4.24.2  Form 637 Excise Tax Registrations

Manual Transmittal

August 06, 2012

Purpose

(1) This transmits a revision to IRM 4.24.2, Excise Tax, Form 637 Excise Tax Registrations.

Material Changes

(1) This section contains updated procedural guidance reflecting the reorganization of the 637 Program.

(2) The use of the Excise Tax Registration Authentication System (ExTRAS) to maintain and monitor nationwide Form 637 registration information has been replaced with the Issue Management System (IMS).

(3) Duties and responsibilities of the 637 Registration Group have been significantly updated.

(4) The 637 activity letters are now grouped by code section in order to add clarity and eliminate duplicated content.

(5) New Exhibit 4.24.2-1 added showing Issue Management System case input screen shot.

(6) New Exhibit 4.24.2-2 added showing 637 Lead Technician (LT) field territory assignments.

(7) Listed below is a table of the 8-13-2008 IRM citations and a description of changes made.

IRM Number Description
4.24.2.1 Overview Updated and retitled to Overview of Form 637 Program. Added hyperlink at (12.
4.24.2.2 Disclosure Updated and updated position titles
4.24.2.3 Purpose and Objective of Workload Stratification Updated objective and workload stratification criteria
4.24.2.3.1 Annual Registration Work Plan Updated position titles
4.24.2.3.2 Overview of Correspondence Reviews Updated selection criteria and position titles
4.24.2.3.3 Overview of Field Group Reviews Updated procedures and position titles
4.24.2.4 Responsibility of Cincinnati Centralized Excise Operations (CEO) Updated procedures and position titles
4.24.2.4.1 Responsibility of 637 Compliance Team Updated procedures and position titles. Content from Exhibit 4.24.2-2 where relevant moved into 4.24.2.5
4.24.2.5 Responsibility of Excise Tax Field Offices Updated and expanded procedures. Updated position titles
4.24.2.6 Relationship Between Compliance Reviews and Examinations Moved to 4.24.2.7.6
4.24.2.7 Registration Review Process Updated content
4.24.2.7.1 Applications for Activities K, M, S, W and Y Moved to 4.24.2.7.4. Deleted activity W due to legislative change
4.24.2.7.1.1 Description of Activities Covered Moved to 4.24.2.7.4(1)
4.24.2.7.1.2 Visiting Applicants Moved to 4.24.2.7.4.2
4.24.2.7.1.3 Registration Tests Moved to 4.24.2.7.4.1 and updated for clarity
4.24.2.7.1.4 Bonds Moved to 4.24.2.7.4.3 and expanded guidance
4.24.2.7.2 Applications for Activities AB, AF, AL, AM, BC, CC, NB, UA, UB, UP, UV, and X Moved to 4.24.2.7.4
4.24.2.7.2.1 Description of Activities Covered Moved to 4.24.2.7.4(1)
4.24.2.7.2.2 Visiting Applicants Moved to 4.24.2.7.4.2
4.24.2.7.2.3 Registration Tests Moved to 4.24.2.7.4.1(11) and updated for clarity
4.24.2.7.2.4 Bonds Moved to 4.24.2.7.4.3
4.24.2.7.3 Applications for Activity Y Moved to 4.24.2.7.4
4.24.2.7.3.1 Description of Activities Covered Moved to 4.24.2.7.4(1)
4.24.2.7.3.2 Visiting Applicants Moved to 4.24.2.7.4.2
4.24.2.7.3.3 Registration Tests Moved to 4.24.2.7.4.1(11)
4.24.2.7.3.4 Bonds Content removed not required to be bonded
4.24.2.7.3.5 Foreign Trade Moved to 4.24.2.7.4.1(15)
4.24.2.7.4 Applications for Activities A, B, C, D, E, F, I, Q, and V Moved to 4.24.2.7.5
4.24.2.7.4.1 Description of Activities Covered Moved to 4.24.2.7.5(1)
4.24.2.7.4.2 Visiting Applicants Moved to 4.24.2.7.5.2
4.24.2.7.4.3 Registration Tests Moved to 4.24.2.7.5.1
4.24.2.7.4.4 Bonds Moved to 4.24.2.7.5.3
4.24.2.7.5 Applications for Qualified Retailers in Alaska Moved to 4.24.2.7.4(2)
4.24.2.7.5.1 Description of Activities Covered Moved to 4.24.2.7.4(2)
4.24.2.7.5.2 Visiting Applicants Moved to 4.24.2.7.4.2
4.24.2.7.5.3 Registration Tests Moved to 4.24.2.7.4.1(16)
4.24.2.7.5.4 Bonds Content removed not required to be bonded
4.24.2.8 Action on the Application Moved to 4.24.2.7.1(1)
4.24.2.8.1 Approval Moved to 4.24.2.7.1. Updated procedures and position titles
4.24.2.8.2 Denial Moved to 4.24.2.7.2. Updated and expanded procedures. Updated position titles
4.24.2.9 Follow-up Actions After Approval Moved to 4.24.2.7.3. Updated procedures and position titles
4.24.2.10 Examinations Resulting from Compliance Reviews Moved to 4.24.2.8 and updated procedures
4.24.2.11 Maintaining and Updating Registration Files Moved to 4.24.2.9 and updated procedures
4.24.2.12 Overview of Actions, Including Adverse Actions, Relating to Registrants Moved to 4.24.2.10 and updated for clarity
4.24.2.12.1 Mandatory Revocation or Suspension - Activities K, M, R, S, W, UV, UP, AB, AF, AL, AM, CC, NB, UA, UB, UP, UV, X and Y Moved to 4.24.2.10.1 and updated to remove R and W and add BC and CB activities.
4.24.2.12.2 Mandatory Revocation or Suspension - Activities A, B, C, D, E, F, I, Q, and V, and BC Moved to 4.24.2.10.2 and updated to remove BC activity
4.24.2.13 Mandatory Revocation/Suspension Rules Applicable to All Registrants Moved to 4.24.2.11 and updated procedures
4.24.2.14 Excise Tax Registration Authentication System (ExTRAS) Obsolete
4.24.2.14.1 System Access Obsolete
4.24.2.14.2 ExTRAS Users Obsolete
4.24.2.14.3 ExTRAS Guidelines Obsolete
4.24.2.15 Recording Time Charged to the 637 Registration Program Moved to 4.24.2.13 and updated procedures
4.24.2.16 Form 637 Indicator on Business Master File (BMF Moved to 4.24.16
4.24.2.16.1 Purpose of the 637 Indicator Moved to 4.24.2.14.1 and updated for clarity
4.24.2.16.2 Procedures to Post or Delete 637 Indicator on BMF Moved to 4.24.2.14.2. Updated procedures and position titles
4.24.2.16.3 Use of Notice CP 241 by the Excise Tax Group Moved to 4.24.2.14.3. Updated position titles
Exhibit 4.24.2-1 Form 637 Suffix Guidelines Incorporated into 4.24.2.7.4 and 4.24.2.7.5
Exhibit 4.24.2-2 637 Compliance Team Processing Procedures Procedural guidance updated to reflect reorganization of program and use of IMS. Processing procedures may now be found at 4.24.2.5
Exhibit 4.24.2-3 Business Operations and Transaction Flow Moved to Exhibit 4.24.2-3
Exhibit 4.24.2-4 Financial Analysis Techniques Moved to Exhibit 4.24.2-4
Exhibit 4.24.2-5 Form 637 Case file Assembly Obsolete as all cases are now electronic files on IMS
Exhibit 4.24.2-6 Guidelines for the Excise Tax Registration Authentication System (ExTRAS) Obsolete. IMS has replaced ExTRAS
Exhibit 4.24.2-7 ERCS Control of Form 637 Review Content updated and incorporated into 4.24.2(6) and 4.24.2.13(1)
Exhibit 4.24.2-8 Form 720 Filing, Deposit, and Payment Requirements Moved to Exhibit 4.24.2-5
Exhibit 4.24.2-9 Terms and Conditions of Registration for Registrations Issued under IRC Section 4101: Moved to Exhibit 4.24.2-6
Exhibit 4.24.2-10 Terms and Conditions of Registration for Registrations Issued under IRC Section 4222: Moved to Exhibit 4.24.2-7

Effect on Other Documents

This material supersedes IRM 4.24.2, dated 08/13/2008. This updated IRM section includes procedural guidance found in the following Interim Guidance Memos; SBSE 04-1111-096, Initial 637 Application Assigned to Excise Tax Field Groups, and SBSE 04-1111-093, TAS Referrals and Inquiries to Form 637 Registration Program.

Audience

This section is for SBSE Excise Managers, Examiners and Specialists.

Effective Date

(08-06-2012)



/s/ John Imhoff
Director, Specialty Programs
Small Business/Self Employed

4.24.2.1  (08-06-2012)
Overview of Form 637 Program

  1. The Treasury Regulations prescribe that each person who engages in certain specified activities relating to excise tax must be registered by the IRS before engaging in the activities. In other cases, a person is required to be registered by the IRS in order to receive an excise tax benefit such as the right to sell or buy an article tax free or to file a claim.

  2. Form 637, Application for Registration (for Certain Excise Tax Activities), is used for excise tax registration for activities under:

    • IRC 4101, Registration and bond,

    • IRC 4222, Registration, and

    • IRC 4682, Definitions and special rules.

  3. This IRM section contains the standards and procedures relating to:

    • approving,

    • denying,

    • revoking, and

    • monitoring

    registrations for which application is made on Form 637.

  4. Form 637 contains a listing of activities for which registration is required or allowed. Each activity is identified by a designated capital letter or letters. Thus, for example, the activity of being the first retail seller of certain heavy vehicles is activity letter "Q" and the person that has been registered for this activity is often referred to as a "Q registrant."

  5. All Form 637 registration files are processed and maintained electronically.

  6. All Form 637 compliance reviews will be conducted and completed on a management specified report generating software system. The Issue Management System (IMS) is the current version of this type of system used by the Excise Tax Program.

  7. Form 637 compliance reviews are completed by excise field groups and by the Form 637 Registration Group. Form 637 Registration Group compliance reviews are conducted by correspondence.

