SERVICE ISSUES EXTENSIVE GUIDANCE RELATING TO EXCISE TAX ON DIESEL FUEL AND AVIATION FUEL.

Notice 88-30

This notice describes issues arising from the changes made by section 10502 of the Revenue Act of 1987 (P.L. 100-203, 101 Stat. 1330) ("1987 Act") to the excise tax on diesel fuel and aviation fuel that the Internal Revenue Service intends to address in regulations. The 1987 Act added sections 4091, 4092, and 4093 to the Code, which, beginning on April 1, 1988, move the point of collection of the diesel fuel and aviation fuel tax from the sale by the retailer to the sale by the producer. See section III(B)(1)(a) of this notice regarding the definition of "producer". As a result of this change, tax-free sales below the producer level are no longer allowed, except for fuel destined for use as heating oil and sales to certain categories of purchasers who register and post such bond as the Secretary may require. Thus, many persons who formerly bought these types of fuel tax-free will no longer be able to do so as of April 1, 1988. A credit or refund of all or part of the tax paid may be claimed if the fuel purchased is used for a nontaxable purpose. Conversely, taxable fuel purchased tax-free under section 4093 may be subject to tax if later used in a taxable use or sold by the purchaser in a sale use subject to tax under section 4041.

At this time, several legislative proposals that would amend the diesel fuel excise tax are being considered by the Congress. Some of these proposals, if enacted, would alter the collection procedure for the tax for certain types of purchasers, including farmers. If any of these proposals are enacted into law, the Internal Revenue Service will publish additional guidance to implement the changes.

Nothing in this notice is intended to override any agreement or provision of law which takes precedence over the Internal Revenue Code of 1986, as amended.

TABLE OF CONTENTS

I. OVERVIEW

A. INTRODUCTION

Prior to April 1, 1988, the tax on diesel fuel and aviation fuel is imposed under section 4041 on fuel sold at the retail level for use in a diesel-powered highway vehicle or in an aircraft used in noncommercial aviation. On or after April 1, 1988, section 4091 imposes the tax on the sale of such taxable fuel by a producer or importer thereof. See section 4091(b) for rates of tax. Section 4092(a) defines "taxable fuel" as diesel fuel and aviation fuel. Diesel fuel is any liquid (other than gasoline) suitable for use as a fuel in a diesel-powered highway vehicle or a diesel-powered train. Aviation fuel is any liquid (other than gasoline) suitable for use as a fuel in an aircraft. A producer is defined in section 4092(b) as a person who is a refiner, compounder, blender, or wholesale distributor, or a dealer selling fuel exclusively to producers, and who elects to register under section 4101 with respect to the tax imposed by section 4091. The term "wholesale distributor" includes any person who sells a taxable fuel to producers, retailers, or to users who purchase in bulk quantities and deliver into bulk storage tanks. A wholesale distributor who also sells taxable fuel at retail may nonetheless qualify as a wholesale distributor under the statutory definition.

B. PRODUCERS

Section 4093(b) provides that, under regulations prescribed by the Secretary, the tax imposed by section 4091 shall not apply in the case of sales of a taxable fuel to a producer of such fuel. The regulations will provide that on or after April 1, 1988, and prior to May 1, 1988, a person may purchase taxable fuel tax-free as a producer of such taxable fuel by following certain procedures, including supplying a certification to the importer or producer selling such fuel. The procedures applicable before May 1, 1988, are described in section III(B)(1)(b) of this notice.

Section III(B)(1) of this notice provides that the regulations will require a producer to register by May 1, 1988, in order to make tax-free sales or purchases on or after that date. Producers that do not have an acceptable filing, deposit, and payment history in all areas of Federal taxation may be required to post a bond. Section V of this notice describes the criteria and requirements for bonding.

C. TAXABLE FUEL DESTINED FOR USE AS HEATING OIL

Section 4093(a) provides that the tax imposed by section 4091 does not apply in the case of sales of any taxable fuel which the Secretary determines is destined for use as heating oil. Section IV(C)(1)(b) of this notice describes how the regulations will define taxable fuel which the Secretary determines is destined for use as heating oil. As explained further in section IV(C), taxable fuel is destined for use as heating oil only if the taxable fuel is to be used by the purchaser as, or sold by the purchaser for, direct consumption as heating oil. Taxable fuel destined for use as heating oil will sometimes be referred to in this notice as "heating oil".

Section 4093(d) grants the Secretary authority to require registration of such persons as the Secretary deems necessary to carry out the subpart. The Secretary has determined to exercise this authority in the case of importers, producers, and retailers of taxable fuel destined for use as heating oil. As explained in section III(B) of this notice, the regulations will provide that importers or producers must register by May 1, 1988, and that heating oil retailers must register by October 1, 1988. Sections IV(B)(l) and (2) of this notice describe how importers and producers of taxable fuel destined for use as heating oil apply for such registration. Section IV(C) of this notice describes how heating oil retailers apply for registration. Such applications should be submitted as soon as possible. See also section III(B)(l) of this notice regarding registration requirements relating to sales and purchases by an importer or producer of taxable fuel destined for use as heating oil on or after May 1, 1988, and procedures to be used until that time. See section III(B)(2) relating to sales and purchases by a heating oil retailer of taxable fuel destined for use as heating oil on or after October 1, 1988, and procedures to be used until that time.

D. EXEMPT USES

(1) IN GENERAL

Under section 4093(c), the Secretary has authority, subject to such terms and conditions as the Secretary may provide (including registration and bonding), to permit tax-free sales for four specified categories of exempt uses. These categories are:

(a) Diesel fuel for use in a diesel-powered train;

(b) Aviation fuel for use in an aircraft not in noncommercial aviation;

(c) Taxable fuel for use other than as a motor fuel; and

(d) Taxable fuel sold to a state or local government for its exclusive use.

(2) REGISTRATION AND DOCUMENTATION

(a) IN GENERAL. The Secretary has determined to exercise his authority to permit tax-free sales in all four of these categories (collectively, "tax-free purchases" or "tax-free sales") in certain situations and on a case-by-case basis. In general, the regulations will provide that, to make tax-free purchases, all persons eligible for such tax-free purchases, other than a state or local government, must register by October 1, 1988. Once registered, they will be able to make tax-free purchases. Prior to October 1, 1988, however, such persons may make tax-free purchases by following other procedures, including supplying the producer or importer with a certification. Section III(B)(2) of this notice describes the procedures applicable to sales or purchases before October 1, 1988 by persons required to register for the sales described in paragraph (1) of this section. Section IV(G) of this notice describes procedures to be followed by state and local governments in order to purchase taxable fuel tax- free. Sections IV(D), (E), and (F) describe how to apply for registration for tax-free purchases of taxable fuel for use in a diesel-powered train, in an aircraft not in noncommercial aviation, and other than as a motor fuel, respectively. Such applications should be made as soon as possible.

(b) AVIATION FUEL. A special rule will apply, however, in the case of importers, producers, and purchasers of aviation fuel for use in an aircraft not in noncommercial aviation. The regulations will provide that a Certificate of Registry (Form 637A) issued pursuant to Chapter 31 of the Internal Revenue Code to a purchaser of aviation fuel for use in an aircraft not in noncommercial aviation or to a person who qualifies as an importer or producer (as defined in section 4092(b)) will apply until further notice to the tax imposed on aviation fuel under section 4091. Thus, a commercial airline or an importer or producer of aviation fuel already registered on Form 637A may use such Certificate to make tax-free sales or purchases of aviation fuel for use not in noncommercial aviation both before and after October 1, 1988. Any importer, producer, or other purchaser of aviation fuel for use in an aircraft not in noncommercial aviation not so registered must register using Form 637A. See section III(B) of this notice relating to deadlines for registration.

(c) STATE AND LOCAL GOVERNMENTS. The regulations will provide that, until further notice, a state or local government will not be required to register for tax-free sales. See section IV(G) of this notice for rules relating to sales of taxable fuel to a state or local government, including the requirement that the state or local government supply the importer or producer with a certification that all the fuel so purchased is purchased for the exclusive use of the state or local government.

