawn.

(d) EXEMPTION CERTIFICATES. The temporary regulations will set forth in this paragraph (d) the form of the exemption certificates that must be provided in qualifying sales under section III(b)(1) and (2) of this Notice. The exemption certificate provided by a purchaser shall consist of a statement executed and signed by the purchaser under penalties of perjury. A certificate may apply to a single purchase or may cover purchases for up to four years from its effective date. A new certificate must be given to the seller if any information on the current certificate changes. The certificate may be included as part of any business records normally used to document a sale.

SECTION IV

IMPORTED TAXABLE PRODUCTS

(a) IN GENERAL. This section provides rules relating to the tax on imported taxable products, including rules for identifying imported taxable products, determining the weight of the ozone- depleting chemicals used as materials in the manufacture of such products, and computing the amount of tax when the weight of such chemicals cannot be determined. See section I(a)(2) and (c) of this Notice for general rules and definitions relating to the tax on imported taxable products.

(b) CHEMICALS USED AS MATERIALS.

(1) ODC WEIGHT. When used in this section, the term "ODC weight" refers to the weight of the ozone-depleting chemicals used in the manufacture of a product.

(2) USE AS MATERIALS IN THE MANUFACTURE OF A PRODUCT. Except as provided in paragraph (b)(3) of this section, ozone-depleting chemicals are used as materials in the manufacture of a product to the extent the chemicals are --

(i) Incorporated into the product; or

(ii) Released into the atmosphere in the process of manufacturing the product.

(3) RECYCLED CHEMICALS. A chemical that is recycled during the manufacture of a product is not used as a material in its manufacture. For this purpose, a chemical is recycled during the manufacture of a product if --

(i) The chemical is not incorporated into the product; and

(ii) Any release of the chemical into the atmosphere during the manufacture of the product is insignificant and incidental to a process in which the chemical is recovered for use in further manufacture.

(4) EXAMPLE. The following example illustrates the rules of this paragraph (b):

EXAMPLE. A manufacturer uses ozone-depleting chemicals as solvents to clean the circuit boards it manufactures and as refrigerants in the air-conditioning system of the factory in which the circuit boards are manufactured. The ozone-depleting chemicals used as solvents arc released into the atmosphere, but leakage of refrigerants from the air-conditioning system is insignificant. Under this paragraph (b), only the solvents are used as materials in the manufacture of the circuit boards.

(c) USE OF IMPORTED PRODUCTS.

(1) IN GENERAL. The use of an imported product is taken into account for the following purposes:

(i) A product is treated as an imported taxable product only if it is entered into the United States for consumption, use, or warehousing.

(ii) The tax on an imported taxable product is imposed when the product is sold or used by the importer of the product.

(2) CERTAIN PRODUCTS NOT ENTERED FOR CONSUMPTION, USE, OR WAREHOUSING. The following products are not entered into the United States for consumption, use, or warehousing (within the meaning of paragraph (c)(1)(i) of this section):

(i) A product brought into the United States for repair.

(ii) A product brought into the United States by an individual if the product is brought in for use by the individual and is not expected to be used in a trade or business other than a trade or business of performing services as an employee.

(3) TAXABLE EVENT. The following rules apply for purposes of paragraph (c)(1)(ii) of this section:

(i) USE OF PRODUCT BY IMPORTER. Except as provided in paragraph (c)(3)(ii) of this section, a product is used by its importer when the importer uses the product in a trade or business or for the production of income. The loss or destruction of a product held in a trade or business or for the production of income is treated as a use for this purpose.

(ii) ELECTION TO TREAT IMPORTATION AS USE.

(A) IN GENERAL. An importer may elect to treat the entry of products into the United States as the use of such products. If an election under this paragraph (c)(3)(ii) applies to an imported taxable product that is entered into the United States after December 31, 1989, tax is imposed on the product on the date of entry. If such an election applies to an imported product that was entered into the United States before January 1, 1990, no tax is imposed under section 4681 of the Code on the sale or use of the product after December 3l, 1989.

