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Part 4. Examining Process

Chapter 24. Excise Tax

Section 1. Introduction to Excise Taxes

4.24.1  Introduction to Excise Taxes

4.24.1.1  (08-13-2008)
Basic Excise Examiner Responsibilities-Overview

  1. All Excise examiners must perform their professional responsibilities in a way that supports the IRS’s Mission. This requires Excise examiners to provide top quality service and to apply the law with integrity and fairness to all.

4.24.1.1.1  (08-13-2008)
Customer Service

  1. Providing all taxpayers with high quality service in all contacts is a primary area of emphasis for all Excise employees.

4.24.1.1.2  (08-13-2008)
Focus on Problem Solving

  1. Excise Examiners should assist taxpayers in solving any tax problem(s) identified during an examination and/or compliance review. Excise Examiners should refer the taxpayer to the appropriate function within the Service to assist with the problem.

    1. Referrals should be made to Taxpayer Advocate Service (TAS) when criteria outlined in IRM 13.1.7.2, Taxpayer Advocate Case Criteria, is met.

    2. Referrals should be made to appropriate Collection personnel if taxpayers have questions about current or past collection actions.

  2. Excise Examiners should refer to IRM 4.9.1 Examination Technical Time Reporting System to determine the appropriate time reporting codes to use when assisting taxpayers in problem solving, that is unrelated to an ongoing examination.

4.24.1.1.3  (08-13-2008)
Ensure Timely Actions

  1. The proper use of time is an essential element of a quality examination/compliance review. Excise Examiners are responsible for the day-to-day management of their cases and are accountable for completing their work in the least amount of time necessary to perform a quality examination/compliance review. Both the number of hours charged to a case and the span of time the case is open must be reasonable.

  2. Factors used to determine if the time charged and the length of time a case is open are reasonable include:

    1. issue complexity and development,

    2. condition of books and records, and

    3. taxpayer/representative cooperation.

  3. A focus on timely actions will reduce taxpayer burden.

  4. In-process cases will be considered overage when they have been in status 12 (started) in excess of 270 days.

4.24.1.1.4  (08-13-2008)
Ensure Quality Taxpayer Communication

  1. Effective communication with taxpayers is a significant factor in conducting a quality examination and in minimizing taxpayer burden. All communication with taxpayers should be courteous, professional, and clear. See IRM 4.10.1.5.3.

4.24.1.1.5  (08-13-2008)
Case File Documentation

  1. It is mandatory that all actions taken are documented in the case file.

    1. Documentation must be recorded on Form 9984 Examining Officer’s Activity Record.

    2. Documentation must include the date, the location of the activity, the contact code, and remarks/notes/actions taken.

    3. Time charged for each activity must also be recorded on Form 9984.

    4. Group managers, Excise Examiners, and any other employee involved in the examination process, for a specified case, must also document their activities on Form 9984.

    5. It is critical that periods of inactivity, such as extended leave, training, and details also be documented on Form 9984.

4.24.1.1.6  (08-13-2008)
Taxpayer Rights

  1. Excise Examiners have the ongoing responsibility to ensure that all taxpayer rights are protected and observed, whether these rights are mandated by statute or provided as a matter of policy. See IRM 4.10.1.6.

4.24.1.1.7  (08-13-2008)
Confidentiality of Taxpayer Information-Taxpayer Privacy

  1. The obligation to protect taxpayer privacy and to safeguard the information taxpayers entrust to us is a fundamental part of the Service’s mission to apply the tax law with integrity and fairness to all. Taxpayers have the right to expect that the information they provide will be safeguarded and used only in accordance with the law.

  2. For Unauthorized Assess (UNAX) requirements see IRM 4.10.1.6.11.

  3. For Third Party Contact procedures see IRM 4.11.57 .

4.24.1.2  (08-13-2008)
Overview of Excise Taxes

  1. Excise Taxes are levied on a wide variety of goods, services and activities. They may be imposed at the time of sale by the manufacturer, sale by the retailer, or use (on the consumer). Many of these taxes are set aside into trust funds earmarked for related capital projects, such as highway and airport improvements. Excise taxes are independent of income taxes.