(3) BONDING

The regulations will require that persons that are eligible to make tax-free purchases but that do not have an acceptable filing, deposit, and payment history in all areas of Federal taxation may be required to post a bond. Section V of this notice describes the criteria and requirements for bonding. No bonds will be required in the case of state or local governments.

(4) CASES IN WHICH TAX-FREE PURCHASE NOT AVAILABLE

(a) FOLLOWING A TAXABLE SALE. A person eligible for tax-free purchases may make a tax-free purchase only if such person purchases the taxable fuel before the section 4091 tax has been imposed. Consider the example of such a person purchasing taxable fuel from a retail dealer. The retail dealer has paid a price for the fuel that includes the tax imposed under section 4091. If the price paid by the person purchasing from the retailer includes the section 4091 tax, the person may file a claim for a credit or refund, as described in section VIII of this notice if the fuel is used in a tax-exempt use. Thus, in the case of any fuel taxable under section 4091, there is NOT available section 6416 (unlike the gasoline excise tax), or any other procedure by which the exempt user may purchase the product tax-free and the seller make a claim for a credit or refund of the tax. In the case of fuel taxable under section 4091, only the exempt user is eligible to make a claim for credit or refund of the tax paid.

(b) SALES TO OTHER PERSONS. Tax-free sales or purchases for exempt uses are available only for the categories set forth in section I(D)(l) of this notice. Sales to other persons for exempt uses, whether or not purchased from a producer, are taxable sales and the exempt user must make a claim for credit or refund of the tax. Exempt uses for which the tax must be paid include:

(i) Off-highway business use;

(ii) Use on a farm for farming purposes;

(iii) Use as supplies for vessels or aircraft;

(iv) Export or shipment to a possession of the United States;

(v) Exclusive use of a nonprofit educational organization;

(vi) Use by certain aircraft museums;

(vii) Certain helicopter uses;

(viii) Certain intercity, local, and school bus uses; or

(ix) Certain taxicab uses.

Section VIII of this notice describes the credit and refund procedures to be followed by such exempt users.

E. FLOOR STOCKS TAX

Section 10502(f) of the 1987 Act imposes a floor stocks tax on any taxable fuel held by a taxable person on April 1, 1988, at the rate of tax which would be imposed if the fuel were sold on that date in a sale subject to tax under section 4091. The floor stocks tax is to be paid before June 16, 1988. The regulations will define taxable fuel as any fuel taxable under section 4091 on which no tax has been imposed under section 4041 and which is not held exclusively for a nontaxable use, as defined in section 6427(1). A taxable person will be defined as any person other than an importer or producer of taxable fuel, as defined in section 4092. The regulations will provide that each taxable person must prepare an inventory of taxable fuel held on April 1, 1988. The floor stocks tax is discussed further at section VI of this notice.

F. REPORTING REQUIREMENTS

The regulations will provide that liability for tax imposed under section 4091 must be reported on Form 720, "Quarterly Federal Excise Tax Return". The regulations will require each person who is registered or required to register under section 4101 or 4093, and each state or local governments purchasing taxable fuel tax-free, to maintain adequate records of all taxable fuel it purchases, sells, or uses. Any person who claims a credit or refund of tax imposed under section 4091 will be required to maintain adequate records to support the credit or refund.

Section 4093(d) gives the Secretary authority to require information reporting as the Secretary deems necessary to carry out the tax imposed by section 4091. Later regulations may require additional recordkeeping and information reporting. See section VII of this notice for more information regarding recordkeeping and reporting requirements.

II. EXEMPTIONS FROM THE TAX

A. TAX-FREE SALES

Section 4093(b) provides that, under regulations prescribed by the Secretary, the tax imposed by section 4091 shall not apply to sales of taxable fuel to a producer. Under section 4093(a), the tax imposed by section 4091 shall not apply to sales of any taxable fuel which the Secretary determines is destined for use as heating oil. Section IV(C)(1)(b) explains how the regulations will define taxable fuel destined for use as heating oil. The Secretary has authority to require registration of heating oil retailers, and the regulations will require such registration. See sections III and IV of this notice. In addition, under section 4093(c), the Secretary has discretionary authority to permit sales without imposition of the section 4091 tax, in whole or in part, of --

(1) Diesel fuel for use in a diesel-powered train;

(2) Aviation fuel for use in an aircraft not in noncommercial aviation;

(3) Taxable fuel for use other than as a motor fuel; and

(4) Taxable fuel sold to a state or local government for its exclusive use.

The Secretary has determined to exercise this authority on a case-by-case,basis and the regulations will so provide. Sections III, IV, and V of this notice give additional information about registration and bonding for such tax-free purchases. Producers and persons wishing to sell or purchase fuel tax-free for these exempt uses, other than a state or local government or a person purchasing taxable fuel for such person's own use as heating oil, must register and post such bond as the Secretary may require. See section III(B) of this notice relating to deadlines for registration. See section IV(G) relating to requirements for state and local governments. In addition, there is no exemption with respect to the Leaking Underground Storage Tank Trust Fund financing rate ("L.U.S.T. tax") for diesel fuel used in a diesel-powered train or aviation fuel. Thus, the term "tax-free", as used in this notice with respect to these uses, does not include the L.U.S.T. tax.

A person eligible for tax-free purchases may make a tax-free purchase only if it purchases the fuel before the section 4091 tax has been imposed. If a person entitled to make tax-free purchases buys fuel on which the section 4091 tax has already been imposed and the price paid by the person includes the section 4091 tax, the person may file a claim for a credit or refund if the fuel is used in a tax-exempt use. For example, such an exempt person, A, purchases diesel fuel from a retailer, B. B paid the tax imposed under section 4091 when B purchased the fuel from C, a registered producer. The sale of fuel from B to A is not itself a taxable event, but because the tax has already been imposed, B charges A a price for the fuel which includes the tax paid by B to C. If A uses the fuel for a tax- exempt use, A may claim a credit or refund of tax paid with respect to fuel used for a nontaxable purpose. See section VIII of this notice regarding credits and refunds.

This result is necessary because, in the case of fuel taxable under section 4091, only the ultimate purchaser may claim a credit or refund of the tax paid. Unlike gasoline taxable under section 4081, neither section 6416 nor any other procedure applies to fuel taxable under section 4091 to enable the exempt user to purchase the product tax-free while the seller claims a credit or refund of the tax.

B. OTHER NONTAXABLE USES

Under the 1987 Act, all exemptions from the tax (other than those described in paragraph II(A) above) must be realized through a credit or refund procedure following a tax-paid purchase of the fuel. A person may qualify for a credit or refund of the tax paid if the fuel is purchased in or after a taxable sale and is used --

(1) For off-highway business use;

(2) On a farm for farming purposes;

(3) As supplies for vessels or aircraft;

(4) For export or for shipment to a possession of the United States;

(5) By a nonprofit educational organization for its exclusive use;

(6) By certain aircraft museums;

(7) For certain helicopter uses;

(8) In certain intercity, local, and school buses; or

(9) For certain taxicab uses.

See section VIII of this notice for credit and refund procedures.

III. REGISTRATION REQUIREMENTS

A. WHO MUST REGISTER

The regulations will require that every person that is an exempt user eligible for tax-free purchases under section 4093 with respect to fuel taxable under section 4091, other than a state or local government or a person purchasing taxable fuel for such person's own use as heating oil, register in accordance with the applicable provisions of sections III(B) and IV of this notice before buying taxable fuel tax-free. Section 4101 also requires that any person subject to tax under section 4091 register with the Secretary before incurring any liability for tax under such section. See section III(B) of this notice regarding deadlines for registration. See sections IV(E) and III(B)(2)(b) of this notice regarding procedures which apply to a person that already holds a valid Certificate of Registry (Form 637A) as a purchaser of aviation fuel for use in an aircraft not in noncommercial aviation.

B. DEADLINES FOR REGISTRATION

(1) IMPORTERS AND PRODUCERS

(a) IN GENERAL. Section 4092(b) defines "producer" as a person who is a refiner, compounder, blender, or wholesale distributor of a taxable fuel, or a dealer selling any taxable fuel exclusively to producers of such taxable fuel, and who elects to register under section 4101 with respect to the tax imposed by section 4091. The term "wholesale distributor" includes any person who sells a taxable fuel to producers, retailers, or to users who purchase in bulk quantities and deliver into bulk storage tanks. The regulations will provide that a wholesale distributor who also sells taxable fuel at retail may nonetheless qualify as a wholesale distributor under the statutory definition.