  8. Form 637 compliance reviews completed by excise field group employees must be conducted with a complete analysis of the applicant's/registrant’s business operations. At a minimum, the compliance review will consist of the following:

    1. a plan on what to inspect,

    2. how the inspection will be conducted,

    3. the actual inspection, complete with applicant/registrant interview, business review, and review of necessary books and records; and,

    4. a determination and issuance of a letter to the applicant/registrant.

  9. An approved registration is a public statement by the IRS that it considered relevant aspects of the registrant’s business operation, financial condition, and that the registrant has met all the required registration tests:

    • The Activity Test

    • Acceptable Risk Test

    • Adequate Security Test and/or Satisfactory Tax History

    .

  10. Those conducting business with the applicant/registrant can be assured that the Internal Revenue Service has determined that the federal excise tax will be collected and paid by the applicant/registrant.

  11. The IRS issues Letter 3689, Letter of Registration, or Letter 3696, Results of 637 Compliance Review, at the conclusion of each Form 637 compliance review as notice to the applicant or registrant that their:

    • application for registration is approved or denied, or

    • approved registration is continued or revoked.

  12. An approved registration remains valid until revoked or suspended. A copy of the Form 637 application is not considered proof of registration. Letter 3689 should be retained as proof of registration. A person’s registration status can be confirmed online at http://www.irs.gov/app/exciseTax/.

  13. If an application is denied or registration is revoked, the applicant or registrant will be notified in writing by the IRS that the application has been denied or revoked and the reason for the denial or revocation.

  14. The grade of the 637 compliance review should be the same as the grade of the income tax return.

  15. The United States or a state or local government will not be registered for any activities under IRC 4222. If a governmental entity applies for a registration that is not required, the application will be denied and the entity will be informed that it is not required to be registered. However, a state or local government may be registered, as appropriate, for activities listed under IRC 4101.

  16. Each business entity that has, or is required to have a separate Employer Identification Number (EIN), is treated as a separate person and must apply for registration.

  17. All Form 637 registration numbers issued after February 2004 are comprised of 10 digits. For registration numbers prior to 2004:

    1. The Activity Letter UV and UP registration number is comprised of 9 digits.

    2. All other pre 2004 registration numbers are 8 digits.

  18. Entities that have U. S. business transactions involving taxable fuel and other IRC 4101 activity are required to register, even if their principal place of business is in Puerto Rico. If the operating entity has an EIN, or is required to have an EIN, registration is required.

4.24.2.2  (08-06-2012)
Disclosure

  1. IRC 6103(k)(7), Disclosure of excise tax registration information, provides that to the extent the Secretary determines that disclosure is necessary to permit the effective administration of subtitle D, the Secretary may disclose:

    1. the name, address, and registration number of each person who is registered under any provision of subtitle D (and, in the case of a registered terminal operator, the address of each terminal operated by such operator), and

    2. the registration status of any person.

  2. The disclosures authorized by IRC 6103(k)(7) are delegated to the 637 Registration Group Manager.

  3. Any request for disclosure not listed in IRM 4.24.2.2(1) will be forwarded to the 637 Registration Group Manager. The request will include a concise statement of the administrative necessity for disclosure.

  4. All contacts and disclosures will be noted on Form 9984, Examining Officer's Activity Record, uploaded into the applicant/registrant’s 637 IMS case file and in a written or computer database disclosure log if applicable.

4.24.2.3  (08-06-2012)
Purpose and Objective of Form 637 Workload Stratification

  1. The selection of Form 637 follow-up compliance reviews will be based on such factors as risk assessment and revenue protection. Each Activity Letter will be analyzed using various factors on an annual basis to identify registrants that post a medium to high risk of non-compliance to the government. The 637 Registration Group Manager is responsible for the analysis and selection of these compliance reviews.

  2. See IRM 4.24.4.5.1 for additional information regarding assignment of Form 637 registration workload to the fuel territories.

4.24.2.3.1  (08-06-2012)
Annual Registration Work Plan

  1. The 637 Registration Group Manager prepares an Annual Registration Work Plan for sample reviews.

  2. The 637 Registration Group Manager identifies and allocates the sample reviews to excise field groups in the fuel territories and to the general excise territory groups.

  3. The sample selection criteria may exclude certain activity letters which will be worked by the 637 Registration Group.

  4. Using a statistically valid sample selection process, the 637 Registration Group Manager will randomly select registrants for on-site Form 637 compliance reviews.

  5. The Annual Registration Work Plan will be distributed to each territory manager before the beginning of each fiscal year. The Form 637 sample reviews will be started on a pro rata basis to ensure the completion of the reviews by each fiscal year-end. Any exceptions to the territory Annual Registration Work Plan must be presented by the territory manager in writing to the 637 Registration Group Manager.

  6. The 637 Registration Group Manager is responsible for monthly monitoring of the Annual Registration Work Plan and reporting to the Chief, Excise Tax Program.

4.24.2.3.2  (08-06-2012)
Overview of Correspondence Form 637 Compliance Reviews

  1. Based on the needs of the Service, various activity letters will be worked as correspondence compliance reviews. These reviews will be worked by the Form 637 Registration Group. Activity letters selected to be worked by the 637 Registration Group will vary based on the needs of the various excise field groups and the workload of the 637 Registration Group.

  2. The 637 Registration Group Manager is responsible for the selection of the registrants for which correspondence Form 637 compliance reviews will be performed.

  3. An Annual Registration Work Plan will be distributed to the 637 Registration Group before the beginning of the fiscal year. The correspondence Form 637 compliance reviews will be started on a pro rata basis to ensure the completion of the reviews by each fiscal year-end.

  4. All activity letters, as stated in (1) above that are part of the Coordinated Industry Case (CIC) Program will be referred to the excise field groups.

4.24.2.3.3  (08-06-2012)
Overview of Excise Field Group Compliance Reviews

  1. Excise field group compliance reviews will consist of all new applications that meet excise field group criteria, and sample reviews selected by the 637 Registration Group Manager. In addition, correspondence reviews that cannot be resolved by the 637 Registration Group will be sent to the appropriate excise field group for completion. The territory manager or excise field group manager may also select discretionary reviews (non-sample reviews) from the following, as they deem necessary:

    1. registrants that are part of the Coordinated Industry Case (CIC) Program,

    2. any other registrant not selected by the 637 Registration Group Manager.

  2. All excise tax field employees will utilize IMS for their 637 compliance reviews including initial application and other compliance reviews.

  3. If an excise tax examination is conducted on a current registrant, the 637 registration status of the registrant must be considered. A compliance review will also be performed in conjunction with the examination if it has been more than 18 months since the last compliance review. The excise employee will contact the 637 Registration Group Lead Tech (LT) assigned to their territory to determine when the last compliance review was conducted.

  4. The excise field employee will discuss initiating the Form 637 compliance review with their manager and secure approval before proceeding. If the Form 637 compliance review is to be conducted, the field group manager will request the 637 IMS case file from the 637 Registration Group LT assigned to their territory. The Form 637 Registration web page http://mysbse.web.irs.gov/Specialty/excise/issues/637/default.aspx contains a listing of the current LT and territory assignment. Under no circumstances is a Form 637 case to be created locally by the excise field employee. All Form 637 cases must be assigned to the excise field groups by the 637 Registration Group.

  5. If a decision is made not to proceed with a compliance review or if it has been less than 18 months since the compliance review, the excise field employee will forward by secure e-mail to the 637 LT assigned to their territory the following:

    1. current Form 13499-C, Current 637 Recommendation,

    2. a written narrative of their audit results, registration tests, and any information uncovered that may affect the registrant's registration status,

    3. a copy of the examination audit report (RAR) if applicable, and

    4. a copy of Form 9984, Examining Officer's Activity Record.

  6. The LT will upload the above information into the Form 637 registrant IMS case file.

  7. As part of a Form 720 examination, a comment must be made in the examination case file documenting what was done to check the registration status. A summary of the 637 compliance review actions taken will be documented in the examination case file, including, but not limited to the registration tests, financial analysis, etc. See (3) above.

  8. The Notebook Job Aid is to be used by excise field employees to generate all appropriate lead sheets, templates, 637 Job Aids, reports, letters, and closing forms for all 637 reviews including initial application reviews and other compliance reviews.

  9. All initial, sample, and discretionary reviews will be subject to Embedded Quality (EQ) review. See IRM 4.24.7.

  10. All initial 637 applications must be completed within 60 days from assignment to the excise field group manager on ERCS. Any delays in meeting the 60 day requirement should be discussed with the field group manager and documented on Form 9984.

  11. Each sample review may require an on-site visitation. The excise field employee will also review transcripts, other IDRS research, CBRS research, and any other internal documents. Excise field employees must follow the procedures found in IRM 4.24.2.7.3, Follow-Up Actions After Approval.

  12. All 637 IMS case files must be documented thoroughly and meet the standardized case file criteria, including but not limited to:

    • internal controls,

    • business diagrams,

    • financial analysis, and

    • 637 Job Aids.

  13. Each 637 IMS case file will be worked, updated, and maintained in IMS and contain Form 9984. The Form 9984 will include all registrant contacts and will be documented sufficiently to show what was done during the review.

  14. The excise field employee performing the review will document their determination and registration tests on Form 13499-C and any follow-up actions that are required. Form 13499-C will be uploaded into the 637 IMS case file.

4.24.2.4  (08-06-2012)
Responsibility of Centralized Specialty Tax Operations (CSTO)

  1. All initial Form 637 Applications are received by the Cincinnati IRS Center (CIRSC), date stamped and forwarded to Centralized Specialty Tax Operations (CSTO) for initial processing.

  2. CSTO will create and scan all Form 637 applications and attachments (excluding tax returns) received at CIRSC and create the 637 IMS case file. CSTO will maintain the original registration application request for 45 days. After the 45 days, the original application will be mailed to the 637 Registration Group via Form 3210, Document Transmittal.

  3. The creation, scanning and uploading the Form 637 application into the 637 IMS case file will place the case into IMS Status 10 and electronically transmit the case file to "Queue 1" .