4.24.1.3  (08-13-2008)
Excise Forms

  1. The Excise IRM applies to the Excise Taxes found on the forms listed below.

    • Form 720, Quarterly Federal Excise Tax Return

    • Form 720X , Amended Quarterly Federal Excise Tax Return

    • Form 720TO , Terminal Operator Report

    • Form 720CS , Carrier Summary Report

    • Form 730 , Monthly Tax Return for Wagers

    • Form 11-C, Occupational Tax and Registration Return for Wagering

    • Form 2290, Heavy Highway Vehicle Use Tax Return

    • Form 4136, Credit for Federal Tax Paid on Fuels

    • Form 8849, Claim for Refund of Excise Taxes (consisting of seven schedules)

    • Form 637, Application for Registration (For Certain Excise Tax Activities)

    • Form 8876, Excise Tax on Structured Settlement Factoring Transactions

4.24.1.3.1  (08-13-2008)
Excise IRM Overview

  1. The Excise Tax IRM 4.24 contains the following sections:

    1. Section 1 - Introduction to Excise Tax

    2. Section 2 - Form 637 Excise Tax Registration

    3. Section 3 - Selection, Assignment and Monitoring of Work

    4. Section 4- Fuel Compliance Review and Examination Procedures

    5. Section 5 - LMSB Examination Program Procedures for Excise Examiners

    6. Section 6 - Excise Tax Examiner Responsibilities

    7. Section 7 - Excise Embedded Quality Review System (EQRS) and Excise National Quality Review System (NQRS)Excise Quality Review

    8. Section 8 - Claim for Refund of Abatement

    9. Section 9 - Excise Penalty Procedures

    10. Section 10 - Excise Tax Examination Reports, Case Closing and Appeals Procedures

    11. Section 11 - Excise Tax Processing Procedures at CIRSC

    12. Section 12 - Excise Tax Technical Guidance Program

    13. Section 13 - Fuel Compliance Officer Technical Guidance

4.24.1.4  (08-13-2008)
Overview of Excise Taxes Reported on Form 720

  1. This section provides a brief overview of the Excise Taxes reported on Form 720, Quarterly Federal Excise Tax Return. For additional information regarding processing excise returns see IRM 21.7.8, Excise Taxes, and the Excise Tax Program web page http://sbse.web.irs.gov/EX/default.htm

  2. Form 720 has various sections.

    • Part I consists of excise taxes generally required to be deposited. See IRM 20.1.4.8, Form 720 Reporting Requirements.

    • Part II consists of excise taxes that are not required to be deposited.

    • Part III consists of the lines for total tax. Taxpayers use this section to determine their balance due or overpayment.

    • Schedule A, Excise Tax Liability, is used to record the net tax liability for each semimonthly period in a quarter. Schedule A must be completed if there is an entry in Part I.

    • Schedule T, Two party Exchange Information reporting, is used to report gallons of taxable fuel received in a two-party exchange within a terminal. These gallons must also be included on the appropriate line on page 1 of Form 720, or delivered in a two-party exchange contemporaneous with a removal across the rack. Enter all gallons of fuel received or delivered in a two-party exchange within a terminal for the applicable fuel.

    • Schedule C, Claims, is used to make claims only if there is a liability reported in Part 1 or Part 2.

  3. See Exhibit 4.24.1-1. for a list of the types of excise taxes reported on Form 720, Form 2290, Form 730, and Form 11-C..

  4. See IRM 21.7.8.4.1.20 for information relating to Form 720TO Terminal Operator Report and Form 720CS Carrier Summary Report

  5. Taxpayer inquiries regarding Electronic Federal Tax Payment System (EFTPS) payments should be referred to the Centralized Excise Operations (CEO) toll free phone number 1-866-699-4096. Additional information regarding EFTPS payments can be found in IRM 21.7.1.4.8 and at http://www.irs.gov/efile/article/0,,id=98005,00.html

4.24.1.4.1  (08-13-2008)
Non-Fuel Excise Taxes Reported on Form 720

  1. Excise Taxes are distinguished based on their activity code, commonly referred to as abstract codes. The non fuel related abstract groups are discussed below.

4.24.1.4.1.1  (08-13-2008)
Air Transportation Taxes

  1. Tax is imposed on amounts paid for the transportation of persons by air (ABS 26), the transportation of property by air (ABS 28), and the use of international air travel facilities (ABS 27). Generally, the tax is paid by the person paying for the transportation and is collected and paid over to the government by the person receiving the payment.