(b) SALES ON OR AFTER APRIL 1, 1988, AND BEFORE MAY 1 1988. The regulations will provide that on or after April 1, 1988, and before May 1, 1988, taxable fuel may be sold tax-free to a person who (but for not being registered under section 4101) meets the definition of the term "producer" as set forth in section III(B)(l)(a) above, and such person shall be deemed to be a registered producer during this period, provided that --

(i) The seller of taxable fuel to such person in the normal course of its business maintains on file copies of invoices of sales of taxable fuel showing the name of the purchaser, the date of sale, and the type and volume of product sold, and

(ii) Such person gives to the seller the following certification, signed under penalties of perjury by a person having authority to bind the purchaser, stating the name, address, employer identification number of the purchaser, and the title of the person signing the certification is attached to, or appears on the face of, the invoice for the sale:

"The undersigned purchaser ("Purchaser") hereby certifies that Purchaser is a producer of taxable fuel who is a refiner, compounder, blender, or wholesale distributor of a taxable fuel or a dealer selling any taxable fuel exclusively to producers of such taxable fuel. If Purchaser claims an exemption as a wholesale distributor, Purchaser certifies that Purchaser sells a taxable fuel to producers, retailers, or to users who purchase in bulk quantities and deliver into bulk storage tanks.

"Purchaser understands that any fraudulent use of this certification to purchase any taxable fuel free of tax will subject Purchaser to penalties of perjury, which may include fine and imprisonment."

      E.I.N.:  _______

(c) SALES ON OR AFTER MAY 1, 1988. The regulations will provide that on or after May 1, 1988, taxable fuel may be sold tax-free by a producer or importer of taxable fuel to a producer of taxable fuel under section 4091, but only if --

(i) Both the seller and the purchaser are registered with respect to such sales in accordance with the provisions of section 4101,

(ii) The purchaser has notified the seller in writing with which District Director the purchaser is registered and the Certificate of Registry number of the purchaser, and

(iii) The purchaser's Certificate of Registry number appears on the invoice for each tax-free sale made to the purchaser.

(d) ADDITIONAL INFORMATION. Applicants are urged to submit applications for registry to the District Director as soon as possible to facilitate the processing of the applications and issuance of registration numbers by May 1, 1988. All approvals of applications to register as an importer or producer submitted on or before April 30, 1988, will be on a conditional basis only. The regulations will provide that the applicant will be furnished a conditional Certificate of Registry (validated Form 637 or Form 637A) ("Certificate") bearing the applicant's temporary registration number. A conditional Certificate is valid until the effective date of any final decision made by the District Director with respect to the application. When a final decision is made, a notice will be sent by the District Director to the applicant stating that (i) the application for registry has received final approval, (ii) the conditional Certificate will expire at a date not less than 60 days after the date of such notice unless a bond is given, or (iii) the Certificate is revoked. Upon final approval of the application and acceptance of the bond, if one is required, the applicant will be furnished a Certificate bearing the applicant's final registration number. See section V of this notice for a description of the criteria and requirements for bonding.

(2) OTHER APPLICANTS

(a) SALES BEFORE OCTOBER 1, 1988 -- (i) IN GENERAL. The regulations will provide that taxable fuel may be purchased tax-free from a registered producer or importer on or after April 1, 1988, and before October 1, 1988, if the fuel is --

(A) Purchased by a heating oil retailer and is destined for use as heating oil,

(B) To be used by the purchaser as fuel in a diesel-powered train,

(C) To be used by the purchaser in an aircraft not in noncommercial aviation, or

(D) To be used by the purchaser other than as a motor fuel.

(ii) ADDITIONAL REQUIREMENTS. During the period between April 1, 1988, and October 1, 1988, purchasers in sales listed at paragraph (2)(a)(i) of this section are not required to be registered in order for the sale to be tax-free provided that --

(A) The importer or producer in the normal course of its business maintains on file copies of invoices of sales of taxable fuel showing the name of the purchaser, the date of sale, and the type and volume of product sold,

(B) The importer or producer obtains from the purchaser and keeps on file a certification, in the form provided below and signed under penalties of perjury by a person having authority to bind the purchaser, stating the name, address, employer identification number of the purchaser, the title of the person signing the certification, and the basis for claiming an exemption from payment of the tax imposed under section 4091,

(C) The invoice for the sale contains a written statement clearly indicating that the entire quantity of the fuel purchased is purchased for the nontaxable use specified in the purchaser's certification, and

(D) The District Director has not determined that the purchaser may not make tax-free purchases of taxable fuel under the following paragraph.

These requirements do not apply in the case of fuel purchased by a state or local government for its exclusive use or by a person purchasing taxable fuel for such person's own use as heating oil. Rules that will be contained in the regulations governing the purchase of taxable fuel by a state or local government are set forth at section IV(G) of this notice.

The regulations will further provide that a District Director has the authority to deny to any unregistered purchaser the right to buy taxable fuel tax-free under the rule of the preceding paragraph if the District Director determines that the District Director cannot verify the accuracy of, or compliance with the terms of, any certification provided by such unregistered purchaser. Any such action by the District Director shall be prospective only and shall not result in the imposition of tax on a registered importer or producer with respect to any previous sale of taxable fuel to such purchaser if the importer or producer in good faith accepted a proper certification by the purchaser that the fuel would be used by the purchaser in the exempt manner stated. However, the regulations will also provide that if, at the time of the sale, the importer or producer has reason to believe that any of the fuel sold tax-free by it to the purchaser is not intended to be used for the exempt purpose indicated by the purchaser, the importer or producer is not considered to have accepted the certification from the purchaser in good faith, and is not relieved of liability for the tax imposed on the sale of such taxable fuel under section 4091. An importer or producer has reason to believe that fuel sold by it is not intended for the exempt purposes stated if, for example, the importer or producer is aware that the purchaser does not have the equipment or facilities to use the fuel for the exempt purpose stated, or that the exempt purpose stated is inconsistent with the type of business the purchaser operates. An example of an inconsistent use that indicates acceptance of a certification not in good faith is one in which a producer, while aware that a purchaser's sole business is the operation of a fleet of diesel-powered highway vehicles, nevertheless sells large quantities of taxable fuel to such purchaser for use other than as a motor fuel.

(iii) FORM OF CERTIFICATION. Under the regulations, the certification may cover sales to such unregistered purchaser for the period from April 1, 1988, to September 30, 1988, inclusive, and shall take the following form:

"The undersigned purchaser ("Purchaser") hereby certifies that (a) Purchaser is a ___________ [Specify whether purchaser is a heating oil retailer or user of taxable fuel in a diesel-powered train, in an aircraft used in commercial aviation, or other than as a motor fuel], and that (b) the taxable fuel to which this certification relates is purchased for use for the following purpose ___________ [State whether sale for use as heating oil, as a fuel in a diesel-powered train, as a fuel in an aircraft not in noncommercial aviation (as defined in section 4041(c)(4) of the Internal Revenue Code of 1986, as amended), or the specific use, in detail, other than as a motor fuel].

"If this taxable fuel is sold or used by Purchaser for a purpose other than as stated above, then Purchaser understands that Purchaser may be subject to tax and may also be subject to penalties if Purchaser does not satisfy applicable registration requirements before incurring any liability for tax resulting from such use. Purchaser will be prepared to establish by satisfactory evidence the purpose for which Purchaser used the product purchased under this certification.

"Purchaser understands that any fraudulent use of this certification to purchase any taxable fuel free of tax will subject Purchaser to penalties of perjury, which may include fine and imprisonment."

      E.I.N.:  _______

(A) Both the seller and the purchaser are registered with respect to such sales in accordance with the provisions of section 4101,

(B) The importer or producer obtains from the purchaser and keeps on file a certification, in the form provided below and signed under penalties of perjury by a person having authority to bind the purchaser, stating the name, address, Certificate of Registry number of the purchaser, the title of the person signing the certification, and the basis for claiming an exemption from payment of the tax imposed under section 4091, and

(C) The purchaser's Certificate of Registry number appears on the invoice for each tax-free sale made to the purchaser.

