Par. 6. Section 52.4662-4 is added to read as follows:
(a) Tax-paid chemicals used to make taxable chemicals —(1) In general. Any section 4661 tax paid by the manufacturer, producer, or importer (initial manufacturer) with respect to a tax-paid chemical that is subsequently used by any person (subsequent manufacturer) in the manufacture or production of any other substance that is a taxable chemical (subsequent taxable chemical) will be allowed as a credit or refund to the subsequent manufacturer in the same manner as if it were an overpayment of the section 4661 tax. See section 4662(d)(1) of the Code. The subsequent manufacturer may file a claim for credit or refund (without interest) for the amount of the overpayment, provided the conditions to allowance set forth in paragraph (a)(3) of this section are satisfied. See paragraph (a)(4) of this section for the supporting information that a subsequent manufacturer must include with a claim for credit or refund. The subsequent manufacturer's claim for credit or refund of the overpayment cannot exceed the amount of section 4661 tax imposed on the subsequent taxable chemical, or that would have been imposed but for the application of section 4662(b) or (e) of the Code. See section 4662(d)(1).
(2) Allocation required in certain situations. If a subsequent manufacturer uses a tax-paid chemical to manufacture or produce multiple subsequent taxable chemicals, a subsequent taxable chemical and another substance, or one or more subsequent taxable chemicals and one or more other substances, the subsequent manufacturer must allocate the overpayment of the section 4661 tax paid on the tax-paid chemical (first tax) among all subsequent taxable chemicals and other substances manufactured or produced with the tax-paid chemical and apply the allocation to the claim for credit or refund. The subsequent manufacturer must calculate the amount of the first tax to be allocated to each subsequent taxable chemical and other substance by multiplying the amount of the first tax by a fraction, the numerator of which is the weight (in tons) of the portion of the tax-paid chemical the subsequent manufacturer used to manufacture or produce the subsequent taxable chemical or other substance, and the denominator of which is the total weight (in tons) of the tax-paid chemical for which the subsequent manufacturer has a certificate described in paragraph (e) of this section. The subsequent manufacturer's claim for credit or refund of an overpayment cannot exceed the amount of section 4661 tax imposed on the subsequent taxable chemical to which the claim relates, or that would have been imposed but for the application of section 4662(b) or (e) of the Code. See paragraph (a)(4) of this section for the supporting information regarding the allocation that a subsequent manufacturer must include with a claim for credit or refund. See paragraph (a)(5) of this section for examples that illustrate the allocation rule.
(3) Conditions to allowance of a claim for credit or refund. A claim for credit or refund of section 4661 tax is allowed under section 4662(d)(1) and this paragraph (a) only if:
(i) The first tax was paid to the Internal Revenue Service (IRS) and not credited or refunded;
(ii) After payment of the first tax, the subsequent manufacturer used the tax-paid chemical to manufacture or produce a subsequent taxable chemical, multiple subsequent taxable chemicals, a subsequent taxable chemical and another substance, or one or more subsequent taxable chemicals and one or more other substances;
(iii) The subsequent manufacturer sold or used the subsequent taxable chemical for which a credit or refund is sought and section 4661 tax was imposed (or would have been imposed but for section 4662(b) or (e)) on such sale or use;
(iv) The subsequent manufacturer has filed a timely claim for credit or refund that contains the supporting information required under paragraph (a)(4) of this section; and
(v) The subsequent manufacturer has a certificate, in the form prescribed in paragraph (e) of this section, from the initial manufacturer.
(4) Supporting information required. A subsequent manufacturer's claim for credit or refund with respect to the subsequent manufacturer's use of a tax-paid chemical to manufacture or produce a subsequent taxable chemical, multiple subsequent taxable chemicals, a subsequent taxable chemical and another substance, or one or more subsequent taxable chemicals and one or more other substances, must include the following information:
(i) The name of the tax-paid chemical, the total number of tons of the tax-paid chemical purchased from the initial manufacturer, producer, or importer, and the total number of tons of the tax-paid chemical used to manufacture or produce each subsequent taxable chemical or other substance during the period covered by the claim;
(ii) The name of each subsequent taxable chemical or other substance and the total number of tons of each subsequent taxable chemical or other substance so manufactured or produced during the period covered by the claim;
(iii) The amount of section 4661 tax paid with respect to the tax-paid chemical and the amount of section 4661 tax imposed (or that would have been imposed but for section 4662(b) or (e)) on the sale or use of each subsequent taxable chemical manufactured or produced with the tax-paid chemical;
(iv) If allocation is required, the amount of the first tax allocated to each subsequent taxable chemical to which the claim relates, and the allocation calculation; and
(v) The certificate described in paragraph (e) of this section, or a copy of such certificate.
(5) Examples. The following examples illustrate the allocation rule in paragraph (a)(2) of this section.