  4. If a registrant contacts CSTO regarding a change in their Form 637 registration, such as business location or change in ownership, CSTO will e-mail the information to the 637 Registration Group Manager for follow up action.

  5. If a Form 637 application has no type of activity letter indicated, CSTO will mail the application to the 637 Registration Group Manager for determination. The 637 Registration Group will then scan in the application and create the 637 IMS case file if the type of registration is determined after contacting the applicant.

  6. CSTO will establish ERCS control for all Form 637 compliance reviews assigned to excise field groups in IMS by the 637 Registration Group. The LT assigning the IMS 637 case file will complete the 637 ERCS Request including appropriate Tracking Code, and send via secured e-mail to "*SBSE Specialty Tax Team 203 Cincinnati." CSTO will establish ERCS control within 24 hours and send a confirmation e-mail to the LT.

  7. The 637 ERCS Request may be found on the 637 Registration web site at http://mysbse.web.irs.gov/Specialty/excise/issues/637/637regprog/default.aspx.

4.24.2.5  (08-06-2012)
Responsibility of 637 Registration Group

  1. The 637 Registration Group processes Form 637 applications electronically via IMS. Each excise territory has an assigned 637 Registration Group Lead Technician (LT) who coordinates the registrations for each territory. The Lead Technicians will be referred to as LT throughout this IRM. Each LT will:

    1. create the IMS 637 case file,

    2. assign 637 Registration Group and excise field group case files,

    3. review and approve 637 Registration Group cases, and

    4. process 637 case files approved and closed by the excise field group managers.

  2. Tax Examiners (TE) in the 637 Registration Group perform correspondence compliance reviews and assist the LT.

  3. Letter 3681, 637 Notification Letter, will be sent to all initial applicants within twenty (20) days from the date CSTO creates the IMS 637 case file. Letter 3681 will be prepared and mailed by the 637 Registration Group Tax Examiner (TE) assigned to the IMS 637 case file.

4.24.2.5.1  (08-06-2012)
Assignment of 637 IMS Case Files by LT– Queue 1 and Queue 2

  1. The LT shall assign 637 IMS case files to the Tax Examiners (TE) in the 637 Registration Group and to excise field groups from:

    • LT Assignment Queue 1, and

    • LT Assignment Queue 2.

  2. LT will verify appropriate Tracking Code is assigned to the 637 IMS case.

4.24.2.5.1.1  (08-06-2012)
Assignment of 637 IMS Case Files by LT to TE

  1. The LT will assign all 637 IMS case files in Status 10 (Pending) from the LT Assignment Queue 1 to the TE. Only 637 IMS case files in Status 10 ready for assignment to a TE will appear in LT Assignment Queue 1. The LT must select LT Assignment Queue 2 to assign 637 IMS case files that are not in Status 10.

  2. The LT will assign the initial application 637 IMS case file to a TE for a compliance check only if it is an excise field group case. If it is a 637 Registration Group case, the TE will also make a recommendation to approve or deny the application. The LT will send the application file electronically via IMS and will place the 637 IMS case file in Status 20 (Compliance Check).

  3. TE will send the 637 IMS case file back to the LT in Status 30 (LT Review) upon completion of the excise field group or 637 Registration Group cases. The LT will then determine if the 637 IMS case file is to be worked as a:

    • excise field group case, or

    • 637 Registration Group case.

  4. 637 Registration Group cases are kept within the 637 Registration Group and the LT will make the determination as to whether the application will be denied or approved.

4.24.2.5.1.2  (08-06-2012)
Assignment of 637 IMS Case Files by LT to Excise Field Groups

  1. 637 IMS case files will be assigned to either a general excise field group or a fuels excise group. The LT assigning the 637 IMS case file initial applications, sample reviews, or discretionary reviews will:

    1. Update the 637 IMS case file to Status 40 (GM Review) and assign the 637 IMS case file to the field group manager's queue on IMS.

    2. Complete 637 ERCS Request and send to CSTO via secured e-mail to "*SBSE Specialty Tax Team 203 Cincinnati" for input of ERCS control.

    3. If applicable, update the IMS 637 case file with the 637 historical file information.

4.24.2.5.2  (08-06-2012)
LT Review Responsibilities- 637 IMS Case Files in Status 30 and 70

  1. 637 IMS case file initial applications closed by TE will be in IMS Status 30. Status 30 cases include both initial applications for excise field groups and initial application case for the 637 Registration Group.

  2. 637 IMS initial application, sample review, and discretionary review cases closed by excise field groups will be updated to IMS Status 70 (LT Review).

4.24.2.5.3  (08-06-2012)
LT Status 70 Case- Excise Field Group Recommendation to Approve or Continue Registration

  1. The LT will not review any determination made by the excise field group to approve a Form 637 application or to continue a registration after a discretionary or sample review. The field group manager has the responsibility to ensure the excise field employee’s determination to approve or continue a registration is adequately supported. The field group manager will document their approval on Form 9984 and upload the Form 9984 into the 637 IMS case file.

  2. The LT who reviews the Status 70 637 IMS case files will:

    1. approve the registration application or continue the registration on IMS,

    2. prepare and upload closing instructions via Form 9984 to the 637 Registration Group TE which includes the appropriate registration letter(s) to send, and

    3. update the 637 IMS case file to Status 85 (TE Final Determination) and assign case to TE.

4.24.2.5.4  (08-06-2012)
LT Status 70 Case- Excise Field Group Recommendation to Deny or Revoke Registration

  1. With respect to 637 IMS case files where the excise field group proposes to deny or revoke a 637 registration, and the registrant does not agree with the denial or revocation, the 637 IMS case file will be transferred to the LT who has been assigned the responsibility of reviewing denials or revocations.

  2. The designated LT will review the excise field group determination and make their recommendations on Form 9984 prior to forwarding the 637 IMS case file to the 637 Registration Group Manager.

  3. The contested denials/revocations procedures found in IRM 4.24.2.7.2(9) will be followed if an applicant or registrant provides a written appeal to the denial or revocation of their registration.

  4. In cases where the applicant/registrant requests withdrawal of the registration, or concurs with the excise field group determination to deny or revoke a registration, the LT will not review the excise group determination. The LT will:

    1. Ensure the excise field employee has obtained the concurrence in writing from the registrant.

    2. Ensure the excise field employee has uploaded their workpapers into the 637 IMS case file.

    3. Issue Letter 3691, Letter of Revocation, or Letter 3685, Denial of Registration.

    Note:

    If there is nothing in writing from the registrant, the LT reviewing the denial or revocation will review the facts, circumstances, and documentation in the case file to determine if the registrant, in fact, had agreed to the denial or revocation. See IRM 4.24.2.7.2(3) for more information.

4.24.2.5.5  (08-06-2012)
LT Status 30 Case- 637 Registration Group Cases Deemed Excise Field Group Cases or are Mixed Activity Letter Cases

  1. The criteria for what constitutes a 637 Registration Group case or an excise field group case will be reviewed as warranted based on the needs of the Excise Tax Program. If the excise field groups need additional work, cases that were previously considered 637 Registration Group cases may be reclassified as excise field group cases. Conversely, if a case has been assigned to a particular excise field group that has other, higher priority workload, the case may be reassigned to the 637 Registration Group.

    Note:

    All Status 30 637 Registration Group cases require a LT review before an application is approved or a registration application is denied.

  2. All Status 30 applications that contain excise field activity letters will be sent to the excise field groups, including applications with compliance issues, or applications that include both a field excise group and a 637 Registration Group activity letter(s). The excise field group will make final determinations on all activities for which the applicant has applied. The LT will:

    1. Assign the 637 application to the excise field group manager’s queue.

    2. If deficiencies were found on the compliance review, the LT will notate deficiencies on Form 9984 and upload the Form 9984 into the 637 IMS case file. The excise field group will address and resolve the compliance issues prior to making a final determination on the application.

4.24.2.5.6  (08-06-2012)
LT Status 30 Case - 637 Registration Group TE Recommendation to Approve Application

  1. Status 30 637 IMS case files will be reviewed in IMS by the LT assigned to the 637 IMS case file.

  2. For 637 Registration Group cases, if the LT is in agreement with the TE’s recommendation to approve the 637 application, the LT will make a final determination and approve the application.

  3. Upon the approval of an application, the LT, or LT’s delegate will:

    1. Update Form 13499, 637 Registration Summary Sheet, with the approved registration number and effective date of registration.

    2. Prepare and issue Letter 3689, Letter of Registration, to the applicant containing the effective date of registration.

    3. Upload the Form 13499 and the signed Letter 3689 into the 637 IMS case file.

    4. Input the 637 indicator. See IRM 4.24.2.14. for procedural guidance.

  4. If the LT delegates the above, the 637 IMS case file will be updated to Status 85 (Final Disposition by TE) and assigned to a 637 Registration Group TE along with the required closing instructions via Form 9984.

  5. When the LT reviews a 637 case and if there are issues which prevent the LT from approving the application, it will be returned to the 637 Registration Group TE in IMS Status 20 for any corrective actions. If the issue(s) can be resolved via phone or e-mail, the LT will document case file via Form 9984 and approve the registration. LT will upload Form 9984 into the 637 IMS case file.

4.24.2.5.7  (08-06-2012)
LT Status 30- 637 Registration Group TE Recommendation to Deny Application

  1. If the LT is in agreement with the TE’s recommendation to deny the 637 application, the LT will make a final determination and deny the application only if it is a 637 Registration Group Case (after concurrence by the 637 Registration Group Manager). If the case is an excise field group case, the 637 IMS case file will be referred back to the excise field group for their determination.

  2. The LT will forward the 637 IMS case file to the 637 Registration Group Manager for their concurrence of the denial. If the manager concurs with the denial, they will detail their concurrence on Form 9984 which will be uploaded to the 637 IMS case file. The applicant will be notified in writing and the basis for the denial will be stated. The LT or delegate will prepare and issue Letter 3685, Denial of Registration - Uncontested, to the applicant.

  3. If the LT delegates issuance of Letter 3685, the 637 IMS case file will be updated to Status 85 and the case assigned to a 637 Registration Group TE along with closing instructions and the basis for the denial via Form 9984.