See section III(B)(1) of this notice for rules govering sales to registered producers.

(ii) ADDITIONAL INFORMATION. Applicants are urged to submit applications for registry to the District Director as soon as possible to facilitate processing of the applications and issuance of registration numbers by October 1, 1988. The regulations will provide that, upon approval of the application and acceptance of the bond, if one is required, the applicant will be furnished a Certificate bearing the applicant's registration number. Section V of this notice discusses the criteria and requirements for bonding.

(iii) FORM OF CERTIFICATION. Under the regulations, the certification may cover sales to such a registered purchaser for a period not to exceed 4 calendar quarters, and shall take the following form:

"The undersigned purchaser ("Purchaser") hereby certifies that (a) Purchaser is a registered ____________ [Specify whether purchaser is a heating oil retailer or user of taxable fuel in a diesel-powered train, in an aircraft used in commercial, aviation, or other than as a motor fuel], and that (b) the taxable fuel to which this certification relates is purchased for use for the following purpose ____________ [State whether sale for use as heating oil, as a fuel in a diesel-powered train, as a fuel in an aircraft not in noncommercial aviation (as defined in section 4041(c)(4) of the Internal Revenue Code of 1986, as amended), or the specific use, in detail, other than as a motor fuel].

"If this taxable fuel is sold or used by Purchaser for a purpose other than as stated above, then Purchaser understands that Purchaser may be subject to tax and may also be subject to penalties if Purchaser does not satisfy applicable registration requirements before incurring any liability for tax resulting from such use. Purchaser will be prepared to establish by satisfactory evidence the purpose for which Purchaser used the product purchased under this certification.

"Purchaser understands that any fraudulent use of this certification to purchase any taxable fuel free of tax will subject Purchaser to penalties of perjury, which may include fine and imprisonment."

Registration No. ____________

The regulations will provide additional rules following issuance of a Certificate. A Certificate, whether conditional or final, may not be transferred from one person to another. A new application for registry will be required, and a bond, if necessary, under the standards set forth in section V of this notice, if there is a substantial change in the ownership or management of a person that holds a Certificate. The regulations will give the District Director authority to revoke a Certificate at any time in a case where the District Director deems it necessary in order to ensure the collection of the tax imposed by section 4091. Any such revocation by the District Director shall be prospective only and shall not result in the imposition of tax on a registered importer or producer with respect to any previous sale of taxable fuel to such purchaser if the importer or producer in good faith accepted a proper certification by the purchaser that the fuel will be used by the purchaser in the exempt manner stated. However, the regulations will also provide that if, at the time of the sale, the importer or producer has reason to believe that the fuel sold by it is not intended to be used for the exempt purpose indicated by the purchaser, the importer or producer is not considered to have accepted the certification from the purchaser in good faith, and is not relieved of liability for the tax imposed on the sale of such taxable fuel under section 4091. See also paragraphs (B)(1) and (2) of this section regarding registration and certification requirements.

D. PENALTIES

Failure to meet the requirements of applicable regulations may result in revocation of a person's registration. See section 7272 for the imposition of a civil penalty for failure to register. See section 7232 for provisions relating to the imposition of criminal penalties for failure to register and give a bond as required by section 4101 or for willfully making any false statement in an application for registry under section 4101.

IV. APPLICATION FOR REGISTRY

A. IN GENERAL

The regulations will provide that application for registry with respect to fuel taxable under section 4091 must be made on Form 637A to make tax-free sales or purchases of aviation fuel, or on Form 637 to register as a producer or to register to purchase diesel fuel or heating oil tax-free. Because Form 637A and Form 637 do not yet reflect changes made to the Internal Revenue Code by the Revenue Act of 1987, the regulations will provide that the applicable form must be prepared in accordance with the instructions and applicable regulations, as modified in this notice.

B. IMPORTERS AND PRODUCERS

(1) IN GENERAL

The regulations will provide that an importer or producer of taxable fuel must make separate application for registry with respect to diesel fuel and aviation fuel taxable under section 4091 by May 1, 1988. An importer or producer who sells diesel fuel not destined for use as heating oil as well as taxable fuel destined for use as heating oil must apply for registry as an importer or producer of diesel fuel under the rules below.

(2) DIESEL FUEL

The regulations will provide that application for registry with respect to diesel fuel must be made on Form 637, "Registration for Tax-Free Transactions Under Chapters 31, 32, and 38 of the Internal Revenue Code". The application must indicate whether the applicant is an importer, refiner, compounder, blender, wholesale distributor, or dealer selling fuel exclusively to producers, and that the applicant qualifies for registry as a producer or importer. Each applicable designation on the form should be checked. If the form does not have a check box which applies to the applicant, check and complete the box, "Other (specify)". The application must specify "DIESEL FUEL" as the type of product bought or sold.

If the applicant also sells taxable fuel destined for use as heating oil, the regulations will provide that the application must specify "DIESEL FUEL AND HEATING OIL" as the type of product bought or sold. As discussed further in section IV(C)(1)(b) of this notice, the regulations will define the term "fuel destined for use as heating oil" as taxable fuel (a) purchased for use by the purchaser as heating oil, or (b) purchased by a registered importer, producer, or heating oil retailer for sale to a third party for use as heating oil by such third party. The term "fuel destined for use as heating oil" will not include taxable fuel to be sold by the purchaser of the fuel to a third party for resale by such third party as heating oil. Thus, for example, a registered purchaser, A, purchases taxable fuel for sale to a producer or heating oil retailer, B, who will then sell the fuel to a consumer, C, for C's use as heating oil. The purchase made by both B and C will be considered under the regulations to be a purchase of taxable fuel destined for use as heating oil, but A's purchase will not. This is because A did not purchase the fuel for use by A or by A's purchaser, B, as heating oil. A person who does not qualify as a producer but who purchases taxable fuel for sale as heating oil must apply for registry as a heating oil retailer under the rules described in section IV(C) of this notice.

In addition, the regulations will provide that the application must include a statement setting forth in detail --

(a) A description of the equipment and facilities, if any, maintained for the production of diesel fuel,

(b) A description of the equipment and methods actually employed in the production of diesel fuel,

(c) The ingredients or materials utilized,

(d) The percentage that the sales, if any, of diesel fuel or diesel fuel in an alcohol mixture produced by the applicant, is expected to bear to total sales of diesel fuel or diesel fuel in an alcohol mixture by the applicant,

(e) The percentage that the total sales of heating oil, if any, is expected to bear to total sales of heating oil, diesel fuel, and diesel fuel in an alcohol mixture by the applicant,

(f) A description of any storage facilities used,

(g) A description of any equipment or facilities used for the transfer of diesel fuel and/or heating oil, if any,

(h) In the case of a wholesale distributor, the percentage that the bulk sales of diesel fuel to persons other than producers, if any, is expected to bear to total sales of diesel fuel,

(i) The names and addresses of all persons, if any, that will be used by the applicant as agents or brokers in the selling of diesel fuel and/or heating oil, if any, and

(j) The name and address of any person for whom diesel fuel will be purchased or imported by the applicant (i.e., the beneficial owner).

(3) AVIATION FUEL

The regulations will provide that a Certificate of Registry (Form 637A) issued pursuant to Chapter 31 of the Internal Revenue Code to a person who qualifies as an importer or producer (as defined in section 4092(b)) will apply until further notice to the tax imposed on aviation fuel under section 4091. Thus, an importer or producer of aviation fuel already registered on Form 637A may use such Certificate to make tax-free sales or purchases of aviation fuel under section 4091 until further notice. Until such notice, an importer or producer of aviation fuel holding a valid Certificate of Registry for tax-free sales and purchases of fuel used in an aircraft as of the date of this notice need not reapply for registry with respect to the tax imposed on aviation fuel under section 4091.

The regulations will require that an importer or producer of aviation fuel not holding a valid Certificate of Registry as of the date of this notice must register with respect to tax-free sales and purchases of aviation fuel under section 4091 on or after May 1, 1988, using Form 637A, in accordance with the instructions and applicable regulations, as modified in this notice. Section (c) of the instructions on Form 637A under "Who May Register" and all sections under "Exceptions to the Requirements for Registration" are no longer valid with respect to aviation fuel taxable under section 4091.

