Congress Reinstates OSLT: How to File Payment for the Oil Spill Tax during Q3 2018.
The oil spill liability tax (OSLT) expired on December 31, 2017, but was subsequently reinstated for the period from March 1 through December 31, 2018. The cost of the OSLT is calculated at a rate of $0.09 per barrel (approximately $0.00214 per gallon) of crude oil products (including natural gasoline).
How is the OSLT usually filed?
This excise tax is filed quarterly with IRS Forms 6627 and 720, but deposits are required for each semimonthly period in which the tax liability is incurred. The amount of this deposit must not be less than 95% of the amount of net tax liability incurred during the semimonthly period, unless an appropriate safe harbor applies.
Understanding the Standard Safe Harbor
Under the safe harbor provision, you are considered to have complied with the semi-monthly deposit requirement if you filed a Form 720 during the “look-back quarter” corresponding with the semi-monthly period in question and meet certain requirements. The requirements that must be met are included on page 9 and 10 of IRS 18-21. In this case, the “look-back quarter” is the second preceding calendar quarter (e.g. Q1 for Q3).
Since the OSLT was not in effect during 2 of the 3 months of Q1 2018, you can imagine how meeting safe harbor requirements during Q3 of 2018 might need to look a little bit different than usual. As a result the IRS made the following declaration:
For deposits that will be made during the third calendar quarter of 2018, the lookback quarter will be the first calendar quarter of 2018. During that look-back quarter, the oil spill liability tax will be imposed for only one month (March). Therefore, the oil spill liability tax will not be imposed at all times during the look-back quarter as required by § 40.6302(c)-1(b)(2)(ii)(D). Consequently, the safe harbor deposit rule will not be available to persons liable for the oil spill liability tax during the third calendar quarter of 2018, and each semimonthly deposit during the third calendar quarter of 2018 must not be less than 95% of the amount of net tax liability incurred during the semimonthly period.
In recognition of this complication, the IRS will allow use of a modified safe harbor for purposes of complying with the deposit requirements of the oil spill liability tax during the third calendar quarter of 2018.
A “Modified” OSLT Safe Harbor for Q3 2018.
This modified safe harbor for OSLT applies only with regard to deposits of the oil spill liability tax during the third calendar quarter of 2018. It requires timely deposits of not less than ½ of the net tax liability from Q1 and for the full amount of the resulting underpayment to be made by the due date of the Q3 return (October 31).
- The deposit for each semimonthly period in the quarter is not less than 1/2 of the net tax liability reported for the look-back quarter;
- Each deposit is made on time; and
- The amount of any underpayment is paid by the due date of the return.
No affirmative election or other special filing is required in order for a person to avail themselves of the modified safe harbor provided in this notice.
If you are concerned about compliance with the proper payment and filing of the OSLT, you are invited to contact us for additional guidance and assistance.