  4. The applicant will have 10 days from the date indicated on Letter 3685 to make a written appeal of their denial. After the 10 days, the applicant will have to reapply for registration.

  5. If an applicant in (2) above was denied because of deficiencies, and such deficiencies are satisfied within 30 days from the date of Letter 3685, the LT will approve the registration. The LT will document their actions taken in the 637 IMS case file using Form 9984 and upload the Form 9984 and any applicant's correspondence into 637 IMS case file. If the deficiencies have not been resolved after 30 days, the applicant will be required to reapply for registration.

  6. If an applicant in (2) above was denied for reason other than a "deficiency" , and appeals the denial in writing within 10 days, the LT will review the applicant’s appeal and document their decision on Form 9984. The LT will upload the applicant’s appeal and Form 9984 into the 637 IMS case file and forward the 637 IMS case file to the 637 Registration Group Manager. The 637 Registration Group Manager will follow the contested denials and revocations procedures found in IRM 4.24.2.7.2(9).

4.24.2.5.8  (08-06-2012)
LT Status 30 Case-TE Recommendation to Deny Application with an Approved Registration

  1. If a 637 registrant that has submitted an application deemed an excise field group case has compliance issues or has no compliance issues but a related company or partnership has an issue, the 637 Excise Registration Group Manager will have the authority to allow the 637 application to go to the field. The excise field group will make the determination on the application and approved registration. The LT will create a discretionary review on the non-compliant entity (assuming the non-compliant entity has a valid registration).

  2. If a 637 registrant that has submitted an application deemed a 637 Registration Group case has compliance issues or has no compliance issues but a related company or partnership has an issue, the LT will:

    1. Deny the additional activity the registrant applied for and issue Letter 3685.

    2. Issue Letter 3696, Results of 637 Compliance Review, and Pub 5039, Terms and Conditions of Registration,, notating the non-compliance issues. The registrant will be given 30 days to become compliant.

    3. Upload both the signed letters into the 637 IMS case file.

    Note:

    The 637 Registration Group manager concurrence is required.

  3. If after the issuance of Letter 3696 the 637 registrant becomes compliant within the 30 days, the additional activity will be approved. A letter of registration will be issued for the approved activity along with the terms and conditions of registration.

  4. If, after 30 days, the registrant has not resolved the compliance issue(s) and has not made any contact with the LT, the LT will inform the 637 Registration Group Manager, via e-mail, and obtain concurrence for the revocation.

  5. The 637 Registration Group Manager will have the discretion to revoke the registration or recommend a remedial action.

  6. If 637 Registration Group Manager determines the registration should be revoked, the registrant will be notified in writing along with the basis for the revocation. The LT will document the 637 IMS case file and revoke registration. The LT or LT’s delegate will:

    1. Prepare and issue Letter 3691.

    2. Update Form 13499 with the date revoked on IMS.

    3. Upload the Letter 3691 and Form 13499 into the 637 IMS case file.

    4. Remove the 637 indicator. See IRM 4.24.2.14 for more information.

  7. If the LT delegates, the 637 IMS case file will be updated to Status 85 and assigned to a TE along with closing instructions and the basis for the revocation via Form 9984.

4.24.2.5.9  (08-06-2012)
TE Processing Form 637 Application IMS Case Files in Status 20 and 85

  1. 637 Applications are assigned to Tax Examiners (TE) in IMS in the following Statuses:

    1. IMS Status 20, compliance check/review of an initial application, from the pending (Status 10) queue. If a LT returns a 637 application to a TE for corrections, it will be placed into Status 20.

    2. IMS Status 85, final disposition by the TE. The assigned TE will prepare and mail the applicable 637 application correspondence to the applicant.

4.24.2.5.10  (08-06-2012)
IMS Status 20 – TE Compliance Review

  1. Applications in Status 20 will be completed within 5 days of assignment on IMS. However, if there are compliance issues, the review can be completed within 10 days of assignment on IMS. The following procedures will be followed by the 637 Registration Group TE for all applications:

    1. Review the original Form 637 application in the 637 IMS case file.

    2. Print the "F637.pdf" file for reference when conducting the compliance review, and use it when completing the "Form 637 Data" screen in IMS. See IRM Exhibit 4.24.2-1.

    3. Complete the "Form 637 Data" screen in IMS. Review and change information as necessary and complete Part III of the screen.

    4. Contact the applicant by telephone to secure any additional information required to complete the compliance review such as delinquent returns and/or payments from the applicant, and/or any related person. Any information received relating to processing the application should be scanned and uploaded into the 637 IMS case file such as corrected signatures or verification of payments on tax account balances due.

    5. Forward any secured delinquent returns to the appropriate IRS Submission Processing campus. A copy of any delinquent return secured will be maintained in the 637 IMS case file and the word/phrase "Copy-Do Not Process" notated of the face of the return(s).

    6. If there are any delinquent excise tax returns, the TE will notate in the 637 recommendation form for the excise tax group to secure the delinquent returns.

    7. If necessary, a non-filer referral using Form 5346, Examination Information Report, will be prepared for other Federal taxes such as income or employment and forwarded to the 637 Registration Group Manager for approval and distribution. Information regarding completion of the Form 5346 can be found on the web at http://mysbse.web.irs.gov/Specialty/excise/initiating/establish/job/25863.aspx .

    8. If any payments are received, a Form 3244-A, Payment Posting Voucher– Examination, is to be prepared and forwarded to the teller unit via overnight mail. Form 3210 must be included with the Form 3244-A and check. A copy of the check and the payment posting voucher should be scanned into the 637 IMS case file. Online instructions for completion of Form 3244-A can be found at http://core.publish.no.irs.gov/forms/internal/pdf/22215i09.pdf.

    9. Conduct a follow-up review within (2) days if applicant hasn’t responded to requests. If necessary, contact the applicant a third time via telephone.

    10. Secure IDRS and internet information that is necessary to complete the case review.

  2. Applications that contain multiple activity letters generally assigned to both 637 Registration Group and excise field groups will be worked as an excise field group application. An activity test will not be conducted on these types of applications by the 637 Registration Group. The excise group will make the final determination on all 637 activity letters (including the registration activity tests). The 637 Registration Group TE will follow the procedures found in IRM 4.24.2.5.10(4) below when processing these applications.

  3. For 637 Registration Group cases, the TE will:

    1. Complete the 637 Job Aid(s) for each activity applied for to determine if the applicant is engaged in the business associated with the activity letter, or are likely to be engaged in activity in the near future. Upload 637 Job Aid(s) into the 637 IMS case file.

    2. Complete their Form 637 recommendation workpaper with the filing requirements and payment histories for the applicant and any related person(s) or entity(s) for the prior two years. However, any deficiency(ies) found beyond two years will be notated on their recommendation workpaper and on Form 9984.

    3. Recommend the approval of application if the applicant or any related person(s) or entity(s) has a satisfactory filing and payment history and meet the activity test.

    4. Recommend the denial of any application if the applicant or any related person(s) or entity(s) does not have a satisfactory filing and payment history, the applicant does not meet the activity test, or the applicant does not provide information requested within the ten day time frame.

    5. Upload the recommendation workpaper into the 637 IMS case file.

    6. Record all case activity on Form 9984 and upload into the 637 IMS case file.

    7. Close the 637 case to the LT for review and update the 637 IMS case file to IMS Status 30.

  4. For excise field group cases the TE will:

    1. Complete the 637 recommendation workpaper with the filing requirements and payment histories for the applicant and any related person(s) or entity(s) for the prior two years. However, any deficiency(ies) found beyond two years will be notated on their recommendation workpaper and on Form 9984.

    2. Upload the recommendation workpaper into the 637 IMS case file.

    3. Record all activity on Form 9984 and upload into the 637 IMS case file.

    4. Close the 637 IMS case file to the LT for review and update the 637 IMS case file to IMS Status 30.

  5. If deficiencies are found on an excise field group application compliance review, the application will not be denied. The TE will notate the deficiencies found on the recommendation workpaper and Form 9984 and upload them into the 637 IMS case file. The LT will forward the 637 IMS case file to the excise field group to address the deficiencies found, and for the excise field group to make a final determination on the application.

4.24.2.5.11  (08-06-2012)
IMS Status 85 – TE Final Determinations

  1. Cases in Status 85 are those that have had a final disposition by the LT and need applicable correspondence mailed to the applicant/registrant. The TE assigned a 637 IMS case file in IMS Status 85 will or may have to:

    1. Prepare the applicable 637 registration letter(s) or other correspondence to the applicant/registrant and sign the 637 Registration Group Manager’s signature or stamp the 637 Registration Group Manager’s name using a signature stamp (if available).

    2. Scan and upload signed letter into the 637 IMS case file under "administrative issue section" , and mail original letter to the applicant/registrant.

    3. Complete or update Form 13499 and upload into the 637 IMS case file.

    4. Input or remove the 637 indicator. See IRM 4.24.2.14.2 for details on removing or adding the 637 indicator.

  2. Once the above actions are completed, the TE will change the 637 IMS case file status to "Complete Review" and update the 637 IMS case file to Status 90 – Complete. The 637 IMS case file is now finalized in IMS.

4.24.2.6  (08-06-2012)
Responsibility of Excise Tax Field Groups

  1. The excise field group manager is responsible for managing the registration program within their geographic area of responsibility.

  2. The excise field group manager will ensure all sample 637 compliance reviews are completed on a pro-rata basis during the fiscal year.

  3. Any application incorrectly mailed directly to the excise field group will be immediately faxed or scanned and sent via secure e-mail to the 637 Registration Group who will create the 637 IMS case file and prepare case for assignment and processing. The original application is to be mailed to the 637 Registration Group.

  4. If an excise field employee receives a Form 637 application during an examination, the excise field employee will scan and send via secure e-mail to their designated LT who will create the 637 IMS case file, prepare the case for assignment on IMS, and establish the case on ERCS.

