Notice 2018-23

der § 40(b)(6) for second generation biofuel
producers. Taxpayers should continue to
submit these claims separately on, and in
accordance with, Form 6478, Biofuel Producer Credit. A taxpayer must submit Form
6478 with its income tax return in accordance with the instructions to its income tax
return form. This notice also does not affect
2017 claims for the nonrefundable income
tax credits under § 40A(b)(1) for biodiesel
mixtures, under § 40A(b)(2) for biodiesel
(including renewable diesel), or under
§ 40A(b)(4) for the small agri-biodiesel producer credit. Taxpayers should continue to
submit these claims separately on, and in
accordance with, Form 8864, Biodiesel and
Renewable Diesel Fuels Credit. A taxpayer
must submit Form 8864 with its income tax
return in accordance with the instructions to
its income tax return form. Taxpayers are
reminded that under § 40A(c), credits allowable under § 40A must be reduced to the
extent that any benefit is claimed under
§§ 6426 and 6427 with respect to the same
biodiesel (including renewable diesel).
Similarly, this notice does not affect
2017 claims for the refundable income tax
credit under § 34 for biodiesel mixtures or
alternative fuel. Taxpayers should continue
to submit these claims separately on, and in
accordance with, Form 4136, Credit for
Federal Tax Paid on Fuels. A taxpayer
must submit Form 4136 with its income tax
return in accordance with the instructions to
its income tax return form. Taxpayers are
reminded that under § 34(b), credits are not
allowed under § 34 for any amount properly
payable under § 6427 and claimed in a
timely filed claim. For this purpose, the IRS
will treat as timely filed any claim submitted
for amounts payable under § 6427 that conforms to the rules provided in this notice.
SECTION 9. MODIFIED SAFE
HARBOR RULE FOR
SEMIMONTHLY DEPOSITS OF THE
OIL SPILL LIABILITY TAX DURING
THE THIRD QUARTER OF 2018
.01 Overview.
Section 6302 authorizes the IRS to establish the mode and time for collecting
certain taxes, including the taxes imposed
by § 4611. Section 40.6302(c)–1(a)(1) of
the Excise Tax Procedural Regulations requires each person that is required to file
Form 720 to make deposits of tax for each
semimonthly period in which the tax lia-

April 9, 2018

bility is incurred. A semimonthly period is
the first 15 days of a calendar month or the
portion of a calendar month following the
15th day of the month. See § 40.0 –1(c).
Under § 40.6302(c)–1(b)(1), the deposit for the oil spill liability tax for each
semimonthly period must not be less than
95% of the amount of net tax liability
incurred during the semimonthly period,
unless the safe harbor in § 40.6302(c)–
1(b)(2)(ii) or (iii) applies. Under the safe
harbor, any person that filed a Form 720
reporting the oil spill liability tax for the
second preceding calendar quarter (the
look-back quarter) is considered to have
met the semimonthly deposit requirement
for the current quarter if: (1) the deposit
for each semimonthly period in the current calendar quarter is not less than 1/6 of
the net tax liability reported for the lookback quarter; (2) each deposit is made on
time; (3) the amount of any underpayment
is paid by the due date of the return; and
(4) the person’s liability does not include
any tax that was not imposed at all times
during the look-back quarter.
For deposits that will be made during
the third calendar quarter of 2018, the
look-back quarter will be the first calendar
quarter of 2018. During that look-back
quarter, the oil spill liability tax will be
imposed for only one month (March).
Therefore, the oil spill liability tax will not
be imposed at all times during the lookback quarter as required by § 40.6302(c)–
1(b)(2)(ii)(D). Consequently, the safe harbor deposit rule will not be available to
persons liable for the oil spill liability tax
during the third calendar quarter of 2018,
and each semimonthly deposit during the
third calendar quarter of 2018 must not be
less than 95% of the amount of net tax
liability incurred during the semimonthly
period.
In order to assist taxpayers in meeting
their deposit obligations and in the interest
of sound tax administration, the Treasury
Department and the IRS have decided to
allow persons liable for the oil spill liability tax to use a modified form of the safe
harbor for the third calendar quarter of
2018. Use of the modified safe harbor
described in section 9.02 below is voluntary.
.02 Modified Safe Harbor. For purposes of deposits of the oil spill liability
tax during the third calendar quarter of

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2018, persons will be considered to have
met the semimonthly deposit requirement
for that quarter if: (1) the deposit for each
semimonthly period in the quarter is not
less than 1/2 of the net tax liability reported for the look-back quarter; (2) each
deposit is made on time; and (3) the
amount of any underpayment is paid by
the due date of the return. No affirmative
election or other special filing is required
in order for a person to avail themselves
of the modified safe harbor provided in
this notice. This modified safe harbor applies only with regard to deposits of the
oil spill liability tax during the third calendar quarter of 2018.
SECTION 10. DRAFTING
INFORMATION
The principal author of this notice is
Michael H. Beker of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information
regarding this notice contact Mr. Beker on
(202) 317-6855 (not a toll-free number).
For further information regarding the income tax treatment of the 2017 biodiesel
and alternative fuel incentives, please contact Angella Warren at (202) 317-4718
(not a toll-free number).

