Weekly Legislative Update - August 27, 2018
Excise Tax Liability: The Bastidas Case
In July 2018, a Florida tire dealer, Nestor Bastidas, was sentenced to one year
and one day in prison and restitution in the amount of $335,174 for his involvement
in a conspiracy to defraud the federal government. South Florida Tire Retailer
Sentenced To Prison For Excise Tax Conspiracy, Department of Justice, (July 26, 2018),
Specifically, Bastidas admitted that he and his co-conspirators exploited an exception in the law to avoid paying the excise tax on tires.
Bastidas admitted to circumventing federal law by purchasing taxable tires
from a co-conspirator, a tire importer, and then acquiring fraudulent bills of lading
from another co-conspirator, which falsely identified the tires as having been exported
overseas and, therefore, eligible for a tax refund. Bastidas submitted the false
shipment forms to the importer, who in turn did not charge him for the tax due on the
tires. The importer then failed to report the sales as required in his Quarterly Federal
Excise Tax Return filed with the IRS (IRS Form 720).
Federal law provides that importers/manufacturers of highway-use tires must
pay an excise tax on all eligible tires purchased for use in the United States. 26 U.S.
Code § 4071. It is a manufacturer and importer's excise tax; and, therefore, the
liability remains primarily with manufacturers and importers. Dealers, however, may
experience the tax in the form of a higher cost of tires or be required by the
manufacturer to pay the specific fee itself. Manufacturers and importers of taxable
tires remain responsible for reporting the sales, and must complete and file an IRS
Form 720, regardless of whether they shift the cost to a dealer.
The Code creates three (3) categories of tires for reporting purposes: taxable
tires other than biasply or super single tires; biasply or super single tires (other than
super single tires designed for steering); and super single tires designed for steering.
The amount of tax applied is determined by the type of tire, multiplied by every 10
pounds over the maximum load capacity of 3,500 pounds. 26 U.S. Code § 4071(a).
The law provides exceptions for tires sold for particular purposes in the form of
a tax credit/refund. The tax must still be paid but may be refunded if the IRS is
satisfied the sale falls into one of the enumerated uses. Tires that are exported
overseas are eligible for such return. 26 U.S. Code § 4221(a)(2). To avail themselves
of this refund, the manufacturer or importer must obtain and provide proof of
exportation, report the sales in an IRS Form 720, and make a claim for a refund.
Of course, the obvious lesson of the Bastidas case is that the penalties are
severe if a dealer conspires to game the tax laws. But it is also important for dealers to protect themselves from involvement in any violation of federal tax law, either
accidental or otherwise.
A dealer should ensure that he or she is not providing certificates of exemption
or proof of exportation for tires that were actually sold in the United States, in an
attempt to receive a credit/refund on any tax paid. A dealer should keep careful
records specifying where tires were sold, and whether they were sold to be used in one of the five manners identified by IRS Publication 510, and are, therefore, eligible for a tax refund (e.g., for use on qualified intercity or school buses, for exclusive use by a state or local government, for use as supplies for vessels, for use by a qualified blood collector organization, or for exclusive use by a nonprofit educational organization). Such records will protect a dealer from a charge of conspiracy if he or she unknowingly does business with a manufacturer or importer attempting to circumvent the federal tax law through false claims.
-Peter H. Gunst, Esquire, Attorney for TIA
Senate Finance Committee Republicans Letter To Treasury
Here is a letter sent by Finance Committee Chairman Orrin Hatch and other committee Republicans to Treasury Secretary Mnuchin clarifying congressional intent on certain sections of PL 115-97, Tax Cuts And Jobs Act, regarding the NOL Deduction after December 31, 2017, and treatment of depreciation for qualified leasehold, restaurant, and retail improvement property.
Senator Hatch has the entire TCJA under review, impelled by taxpayers asking for changes to the law. We can expect an effort by the Finance Committee to enact technical corrections to the law in the fall, perhaps on the government funding bill the Senate is debating now.
As you know, WOTC Coalition is urging repeal of the Base Erosion Anti-Abuse Tax's impact on certain of our largest WOTC employers.
WOTC State and National Statistics for Quarters 1-3 of FY 2018
Click here to view the WOTC State and National Statistics for quarters 1-3 of FY 2018. TIA has many member taking advantage of WOTC. We were able to gather these statistics by working with the WOTC Coalition.