  5. If an excise field employee determines during an excise tax examination that the taxpayer’s 637 file should be reviewed or updated, the excise field employee must contact their group manager for concurrence and approval to review the 637 file. Upon approval, the field group manager or excise field employee should then contact the LT that is assigned to their territory. The LT will assign the 637 IMS case file to the field group manager's IMS queue and establish ERCS control. The field group manager must then assign the 637 IMS case file to the excise field employee.

  6. The field group manager will ensure that the excise field employee determination to approve or continue a registration is adequately supported. Form 9984 will be documented to show the manager's review of the file and their concurrence with the excise field employee recommendation. Form 9984 will be uploaded into the IMS 637 case file.

  7. All excise field group compliance reviews will be closed off ERCS (Status 90) before closing the IMS 637 case file to the 637 Registration Group.

4.24.2.6.1  (08-06-2012)
Taxpayer Advocate Service (TAS) Referrals and Inquiries

  1. When inquiries are received from TAS concerning initial Form 637 registration applications about which no determination has been made, but the applicant requests that the application be expedited, the field group manager will review the facts and circumstances surrounding the case and make a determination if the application should be expedited. The review should include discussions with the 637 Registration Group Manager. Factors to consider include, but are not limited to, the following:

    1. What hardship would the applicant suffer should the application not be expedited?

    2. When was the application filed and how long has the application been in process?

    3. Is there a pending deadline that must be met?

    4. What case actions have occurred to date?

    5. What is the reason for the delay?

  2. If the case should be expedited, the 637 Registration Group Manager will issue the registration number and forward case to the field group manager for a final determination. The field group manager will direct the excise field employee to complete the case and forward to the 637 Registration Group with the field's group recommendation. The excise field group will be responsible for communicating the results of the decision to the applicant.

  3. If the inquiry originates directly from the taxpayer via the Excise Tax Hotline, the Lead Tech (LT) should contact the assigned group manager and the 637 Registration Group Manager within two business days of the taxpayer call to provide the taxpayer’s name, EIN and contact information.

4.24.2.7  (08-06-2012)
Excise Field Group Registration Review Procedures

  1. All technical analyses and determinations of Form 637 compliance reviews (initial applications, sample reviews, or discretionary reviews) will be performed by an excise tax-trained employee.

  2. All initial 637 applications must be completed within 60 days from assignment of the case to the excise field group manager on ERCS.

  3. All Form 637 compliance review cases will be:

    1. assigned,

    2. worked,

    3. recommendations made,

    4. reviewed and recommendations approved or disapproved by the field group manager, and

    5. forwarded to the 637 Registration Group electronically to issue the appropriate registration letters.

  4. Form 9984, indicating the field group manager's review of the file and concurrence with the excise field employee's recommendation will be uploaded into the IMS 637 case file. The field group manager will close the case in ERCS to Status 90.

  5. A 637 compliance review is considered complete when the field group manager:

    1. approves the 637 IMS case file,

    2. updates the IMS Status to LT review to issue the appropriate registration letter to the applicant/registrant, and

    3. the 637 IMS case file has been closed off ERCS to Status 90.

  6. All Form 637 IMS case files assigned to excise field groups will be established on ERCS and contain the following tracking codes:

    • Tracking Code 7640, Initial Review

    • Tracking Code 7641, Sample Review

    • Tracking Code 7642, Discretionary Review

  7. All initial 637 applications will be reviewed for completeness to ensure all information required by the Form 637 instructions has been provided, and it is signed by a person with binding authority. Form 13499, 637 Registration Summary Sheet, will be completed on all initial applications.

  8. All 637 IMS case files will be documented with the appropriate registration tests for each activity the applicant has applied for, or for each activity the registrant is approved for, via Form 13499-C, Current 637 Recommendation, and uploaded into the 637 IMS case file.

  9. The excise field employee will prepare Letter 3696, Results of 637 Compliance Review, at the conclusion of each sample or discretionary review.

  10. The excise field employee will scan and uploaded Letter 3696 into the IMS 637 case file. The 637 Registration Group will sign and mail Letter 3696.

  11. Internal controls must be analyzed and documented to show the effectiveness and efficiency of the business operations and the strengths, weaknesses and reliability of the applicant’s /registrant’s financial reporting. For certain activities, the excise field employee must verify that the applicant/registrant has adequate resources and proper internal controls to ensure the collection of and payment of tax.

  12. Financial analysis is a picture of the business in dollars and cents. It shows levels of risks, measures business performance, and enables the excise field employee to make informed decisions on the health of the business. Excise field employees have available a variety of financial ratios for this analysis and must document the methods used. A decision on the financial analysis of the applicant/registrant cannot be made independently from the analysis of internal controls. The excise field employee must consider at a minimum the applicant’s/registrant’s past payment history for tax liabilities.

    Note:

    Special attention should be given to the applicant’s/registrant’s (and related person’s) past treatment of employment tax liabilities. No applicant/registrant with outstanding Federal Tax liabilities that are not fully addressed, regardless of abstract should be granted a new registration or continuation of an existing registration. The excise field employee should endeavor to bring the taxpayer into compliance by securing any unpaid liabilities or by securing any delinquent returns.

  13. The excise field employee will explain to the applicant/registrant about:

    1. The purpose of the registration and how to use it, i.e., that a registration is required to conduct certain business transactions free of Federal Excise Tax, at a reduced rate of tax, or in order to file certain claims or refund of tax.

    2. The use and maintenance of exemption certificates that applies to the applicant/registrant. That the exemption certificate must be accepted in good faith and must be secured prior to entry into the exempt transaction and/or filing a claim for credit and/or refund. If not, the taxation of those items, or disallowance of the claims related to those transactions may occur. That any form of exemption certificate is acceptable if it includes all the information required to be contained in such a certificate by the pertinent sections of the tax law.

    3. Examples of the applicable exemption certificate(s) required by/for the applicant/registrant to conduct transactions for which they are registered may be found in the Treasury Regulations, IRS Notices, and Pub 510, Excise Taxes. The excise field employee may provide copies as warranted.

    4. The terms and conditions of registration as noted on Pub 5039. The excise field employee will stress that if the terms and conditions of registration are not adhered to, the registration is subject to revocation or suspension.

  14. The excise field employee will discuss the filing, payment, reporting, and/or deposit requirements for:

    • Form 720, Quarterly Federal Excise Tax Return,

    • Form 8849, Claim for Refund of Excise Taxes,

    • Form 4136, Credit for Federal Tax Paid on Fuels, and

    • Form 720-TO, Terminal Operator Report and

    • Form 720-CS, Carrier Summary Report.

  15. The excise field employee will explain to the applicant/registrant that a follow-up compliance review could be conducted in the future. The purpose of the follow-up review is to determine if the registration tests are still being met. A follow-up review includes, but is not limited to:

    • inspection of exemption certificates,

    • inspection of returns filed,

    • analyzing internal controls,

    • performing a current financial analysis, and/or

    • obtaining and/or reviewing other pertinent information related to the business and business operations.

  16. The excise field employee will provide the applicant/registrant the IRS web site for obtaining a copy of Pub 510http://www.irs.gov/formspubs/index.html?portlet=3 and discuss the applicable section(s) including any excise tax law updates applicable to the registrant. The excise field employee shall fully answer any relevant questions posed by the applicant/registrant.

4.24.2.7.1  (08-06-2012)
Action on the Initial Application and Approval

  1. After the excise field employee reviews an initial application for registration and makes an on-site visit (if necessary), they must then recommend approval or denial of the application.

  2. When the excise field employee reviewing the Form 637 application has determined that the applicant meets all the appropriate registration tests, and a letter of registration should be issued, the excise field employee will:

    1. Complete Form 13499-C and include a written narrative summarizing the applicant’s business activity and the appropriate registration tests for each activity. If a bond is required, and a surety bond is used, a registration will not be issued before receipt of a letter from the surety company certifying a bond has been issued to the applicant.

    2. Make a recommendation to approve registration in the 637 IMS case file before sending the case to the field group manager for their review.

  3. The field group manager will document on Form 9984 that they have completed a review of the file and concur with the excise field employee’s recommendation. The field group manager will upload Form 9984 into the 637 IMS case file. The 637 IMS case file will be forwarded to the LT for issuance of Letter 3689, Letter of Registration.

  4. One national registration number with approved activity letters will be issued to each registrant. Multiple registration numbers will not be issued. If the applicant is already registered for other activities and has an old registration number, the excise field employee must inform the registrant that a new national registration number will be issued. The excise field employee will inform the registrant to discontinue the use of any previously approved registration number(s) once their national registration number is received. If a registrant already has a national registration number, any additional activity letters approved will be added to the end of the approved registration number.

  5. If a person later qualifies for registration for activities not covered by its current approved registration number, a Form 637 application must be submitted with the additional activity letter(s) for approval. An updated letter of registration will be issued to reflect the additional activity letter(s).

  6. When an excise field employee determines that a person did not apply for the correct activity, but qualifies for an activity listed on the Form 637 application, a Form 637 application with the correct activity must be secured and scanned into the 637 IMS case file.

  7. The correct application is e-mailed to the designated 637 Registration Group LT. The LT will upload the application and add the correct activity in the 637 IMS case file when the 637 IMS case file closes from the excise field group.

  8. Form 637 indicators must be input on Master File for all approved registrations. Form 2363, Master File Entity Change, must be completed and input by the designated person in the 637 Registration Group. If this command is not in the IDRS profile of the designated person in the 637 Registration Group, the Form 2363 is to be forwarded to CSTO for input. The 637 IMS case file will be documented via Form 9984 that this procedure was completed.

4.24.2.7.2  (08-06-2012)
Denials and Revocations

  1. If the excise field employee determines that an applicant or registrant, including a related person:

    1. does not meet one or more of the applicable registration tests, or

    2. the applicant has not responded to a request for additional information,

    the application should be denied or the registration should be revoked.

  2. Reasons for denial or revocation of registration:

    1. Information not provided. The applicant or registrant has not responded within thirty (30) calendar days to a request for additional information relating to its application or registration.

    2. Activity test not met. The applicant or registrant is not engaged in the appropriate trade or business to receive or continue the registration for the activity letter for which the applicant applied or is registered.

    3. Adequate security test not met. The applicant or registrant (including any related person) did not have a satisfactory tax history and/or adequate financial resources.