Transitional Guidance
Under §§ 162(f) and
6050X with Respect to
Certain Fines, Penalties,
and Other Amounts
Notice 2018 –23
SECTION 1. PURPOSE
Section 13306 of “An Act to provide
for reconciliation pursuant to titles II and
V of the concurrent resolution on the budget for fiscal year 2018,” Pub. L. 115–97
(the “Act”), which was signed into law on
December 22, 2017, amended § 162(f) of
the Internal Revenue Code (“Code”) and
added new § 6050X to the Code. The
Department of the Treasury (“Treasury
Department”) and the Internal Revenue
Service (“IRS”) intend to publish proposed regulations under §§ 162(f) and
6050X. This notice provides transitional
guidance under §§ 162(f) and 6050X.

Bulletin No. 2018 –15

Specifically, as provided in section 3.01 of
this notice, to ensure efficient administration of this new provision, reporting will
not be required under § 6050X until the
date specified in the proposed regulations.
The specified date will not be earlier than
January 1, 2019, and will not be earlier
than the date of publication of the proposed regulations. Reporting will not be
required with respect to amounts required
to be paid or incurred under a binding
court order or agreement entered into before the specified date. Further, section
3.02 of this notice provides transitional
guidance for purposes of satisfying the
identification requirement in § 162(f)(2)
(A)(ii). Finally, section 4 of this notice
requests comments regarding issues to be
addressed in the proposed regulations.
SECTION 2. LAW
Section 162(f)(1), as amended by the
Act, disallows a deduction for amounts
paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction
of, a government or governmental entity
in relation to the violation of any law or
the investigation or inquiry by such government or entity into the potential violation of any law. Section 162(f)(2) provides an exception to the general rule
under § 162(f)(1). Under the exception, an
amount described in § 162(f)(1) that is
otherwise deductible under the Code is
not disallowed if the taxpayer satisfies all
of the requirements in § 162(f)(2)(A)(i),
(ii), and (iii).
Section 162(f)(2)(A)(i) requires that the
taxpayer establish that the amount paid or
incurred (1) constitutes restitution (including remediation of property) for damage or
harm that was or may be caused by violation
of any law or the potential violation of any
law, or (2) is paid to come into compliance
with any law that was violated or otherwise
involved in the investigation or inquiry into
the potential violation of any law (the “establishment requirement”). Section 162(f)
(2)(A)(ii) further requires that the amount
paid or incurred be identified as restitution
or as an amount paid to come into compliance with such law in the court order or
settlement agreement (the “identification requirement”). Finally, § 162(f)(2)(A)(iii)
provides that in the case of any amount of
restitution for failure to pay any tax imposed
under the Code, the amount is treated as if

Bulletin No. 2018 –15

such amount were such tax if it would have
been allowed as a deduction had it been
timely paid. Section 162(f)(2)(A) further
provides that meeting the identification requirement alone is not sufficient to meet the
establishment requirement under § 162(f)
(2)(A)(i).
Section 6050X(a)(1) requires the
appropriate official of any government
or nongovernmental entity described in
§ 162(f)(5) that is involved in suits or
agreements described in § 6050X(a)(2) to
make a return in such form as determined
by the Secretary setting forth (1) the
amount required to be paid as a result of
the suit or agreement to which § 162(f)(1)
applies; (2) any amount required to be
paid as a result of the suit or agreement
that constitutes restitution or remediation
of property; and (3) any amount required
to be paid as a result of the suit or agreement for the purpose of coming into compliance with any law that was violated or
involved in the investigation or inquiry.
Under § 6050X(a)(2), amounts required to be paid as a result of a suit or
agreement are required to be reported under § 6050X(a)(1) if the suit or agreement
is a type described in § 6050X(a)(2)(A)(i)
and the dollar threshold in § 6050X(a)
(2)(A)(ii) is met. A suit or agreement is
described in § 6050X(a)(2)(A)(i) if it is
(1) a suit with respect to a violation of any
law over which the government or entity
has authority and with respect to which
there has been a court order, or (2) an
agreement that is entered into with respect
to a violation of any law over which the
government or entity has authority or with
respect to an investigation or inquiry by
the government or entity into the potential
violation of any law over which the government or entity has authority.
Under § 6050X(a)(2)(A)(ii), the dollar
threshold for reporting is met if the aggregate amount involved in all court orders
and agreements with respect to the violation, investigation, or inquiry is $600 or
more. However, § 6050X(a)(2)(B) requires the Secretary to adjust the $600
amount as necessary to ensure the efficient administration of the internal revenue laws.
Section 6050X(a)(3) requires the return to be filed at the time the agreement is
entered into, as determined by the Secretary.