  2. The web page for Air Transportation can be found at http://sbse.web.irs.gov/EX/Policy/EIS/AirTransport.htm.

4.24.1.4.1.2  (08-13-2008)
Coal Tax

  1. Tax is imposed on the sale of both surface mined (ABS 38 and 39) and underground mined (ABS 36 and 37) coal. The tax is imposed on the producer of the coal.

  2. The web page for Coal Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/Coal.htm.

4.24.1.4.1.3  (08-13-2008)
Communications Tax

  1. Tax is imposed on amounts paid for communication services defined as local telephone service, and teletypewriter exchange service (ABS 22).

  2. The tax is paid by the person paying for the service, ordinarily the subscriber or other telephone consumer. The tax must be paid to the telecommunications carrier rendering the service who is responsible for collecting the tax and paying it over to the government.

  3. The web page for Communications Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/Communications.htm.

4.24.1.4.1.4  (08-13-2008)
Environmental Taxes/Ozone-Depleting Chemicals (ODC) Tax

  1. Oil spill liability tax (ABS 18) generally applies to crude oil received at a U.S. refinery and to petroleum products entered into the United States for consumption, use, or warehousing.

  2. The imported petroleum products oil spill tax (ABS 21) is imposed on petroleum products when they enter the United States for consumption, use, or warehousing.

  3. The tax on imported products (ABS 19) is imposed on an imported product containing or manufactured with ODCs if it is entered into the United States for consumption, use, or warehousing and is listed in the Imported Products Table.

  4. ODCs tax (ABS 98) is imposed on an ODC when it is first used or sold by its manufacturer or importer.

  5. A floor stocks tax (ABS 20) is imposed on ODCs held on January 1 by any person (other than the manufacturer or importer of the ODCs) for sale or for use in further manufacture.

  6. The web page for Environmental Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/OzoneDepletingChemicals.htm.

4.24.1.4.1.5  (08-13-2008)
Foreign Insurance Tax

  1. Tax is imposed when U.S. residents buy insurance policies from nonresident alien individuals or businesses not licensed to sell insurance by a state or the District of Columbia (ABS 30).

  2. The web page for Foreign Insurance Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/ForeignInsurance.htm.

4.24.1.4.1.6  (08-13-2008)
Gas Guzzler Tax

  1. Tax is imposed on the sale, use, or lease by the manufacturer or importer of an automobile of a model type that does not meet certain standards for fuel economy (ABS 40). Automobiles imported for business or personal use are subject to the tax.

  2. The web page for Gas Guzzler Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/GasGuzzler.htm.

4.24.1.4.1.7  (08-13-2008)
Retail Tax on Heavy Vehicles

  1. Tax is imposed on the sales price on the first retail sale of the following articles, including related parts and accessories sold on or in connection with, or with the sale of, the articles (ABS 33):

    1. truck chassis and bodies,

    2. truck trailer and semitrailer chassis and bodies, and

    3. tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer.

  2. The web page for Retail Tax on Heavy Vehicles can be found at http://sbse.web.irs.gov/EX/Policy/EIS/RetailTruck.htm.

4.24.1.4.1.8  (08-13-2008)
Ship Passenger Tax

  1. Tax is imposed for persons on a covered voyage. It is paid by the operator of the ship (ABS 29).

  2. The web page for Ship Passenger Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/Ship.htm.

4.24.1.4.1.9  (08-13-2008)
Sport Fishing Equipment/Bows and Arrow Components Taxes

  1. Tax is imposed on the sale by manufacturer, producer, or importer of:

    1. certain sport fishing equipment (ABS 41),

    2. fishing rods and fishing poles (ABS 110),

    3. electric outboard motors (ABS 42),

    4. fishing tackle boxes (ABS 114),

    5. bows, quivers, broadheads, and arrow points (ABS 44), and

    6. arrow shafts (ABS 106).

  2. The web page for Sport Fishing and Archery Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/Sports-Fishing.htm.

4.24.1.4.1.10  (08-13-2008)
Tire Tax

  1. Generally tax is imposed on the sale by the manufacturer or importer of tires of the type used on highway vehicles, if wholly or in part made of rubber. The tax rate is also based on the load capacity of the tire. (ABS 108, 109, 113)

  2. The web page for Tire Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/Tires.htm.

4.24.1.4.1.11  (08-13-2008)
Vaccine Tax

  1. The tax is imposed on the sale, and on certain uses treated as sales, by the manufacturer or importer of each dose of a taxable vaccine listed in IRC 4132(a)(1) (ABS 97).

