CCA 1211010: A refund is available for OSLTF tax on aviation fuel supplied to foreign-trade aircraft

Plain-English summary

Chief Counsel advice addresses the Oil Spill Liability Trust Fund tax on aviation fuel placed in a foreign trade zone or customs bonded warehouse. The advice concludes that the tax applies when the petroleum product enters the United States for consumption, use, or warehousing. If the fuel is later withdrawn and supplied to aircraft actually engaged in foreign trade, 19 U.S.C. § 1309 provides an exemption, making the tax paid at entry an overpayment. The person who paid the tax may claim a credit or refund under IRC § 6402 on Form 720 or Form 8849, following the applicable form instructions.

Ruling snapshot

• Question: Does the OSLTF tax apply to warehoused aviation fuel later supplied to aircraft engaged in foreign trade, and can the tax be recovered?
• Outcome: Advice given.
• Key authorities: IRC §§ 4611, 4612, 6402, and 4461; 19 U.S.C. § 1309

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       memorandum
       Number: 201211010
       Release Date: 3/16/2012
       CC:PSI:B07:MHBeker                        Third Party Communication: None
       POSTN-148017-11                           Date of Communication: Not Applicable

UILC: 4611.00-00

date: February 7, 2012

 to:   Holly L. McCann
       Chief, Excise Tax Program

from: Frank Boland
Chief, Branch 7
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

subject: Oil Spill Liability Trust Fund Tax and Fuel Supplies for Aircraft Engaged in Foreign
Trade

       This Chief Counsel Advice responds to your request for assistance dated November 18,
       2011. This advice may not be used or cited as precedent.

                                                ISSUES

          1. Does the Oil Spill Liability Trust Fund tax (OSLTF tax) imposed by § 4611 of the
             Internal Revenue Code (Code) apply to aviation fuel admitted into a foreign trade
             zone of the United States (FTZ) for warehousing and later used as supplies for
             aircraft actually engaged in foreign trade as described in 19 U.S.C. § 1309?

          2. Does the OSLTF tax apply to aviation fuel entered into a customs bonded
             warehouse and later used as supplies for aircraft actually engaged in foreign
             trade as described in 19 U.S.C. § 1309?

          3. If the OSLTF tax applies to the aviation fuel in Issue 1 and Issue 2, is the person
             that paid the tax eligible for a credit or refund of the tax on aviation fuel that is
             later used as supplies for aircraft actually engaged in foreign trade as described
             in 19 U.S.C. § 1309?

          4. If the answer to Issue 3 is yes, under what authority does the IRS have to refund
             the OSLTF tax?

POSTN-148017-11 2

5. If the answer to Issue 3 is yes, how and when may a taxpayer claim a credit or
   refund for the OSLTF tax on aviation fuel that is later used as supplies for aircraft
   actually engaged in foreign trade as described in 19 U.S.C. § 1309?

                                CONCLUSIONS
   

6. The OSLTF tax applies to aviation fuel admitted into an FTZ for warehousing that
   is later used as supplies for aircraft actually engaged in foreign trade or certain
   other limited types of trade as described in 19 U.S.C. § 1309.

7. The OSLTF tax applies to aviation fuel entered into a customs bonded
   warehouse and later used as supplies for aircraft actually engaged in foreign
   trade or certain other limited types of trade as described in 19 U.S.C. § 1309.

8. The person that paid the OSLTF tax is eligible for a refund or credit of the tax for
   aviation fuel that is later used as supplies for aircraft actually engaged in foreign
   trade as described in 19 U.S.C. § 1309.

9. Under § 6402, the IRS has the authority to refund overpayments of the OSLTF
   tax.

10. A taxpayer may claim a credit or refund for the OSLTF tax on aviation fuel that is
    later used as supplies for aircraft actually engaged in foreign trade as described
    in 19 U.S.C. § 1309 on the Form 720, Quarterly Excise Tax Return, in
    accordance with the instructions for that form. Alternatively, a taxpayer may
    claim a refund for the OSLTF tax on Form 8849, Claim for Refund of Excise
    Taxes, in accordance with the instructions for that form

                                      FACTS
    
    A fuel supplier enters aviation fuel into the United States. The aviation fuel is a
    

    petroleum product and the entry is an entry described in § 4611(a)(2). Upon entry, the
    aviation fuel is either delivered to storage tanks that are in a customs bonded
    warehouse or in FTZs. All of the aviation fuel is later delivered into the fuel supply tanks
    of aircraft; some of these aircraft are actually engaged in foreign trade and other aircraft
    are engaged in domestic air transportation.