(i) Example 1 —(A) Facts. X, a domestic manufacturer, sells 5 tons of Taxable Chemical 1 to Y, a domestic corporation. Section 4661 tax is imposed on X's sale of Taxable Chemical 1 at a rate of $8.90 per ton. X pays the section 4661 tax in the amount of $44.50. Y uses 3 tons of Taxable Chemical 1 to produce 4 tons of Taxable Chemical 2. Y uses 2 tons of Taxable Chemical 1 to produce 3 tons of Taxable Chemical 3. Y then sells the 4 tons of Taxable Chemical 2 and 3 tons of Taxable Chemical 3, to Z, a domestic corporation. Section 4661 tax is imposed on Y's sale of Taxable Chemical 2 at a rate of $9.74 per ton, for a tax of $38.96. Section 4661 tax is imposed on Y's sale of Taxable Chemical 3 at a rate of $5.40 per ton, for a tax of $16.20. The total amount of section 4661 tax imposed on Y's sales of Taxable Chemical 2 and Taxable Chemical 3 is $55.16. Y files a claim for refund of the section 4661 tax X paid with respect to Taxable Chemical 1 (first tax).
(B) Analysis. Y must allocate the first tax between Taxable Chemical 2 and Taxable Chemical 3 as follows: 3/5 ($26.70) to Taxable Chemical 2, and 2/5 ($17.80) to Taxable Chemical 3. The section 4661 tax imposed on Y's sale of Taxable Chemical 2 to Z ($38.96), exceeds the amount of the first tax allocated to Taxable Chemical 2 ($26.70). Therefore, Y's claim for refund with respect to Taxable Chemical 2 is limited to $26.70, the amount of the first tax allocated to Taxable Chemical 2. The section 4661 tax imposed on Y's sale of Taxable Chemical 3 to Z ($16.20), is less than the amount of the first tax allocated to Taxable Chemical 3 ($17.80). Therefore, Y's claim for refund with respect to Taxable Chemical 3 is limited to $16.20, the amount of section 4661 tax imposed on Taxable Chemical 3. Y's total claim for refund is limited to $42.90 ($26.70 + $16.20) due to the required allocation.
(ii) Example 2 —(A) Facts. X, a domestic manufacturer, sells 3 tons of Taxable Chemical 1 to Y, a domestic corporation. Section 4661 tax is imposed on X's sale of Taxable Chemical 1 at a rate of $9.74 per ton. X pays the tax in the amount of $29.22. Y uses 2 tons of Taxable Chemical 1 to produce 3 tons of Taxable Chemical 2. Y uses 1 ton of Taxable Chemical 1 to produce 2 tons of another substance. Y then sells 3 tons of Taxable Chemical 2 to Z, a domestic corporation. Tax is imposed on Y's sale of Taxable Chemical 2 at a rate of $5.40 per ton, for a tax of $16.20. Y files a claim for refund of the first tax paid with respect to Taxable Chemical 1 (first tax).
(B) Analysis. Y must allocate the first tax between Taxable Chemical 2 and the other substance as follows: 2/3 ($19.48) to Taxable Chemical 2, and 1/3 ($9.74) to the other substance. Y may claim a refund of the first tax in the amount of $16.20 (the full amount of tax imposed on Y's sale of Taxable Chemical 2 to Z), because the tax imposed on Taxable Chemical 2 does not exceed the amount of the first tax that was allocated to Taxable Chemical 2.
(b) Use as a fertilizer —(1) In general. Any section 4661 tax paid that exceeds the amount of section 4661 tax determined with regard to section 4662(b)(2) with respect to nitric acid, sulfuric acid, ammonia, or methane used to produce ammonia (each, a fertilizer chemical) that any person uses as a qualified fertilizer substance will be allowed as a credit or refund (without interest) to the person using the fertilizer chemical as a qualified fertilizer substance in the same manner as if it were an overpayment of section 4661 tax. See section 4662(d)(2). Such person may file a claim for credit or refund of the amount of the overpayment, provided the conditions to allowance set forth in paragraph (b)(2) of this section are satisfied. See paragraph (b)(3) of this section for the supporting information that must be included with a claim for credit or refund pursuant to section 4662(d)(2).
(2) Conditions to allowance of a claim for credit or refund. A claim for credit or refund of section 4661 tax with respect to a tax-paid fertilizer chemical that is used as a qualified fertilizer substance is allowed under section 4662(d)(2) and this section only if:
(i) A section 4661 tax with respect to the fertilizer chemical was paid to the IRS and not credited or refunded;
(ii) After payment of the section 4661 tax, a person used the fertilizer chemical as a qualified fertilizer substance;
(iii) The person using the fertilizer chemical as a qualified fertilizer substance has filed a timely claim for credit or refund that includes the information required under paragraph (b)(3) of this section; and
(iv) The person using the fertilizer chemical as a qualified fertilizer substance has a certificate, in the form prescribed in paragraph (e) of this section, from the person that paid the section 4661 tax.
(3) Supporting information required. Each claim for credit or refund with respect to a tax-paid fertilizer chemical used as a qualified fertilizer substance must include the following information:
(i) The name of the tax-paid fertilizer chemical to which the claim relates and the total number of tons of the tax-paid fertilizer chemical used as a qualified fertilizer substance during the period covered by the claim;
(ii) The manner in which the claimant used the qualified fertilizer substance;
(iii) The amount of section 4661 tax paid with respect to the tax-paid fertilizer chemical; and
(iv) The certificate described in paragraph (e) of this section, or a copy of such certificate, that relates to the tax-paid fertilizer chemical for which the claim is being made.