(B) APPLICABILITY OF ELECTION. An election under this paragraph (c)(3)(ii) applies to all products that are held by the importer at the time the election becomes effective or are entered into the United States by the importer after the election becomes effective.

(C) FORM OF ELECTION, ETC. An election under this paragraph (c)(3)(ii) is made on Form 6627, ENVIRONMENTAL TAXES, and becomes effective at the beginning of the calendar quarter to which the form relates. The election may be revoked only with the consent of the Commissioner.

(d) IMPORTED TAXABLE PRODUCTS.

(1) IN GENERAL. A product is treated as an imported taxable product for purposes of section 4681 of the Code only if --

(i) The product is listed in the Imported Products Table ("Table") (see paragraph (f) of this section) in effect on the date the product is sold or used; and

(ii) Paragraph (d)(2) of this section does not apply.

(2) EXCEPTIONS. A product is not treated as an imported taxable product under paragraph (d)(1) of this section if --

(i) The product is listed in Part I of the Table and the taxpayer can establish that the ODC weight of the product is de minimis; or

(ii) The product is listed in Part II of the Table and the taxpayer can establish that --

(A) The ODC weight of the product is de minimis; and

(B) No ozone-depleting chemicals were used as materials in its manufacture for purposes of refrigeration or air conditioning, creating an aerosol or foam, or manufacturing electronic components.

(3) DE MINIMIS ODC WEIGHT.

(i) IN GENERAL. The ODC weight of a product is de minimis if the adjusted tax with respect to the product is less than one/tenth of one percent of the product's cost.

(ii) ADJUSTED TAX. The adjusted tax with respect to a product is the tax that would be imposed under section 4681 of the Code on the ozone-depleting chemicals used as materials in the manufacture of such product if such chemicals were sold in the United States and the base tax amount were $1.00.

(iii) COST. The cost of a product is the importer's cost of acquiring such product.

(e) COMPUTATION OF TAX. The following rules apply for purposes of computing the amount of tax imposed by section 4681 of the Code on an imported taxable product:

(1) EXACT METHOD. If the taxpayer determines the weight of each ozone-depleting chemical used as a material in the manufacture of an imported taxable product and can support such determination with sufficient and reliable information, the ODC weight of the product is the weight established by such determination. Sufficient and reliable information includes representations by the manufacturer to the importer as to the weight of the ozone-depleting chemicals used as materials in the manufacture of the product.

(2) APPROXIMATE METHOD; PREDOMINANT-METHOD ODC WEIGHT SPECIFIED. If the ODC weight of an imported taxable product is not determined under paragraph (e)(1) of this section and the predominant-method ODC weight of the product is specified in the Table, the ODC weight of the product is the predominant-method ODC weight specified in such table.

(3) APPROXIMATE METHOD; PREDOMINANT-METHOD ODC WEIGHT NOT SPECIFIED. If the ODC weight of an imported product is not determined under paragraph (e)(1) or (2) of this section, the tax imposed on such product under section 4681 of the Code is one percent of the appraised value of such product at the time of entry of such product.

(f) IMPORTED PRODUCTS TABLE.

(1) IN GENERAL. The table to be used in applying the rules of this section is the Table (set forth in paragraph (f)(4)(i) of this section) in which the Commissioner has specified the imported products that are subject to tax and the predominant-method ODC weight of each listed product for which such weight has been determined.

(2) PRODUCTS LISTED. Products (other than ozone-depleting chemicals) are listed in the Imported Products Table in accordance with the following rules:

(i) A product is listed in Part I of the Table if the Commissioner has determined that --

(A) The ODC weight of the product is not de minimis when the product is produced using the predominant method of manufacturing the product; and

(B) None of the ozone-depleting chemicals used as materials under the predominant method of manufacturing the product are used for purposes of refrigeration or air conditioning, creating an aerosol or foam, or manufacturing electronic components.