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Section 6050X(b) requires every person required to make a return under
§ 6050X(a) to furnish to each person who
is a party to the suit or agreement a written
statement showing (1) the name of the
government or entity, and (2) the information supplied to the Secretary under
§ 6050X(a)(1). This information must be
furnished at the same time it is provided to
the Secretary.
Section 6050X(c) defines “appropriate
official” as the officer or employee having
control of the suit, investigation, or inquiry or the person appropriately designated for purposes of § 6050X.
Under § 13306(a)(2) and (b)(3) of the
Act, § 162(f) as amended and new § 6050X
generally apply to amounts paid or incurred
on or after December 22, 2017, except that
they do not apply to amounts paid or incurred under any binding order or agreement entered into before that date. If the
order or agreement required court approval
and the approval was not obtained before
that date, § 162(f) as amended and new
§ 6050X will apply.
SECTION 3. TRANSITIONAL
GUIDANCE
Section 162(f) as amended and new
§ 6050X were effective on December 22,
2017, the date of the enactment of the Act.
Parties to suits and agreements covered by
these sections have an immediate need for
guidance and have contacted the Treasury
Department and the IRS with questions
regarding the reporting requirement of
§ 6050X and the identification requirement of § 162(f)(2)(A)(ii). This section
provides transitional guidance regarding
those requirements.
.01 SECTION 6050X REPORTING
Following the enactment of the Act,
officials of a number of governments and
governmental entities contacted the Treasury Department and the IRS requesting
additional time to make the necessary
changes to their systems to comply with
their new reporting responsibilities under
§ 6050X. In addition, the IRS needs additional time to make necessary programming and form changes to implement
§ 6050X. Accordingly, the Treasury Department and the IRS are providing transitional guidance with respect to reporting

April 9, 2018

obligations under § 6050X. Under this
transitional guidance, to ensure efficient
administration of this new provision,
reporting will not be required under
§ 6050X until the date specified in the
proposed regulations. The specified date
will not be earlier than January 1, 2019,
and will not be earlier than the date of
publication of the proposed regulations.
Reporting will not be required with respect to any amounts required to be paid
or incurred under a binding court order or
settlement agreement entered into before
the specified date. For purposes of this
notice, an agreement that requires court
approval is binding when court approval
is obtained. This transitional guidance will
provide additional time for dialogue with
stakeholders in an effort to clarify the reporting requirements consistent with effective implementation of the law. Transitional
guidance will also provide governmental
and nongovernmental regulatory entities additional time to develop their systems for
collecting and reporting the required information.
.02 SECTION 162(f)(2)(A)(ii)
IDENTIFICATION
The transitional guidance provided in
section 3.01 of this notice does not affect
or delay the applicability of § 162(f). Accordingly, the identification requirement
in § 162(f)(2)(A)(ii) applies to amounts
paid or incurred on or after December 22,
2017, unless the amounts were paid or
incurred under any binding order or agreement entered into before that date. Taxpayers and officials of governments and
governmental entities have asked for immediate guidance regarding the identification requirement.

April 9, 2018

Until proposed regulations under
§ 162(f) are issued, the identification requirement in § 162(f)(2)(A)(ii) is treated
as satisfied for an amount if the settlement
agreement or court order specifically
states on its face that the amount is restitution, remediation, or for coming into
compliance with the law. Even if the identification requirement under this section
3.02 is treated as satisfied, taxpayers must
also meet the establishment requirement
in order to qualify for the § 162(f)(2)
exception.
SECTION 4. COMMENTS
The Treasury Department and the IRS
intend to issue proposed regulations
amending and adding sections to the Income Tax Regulations with respect to
§§ 162(f) and 6050X. To assist in the
development of the proposed regulations,
this notice requests comments from the
public and affected governments and nongovernmental entities, on any and all issues related to the application and implementation of §§ 162(f) and 6050X that the
proposed regulations should address. In
particular, the Treasury Department and
the IRS request comments on:
1. The timing of the reporting required
under § 6050X;
2. The threshold amount for reporting
under § 6050X(a)(2);
3. Any anticipated administrative difficulties in securing information needed to
report under § 6050X, including situations involving multiple payors or
payees;
4. How to define key terms in § 162(f);
and
5. What entities are nongovernmental
entities under § 162(f)(5).

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WHERE TO SEND COMMENTS
Comments may be submitted by May
18, 2018, using one of the following
methods:
• By Mail:
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2018 –
23)
Room 5203
P.O. Box 7602
Ben Franklin Station
Washington, D.C. 20444
• By Hand or Courier Delivery: Submissions may be hand-delivered Monday
through Friday between the hours of 8
a.m. and 4 p.m. to:
Courier’s Desk
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2018 –
23)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
• Electronic: Alternatively, persons
may submit comments electronically to
[email protected].
Please include “Notice 2018 –23” in the
subject line of any electronic communications. All submissions will be available for
public inspection and copying in room
1621, 1111 Constitution Avenue, N.W.,
Washington, D.C., from 9 a.m. to 4 p.m.
SECTION 5. CONTACT
INFORMATION
The principal author of this notice is
Christopher Wrobel of the Office of the
Associate Chief Counsel (Income Tax and
Accounting). For further information regarding this notice, contact Mr. Wrobel at
(202) 317-7011 (not a toll-free number).

Bulletin No. 2018 –15