(c) Use as qualified fuel —(1) In general. Any section 4661 tax paid that exceeds the amount of section 4661 tax determined with regard to section 4662(b)(5) with respect to acetylene, benzene, butylene, butadiene, ethylene, naphthalene, propylene, toluene, or xylene (collectively, fuel chemicals, or individually, a fuel chemical) that any person uses as a qualified fuel substance will be allowed as a credit or refund (without interest) to the person using the fuel chemical as a qualified fuel substance in the same manner as if it were an overpayment of section 4661 tax. See section 4662(d)(3). Such person may file a claim for credit or refund of the amount of the overpayment, provided the conditions to allowance set forth in paragraph (c)(2) of this section are satisfied. See paragraph (c)(3) of this section for the supporting information that must be included in a claim for credit or refund pursuant to section 4662(d)(3).
(2) Conditions to allowance of a claim for credit or refund. A claim for credit or refund of section 4661 tax with respect to a tax-paid fuel chemical that is used as a qualified fuel substance is allowed under section 4662(d)(3) and this section only if:
(i) A section 4661 tax with respect to the fuel chemical was paid to the IRS and not credited or refunded;
(ii) After payment of the section 4661 tax, a person used the fuel chemical as a qualified fuel substance;
(iii) The person using the fuel chemical as a qualified fuel substance has filed a timely claim for credit or refund that includes the supporting information required under paragraph (c)(3) of this section; and
(iv) The person using the fuel chemical as a qualified fuel substance has a certificate, in the form prescribed in paragraph (e) of this section, from the person that paid the section 4661 tax.
(3) Supporting information required. Each claim for credit or refund with respect to a tax-paid fuel chemical used as a qualified fuel substance must include the following information:
(i) The name of the fuel chemical to which the claim relates and the total number of tons of the tax-paid fuel chemical used as a qualified fuel substance during the period covered by the claim;
(ii) The manner in which the claimant used the qualified fuel substance;
(iii) The amount of section 4661 tax paid with respect to the fuel chemical; and
(iv) The certificate described in paragraph (e) of this section, or a copy of such certificate, that relates to the tax-paid fuel chemical for which the claim is being made.
(d) Use in the production of animal feed —(1) In general. Any section 4661 tax paid that exceeds the amount of tax determined with regard to section 4662(b)(9) with respect to nitric acid, sulfuric acid, ammonia, or methane used to produce ammonia (each, an animal feed chemical) that any person uses as a qualified animal feed substance will be allowed as a credit or refund (without interest) to the person using the animal feed chemical as a qualified animal feed substance in the same manner as if it were an overpayment of section 4661 tax. See section 4662(d)(4). Such person may file a claim for credit or refund of the amount of the overpayment, provided the conditions to allowance set forth in paragraph (d)(2) of this section are satisfied. See paragraph (d)(3) of this section for the supporting information that must be included in a claim for credit or refund pursuant to section 4662(d)(4).
(2) Conditions to allowance of a claim for credit or refund. A claim for credit or refund of section 4661 tax with respect to a tax-paid animal feed chemical that is used as a qualified animal feed substance is allowed under section 4662(d)(4) and this section only if:
(i) A section 4661 tax with respect to the animal feed chemical was paid to the IRS and not credited or refunded;
(ii) After payment of the section 4661 tax, a person used the animal feed chemical as a qualified animal feed substance;
(iii) The person using the animal feed chemical as a qualified animal feed substance has filed a timely claim for credit or refund that includes the supporting information required under paragraph (d)(3) of this section; and
(iv) The person using the animal feed chemical as a qualified animal feed substance has a certificate, in the form prescribed in paragraph (e) of this section, from the person that paid the section 4661 tax.
(3) Supporting information required. Each claim for credit or refund with respect to a tax-paid animal feed chemical used as a qualified animal feed substance must include the following information:
(i) The name of the animal feed chemical to which the claim relates and the total number of tons of the tax-paid animal feed chemical used as a qualified animal feed substance during the period covered by the claim;
(ii) The manner in which the claimant used the qualified animal feed substance;
(iii) The amount of section 4661 tax paid with respect to the animal feed chemical; and
(iv) A certificate described in paragraph (e) of this section, or a copy of such certificate, that relates to the tax-paid animal feed chemical for which the claim is being made.
(e) Certificate —(1) Overview. The certificate to be provided with any claim for credit or refund under paragraphs (a) through (d) of this section consists of a statement that is signed under penalties of perjury by a person with authority to bind the person that paid the section 4661 tax, is in substantially the same form as the model certificate provided in paragraph (e)(2) of this section, and contains all of the information necessary to complete the model certificate.
(2) Model certificate.
Certificate To Support a Claim for Credit or Refund
(To support claims for credit or refund under section 4662(d) of the Internal Revenue Code (Code).)