(ii) A product is listed in Part II of the Table if the Commissioner has determined that the ozone-depleting chemicals used as materials under the predominant method of manufacturing the product are used for purposes of refrigeration or air conditioning, creating an aerosol or foam, or manufacturing electronic components.

(3) PREDOMINANT-METHOD ODC WEIGHT. The predominant-method ODC weight of a product is the amount that the Commissioner has determined would be the weight of the ozone-depleting chemicals used as materials in the manufacture of the product if the product were produced using the predominant method of manufacturing the product.

(4) INITIAL AND SUBSEQUENT TABLES.

(i) INITIAL TABLE. The temporary regulations will set forth in this paragraph (f)(4)(i) the Table that will apply until superseded by a revenue procedure issued under paragraph (f)(4)(ii) of this section. The initial Table will be issued in a separate Notice.

(ii) SUBSEQUENT TABLES. Tables other than the initial Table shall be published in revenue procedures and shall be effective for the periods prescribed by such revenue procedures.

(g) REQUESTS FOR MODIFICATION OF TABLE.

(1) IN GENERAL. Any manufacturer or importer of a product may request that the Commissioner modify the Table in any of the following respects:

(i) Adding the product to the Table and specifying the predominant-method ODC weight of such product.

(ii) Removing the product from the Table.

(iii) Moving the product from one part of the Table to the other.

(iv) Changing (or specifying) the predominant-method ODC weight of the product.

(2) FORM OF REQUEST. The Commissioner will not consider any request for modification that does not include the following:

(i) For each product with respect to which a modification is requested:

(A) The name of the product;

(B) The Harmonized Tariff Schedule item number prescribed by the United States Customs Service for the product;

(C) The modification requested with respect to the product;

(D) A description of the method that the requester claims is the predominant method of manufacturing the product;

(E) In the case of a modification described in paragraph (g)(1)(i), (ii), or (iv) of this section, the amount that the requester claims would be the weight of the ozone-depleting chemicals used as materials in the manufacture of the product if the product were produced using such predominant method;

(F) In the case of a modification described in paragraph (g)(1)(i) or (ii) of this section, the amount that the requester claims would be the cost of the product if the product were produced using such predominant method of manufacture;

(G) In the case of a modification described in paragraph (g)(1)(i), (ii), or (iii) of this section, a claim by the requester that ozone-depleting chemicals used as materials in the predominant method of manufacturing the product are used for purposes of refrigeration or air conditioning, creating an aerosol or foam, or manufacturing electronic components or that no such chemicals are used for such purposes; and

(H) The data supporting each of the requester's claims.

(ii) The name, address, employer identification number, and principal place of business of the requester.

(3) PUBLIC NOTICE AND COMMENTS.

(i) IN GENERAL. Before considering requests for modification, the Commissioner will --

(A) Publish a notice in the Federal Register summarizing requests received during the preceding calendar quarter; and

(B) Request written comments on the proposed modifications.

(ii) FORM OF COMMENTS. The Commissioner will not consider written comments on proposed modifications if the comments do not include the following:

(A) An identification of the proposed modification to which the comments relate.

(B) An identification of the statements and supporting data that the commenter claims are incorrect.

(C) The data supporting each of the commenter's claims.

(D) The name, address, employer identification number, and principal place of business of the commenter.

(4) ADDRESS. The address for submission of requests and comments under this paragraph (g) is: Internal Revenue Service, Attn: CC:CORP:T:R (Imported Products Table), Room 4429, Washington, D.C. 20224.

(5) PUBLIC INSPECTION AND COPYING. Requests and comments submitted under this paragraph (g) will be available in the Internal Revenue Service Freedom of Information Reading Room for public inspection and copying.

