IRS' Administration of the Crude Oil Windfall Profit Tax Act of 1980

GGD-84-15: Published: Jun 18, 1984. Publicly Released: Jun 18, 1984.

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In response to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) administration of the Crude Oil Windfall Profit Tax Act of 1980.

GAO noted that the crude oil tax was designed to tax the difference between the free market price of a barrel of oil and its controlled price under Department of Energy regulations. Although IRS received no supplemental staffing or funding to administer this lengthy and complex act, IRS moved quickly to establish a compliance program. GAO found that IRS has made good progress toward establishing an examination program for the windfall profit tax. Difficulties encountered by the IRS Examination Division include: (1) deciding which properties should be subject to IRS examination; (2) ensuring that the tax is assessed on the initial sale of oil; and (3) examining tax refund claims to ensure that the tax is levied only on barrels of oil that yield a profit. GAO noted that the IRS Collection Division's effectiveness depends on structuring a long-term compliance program to identify delinquent windfall profit taxpayers.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: H.R. 5934 was introduced on June 27, 1984. No further action was taken during 1984. On January 31, 1985, the bill was reintroduced as H.R. 898 and was referred to the House Ways and Means Committee, but was not acted upon. As of April 15, 1987, no further action was taken or planned, and the Senate recently voted to repeal the tax. Therefore, this recommendation should be dropped.

    Matter: To effect the procedure to issue deficiency notices after examination of each oil-producing property without precluding later issuance of additional notices covering the producers' interests in other properties during the same quarter, Congress should amend section 6212(c) of the Internal Revenue Code and consider the statutory language in appendix V.

  2. Status: Closed - Not Implemented

    Comments: H.R. 5934 was introduced on June 27, 1984. No further action was taken during 1984. On January 31, 1985, the bill was reintroduced as H.R. 898 and referred to the House Ways and Means Committee, but was not acted upon. As of April 15, 1987, no further action was taken or planned, and the Senate recently voted to repeal the tax. Therefore, this recommendation should be dropped.

    Matter: Because another windfall profit tax area which needs legislative action is the appeals process, Congress should pass legislation to consolidate judicial appeals for a given property's oil issues and consider the statutory language in appendix VI.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To further enhance the IRS windfall profit tax examination program, the Commissioner of Internal Revenue should develop and implement a more effective means for selecting oil property operators for examination.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To further enhance the IRS windfall profit tax examination program, the Commissioner of Internal Revenue should develop and implement an effective means for ensuring that the windfall profit tax is assessed and paid on oil involved in multiple transactions.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To further enhance the IRS windfall profit tax examination program, the Commissioner of Internal Revenue should develop effective, coordinated procedures for examining net income limitation claims and adjustments.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To further enhance the IRS windfall profit tax examination program, the Commissioner of Internal Revenue should analyze the windfall profit tax liability effects of the IRS May 1982 revenue rulings, which discuss the allowability of various states' severance taxes.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: IRS ability to structure an effective windfall profit tax collection program depends largely on the availability, completeness, and accuracy of Form 6248 annual information returns; therefore, the Commissioner of Internal Revenue should require revenue agents to perform, where practical, during first purchaser examinations, a reconciliation of the withholding agent's quarterly excise tax returns (Form 720) for the year with the producers' windfall profit tax liability as shown on annual information returns (Form 6248).

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To give the Criminal Investigation Division a broader presence in the windfall profit tax program, the Commissioner of Internal Revenue should have the Division begin some information gathering efforts.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Closed - Not Implemented

    Comments: A revised draft of proposed regulations to define crude oil was prepared; however, the project was dropped in January 1986 because of falling oil prices, which meant that there was no windfall profit. Thus, the issue is moot.

    Recommendation: The Secretary of the Treasury should develop and issue regulations, with respect to tank bottom oil, directed at minimizing revenue loss possibilities and tax evasion opportunities.

    Agency Affected: Department of the Treasury

  8. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: To determine whether windfall profit tax administration can be facilitated under existing law, the Secretary of the Treasury, in consultation with IRS, should conduct a study of the advantages and disadvantages involved in allowing purchasers an extended period in which to correct windfall profit tax withholding errors. The study should seek, among other things, to assess potential benefits to be derived and the related costs and should also determine whether an effective compliance program could be maintained under a revised withholding system.

    Agency Affected: Department of the Treasury

  9. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Treasury should comply with the accounting requirements of the Crude Oil Windfall Profit Tax Act; specifically, the Secretary should allocate net windfall profit tax revenues into the established Windfall Profit Tax Account.

    Agency Affected: Department of the Treasury

 

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