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Friday, January 19, 2018

REPORT ON THE STATUS OF IRS HEARINGS ON THE PROPOSED SECTION 883 TAX REGULATIONS

INTERTANKO submitted written comments on the Proposed Regulations and were represented at the IRS public hearing. In our written and verbal comments, INTERTANKO addressed issues of concern to our members.

As previously reported in Weekly NEWS No 24/2000, INTERTANKO submitted written comments on the Proposed Regulations and were represented at the 8 June 2000 IRS public hearing by Derick W. Betts, Jr. of Seward & Kissel LLP.  In our written and verbal comments, INTERTANKO addressed issues of concern to our members.

After the 8 June hearing, the IRS set a target date of 1 December 2000 to prepare final Regulations, with a publication follow-on target of mid to late December.

The IRS did succeed in preparing final Regulations by about mid-December.  Based on his informal discussions with the IRS, Mr. Betts reports that the final Regulations appeared to address most, but not all, of INTERTANKO’s comments.

In particular, it is unclear whether, as a result of some last minute pressure from certain members of the U.S. Congress, the final Regulations "reserved" on the issue of whether lightering activities in the U.S. Gulf fell within the scope of exemption or whether the final Regulations remained unchanged on this issue (i.e. lightering activities are non-exempt).

The final Regulations did, however, change the effective date in the Proposed Regulations from tax years "ending" to tax years "commencing" at least thirty days after the final Regulations are published to preclude the retroactive application of the Regulations.

The final Regulations were still on the Department of Treasury's desk awaiting signature before the commencement of the new Bush Administration on 20 January 2001.  As a result, they were swept into the labyrinth of the general directive issued on 20 January 2001 by Andrew Card, Bush's Chief of Staff, which prohibited the further submission of any regulations (tax or otherwise) for publication without prior clearance by a top Bush appointed official in the issuing department.

From here there are two possible scenarios.  The final Regulations could be issued as is within the next month or so if top Bush officials at Treasury clear them for issuance – in which case the effective date for calendar year taxpayers would be 1 January 2002.  Alternatively, the Bush officials at Treasury could commence a whole new review process in which case the issuance of final Regulations (whether in their current form or in some further revised form) could be significantly delayed.

Whichever may be the case, however, it is important to bear in mind that until the final Regulations are published, the Proposed Regulations continue to stand (as they have since issuance last February) as reflecting the IRS's current "litigating and audit" position on the substantive issues addressed therein, including the exclusion of lightering activities from the scope of the exemption provided by Section 883.

If any member should have any questions about how these recent developments or how their current U.S. tax position might be affected, Mr. Betts has volunteered, as an accommodation to INTERTANKO , to field preliminary inquiries of a general nature without charge.  He may be reached by telephone at +1 (212) 574-1662 or by e-mail at   betts@sewkis.com