    4. Acceptable risk test not met. The applicant or registrant (including any related person) has been penalized for a wrongful act and poses a significant risk of nonpayment or late payment of the tax imposed by IRC 4041(a)(1) and 4081.

  3. The following procedures will apply in cases where the applicant/registrant requests withdrawal of an application, revocation of an approved registration, concurs with the excise field employee’s determination to deny the application, or revoke their approved registration:

    1. The excise field employee will obtain applicant/registrant concurrence in writing (an e-mail from the applicant/registrant is sufficient) to the action. The excise field employee will complete Form 13499-C and upload both the written concurrence and Form 13499-C into the IMS 637 case file.

    2. The excise field employee will recommend the issuance of Letter 3685 or Letter 3691.

    3. A LT will be designated within the 637 Registration Group to review all denials or revocations. If the documentation is sufficient to show the registrant has agreed to the denial or revocation, the designated LT will process the denial or revocation and ensure that the appropriate letter is issued.

  4. In cases where the excise field employee is unable to locate a 637 registrant to conduct a compliance review or a Form 720 examination, and has exhausted all available avenues to locate the taxpayer, such as, IDRS, CBRS, Accruint, telephone directories, and the excise field employee proposes to revoke the registration, the following procedures will apply:

    1. Excise field employee will complete Form 13499-C and Form 9984 documenting their actions to locate the 637 registrant.

    2. Excise field employee will upload the forms into the 637 IMS case file.

    3. The field group manager will document the Form 9984 with their concurrence to revoke the approved registration.

    4. The field group manager will forward the 637 IMS case file to the designated LT as in (3)(c) above for revocation and removal of the 637 indicator.

    5. the designated LT will review the 637 IMS case file and forward the revocation recommendation to the 637 Registration Group Manager for concurrence with the excise field employee decision. If approved the designated LT will process the revocation and will ensure that the appropriate letter is issued.

  5. In cases where the excise field employee proposes to deny an application or revoke an approved registration, and the registrant does not agree with the denial or revocation, the 637 Registration Group will review the field's determination. The following procedures will apply:

    1. The excise field employee will complete Form 13499-C and include a write-up, in an unagreed format. The format shall include the facts summarizing the reason(s) why the application is being denied or registration is being revoked, tax law and argument, registrant’s position, and final conclusion. The excise field employee write-up will be enclosed with the denial or revocation letter. Form 13499-C and write-up will be uploaded into the 637 IMS case file.

    2. The excise field employee will prepare Letter 3685 or 3691, notating the reason(s) for the denial or revocation and upload the letter into the 637 IMS case file.

    3. The field group manager will review the 637 IMS case file and determine if they are in agreement with the excise field employee's determination to deny the application or revoke the registration. The field group manager will document Form 9984, indicating that they have reviewed the file and concurrence with the excise field employee recommendation. The field group manager will upload Form 9984 into the 637 IMS case file. After approval by the field group manager, the IMS 637 case file will be forwarded to the LT.

    4. The designated LT will be responsible for reviewing the 637 IMS case file and forwarding their recommendation, on Form 9984, to the 637 Registration Group Manager. The LT will upload Form 9984 into the 637 IMS case file.

    5. The 637 Registration Group Manager will review the 637 IMS case file and document Form 9984. If the 637 Registration Group Manager concurs with the denial or revocation, the 637 IMS case file will be forwarded to LT to update the 637 IMS case file status to denied or revoked and to issue the denial or revocation letter along with a copy of the excise field employee's write-up. The LT will also remove the 637 indicator (if applicable).

    6. If after reviewing the 637 IMS case file, the 637 Registration Group Manager does not concur with the denial or revocation, and believes the registration should be granted or continued, a concurrence meeting should be held with the excise territory manager. If both parties agree, the registration will be granted or continued. However; if both parties are not at in agreement, the Chief, Excise Tax Program will make the final determination.

  6. The registrant will have 10 days from the date of the denial or revocation letter to submit a written appeal of their decision. After the 10 days, the registrant will have to reapply for registration.

  7. Contested denials or revocations are denials or revocations where the registrant objects in writing to the denial of their application or the revocation of their registration, and has provided a written appeal within 10 days from the date the Letter 3685 or 3691 was issued.

  8. The Chief, Excise Tax Program is authorized to sign Letter 3684, Denial of Appeal for Registration or Letter 3690, Letter of Revocation-Contested.

  9. Procedures for contested denials or revocations of registration:

    1. If a registrant appeals a denial or revocation, the LT will document the receipt of the registrant’s appeal on Form 9984, and upload the Form 9984 and appeal into the 637 IMS case file. The 637 IMS case file will be forwarded to the 637 Registration Group Manager to review prior to meeting with the Chief, Excise Tax Program.

    2. If the Chief, Excise Tax Program concurs with the denial or revocation, the registrant will be issued a letter in writing denying their appeal for registration. The 637 IMS case file will be forwarded to the LT to prepare and issue the appropriate letter, either Letter 3684 or 3690. The registrant’s 637 registration status on IMS will remain denied or revoked. The LT will upload the Letter 3684 or 3690 into the 637 IMS case file.

    3. If the Chief, Excise Tax Program determines the registration should be granted or reinstated, the 637 IMS case file will be returned to the LT to update the IMS 637 registration status to approved. The LT will issue a letter of registration, and input the 637 indicator. The LT will document the Form 9984 and upload the Form 9984 and letter of registration into the 637 IMS case file.

  10. The 637 Registration Group Manager will maintain a list of all applicants or registrants that contest the denial or revocation of their registration.

  11. In both non-contested and contested revocations, Form 2363 will be used to remove the 637 registration indicator from Master File. The 637 IMS case file must be documented that this procedure was performed.

4.24.2.7.3  (08-06-2012)
Follow-up Compliance Review Actions After Approval of Registration

  1. After a person has been registered, the Chief, Excise Tax Program, is responsible for ensuring the registrant is using the registration properly and is complying with the terms and conditions of its registration including meeting the appropriate registration tests for all filing, payment, deposit, reporting, and claim requirements.

    1. See Treas. Reg. Section 48.4101-1(h) for the terms and conditions of registrants for activities governed by IRC 4101. See IRM 4.24.2.7.4.1 for registration tests.

    2. See Treas. Reg. Section 48.4222(a)-1, 48.4222(b)-1, and 48.4222(c)-1 for terms and conditions of registrants for activities that are governed by IRC 4222. See IRM 4.24.2.7.5.1. for registration tests.

    3. See Treas. Reg. Section 52.4682-5 for terms and conditions for activity V. See IRM 4.24.2.7.5.1 for registration tests.

  2. The 637 Registration Group Manager randomly selects a sample of Form 637 registrants for compliance reviews that the excise field groups must complete each year.

  3. The field group manager will be responsible to ensure that all sample compliance reviews are completed by fiscal year end.

  4. Each sample compliance review may require an on-site visitation.

  5. All 637 IMS case files must be documented thoroughly. The excise field employee conducting the compliance review will document the Form 9984 with all registrant contacts. The 637 IMS case file will be documented sufficiently to show what was done during the review. The excise field employee must follow the excise group registration review procedures found in IRM 4.24.2.7.

  6. The excise field employee will review the 637 IMS case file, perform IDRS and CBRS research, and review any other relevant internal documents. Exemption certificates must be inspected to ensure compliance is being met for the purpose of the registrant continuing their registration. The excise field employee performing the review will document their findings, any follow-up actions, and record their determination on Form 13499-C.

  7. The territory manager and/or field group manager may select other 637 registrants for review (discretionary reviews) as needed other than those activities deemed to be correspondence compliance reviews by the 637 Registration Group. If facts and circumstances warrant, discretionary reviews may be performed more frequently or as determined by management. The field group will notify the LT to assign the IMS 637 case file and establish ERCS control.

  8. The registrant will receive Letter 3696, Results of 637 Compliance Review, summarizing the compliance review and indicating if any deficiencies were found. If deficiencies were found, they will be notated. The excise field employee will prepare and upload Letter 3696 into the 637 IMS case file. The LT will mail Letter 3696 after the field group manager’s review of the 637 IMS case file.

4.24.2.7.4  (08-06-2012)
Applications under Section 4101

  1. The description of the activities governed by Section 4101 and Treas. Reg. §48.4101-1 are listed in the table below: These activities are K, M, S, AB, AF, AL, AM, BC, CB, CC, NB, UA, UB, UP, UV, X, and Y.

    Activity Letter Description
    K Buyer of kerosene for a feedstock purpose. The kerosene tax on kerosene does not apply if, among other conditions, the buyer of the kerosene for feedstock purposes is registered.
    M Blender of gasoline, diesel fuel (including a diesel-water fuel emulsion), or kerosene, producing a taxable fuel outside the bulk transfer/terminal system, including blenders of alcohol fuel mixtures, biodiesel mixtures, and renewable diesel mixtures. Registration as a blender does not allow a person to buy any fuel tax-free; however, a blender will be required to file Form 720.
    S Enterer, position holder, refiner, terminal operator, or throughputter of gasoline, diesel fuel (including a diesel-water fuel emulsion), or kerosene, or industrial user of gasoline. Each enterer, refiner, position holder, terminal operator, and throughputter (that is a position holder) is required to be registered.
    X Pipeline Operator or Vessel Operator. Registration does not allow this person to buy any taxable fuel tax-free. Registration of pipeline and vessel operators allows the IRS to identify persons that transport taxable fuel within the bulk transfer/terminal system.
    Y Buyer of kerosene for use in commercial aviation (other than in foreign trade). The term "commercial aviation " means any use of an aircraft in a business of transporting persons or property for compensation or hire by air, unless properly allowable to any transportation exempt from the taxes imposed by sections 4261 and 4271 by reason of section 4281 or 4282 or by reason of subsection (h) or (i) of section 4261.
    AB Producers and Importers of agri-biodesel.
    AF Producers and Importers of alcohol.
    AL Alternative Fueler that sells for use or uses alternative fuel as a fuel in a motor vehicle or motorboat.
    AM Alternative Fueler that produces an alternative fuel mixture that is sold for use or used in the alternative fueler’s trade or business.
    CB Producers of cellulosic biofuel. The Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) amends the definition of cellulosic biofuel, effective for fuels sold or used after December 31, 2009. Under the amendment, the cellulosic biofuel producer credit ceases to be available for fuels containing significant water, sediment, or ash content, such as black liquor. Thus, no credit is allowable under IRC section 40(b)(6) for black liquor sold or used after December 31, 2009.
    CC Credit Card Issuer that issues credit cards for sales of taxable fuel to a state or local government for its exclusive use or for sales of gasoline to a nonprofit educational organization for its exclusive use.
    NB Producers and Importers of biodiesel (other than agri-biodiesel) and renewable diesel.
    UA Ultimate Vendor that sells aviation-grade kerosene for use in aviation.
    UB Ultimate Vendor that sells undyed diesel fuel or undyed kerosene for use in certain intercity and local buses.
    UP Ultimate vendor that sells kerosene from a blocked pump.
    UV Ultimate Vendor that sells (a) undyed diesel fuel or undyed kerosene to a state or local government for its exclusive use, or (b) gasoline (including aviation gasoline) to a state or local government for its exclusive use or to a nonprofit educational organization for its exclusive use.