The regulations will provide that an application must include a statement as to whether the applicant is an importer, refiner, compounder, blender, wholesale distributor, or dealer selling fuel exclusively to producers. Each applicable designation on the form should be checked. If the form does not have a check box which applies to the applicant, check and complete the box, "Other (specify)". The application must specify "AVIATION FUEL" as the type of fuel bought or sold. In addition, the application must include a statement setting forth in detail --

(a) A description of the equipment and facilities, if any, maintained for the production of aviation fuel,

(b) A description of the equipment and methods actually employed in the production of aviation fuel,

(c) The ingredients or materials utilized,

(d) The percentage that the sales (if any) of aviation fuel or aviation fuel in an alcohol mixture produced by the applicant, is expected to bear to total sales of aviation fuel or aviation fuel in an alcohol mixture by the applicant,

(e) A description of any storage facilities used,

(f) A description of any equipment or facilities used for the transfer of any aviation fuel,

(g) The percentage that the bulk sales of aviation fuel is expected to bear to total sales of aviation fuel,

(h) The names and addresses of all persons, if any, that will be used by the applicant as agents or brokers in the selling of aviation fuel, and

(i) The name and address of any person for whom aviation fuel will be purchased or imported by the applicant (i.e., the beneficial owner).

C. HEATING OIL RETAILERS

(1) DEFINITIONS

(a) HEATING OIL RETAILER. The regulations will define the term "heating oil retailer" as a person other than a producer or importer who purchases taxable fuel for resale as fuel destined for use as heating oil. See section V of this notice regarding bonding requirements relating to heating oil retailers.

(b) FUEL DESTINED FOR USE AS HEATING OIL. The term "fuel destined for use as heating oil" will be defined in the regulations as taxable fuel that is intended to be used to provide heat, provided that the fuel is --

(i) purchased for use by the purchaser to provide heat, or

(ii) purchased by a registered importer, producer, or heating oil retailer for sale to a third party for use by such third party to provide heat.

Thus, for example, the term "fuel destined for use as heating oil" will include fuel to be used by the purchaser to heat a residence or commercial building. Another example of fuel destined for use as heating oil is fuel to be used by the purchaser to heat a boiler that produces steam to run a steam turbine. Taxable fuel destined for use as heating oil will sometimes be referred to as "heating oil".

However, as defined above, the term "fuel destined for use as heating oil" will not include taxable fuel to be sold by the purchaser of the fuel to a third party for resale by such third party as heating oil. Thus, for example, if A purchases taxable fuel for sale to B, who intends to use the fuel to heat B's building, then, assuming A is registered as a heating oil retailer (or as a producer selling both diesel fuel and heating oil), both the sale of taxable fuel to A and the sale of taxable fuel to B will be considered to be sales of fuel destined for use as heating oil. Alternatively, if A purchases taxable fuel for sale to B, who intends to resell the fuel to C, the sale of taxable fuel to A is not a sale of fuel destined for use as heating oil, regardless of C's use of the fuel. However, the sale from A to B would be a sale of fuel destined for use as heating oil under the rule above if C intends to use the fuel purchased from B to heat C's building.

(2) MAKING THE APPLICATION

The regulations will require that an applicant qualify as a heating oil retailer in order to register to purchase or sell taxable fuel tax-free as a heating oil retailer. The regulations will provide that application for registry must be made on Form 637, "Registration for Tax-Free Transactions Under Chapters 31, 32, and 38 of the Internal Revenue Code". See section III(B)(2) of this notice regarding registration requirements relating to sales and purchases of taxable fuel destined for use as heating oil on or after October 1, 1988, and procedures to be used until that time. See section IV(B) of this notice for provisions relating to a producer or importer selling both diesel fuel and heating oil.

The application will be required to include a statement that the applicant is a "HEATING OIL RETAILER" purchasing "HEATING OIL". The form does not have a check box which applies to the applicant. The required information mst be supplied under "Other (specify)". In addition, the application must include a statement setting forth in detail --

(a) That all taxable full certified by the applicant as fuel destined for use as heating oil is purchased for sale to the applicant's customers for use by such customers as heating oil,

(b) A description of any storage facilities used,

(c) A description of any equipment or facilities used for the transfer of heating oil, if any, and

(d) The names and addresses of all persons, if any, that will be used by the applicant as agents or brokers in the selling of heating oil.

(3) ADDITIONAL REQUIREMENTS

The regulations will further provide that a registered heating oil retailer may purchase fuel destined for use as heating oil tax- free from a registered importer or producer provided that --

(a) The heating oil retailer intends to sell all the fuel so purchased for use by its customer(s) as heating oil,

(b) The seller obtains from the purchaser and keeps on file a certification described in section III(B)(2)(b)(i)(B) of this notice, and

(c) The importer or producer in the normal course of business maintains on file copies of invoices of sales of taxable fuel showing the name of the purchaser, the date of sale, and the type and volume of product sold.

The regulations will provide that a District Director has the authority to deny to any applicant the right to buy taxable fuel tax- free as fuel destined for use as heating oil if the District Director determines that the District Director cannot verify the accuracy of, or compliance with the terms of, any certification provided by such person.

In addition, the regulations will provide that a District Director may revoke a person's registry as a heating oil retailer at any time in a case where fuel is purchased tax-free as fuel destined for use as heating oil and --

(i) At the time of purchase, such retailer does not intend to sell the fuel purchased for use as heating oil,

(ii) If at the time the retailer sells fuel that was purchased as heating oil, such retailer has reason to believe that the fuel will be used other than as heating oil, or

(iii) The District Director deems it necessary in order to ensure the collection of the tax imposed by section 4091.

The regulations will provide that a heating oil retailer has reason to believe that fuel will be used for a purpose other than as heating oil if, for example, the retailer knows that the purchaser of the fuel from the retailer does not have the equipment or facilities to use the fuel as heating oil, or the retailer knows that the use of the fuel as heating oil is inconsistent with the type of business the purchaser operates. An example of an inconsistent use indicating a reason to believe that the fuel will be used other than as heating oil is one in which a heating oil retailer, while aware that a purchaser's sole business is the operation of a fleet of diesel- powered highway vehicles, nevertheless sells large quantities of taxable fuel to such purchaser for use as heating oil. However, any such revocation by the District Director will be prospective only and shall not result in the imposition of tax on a registered importer or producer with respect to any previous sale of taxable fuel to such heating oil retailer if the importer or producer in good faith accepted a proper certification from the heating oil retailer that the fuel was intended for sale as heating oil.

D. PURCHASER OF FUEL FOR USE IN A DIESEL-POWERED TRAIN

(1) MAKING THE APPLICATION

The regulations will require that a purchaser of fuel for use in a diesel-powered train register using Form 637, "Registration for Tax-Free Transactions Under Chapters 31, 32, and 38 of the Internal Revenue Code". See section III(B)(2) of this notice regarding registration requirements relating to sales and purchases of diesel fuel for use in a diesel-powered train on or after October 1, 1988, and procedures to be used until that time. The regulations will define the term "train" to include a locomotive, work train, switching engine, track maintenance machine, or other equipment incident to train operations, so long as such equipment or machinery rides on rails. The term "train" will not include any equipment or machinery that does not ride on rails.

The applicant's type of business (e.g., "RAILROAD") is to be entered under "Other (specify)". The application will be required to include a statement that the applicant is buying "DIESEL FUEL" for use in a diesel-powered train, and that the applicant qualifies for this exemption as an "OPERATOR OF A DIESEL-POWERED TRAIN" under "Other (specify)". In addition, the application must include a statement setting forth in detail --

(a) The amount of taxable fuel expected to be used in a diesel- powered train,

(b) The percentage that the usage, if any, of diesel fuel or diesel fuel in an alcohol mixture by the applicant in a diesel- powered train, is expected to bear to total usage of diesel fuel or diesel fuel in an alcohol mixture by the applicant,

(c) A description of any storage facilities used, and

(d) A description of any equipment or facilities used for the transfer of diesel fuel, if any.