SECTION V

FLOOR STOCKS TAX

(a) IN GENERAL. This section provides rules for identifying the ozone-depleting chemicals that are subject to the floor stocks tax imposed by section 4682(h)(1) of the Code, computing the amount of the tax, and determining whether a person is liable for the tax. See section I(a)(3) and (c) of this Notice for general rules and definitions relating to the floor stocks tax.

(b) OZONE-DEPLETING CHEMICALS.

(1) IN GENERAL. The floor stocks tax is imposed only on ozone- depleting chemicals that have not been incorporated into a product (other than an ozone-depleting chemical) before the date on which the tax is imposed. The specific rules in this paragraph (b) are derived from the rule contained in this paragraph (b)(1) and illustrate its application.

(2) MIXTURES. The floor stocks tax is not imposed on an ozone- depleting chemical that has been mixed with another chemical. For example, the tax is not imposed on the ozone-depleting chemicals contained in the refrigerants commonly known in the industry as R- 500 and R-502.

(3) MANUFACTURED PRODUCTS. The floor stocks tax is not imposed on an ozone-depleting chemical contained in the manufactured product in which the chemical will be used for its intended purpose. For example, the tax is not imposed on the ozone-depleting chemicals contained in the cooling coils of a refrigerator even if the refrigerator is held for sale.

(4) STORAGE CONTAINERS. The floor stocks tax is imposed on any ozone-depleting chemical that has not been incorporated into another product. This rule applies without regard to the type or size of the storage container in which the chemical is held. Thus, the tax may apply to an ozone-depleting chemical whether it is in a 14-ounce can or a 30-pound tank.

(c) CHEMICALS HELD FOR SALE OR FOR USE IN FURTHER MANUFACTURE.

(1) IN GENERAL. The floor stocks tax is imposed on a chemical only if, on the date the tax is imposed, the chemical is held for sale or for use in further manufacture. No tax is imposed on a chemical held for any use other than use in further manufacture. This paragraph (c) provides rules for identifying chemicals held for sale or for use in further manufacture.

(2) CHEMICALS HELD FOR SALE. Chemicals held for sale include chemicals that will be sold in connection with the provision of services or in connection with the sale of another product and, in such cases, include chemicals that will be sold without the statement of a separate charge for the chemicals.

(3) CHEMICALS HELD FOR USE IN FURTHER MANUFACTURE. A chemical is held for use in further manufacture if --

(i) The chemical will be used as a material (within the meaning of section IV(b) of this Notice) in the manufacture of a product; and

(ii) Such product will be held for sale.

(4) EXAMPLES. The following examples illustrate the application of this paragraph (c):

EXAMPLE (1). A, a manufacturer of air conditioners, holds an ozone-depleting chemical for use in air conditioners that it will manufacture and sell. A holds the chemical for use in further manufacture.

EXAMPLE (2). B, a manufacturer of electronic components, holds an ozone-depleting chemical for use as a solvent to clean circuit boards that it will sell to computer manufacturers. B holds the chemical for use in further manufacture.

EXAMPLE (3). C, an automobile dealer, holds an ozone-depleting chemical for use in air conditioners installed in automobiles that it sells to retail customers. C does not hold the chemical for use in further manufacture. C does, however, hold the chemical for sale, even if the customers are not separately charged for chemicals used in the automobile air conditioners.

EXAMPLE (4). D operates an air-conditioning repair service and holds an ozone-depleting chemical for use in repairing air conditioners for its customers. D holds the chemical for sale even if the customers are not separately charged for chemicals used in the repairs.

EXAMPLE (5). E, a grocery-store chain, holds an ozone-depleting chemical for use in its refrigerator units. E does not hold the chemical for sale or for use in further manufacture.

(d) PERSON LIABLE FOR TAX.

(1) IN GENERAL. The person liable for the floor stocks tax on an ozone-depleting chemical is the person who holds the chemical on the date the tax is imposed. This paragraph (d) provides rules for identifying the person liable for the tax.