  2. The Form 637 does not have an activity letter for a Qualified Retailer in Alaska and none of the registrations are on IMS. Treas. Reg. §48.4082-5 provides a special rule relating to diesel fuel and kerosene taxes in Alaska. This rule applies to diesel fuel or kerosene removed, entered, or sold in Alaska for ultimate sale or use in an exempt area of Alaska. This rule, generally allows a qualified dealer to buy undyed diesel fuel and undyed kerosene tax-free for resale. Under the regulations, a qualified dealer is any person (generally a wholesale distributor) that holds a qualified dealer license from the state of Alaska or has been registered by the IRS as a qualified retailer.

4.24.2.7.4.1  (08-06-2012)
Registration Tests

  1. Registration tests are defined in Treas. Reg. 48.4101-1(f) and are summarized below.

  2. Activity Test. An applicant meets the activity test only if it is determined that the applicant is, in the course of its trade or business:

    • regularly engaged as or in the characteristic activity of a person described above in IRM 4.24.2.7.4, or

    • is likely to be in the course of its trade or business, regularly engaged as or in the characteristic activity of a person described above in IRM 4.24.2.7.4 within a reasonable time after becoming registered.

    A review of the applicant’s business operations will be made to verify that the applicant is regularly engaged, or will be regularly engaged, within a reasonable time, in the activity for which the registration is being requested. Some examples of items that may be inspected include contracts or agreements, copies of Form 720, and state licenses. If necessary, customers and suppliers of the applicant may be contacted via third party procedures

  3. Acceptable Risk Test. An applicant meets the acceptable risk test only if it is determined that:

    • neither the applicant nor a related person has been penalized for a wrongful act, or

    • even though the applicant or a related person has been penalized for a wrongful act, the Chief, Excise Tax Program or delegate determines, after review of evidence offered by the applicant, that the registration of the applicant does not create a significant risk of nonpayment or late payment of the tax imposed by IRC 4041(a)(1) and 4081.

  4. In making the determination whether an applicant does not create a significant risk of nonpayment or late payment of tax, the Chief, Excise Tax Program or delegate may consider factors such as:

    • The time elapsed since the applicant or related person was penalized for a wrongful act.

    • The present relationship between the applicant and any related person that was penalized for any wrongful act.

    • The degree of rehabilitation of the person penalized for any wrongful act.

    • The amount of bond given by the applicant.

      Note:

      The Chief, Excise Tax Program or delegate may accept a bond without regard to the limits on the amount of the bond as defined in Treas Reg. 4101-1(j)(2). See IRM 4.24.2.7.4.3 for bonding information.

  5. Adequate Security Test. An applicant meets the adequate security test only if it is determined that the applicant has:

    • both adequate financial resources and a satisfactory tax history, or

    • the applicant posts a bond.

  6. An applicant has adequate financial resources only if it is determined that the applicant is financially capable of paying:

    • Its expected tax liability under IRC 4041(a)(1) and 4081 for a representative 6 month period as determined by the Chief, Excise Tax Program or delegate.

    • In the case of a terminal operator, the expected tax liability under IRC 4081 of persons other than the terminal operator with respect to taxable fuel removed at the racks of its terminals during a representative 1 month period as determined by the Chief, Excise Tax Program or delegate.

  7. The determination of whether an applicant has adequate financial resources must be based on financial information such as the applicant’s income statement, balance sheet or bond ratings, or other information related to the applicants financial status.

  8. Satisfactory Tax History. An applicant has a satisfactory tax history only if:

    • the Chief, Excise Tax Program or delegate is satisfied with the filing, deposit, payment, reporting, and claim history for all federal taxes of the applicant and any related person (as defined in (9) below.

    Complete transcripts or other equivalent research will be used for this purpose.

  9. A related person is a person that:

    1. Directly or indirectly exercises control over an activity of the applicant if the activity is described in paragraph (c)(1) or (d) of Treas. Reg 48.4801-1.

    2. Owns, directly or indirectly, five percent or more of the applicant.

    3. Is under a duty to assure the payment of a tax for which the applicant is responsible.

    4. Is a member, with the applicant, of a group of organizations as defined in Treas. Reg. 1.52-1(b) that would be treated as a group of trades or businesses under common control for purposes of Treas. Reg. 1.52-1.

    5. Distributed or transferred assets to the applicant in a transaction in which the applicant's basis in the assets is determined by reference to the basis of the assets in the hands of the distributor or transferor.

  10. An applicant will be registered for activities K, M, and S, only if it is determined that the applicant meets:

    • the activity test,

    • the acceptable risk test, and

    • the adequate security test.

    These tests are found in Treas. Reg. 48.4101-1(f). The 637 IMS case file will be assigned to an excise field employee to determine if the applicant meets all three registration tests.

  11. An applicant will be registered for activities as an AB, AF, AL, AM, BC, CC, NB, UA, UB, UP, UV, X, Y, and CB only if it is determined that the applicant meets:

    • the activity test and

    • has satisfactory tax history.

  12. In addition to the registration tests discussed in (11) above, the excise field employee must determine that biodiesel producer applicants and registrants (AB or NB applicants and registrants) are adhering to the ASTM requirement for biodiesel. AB and NB applicants must also meet the requirements of IRC 40A(d)(1) which defines biodiesel as the monoalkyl esters of long chain fatty acids derived from plant or animal matter which meet the following:

    1. the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under Section 211 of the Clean Air Act (42 USC. 7545), and

    2. the requirements of the American Society of Testing and Materials D6751 for biodiesel.

  13. A sample of B100 produced is required for testing for the ASTM standard. Fuel Compliance Officers (FCO) or Fuel Compliance Agents (FCA) must be used to obtain biodiesel samples from the biodiesel producer/importer applicant during the initial registration process. Procedures to request FCO/FCA services can be found at IRM 4.24.15.13.1(2). The results of biodiesel samples obtained by FCO/FCA will support efforts in determining if the applicant meets the requirements of IRC 40A(d)(1).

  14. Approval of registration for AB and NB applicants will be granted only if the results from the lab test are positive, i.e., the biodiesel samples submitted by the applicant met the ASTM standard.

  15. Use of fuel in foreign trade. A buyer of aviation-grade kerosene fuel for use in foreign trade does not need to be registered to buy aviation fuel tax-free for that purpose. See Section 4(e) of Notice 2005-04, I.R.B. 2005-2 (December 15, 2004).

  16. Specific rule for qualified fuel sales in Alaska. Treas. Reg. Section 48.4082-5(b) provides that the Chief, Excise Tax Program or delegate will register a person as a qualified retailer only if the following requirements are met:

    1. If it is determined that the person, in the course of its trade or business, regularly sells diesel fuel or kerosene for use by its buyer in a nontaxable use.

    2. If the person has satisfied the filing, deposit, payment, and claim history for all federal taxes of the person and any related person.

      Note:

      Treas. Reg. §48.4101-1 does not address qualified retailers. Treas. Reg. 48.4082-5(f) provides that each person that has been registered as a qualified retailer, the rules of Treas. Reg. 48.4101-1(g), (h), and (i) apply.

4.24.2.7.4.2  (08-06-2012)
Visiting Applicants

  1. It is required that a compliance visit by an excise field employee be made to the principal business location of the applicant for activities K, M, and S.

  2. A compliance visit by an excise field employee may be warranted to the principal business location of the applicant for activities AB, AF, AL, AM, NB, X and Y.

  3. Compliance visits by excise field employees are not required for a Qualified Retailer in Alaska. All 637 applications and registrants are managed and administrated by the Portland Oregon excise tax office.

4.24.2.7.4.3  (08-06-2012)
Bonds

  1. Activities M, K, and S are subject to bonding.

  2. Bonds and liens. Under IRC 4101(b)(1), as a condition of permitting any person to be registered under IRC 4101(a), the Chief, Excise Tax Program or delegate may require such person to give a bond and agree to a lien on their property in order to meet the acceptable risk test or the adequate security test. Persons that fail to meet the acceptable risk test or the adequate security test may post bond as a condition of registration.

  3. When a bond is required. A bond is required when the applicant or registrant:

    1. Does not have adequate financial resources.

    2. The applicant or registrant, (or any related person), does not have a satisfactory tax history.

    3. The applicant or registrant, (or any related person), does not have a tax history.

    4. The applicant or registrant, (or any related person), has been penalized for a wrongful act or creates a significant risk of nonpayment or late payment of the tax imposed by IRC 4041(a)(1) and 4081.

    The excise field employee may recommend that the applicant give a bond and agree to a lien on their property as a condition of registration.