(2) ADDITIONAL REQUIREMENTS

The regulations will further provide that a registered purchaser of diesel fuel for use in a diesel-powered train may purchase fuel tax-free for such use from a registered importer or producer provided that --

(a) The purchaser intends to use all the fuel so purchased as fuel for a diesel-powered train,

(b) The seller obtains from the purchaser and keeps on file a certification described in section III(B)(2)(b)(i)(B) of this notice, and

(c) The importer or producer in the normal course of business maintains on file copies of invoices of sales of taxable fuel showing the name of the purchaser, the purchaser's Certificate of Registry number, the date of sale, and the type and volume of product sold.

In addition, the regulations will provide that a District Director may revoke a person's registry as a purchaser of fuel for use in a diesel-powered train at any time if, at the time of purchase, such purchaser does not intend to use the fuel that was purchased tax-free as fuel for a diesel-powered train, or if the District Director deems it necessary in order to ensure the collection of the tax imposed by section 4091. However, any such revocation by the District Director will be prospective only and shall not result in the imposition of tax on a registered importer or producer with respect to any previous sale of taxable fuel to such purchaser if the importer or producer in good faith believed that the fuel was to be used as fuel for a diesel-powered train.

E. PURCHASER OF FUEL FOR USE IN AN AIRCRAFT NOT IN NONCOMMERCIAL AVIATION

(1) MAKING THE APPLICATION

The regulations will require tat a purchaser of aviation fuel for use in an aircraft not in noncommercial aviation make application for registry with respect to aviation fuel on Form 637A, "Registration for Tax-Free Sales and Purchases of Fuel Used in Aircraft Under Chapter 31 of the Internal Revenue Code" in order to purchase fuel for such use tax-free. The regulations will further provide that a valid Certificate of Registry (Form 637A) issued to a person purchasing aviation fuel for use in an aircraft not in noncommercial aviation will apply to the tax imposed on aviation fuel under section 4091 until further notice. Until such notice, a person holding a valid Certificate of Registry for tax-free purchases of fuel for use in an aircraft not in noncommercial aviation as of the date of this notice need not reapply for registry with respect to the tax imposed on aviation fuel under section 4091. The regulations will also provide that the rules described in section III(B)(2)(b) of this notice will apply to such a registered person for sales of aviation fuel on or after April 1, 1988. See also paragraph (2) of this section, below.

A person not holding a valid Certificate of Registry for tax- free purchases of fuel for use in an aircraft not in noncommercial aviation as of the date of this notice must apply for registry with respect to tax-free sales and purchases of aviation fuel under section 4091 on Form 637A in accordance with the instructions and applicable regulations, as modified in this notice. See section III(B)(2) of this notice regarding registration requirements relating to sales and purchases of aviation fuel for use in an aircraft not in noncommercial aviation on or after October 1, 1988, and procedures to be used until that time.

The application must include a statement that the applicant is a commercial airline or other person purchasing "AVIATION FUEL" for use in an aircraft not in noncommercial aviation. In addition, the application must include a statement setting forth in detail the percentage that the usage, if any, of aviation fuel or aviation fuel in an alcohol mixture, in an aircraft not in noncommercial aviation is expected to bear to total usage of aviation fuel or aviation fuel in an alcohol mixture by the applicant.

(2) ADDITIONAL REQUIREMENTS

The regulations will further provide that a registered purchaser of aviation fuel for use not in noncommercial aviation may purchase fuel for such use from a registered importer or producer provided that --

(a) The purchaser intends to use all the fuel so purchased as fuel for an aircraft not in noncommercial aviation,

(b) The seller obtains from the purchaser and keeps on file a certification described in section III(B)(2)(b)(i)(B) of this notice, and

(c) The importer or producer in the normal course of business maintains on file copies of invoices of sales of taxable fuel showing the name of the purchaser, the purchaser's Certificate of Registry number, the date of sale, and the type and volume of product sold.

In addition, the regulations will provide that a District Director may revoke a person's registry as a purchaser of fuel for use in an aircraft not in noncommercial aviation, at any time if, at the time of purchase, such purchaser does not intend to use the fuel that was purchased tax-free as fuel in an aircraft not in noncommercial aviation, or if the District Director deems it necessary in order to ensure the collection of the tax imposed by section 4091. However, any such revocation by the District Director will be prospective only and shall not result in the imposition of tax on a registered importer or producer with respect to any previous sale of taxable fuel to such purchaser if the importer or producer in good faith believed that the fuel was to be used as fuel for an aircraft not in noncommercial aviation.

F. PURCHASER OF FUEL FOR USE OTHER THAN AS A MOTOR FUEL

(1) DEFINITIONS

(a) IN GENERAL. For purposes of this exemption, the regulations will provide that use of taxable fuel "other than as a motor fuel" shall include use as a chemical feedstock, solvent, cleaner, or for explosives. Use other than as a motor fuel will not include use of taxable fuel in any motor, engine, machine, generator, self-propelled machinery, or vessel or boat. See, however, section IV(C)(1)(b) of this notice regarding taxable fuel used to heat a boiler.

(b) REQUEST FOR COMMENTS. Persons who use taxable fuel for a non-motor fuel use not listed above, and who purchase and store such fuel in bulk quantities are requested to write to the Internal Revenue Service describing such use. This information will be used to develop regulations relating to the exemption for taxable fuel sold for use other than as a motor fuel. Address comments to Ms. Lauren G. Shaw of the Legislation and Regulations Division, Office of Chief Counsel Internal Revenue Service 1111 Constitution Avenue, N.W., Washington, DC 20224 (Attention CC:LR:4).

(2) MAKING THE APPLICATION

The regulations will provide that application for registry must be made on Form 637, "Registration for Tax-Free Transactions Under Chapters 31, 32, and 38 of the Internal Revenue Code". See section III(B)(2) of this notice, describing that the regulations will require a purchaser of taxable fuel for use other than as a motor fuel to be registered in order to make tax-free purchases of diesel fuel for this use on or after October 1, 1988, and the procedures to be followed for tax-free sales until that time. In addition, the application for registry will be required to include a statement setting forth in detail --

(a) A description of the intended use of the fuel other than as a motor fuel,

(b) The amount of taxable fuel expected to be used other than as a motor fuel,

(c) The ingredients or materials utilized,

(d) The percentage that the usage, if any, of diesel fuel or diesel fuel in an alcohol mixture by the applicant other than as a motor fuel, is expected to bear to total usage of diesel fuel or diesel fuel in an alcohol mixture by the applicant,

(e) A description of any storage facilities used, and

(f) A description of any equipment or facilities used for the transfer of diesel fuel and/or heating oil, if any.

(3) ADDITIONAL REQUIREMENTS

The regulations will further provide that a registered purchaser of taxable fuel for use other than a motor fuel may purchase fuel for such use from a registered importer or producer provided that --

(a) The purchaser intends to use all the fuel so purchased other than as a motor fuel,

(b) The seller obtains from the purchaser and keeps on file a certification described in section III(B)(2)(b)(i)(B) of this notice, and

(c) The importer or producer in the normal course of business maintains on file copies of invoices of sales of taxable fuel showing the name of the purchaser, the purchaser's Certificate of Register number, the date of sale, and the type and volume of product sold.

In addition, the regulations will provide that a District Director may revoke a person's registry as a purchaser of fuel for use other than as a motor fuel at any time if, at the time of purchase, such purchaser does not intend to use the fuel that was purchased tax-free in a use other than as a motor fuel, or if the District Director deems it necessary in order to ensure the collection of the tax imposed by section 4091. However, any such revocation by the District Director will be prospective only and shall not result in the imposition of tax on a registered importer or producer with respect to any previous sale of taxable fuel to such purchaser if the importer or producer in good faith believed that the fuel was to be used other than as a motor fuel.

G. STATE OR LOCAL GOVERNMENT

(1) IN GENERAL

The regulations will provide that, until further notice, a state or local government will not be required to register for tax-free sales of taxable fuel under section 4093(c) if it buys its fuel from a registered importer or producer before the section 4091 tax has been imposed. However, the regulations will provide that if a state or local government purchases fuel on which the section 4091 tax has already been imposed and the price paid by the state or local government includes the section 4091 tax, the state or local government may file a claim for a credit or refund. This rule is explained in more detail at sections I(D)(4)(a) and II(A) of this notice.