(2) PERSON. Each person that has, or is required to have, an employer identification number is treated as a separate person for purposes of the floor stocks tax. For example, a chain of auto-parts stores that has one employer identification number is one person for purposes of the floor stocks tax.

(3) CHEMICALS HELD BY A PERSON. The person who holds a chemical on a date on which the floor stocks tax is imposed is the person who has title to the chemical (whether or not delivery to such person has been made) as of the first moment of such date. The person who has title at such time is determined under applicable local law.

(e) COMPUTATION OF TAX.

(1) IN GENERAL.

(i) TENTATIVE TAX AMOUNT. Section I(a)(3) of this Notice provides that the amount of the floor stocks tax on an ozone- depleting chemical is determined by reference to a tentative tax amount. The tentative tax amount is the amount of tax that would be imposed on the chemical under section 468l(a)(l) of the Code if the sale of the chemical by the manufacturer or importer had occurred on the date the tax is imposed. This paragraph (e) provides rules for determining the tentative tax amount and the amount of the floor stocks tax.

(ii) FLOOR STOCKS TAX IMPOSED ON JANUARY 1, 1990. The floor stocks tax imposed on January 1, 1990, is equal to the tentative tax amount. Thus, except as provided in paragraph (e)(2) or (3) of this section, the amount of the floor stocks tax imposed on January 1, 1990, is as follows:

         Ozone-depleting chemical               Tax per pound

(A) The tentative tax amount is determined, except as provided in paragraph (e)(2) or (3) of this section, by reference to the rate of tax prescribed in section 4681(b)(1)(B) of the Code and the ozone- depletion factors prescribed in section 4682(b) of the Code.

(B) The amount of the floor stocks tax on an ozone-depleting chemical is equal to the amount by which the tentative tax amount exceeds the amount of taxes (including floor stocks taxes) previously imposed on the chemical.

(2) QUALIFYING SALES.

(i) RIGID FOAM INSULATION. In the case of an ozone-depleting chemical that was sold in a qualifying sale for purposes of section II(c) of this Notice (relating to rigid foam insulation) the tentative tax amount is determined under section 4682(g) of the Code for purposes of computing the floor stocks tax imposed on the chemical on January 1 of 1990, 1991, 1992, or 1993. For purposes of computing the floor stocks tax imposed on the chemical on January 1, 1990, the tentative tax amount is zero.

(ii) FEEDSTOCKS. In the case of an ozone-depleting chemical that was sold in a qualifying sale for purposes of section II(e) of this Notice (relating to feedstocks), the tentative tax amount is zero.

(iii) CHEMICALS SOLD BEFORE JANUARY 1, 1990. An ozone-depleting chemical that was sold by the manufacturer or importer of the chemical before January 1, 1990, shall be treated, for purposes of this paragraph (e)(2), as --

(A) An ozone-depleting chemical that was sold in a qualifying sale for purposes of section II(c) of this Notice if the chemical will be used in the manufacture of rigid foam insulation (within the meaning of section II(c)(2) of this Notice); and

(B) An ozone-depleting chemical that was sold in a qualifying sale for purposes of section II(e) of this Notice if the chemical will be used as a feedstock (within the meaning of section II(e)(2) of this Notice.

(3) HALONS. In the case of halon-1211, halon-1301, or halon- 2402, the tentative tax amount is determined under section 4682(g) of the Code for purposes of computing the floor stocks tax imposed on the chemical on January 1 of 1990, 1991, 1992, or 1993. For purposes of computing the floor stocks tax imposed on the chemical on January 1, 1990, the tentative tax amount is zero.

(f) DE MINIMIS EXEMPTION.

(1) FLOOR STOCKS TAX IMPOSED ON JANUARY 1, 1990.

(i) IN GENERAL. A person is not liable for the floor stocks tax imposed on January 1, 1990, unless the person holds at least 400 pounds of ozone-depleting chemicals to which the tax applies. For this purpose, an ozone-depleting chemical described in paragraph (e)(2) or (3) of this section is treated as a chemical to which the tax does not apply.

