Chapter
1 - Introduction
BLACK LUNG
The Black Lung
Benefits Act of 1977 was enacted
by Congress to compensate
individuals afflicted with the
disease known as pneumoconiosis
or "black lung disease." Black
lung disease is caused by
inhaling coal dust for prolonged
periods of time, usually at
least 10 years. In the early
stages, black lung disease does
not cause respiratory
impairment. However, impairment
eventually occurs and despite
avoidance of further exposure,
death usually occurs within a
few years.
IMPOSITION
OF COAL EXCISE TAX
Section 4121 of
the Internal Revenue Code
imposes an excise tax on
domestically produced coal. The
tax does not apply to lignite.
Lignite is defined in accordance
with the standard specifications
for classification of coals by
rank of the American Society for
Testing and Materials (ASTM).
The taxes collected on the sales
of coal are deposited to the
Black Lung Disability Trust Fund
to finance payments of black
lung benefits to afflicted
miners.
Producers of
coal in the United States are
liable for the tax upon the
first sale or use of the coal.
The producer is the person who
has vested interest in the coal
immediately after severance from
the ground without regard to the
existence of any contractual
arrangements for the sale or
other disposition of the coal or
the payment of any royalties
between the producer and third
parties.
The tax is
imposed at two rates, depending
on whether the coal is from
underground (deep) or surface
mines. The tax on deep mined
coal is the lower of $1.10 a ton
or 4.4 percent of the sales
price. The tax on surface mined
coal is the lower of $.55 a ton
or 4.4 percent of the sales
price. Therefore, coal will be
taxed at the 4.4 percent rate if
the selling price is less than
$25/ton for deep coal or less
than $12.50/ton for surface
coal.
Using a Federal
Tax Deposit form, the taxpayer
should make semi-monthly
deposits based on the incurred
liability. (Form books can be
obtained by calling
800-829-1040.) Additionally,
excise taxes are reported on the
quarterly filed Form 720,
Quarterly Federal Excise Tax
Return. The due date of the
return is the last day of the
month following the end of the
quarter.
ISSUE
IDENTIFICATION
Examinations of
coal producers have identified
numerous recurring issues
resulting in substantial
understatements of coal excise
tax liabilities. This guide
includes 13 potential audit
issues related to the coal
excise tax; each section
includes a brief explanation,
cites the appropriate Code
sections and references, and
identifies helpful audit
techniques.
BACKGROUND
INFORMATION
In the
appendices you will find a
glossary of mining terms and
referral to additional resource
material on the coal mining
industry.