The regulations will further provide that on or after April 1, 1988, a state or local government may purchase taxable fuel tax-free from a registered importer or producer provided that --

(a) The importer or producer in the normal course of its business maintains on file copies of invoices of sales of taxable fuel showing the name of the purchaser, the date of purchase, and the type and volume of product purchased,

(b) The importer or producer obtains from the state or local government and keeps on file a certification, in the form provided below and signed under penalties of perjury by a person having authority to bind the state or local government, that all fuel purchased is purchased for the exclusive use of the state or local government,

(c) The Federal employer identification number of the state or local government is attached to, or appears on, the face of the invoice for the sale, and

(d) The sales invoice contains a written statement clearly indicating that the entire quantity of the fuel is purchased for the exclusive use of a state or local government.

The regulations will give the District Director authority to deny to any state or local government the right to buy taxable fuel tax-free if the District Director determines that the District Director cannot verify the accuracy of, or compliance with the terms of, any certification provided by such state or local government. However, any such action by the District Director will be prospective only and shall not result in the imposition of tax on a registered importer or producer with respect to any previous sale of taxable fuel to such state or local government.

The regulations will provide that one certification may be used by all agencies, boards, and commissions of a state that are authorized by the state to make purchases for the exclusive use of the state, but that such certification may not be used by any political subdivision of that state, such as a county or municipality. Each such political subdivision will be required to supply a separate certification relating to fuel purchased for its exclusive use.

(2) FORM OF CERTIFICATION

The regulations will provide that the certification may cover sales of taxable fuel to the state or local government for a period not to exceed 12 calendar quarters, and shall take the following form:

"The undersigned purchaser ("Purchaser") hereby certifies that (a) Purchaser is a state or local government buying taxable fuel for its exclusive use, and that (b) the taxable fuel to which this certification relates is purchased for the exclusive use of Purchaser.

"If this taxable fuel is used by Purchaser for a purpose other than as stated above, then Purchaser understands that Purchaser may be subject to tax and may be subject to penalties if Purchaser does not satisfy applicable registration requirements before incurring any liability for tax resulting from such use. Purchaser will be prepared to establish by satisfactory evidence the purpose for which Purchaser used the product purchased under this certification.

"Purchaser understands that any fraudulent use of this certification to purchase any taxable fuel free of tax will subject Purchaser to penalties of perjury, which may include fine and imprisonment."

E.I.N.: ___________

A. IN GENERAL

The regulations will provide that any person required to register to make tax-free purchases under section 4093 may be required to post a bond with respect to the tax imposed by section 4091. Generally, under the regulations, no bond will be required with respect to the tax imposed by section 4091 if a person has an acceptable filing, deposit, and payment history in all areas of Federal taxation, as described in paragraph (B) of this section. In no case will the regulations require a bond of a state or local government purchasing taxable fuel for its exclusive use, or a heating oil retailer purchasing only fuel destined for use as heating oil as that term is defined under section IV(C)(1)(b) of this notice. However, the regulations will provide that if a heating oil retailer purchases both fuel destined for use as heating oil and taxable fuel not destined for use as heating oil, the heating oil retailer may be required to post a bond with respect to taxable fuel purchased other than as fuel destined for use as heating oil. See section IV(C) of this notice for additional requirements relating to heating oil retailers.

B. STANDARDS FOR REQUIRING A BOND

The regulations will provide that, to determine if applicant has an acceptable tax compliance history, the District Director will examine whether the applicant has a satisfactory filing, deposit, and payment history. The regulations will direct the District Director to examine the applicant's filing, deposit, and payment history in all areas of Federal taxation, including income, employment, and excise taxes for either the preceding 8 quarters (for taxes due on a quarterly basis) or the preceding 2 years (for taxes due on an annual basis) to determine if the applicant has filed tax returns and made deposits and payments of tax in a timely manner. The regulations will provide that, if the District Director is not satisfied with the filing, deposit, and payment history of the applicant, or no such history exists (e.g., in the case of a newly created business), a bond will be required, but that under extenuating circumstances (e.g., bankruptcy of the applicant), the District Director may waive the bond requirement and accept an alternative form of security. The regulations will provide that the bond shall be filed with a Form 928, modified to apply to the tax imposed under section 4091.

C. AMOUNT OF BOND

The regulations will provide that, if a bond is required, the amount of the bond will be the lesser of (1) $500,000 or (2) the amount of tax that would be imposed under section 4091 on the expected volume of taxable fuel that will be used or sold by the applicant during an average 1-month period other than fuel destined for use as heating oil (as determined by the District Director) as if all such use or sales are taxable. This requirement may result in a bond being required from some persons that do not expect to incur any tax liability under section 4091, such as, for example, a newly established purchaser of fuel for use in a diesel-powered train or a producer that sells to other producers. The regulations will also provide that a strengthening or superseding bond may be required if, for any month, the actual volume of taxable fuel sold is greater than the volume on which the existing bond is based.

D. ACCEPTABLE ISSUER

The regulations will provide that, if a bond is required, the surety on the bond must be a company approved for inclusion on the Department of the Treasury Circular 570 as an acceptable surety or reinsurer on Federal bonds. Under the regulations, any other company or individual will not be acceptable as a surety for purposes of a bond required under sections 4091 and 4101.

E. RELEASE OF BOND

The regulations will provide that a registrant that is required to give a bond may apply to the District Director for the release of the bond, based on a showing of satisfactory filing, deposit, and payment history.

VI. FLOOR STOCKS TAX

A. IN GENERAL

Section 10502(f) of the 1987 Act imposes a floor stocks tax on any taxable fuel held by a taxable person at the first moment of April 1, 1988, at the rate of tax which would be imposed if such fuel were sold on such date in a sale subject to tax under section 4091 of the Internal Revenue Code. The taxes imposed by section 10502(f) of the 1987 Act shall be paid before June 16, 1988.

Section 4091(b) provides that the Highway Trust Fund financing rate is 15 cents per gallon, the Airport and Airway Trust Fund financing rate is 14 cents per gallon, and the L.U.S.T. tax rate is 0.1 cents per gallon. Section 4091(c) provides that the Highway Trust Fund financing rate for diesel fuel for use in producing a diesel fuel mixture is 10 cents per gallon if at least 10 percent of such mixture consists of alcohol. The Highway Trust Fund financing rate for such a mixture of diesel fuel and alcohol is 9 cents a gallon if the diesel fuel in such mixture was not taxed at the 10-cent per gallon rate. Section 4091(d) provides that the Airport and Airway Trust Fund financing rate shall not apply to the sale of any mixture of aviation fuel if at least 10 percent of such mixture consists of alcohol or to the sale of aviation fuel for use in producing such a mixture. Thus, the effective rates of tax are as follows:

      Type of fuel                                  Cents per gallon

For purposes of the floor stocks tax, the regulations will provide that the term "taxable fuel" means any taxable fuel (as defined in section 4092 of the Internal Revenue Code) on which no tax has been imposed under section 4041 of such Code. Such term does not include fuel held exclusively for any use which is a nontaxable use as defined in section 6427(1) of such Code. The term "taxable person" will be defined to mean any person other than a producer (as defined in section 4092 of such Code) or importer of taxable fuel. Fuel will be treated as held by a person if title thereto has passed to such person whether or not delivery to such person has been made. For example, a taxable person may be a retailer of diesel fuel, a construction company, or a farmer holding diesel fuel in storage. If such person holds such fuel exclusively for a nontaxable use, then the fuel will not be considered to be taxable fuel for purposes of the floor stocks tax. However, if such person holds such fuel for a taxable use, or for both taxable and nontaxable uses, the regulations will provide that the fuel is taxable fuel for purposes of the floor stocks tax.

For purposes of the floor stocks tax imposed by section 10502(f), only the L.U.S.T. tax shall apply with respect to diesel fuel held exclusively for use as a fuel in a diesel-powered train and aviation fuel held exclusively for use as a fuel in an aircraft not in noncommercial aviation.

