Federal Government Efforts To Administer the Crude Oil Windfall Profit Tax Act of 1980

Gao ID: 114967 April 13, 1981

Under the complex requirements of the Crude Oil Windfall Profit Tax Act of 1980, the Internal Revenue Service (IRS) must assure compliance with the law although it has received no supplemental windfall profit tax administration funding. Despite this, IRS has sought to promote voluntary compliance with the Act in issuing temporary regulations and initiating an "early presence" examination. However, it has not yet developed an overall compliance program integrating all affected IRS activities because no specific official has had day-to-day authority over and responsibility for ensuring accomplishment of that task. As a result, the design of a windfall profit tax computerized information support system has been slowed. IRS is not the only Federal agency affected. The Geological Survey, which is responsible for collecting royalties on oil produced from Federal lands and the related windfall profit tax, may not be collecting millions of dollars in royalties owed the Government due to serious financial and other management problems. These problems carry through to the windfall profit tax and, as a result, Geological Survey has not been computing or depositing the tax. Until it develops significantly better financial management capabilities, Geological Survey will find it difficult to effectively carry out its royalty collection and windfall profit tax duties. Administration of the Act is also burdensome for the oil industry. The Act imposes an excise tax on domestically produced crude oil removed from the premises after February 1980. Congress estimated that gross collection for calendar year 1980 from the oil industry would total $10.9 billion, but Department of the Treasury statistics show the oil industry deposits to be $6.8 billion for calendar year 1980. Although it appears that a significant shortfall has ocurred in the tax collections, the $6.8 billion collection statistic may be inaccurate for two reasons. First, because IRS has not yet processed all calendar year 1980 excise tax returns, it could not determine the exact amount of tax deposited with the Treasury in 1980. Second, because oil purchasers were not required to furnish taxpayers with annual statements of total windfall profit tax withheld until 1981, taxpayers may find that the correct amount of tax was not withheld. Given the newness and complexity of the Act, it seems reasonable to expect some withholding inaccuracies. Thus, it is too early to determine the extent of the shortfall, if any.

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