                              LAW AND ANALYSIS
    

    Section 4611(a)(2) imposes a tax on petroleum products entered into the United
    States for consumption, use, or warehousing. Under § 4611(d)(2), the person entering
    the products is liable for the tax. Section 4612(a)(4) defines the term “United States” to
    include FTZs. The Code does not exempt from this tax petroleum products that are
    actually used in foreign trade.
    POSTN-148017-11 3

    Section 1309(a) of Title 19 U.S.C. provides that articles of foreign or domestic
    origin may be withdrawn, under such regulations as the Secretary of the Treasury may
    prescribe, from any customs bonded warehouse, or from an FTZ, free of duty and
    internal revenue tax, for certain specified purposes, including for supplies (not including
    equipment) of aircraft registered in the United States and actually engaged in foreign
    trade or trade between the United States and any of its possessions, or between Hawaii
    and any other part of the United States or between Alaska and any other part of the
    United States. Section 1309(d) of Title 19 U.S.C. provides a similar rule for aircraft
    registered in a foreign country if the Secretary of the Treasury is advised by the
    Secretary of Commerce that the foreign country allows, or will allow, substantially
    reciprocal privileges with respect to aircraft registered in the United States.

    Citgo Petroleum Corp. v. United States, 104 F. Supp. 2d 106 (CIT 2000),
    involves the Harbor Maintenance Tax (HMT), which is imposed by § 4461 on, among
    other things, the unloading of commercial cargo from a commercial vessel at a port in
    the United States. In this case, Importer was subject to the tax on its cargo of aviation
    fuel that it entered into a customs bonded warehouse in the United States. Importer
    later withdrew the fuel from the warehouse as supplies for aircraft actually engaged in
    foreign trade.

    Similar to the OSLTF tax, the Code does not exempt from the HMT petroleum
    

    products that are actually used in foreign trade. However, the court found that 19
    U.S.C. § 1309 applied to the facts of the case even though the activity addressed in
    § 1309 (the withdrawal from a customs bonded warehouse) occurred after the incidence
    of the HMT (the unloading of cargo at the port). Thus, Importer was allowed a refund
    for the HMT on the fuel actually used in foreign trade.

     The IRS has the authority under § 6402 to allow a credit or make a refund of an
    

    overpayment to the person who made the overpayment. An overpayment of tax is read
    in its “usual sense, as meaning any payment in excess of that which is properly due . . .
    . Whatever the reason, the payment of more than is rightfully due is what characterizes
    an overpayment.” Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947).

    When the aviation fuel enters into the United States and is stored in a customs
    

    bonded warehouse or admitted into an FTZ, the enterer is liable for the OSLTF tax at
    the time of entry. § 4611(a)(2). However, when the fuel is later withdrawn from the
    customs bonded warehouse or FTZ and supplied to aircraft actually engaged in foreign
    trade, the 19 U.S.C. § 1309 exemption from the OSLTF tax applies. See Citgo, 104 F.
    Supp. 2d at 106. The proper tax liability would then not include the OSLTF tax.
    Accordingly, the tax paid by the enterer would be in “excess of that which is properly
    due,” which results in an overpayment. Accordingly, we conclude that under § 6402,
    the Service has the authority to issue a refund of an overpayment of OSLTF taxes to the
    enterer.
    POSTN-148017-11 4

    A taxpayer may claim a credit or refund of an OSLTF tax overpayment on Form
    720. Alternatively, a taxpayer may claim a refund of an OSLTF tax overpayment on
    Form 8849. On Form 720, the taxpayer should attach Schedule C, Claims, to Form
    720, with the claim amount entered on Line 15, Other claims. If the taxpayer uses Form
    8849 to claim a refund, the claim should be made by attaching Schedule 6, Other
    Claims, to the Form 8849.

    Please call (202) 622-3130 if you have any further questions.