C. INVENTORY

The regulations will require every taxable person liable for the floor stocks tax on taxable fuel to prepare an inventor of taxable fuel held at the first moment of April 1, 1988. Taxable persons holding taxable fuel subject to the tax at more than one location will be required to prepare a separate inventory, in duplicate, for each such location. One copy of the separate inventor is to be retained at the location and one copy is to be kept at the principal place of business of the taxable person. Each inventory is to show the name of the taxable person, the location of the particular premises for which the inventory is made, the address shown on the taxable person's tax return, and the total number of gallons of taxable fuel held at the particular location that are subject to the floor stocks tax on taxable fuel. The regulations will provide that the inventor is not to be filed with the return but is to be retained by the taxpayer.

D. SPECIAL RULE FOR DETERMINING AMOUNT OF TAXABLE FUEL HELD IN INVENTORY

As explained above, taxable persons are required to make an inventor of all taxable fuel held on April 1, 1988, and keep records of that inventory. The regulations will provide that, in determining the amount of taxable fuel subject to the floor stocks tax, a taxable person may exclude the amount of taxable fuel in dead storage. "Dead storage" will be defined as the amount of taxable fuel that will not be pumped out of a storage tank because the taxable fuel is below the mouth of the draw pipe. For this purpose, a taxable person will be permitted to assume that the amount of taxable fuel in dead storage is 200 gallons for a tank with a capacity of less than 10,000 gallons and 400 gallons for a tank with a capacity of 10,000 gallons or more. Alternatively, a taxable person will be permitted to compute the amount of taxable fuel in dead storage by using the manufacturer's conversion table for the tank and the number of inches between the bottom of the tank and the mouth of the draw pipe. If the taxable person uses the conversion table method to compute the amount of taxable fuel in dead storage, the distance between the bottom of the tank and the mouth of the draw pipe is to be assumed to be 6 inches, unless the taxable person establishes otherwise.

E. REQUIREMENTS WITH RESPECT TO RETURN

(1) FORM

The regulations will require every person liable for the floor stocks tax on taxable fuel to make a return of the tax on Form 720.

(2) TIME AND PLACE FOR FILING RETURN

The return reflecting the floor stocks tax is to be filed with the Service Center indicated by the instructions for the Form 720. The regulations will provide that the return must be filed on or before the date prescribed by the instructions for the Form 720 for the quarter ending June 30, 1988. The regulations will require that, in the case of a taxable person not otherwise required to file Form 720, the return must be marked "FINAL". For provisions relating to timely filing and paying, see sections 7502 and 7503. For provisions relating to additions to the tax in case of failure to file a return within the prescribed time, see section 6651 and section 301.6651.

(3) TIME AND PLACE FOR PAYING TAX

The regulations will provide that the tax is due and payable without assessment or notice, before June 16, 1988. If a taxable person is not required to make a deposit of any tax reported on Form 720, for the quarter ending June 30, 1988, the taxable person is to pay the tax by check or money order. Such check or money order must reflect the taxable person's taxpayer identification number, and "Form 720 Second Quarter 1988, Floor Stocks Tax on [TYPE OF FUEL] and the IRS number of each fuel. The IRS numbers for each fuel are as follows:

      Type of fuel                                      IRS Number

(4) CREDIT OF REFUND

The regulations will provide that any person who has paid a floor stocks tax on taxable fuel may be entitled, subject to the provisions of sections 6416 and 6427, to a credit or refund of the tax for any of the reasons specified in section 6416 or 6427. That is, in the case of the floor stocks tax, either the exempt user or the seller of the fuel to the exempt user may claim the refund or credit. Under the regulations, credit or refund may be claimed for any of the purposes specified relating to --

(a) Export or shipment to a possession of the United States;

(b) Supplies for vessels or aircraft,

(c) Exclusive use of a state or local government,

(d) Exclusive use of a nonprofit educational organization,

(e) Use of taxable fuel in the production of special fuels,

(f) Off-highway business use,

(g) Intercity, local, or school buses,

(h) Use on a farm for farming purposes,

(i) Use by certain aircraft museums,

(j) Certain helicopter uses, or

(k) Certain taxicab uses.

Claims for refund under section 10502(f) of the Revenue Act are to be filed on Form 843, "Claim". Subject to the provisions of sections 6416 and 6427, any person entitled to claim a refund of tax may, in lieu of claiming a refund, claim a credit for the tax against taxes imposed under Subtitle A or Chapter 32 of Subtitle F of the Internal Revenue Code on any subsequent return. A taxpayer should attach to the return a statement or a Form 4136, "Computation of Credit for Federal Tax on Gasoline and Special Fuels", if applicable, to show the computations. See also section VIII of this notice regarding credit and refund procedures.

(5) RECORDS

The regulations will require every person liable for the floor stocks tax on taxable fuel to maintain --

(a) Records of the separate inventories required by section VI(C) of this notice,

(b) A duplicate copy of the return, together with other relevant papers and material, and

(c) A complete and detailed record with respect to any claim of refund or credit of the tax.

All records required by this paragraph are to be kept at the principal place of business of the person required to maintain the records. The records are at all times to be available for inspection by internal revenue agents and officers. Records required by paragraph (5)(a) and (b) of this section are to be maintained for a period of at least three years after the date the tax becomes due or the date the tax is paid, whichever is later. Records required by paragraph (5)(c) of this section (including any record required by paragraph (5)(a) or (b) that relates to a claim) are to be maintained for a period of at least three years after the last day prescribed for the filing of the claim for credit or payment.

VII. REPORTING REQUIREMENTS

A. FILING REQUIREMENTS

The regulations will provide that liability for tax imposed under section 4091 must be reported on Form 720 (Quarterly Federal Excise Tax Return) in accordance with the instructions for Form 720 and the applicable regulations.

B. RECORDKEEPING REQUIREMENTS

The regulations will require each person who is registered or required to register under section 4101 or 4093, and each state or local government purchasing taxable fuel tax-free, to maintain adequate records of all taxable fuel it purchases, sells, or uses. For each purchase, sale, or use of taxable fuel, the regulations will require that the record include: (1) the volume of taxable fuel, (2) the type(s) of taxable fuel, (3) the date of the transaction, (4) the name and status of each person involved (e.g., X Corporation as seller and A Proprietor as purchaser), and (5) whether the sale or use is taxable. Any person who claims a credit or refund of tax imposed under section 4091 is to maintain adequate records to support the credit or refund. All records required by this paragraph are to be kept at the principal place of business of the person required to maintain the records. The records are at all times to be available for inspection by internal revenue agents and officers. Records required by this section are to be maintained for a period of at least three years after either (1) the date the tax becomes due or is paid (whichever is later), or (2) the last date prescribed for the filing of the claim for credit or payment, as applicable.

Section 4093(d) gives the Secretary authority to require information reporting as the Secretary deems necessary to carry out the subpart. Later regulations may require additional recordkeeping and information reporting.

VIII. CREDIT AND REFUND PROCEDURES

Exempt users should use Form 4136, "Computation of Credit for Federal Tax on Gasoline and Special Fuels", to claim a credit against Federal income tax liability, or Form 843, "Claim", to request a refund of taxes paid, with respect to taxable fuel used for a nontaxable purpose. For more information regarding credits or refunds, see I.R.S. publication 378, "Fuel Tax Credits". See also Publication 510, "Excise Taxes for 1988" for general information regarding Federal excise taxes. Also available are Publication 225, "Farmer's Tax Guide", and Publication 595, "Tax Guide for Commercial Fishermen". Forms and publications can be ordered from the Forms Distribution Center for your state at the address below or by calling 1-800-424-FORM. Please note, however, that these forms and publications were last revised before the enactment of the Revenue Act of 1987, and do not yet reflect changes made to the Internal Revenue Code by that law. They can be used for general information, but should be read in conjunction with the revised Internal Revenue Code.

If You are located in: Send to:

Alaska, Arizona, California, Forms Distribution Center

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.

X. DRAFTING INFORMATION

The principal author of this notice is Lauren G. Shaw of the Legislation and Regulations Division of Chief Counsel. For further information regarding this notice, contact Ms. Shaw on (202) 566-3287 (not a toll-free call).