  2. The web page for Vaccine Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/Vaccines.htm.

4.24.1.4.1.12  (08-13-2008)
Obligations not in Registered Form

  1. The tax is imposed on any debt issued by U.S. companies in non-registered (bearer) form (ABS 31).

  2. The web page for Obligations not in Registered Form can be found at http://sbse.web.irs.gov/EX/Policy/EIS/ObligationsNotRegistered.htm.

4.24.1.4.1.13  (08-13-2008)
Structured Settlement Factoring Transactions

  1. A structured settlement factoring transaction is a transfer of structured settlement payment rights (including portions of structured settlement payments) made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration. An excise tax is imposed on the factoring discount of certain structured settlement payments (ABS 34) and reported on Form 8876.

  2. The web page for Structured Settlement Factoring Transactions can be found at http://sbse.web.irs.gov/EX/Policy/EIS/StructuredSettlement.htm.

4.24.1.4.2  (08-13-2008)
Overview of Fuel Excise Taxes

  1. Excise fuel taxes are distinguished based on their activity code, commonly referred to as abstract codes. The fuel related abstract groups are discussed below.

  2. For more information relating to the fuel abstract groups discussed below see http://sbse.web.irs.gov/EX/Policy/FuelPolicy.htm.

4.24.1.4.2.1  (08-13-2008)
Gasoline, Including Aviation Gasoline and Gasoline Blendstocks

  1. Tax is imposed on gasoline removals at the terminal rack, on events other than removal at the terminal rack, or the sale or removal of blended gasoline (ABS 62).

  2. Tax is imposed on aviation gasoline removals from a refinery or terminal or upon entry into the United States (ABS 14).

  3. Aviation gasoline includes all special grades of gasoline that are suitable for use in aviation reciprocating engines and covered by American Society for Testing and Materials (ASTM) specification D 910 or military specification MIL G 5572.

4.24.1.4.2.2  (08-13-2008)
Diesel Fuel, Diesel-Water Fuel Emulsion, and Dyed Diesel Used in Trains

  1. Tax is imposed on diesel fuel removals at the terminal rack, on events other than removals at the terminal rack, or the sale or removal of blended diesel fuel (ABS 60).

  2. Tax is imposed at a reduced rate on a diesel-water fuel emulsion removal at the terminal rack or other taxable event (ABS 104).

4.24.1.4.2.3  (08-13-2008)
Kerosene, Including Dyed Kerosene and Kerosene Used in Aviation.

  1. Tax is imposed on kerosene removals at the terminal rack or events other than removals at the terminal rack (ABS 35).

  2. Tax is imposed on kerosene for use in aviation for kerosene removed directly from a terminal into the fuel tank of an aircraft for use in noncommercial aviation (ABS 69).

  3. Tax is imposed on kerosene for use in commercial aviation for kerosene removed directly from a terminal into the fuel tank of an aircraft for use in commercial aviation (other than foreign trade) (ABS 77).

4.24.1.4.2.4  (08-13-2008)
Other Fuels (Including Alternative Fuels)

  1. Tax is imposed on any liquid other than gas oil, fuel oil, or any product taxable under IRC 4081 when it is delivered into the fuel supply tank of a motor vehicle or motorboat, or on certain bulk sales. Examples of these alternative fuels are:

    1. ABS 112 liquefied petroleum gas (LPG) which includes propane, butane, pentane, or mixtures of those gases,

    2. ABS 118 "P Series" fuels,

    3. ABS 120 compressed natural gas (CNG),

    4. ABS 121 liquefied hydrogen,

    5. ABS 122 any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process,

    6. ABS 123 liquid hydrocarbons derived from biomass, and

    7. ABS 124 liquefied natural gas (LNG).

  2. Tax is imposed on ethanol produced from coal, methanol produced from coal, ethanol produced from natural gas, methanol produced from natural gas, B 100 (100% biodiesel), and other selected fuels when they are delivered into the fuel supply tank of a motor vehicle or motorboat (or trains for B 100) (ABS 79 for the preceding products).