(ii) EXAMPLES. The following examples illustrate the rules of this paragraph (f)(1):

EXAMPLE (1). On January 1, 1990, A holds 300 pounds of ozone- depleting chemicals for sale. A is not liable for the floor stocks tax imposed on January 1, 1990.

EXAMPLE (2). On January 1, 1990, B holds 1,500 pounds of ozone- depleting chemicals. B will use 1,300 pounds of these chemicals in the manufacture of rigid foam insulation. Thus, the floor stocks tax applies to only 200 pounds of the chemicals, and A is not liable for the floor stocks tax imposed on January 1, 1990.

(2) FLOOR STOCKS TAXES IMPOSED AFTER 1990. [Reserved.]

(g) INVENTORY. If, on the date on which the floor stocks tax is imposed, a person (including a person who is not liable for the floor stocks tax) holds ozone-depleting chemicals for sale or for use in further manufacture, the following rules apply:

(1) The person shall prepare an inventory of all such ozone- depleting chemicals that the person holds on the date on which the tax is imposed.

(2) The inventory shall be taken as of the first moment of the date on which the tax is imposed, but work-back or work-forward inventories will be acceptable if supported by adequate commercial records of receipt, use, and disposition of ozone-depleting chemicals held for sale or for use in further manufacture.

(3) The person must maintain records of the inventory and make such records available for inspection and copying by internal revenue agents and officers. Records of the inventory are not to be filed with the Internal Revenue Service.

(h) TIME AND PLACE FOR PAYING TAX. The floor stocks tax on ozone-depleting chemicals is due and payable without assessment or notice on or before April 1, 1990. The tax must be deposited on or before April 1, 1990, together with Form 8109, Federal Tax Deposit Coupon, at an authorized depositary or the Federal Reserve Bank serving the taxpayer's area.

(i) [Reserved.]

(j) REQUIREMENTS RELATING TO RETURN.

(1) FORM. Every person liable for the floor stocks tax on ozone- depleting chemicals shall make a return of tax on Form 720, Quarterly Federal Excise Tax Return, to which Form 6627, Environmental Taxes, is attached.

(2) TIME AND PLACE FOR FILING A RETURN. The return shall be filed with the Service Center indicated by the instructions on the Form 720. In the case of a taxpayer not otherwise required to file Form 720, the return must be filed by May 10, 1990, and must be marked "Final." In the case of all other persons, the return reporting floor stocks tax liability, and any other excise tax liability, must be filed on or before the date prescribed by the instructions for the Form 720 for the quarter ending March 31, 1990. Only one return should be filed for a quarter.

SECTION VI

ADMINISTRATIVE PRONOUNCEMENT AND DRAFTING INFORMATION

The collection of information contained in this Notice is being reviewed by and is subject to the approval of the Office of Management and Budget in accordance with the requirements of the Paperwork Reduction Act (44 U.S.C. 3507). The estimated average burden associated with the collection of information in this Notice is one hour per respondent and one half hour per recordkeeper.

These estimates are an approximation of the average time expected to be necessary for a collection of information. They are based on such information as is available to the Internal Revenue Service. Individual respondents/recordkeepers may require greater or less time, depending on their particular circumstances.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Internal Revenue Service, Washington, D.C. 20224, Attention: IRS Reports Clearance Officer TR:FP; or to the Office of Management and Budget, Paperwork Reduction Project, Washington, D.C. 20503.

This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the Income Tax Regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure.

The principal author of this Notice is Ruth Hoffman, Office of Assistant Chief Counsel (Passthroughs and Special Industries). Frank Boland, Office of Assistant Chief Counsel (Passthroughs and Special Industries) participated in the drafting. For further information regarding this Notice, contact Ruth Hoffman or Frank Boland on (202) 566-4475 (not a toll-free call).