4.24.1.4.2.5  (08-13-2008)
Fuels Used in Commercial Transportation on Inland Waterways

  1. Tax is imposed on any liquid fuel used in the propulsion engine of commercial transportation vessels while traveling on certain inland and intracoastal waterways (ABS 64).

4.24.1.4.2.6  (08-13-2008)
Leaking Underground Storage Tank Taxes (LUST)

  1. LUST taxes are imposed on the following:

    1. dyed diesel fuel (ABS 105),

    2. dyed kerosene (ABS 107),

    3. kerosene for use in aviation, on nontaxable uses on removals, entries, and sales of gasoline and diesel fuel (ABS 111) and

    4. any liquid fuel used on inland or intracoastal waterways that is not subject to tax under IRC 4041(d) or 4081. An example of such fuel is Bunker C residual fuel oil. (ABS 125).

4.24.1.4.2.7  (08-13-2008)
Alcohol Sold As But Not Used As A Fuel

  1. Tax is imposed (ABS 51) if the alcohol fuel mixture credit or the alcohol credit was claimed and any person later:

    1. uses the mixture or straight alcohol for a purpose other than fuel,

    2. separates the alcohol from the mixture, or

    3. mixes the straight alcohol.

4.24.1.4.2.8  (08-13-2008)
Biodiesel Sold As But Not Used As A Fuel

  1. ) Tax is imposed (ABS 117) if the biodiesel or renewable diesel mixture credit was claimed and any person later:

    1. used the mixture or straight biodiesel or renewable diesel for a purpose other than fuel,

    2. separates the biodiesel or renewable diesel from the mixture, or

    3. mixes the straight biodiesel or renewable diesel.

4.24.1.5  (08-13-2008)
Overview of Excise Taxes Reported on Form 2290, 11-C, and Form 730

  1. The Form 2290 Heavy Highway Vehicle Use Tax is imposed on the use of heavy highway motor vehicles (including semi trailers and trailers) with a taxable gross weight of 55,000 pounds or more on public highways (ABS 196).

    1. Generally, the person liable for the tax is the person in whose name the vehicle is registered or required to be registered at the time of its first use on the public highway in the taxable period.

    2. For additional information please see IRM 21.7.8.4.2, Form 2290, Heavy Highway Vehicle Use Tax Return.

  2. The Form 730 Monthly Tax Return for Wagers reports the tax imposed on taxable wagers. Wagers are the total of those wagers that are authorized and those wagers that are not authorized by the State in which they are accepted (ABS 198).

  3. The Form 11-C Occupational Tax and Registration Return for Wagering is used by principals or agents who accept taxable wagers to register certain information and pay the occupational tax (ABS 197).

  4. The web page for Wagering Tax can be found at http://sbse.web.irs.gov/EX/Policy/EIS/Wagering.htm

Exhibit 4.24.1-1  (08-13-2008)
Listing of Excise Taxes Including Associated IRC Sections and Trust Funds

Type of Excise Tax Applicable IRC Sections Trust Fund
Air Transportation of Persons and Property 4261-4263, 4271-4272, 4281-4282, 4291, 6672,7501 Airport and Airways Air Transportation
 
Coal 4121 Black Lung Disability  
Communications 4251-4253, 4291, 6672,7501 General  
Ozone Depleting Chemicals 4681-4682 General  
Foreign Insurance 4371-4374 General  
Gas Guzzler 4064, 4221-4222 General  
Heavy Highway Vehicle Use 4481-4483 Highway  
Retail Truck 4051-4053, 4221-4222 Highway  
Ship Passenger 4471-4472 General  
Sports Fishing/Bows and Arrow Components 4161-4162, 4221-4222 Aquatic Resources, Wildlife Restoration  
 
Tires 4071-4073, 4221-4222 Highway  
Vaccines 4131-4132 Vaccine Injury Compensation  
Wagering 4401-4405, 4411-4412, 4421-4424 General  
Obligations not in Registered Form 103,149,163,4701 General  
 
Taxable Fuel (gasoline, diesel fuel, kerosene) 4041, 4081, 4082, 4091-4093, 6715 Highway, Airport and Airway  
Inland Waterways 4042 Inland Waterways Trust  
Leaking Underground Storage Tank 4041, 4042, 4081 Leaking Underground Storage Tank  

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