  4. Amount of bond. A bond must be in an amount that is determined to ensure timely collection of taxes imposed under IRC 4041(a)(1) and 4081. Generally, for the adequate security test, the amount of the bond is determined by taking into account the person’s financial capabilities, tax history and expected tax liabilities under IRC 4041(a)(1) and 4081. The amount of an existing bond may be increased or decreased to take into account changes in the registrant’s financial capabilities, tax history, and expected liability under IRC 4041(a)(1) and 4081. In no case, however, may the amount of the bond be greater than the amount of:

    1. The person’s expected tax liability under IRC 4041(a)(1) and 4081 for a representative six month period.

    2. For a terminal operator, the expected liability of persons other than the terminal operator with respect to taxable fuel removed at the racks of its terminals during a representative one month period.

    Note:

    The amount of a bond given for the acceptable risk test does not have limits.

  5. Types of Bonds. The following types of bonds may be accepted:

    1. A public debt obligation of the United States Government.

    2. An obligation the principal and interest of which are unconditionally guaranteed by the United State Government.

    3. A bond executed by a surety company listed in Department of the Treasury Circular 570, as an acceptable surety or reinsurer of federal bonds. Circular 570, which may be found at http://fms.treas.gov/c570/c570_a-z.html, is usually printed each year in the July 1 edition of the Federal Register.

    4. Any other bond with security including liens under IRC 4101(b)(1)(B) considered acceptable by the Chief, Excise Tax Program or delegate.

  6. Procedures for Surety Bonds. The excise field group manager must obtain a letter from the surety company certifying that the applicant is bonded with their company. The letter shall verify that the bond is payable to the United States Treasury and is not revocable by the registrant without prior notification by the surety company to the field group manager. The original surety bond remains with the field group manager. A copy of the bond will be uploaded into the registrant 637 IMS case file.

  7. Collection of Taxes from Bonds. If a bonded registrant does not pay the amount of tax it incurs under IRC 4041(a)(1) or 4081 by the time prescribed in IRC 6151 for paying that tax, the IRS may collect the amount of the unpaid tax (including penalties and interest with respect to that tax) from the bonded registrant's bond.

  8. Determination that a Bond is No Longer Required. If it is determined that a bonded registrant subsequently meets the adequate security test or acceptable risk test without a bond, the bond obligation is released. A copy of the letter that was issued to the registrant must be uploaded to the registrant 637 IMS case file.

  9. Termination of Surety bond. A surety on a bond may give written notice to the Chief, Excise Tax Program and the bonded registrant that the surety desires to be relieved of liability under the bond after a certain date, which date must be at least 60 days after the receipt of the notice by the Chief, Excise Tax Program. The surety will be relieved of any liability that the bonded registrant incurs after the date named in the notice. However, the surety remains liable for the amount of tax that the bonded registrant incurred under IRC 4041(a)(1) and 4081 during the term of the bond and for penalties and interest with respect to that tax.

  10. Other bond terminations. A bond (other than a surety bond) may be returned to the bonded registrant only after the earlier of:

    • The date that the Chief, Excise Tax Program determines that the bonded registrant has paid all taxes that the bonded registrant incurred under IRC 4041(a)(1) and 4081 during the period covered by the bond and any penalties and interest with respect to the taxes.

    • The expiration of the period for assessment of the taxes that the bonded registrant incurred under IRC 4041(a)(1) and 4081 during the period covered by the bond, as determined under the provisions of subchapter A of chapter 66 of the Internal Revenue Code.

    • The date that the Chief, Excise Tax Program receives from the registrant a substitute bond.

  11. Lien discharges. If a lien is imposed, the Secretary shall issue a certificate of discharge or a release of such lien in connection with a transfer of the property if:

    1. there is furnished to the Secretary (and accepted by him) a bond in such sum as the Secretary determines appropriate or

    2. the transferor agrees to the imposition of a substitute lien under IRC 4101)(1)(B) in such sum as the Secretary determines appropriate.

    The Secretary shall respond to any request to discharge or release a lien imposed above in connection with a transfer of property not later than 90 days after the date the request for such a discharge or release is made.

4.24.2.7.5  (08-06-2012)
Applications under Sections 4222 and 4682

  1. The description of the activities governed by IRC 4222 and Treas. Reg. 48.4222(a)-1, 48.2222(b)-1 and 48.4222(c)-1) are listed in the table below. These activities are A, B, C, D, E, F, I, and Q.

  2. The description of the activity "V" is governed by Treas. Reg. Section 52.4682-5 and is also listed in the table below.

    Activity Letter Description
    A Manufacturer of gas-guzzler automobiles, sport fishing equipment (including fishing rods and fishing poles), fishing tackle boxes, bows, quivers, broadheads, points, arrow shafts, taxable tires, or vaccines.
    B Buyer of sport fishing equipment, gas-guzzler automobiles, bows, arrow components, or vaccines for further manufacture or for resale to a buyer for further manufacture.
    C Buyer of tires for use on or in connection with the sale of another article the buyer manufacturers and sells (1) for export, (2) to state and local governments, (3) to nonprofit educational organizations, or (4) as supplies for vessels or aircraft.
    D Buyer with a place of business in the United State buying vaccines, gas guzzler automobiles, tires, sport fishing equipment, bows, arrow components, or luxury passenger vehicles for export or for resale to a second purchaser for export.
    E Buyer (other than state or local government) of gas guzzler automobiles for ambulance, law enforcement, or fire fighting.
    F Nonprofit educational organization, other than a public school, buying tires, certain heavy vehicles, sport fishing equipment, bows, or arrow components for its exclusive use, intercity, local or school bus.
    I Buyer (other than nonprofit educational organization or state or local government) of tires for use on certain intercity, local or school buses.
    Q First retail seller of certain heavy vehicles making tax-free sales. See Note below.
    V Manufacturer, importer, or buyer of ozone-depleting chemicals (ODC’s) for export.

    Note:

    Heavy vehicle retailers that make tax free sales listed in IRC 4221(a) must be registered as a Q registrant prior to making such tax free sales. Thus, IRC 4222 registration requirements continue to apply to heavy vehicle retailers that sell to persons described in IRC 4221(a). Also, retailers that make occasional sales to one of the persons described in IRC 4221(a) must be registered to make the sale tax free. Heavy vehicle retailers that make sales to persons described in IRC 4221(a) should not be denied registration solely on the basis of prior inactivity in making such sales.

4.24.2.7.5.1  (08-06-2012)
Registration Tests for Sections 4222 and 4662 Activities

  1. An applicant will be registered for activities A, B, C, D, E, F, I, Q, and V, only if it is determined that: the applicant meets:

    1. the activity test, and

    2. has satisfactory filing, deposit, payment, and claim history for all federal taxes of the applicant and any related person (as defined in Treas. Reg. 48.4101-1(b)(5)).

  2. See IRM 4.24.2.4.1(2) for description of activity test and table above for characteristic activities.

  3. See IRM 4.24.2.7.4.1(8) for description of satisfactory tax history.

4.24.2.7.5.2  (08-06-2012)
Visiting Applicants

  1. A field visit by an excise field employee may be warranted to the principal business location of applicants for activities A, B, Q, and V.

4.24.2.7.5.3  (08-06-2012)
Bonds

  1. A, B, C, D, E, F, I, Q, and V registrants are not subject to bonding.

4.24.2.7.6  (08-06-2012)
Relationship Between Compliance Reviews and Examinations

  1. If an applicant/registrant’s books and records are inspected for a filed, delinquent, or potentially delinquent return, an examination has been initiated and appropriate examination procedures will be followed.

  2. Inspection of books and records for periods for which a return is not filed (excluding delinquent returns) is not an examination.

  3. Inspection of exemption certificates, contracts, financial statements, and other records not used in determining a tax liability is not an examination.

  4. Inspection of a filed return that does not involve an inspection of supporting books and records is not an examination.

4.24.2.8  (08-06-2012)
Examinations Resulting from 637 Compliance Reviews

  1. When substantial noncompliance is found during a compliance review, the excise field employee will expand the scope into an examination after receiving approval from their group manager. The excise field employee will submit a 637 ERCS Request to establish an examination case on the ERCS within three (3) business days. See Exhibit 4.24.2-2 for an example of this input form and description of fields required.

  2. It is the responsibility of the excise field employee and the field group manager to evaluate the examination information and determine whether the registration should be:

    • continued,

    • revoked, or

    • if a bond will be required to continue registration (for those suffixes which may be subject to a bond).

      Note:

      Not all suffixes are subject to a bond

      .

  3. If the decision is made to continue the registration, the registrant will be given a written letter, notating the deficiencies found. The excise field employee will prepare Letter 3696, Results of 637 Compliance Review, for the 637 case file, notating the deficiencies found and upload the letter into the 637 IMS case file. The field group manager’s approval will be notated on Form 9984 and uploaded into the 637 IMS case file. The 637 IMS case file will be closed to the LT to issue Letter 3696 and to upload into the 637 IMS case file.

  4. If the decision is made to revoke the registration, the excise field employee and field group manager will follow the procedures outlined in IRM 4.24.2.7.2, Denials and Revocations.

4.24.2.9  (08-06-2012)
Creating, Maintaining and Updating 637 Registration Files

  1. All Form 637 registration case files are created, maintained, and updated on IMS by the LT's in the 637 Registration Group.

  2. If a 637 application is received by the excise field group, the excise field employee will send the 637 application to the 637 Registration Group LT assigned to their territory via secured e-mail, who will create and assign the 637 file on IMS and ERCS. All 637 registration cases must be created on IMS by the 637 Registration Group LT

  3. All telephone contacts with registrants during the course of a review will be documented on Form 9984 and uploaded into the IMS 637 case file. All telephone contacts with registrants between compliance reviews will be documented on Form 9984 or via e-mail and forwarded to the LT to upload into the IMS 637 case file.

  4. Upon completion of any sample or discretionary review, or an examination which requires an update to the IMS 637 case file, a national registration number will be issued to those registrants who do not have a national number. The excise field employee will inform the registrant that a new national registration number will be issued to them. The excise field employee will include this information their recommendation.

4.24.2.10  (08-06-2012)
Overview of Actions, Including Adverse Actions, Relating to Registrants

  1. The delegation of authority and the procedures to follow for suspensions of registration are the same as the revocation of a registration. Wherever the word "revocation" is used in IRM 4.24.2.7.2, substitute the word suspension.

  2. If registrant disagrees, refer to IRM 4.24.2.7.2(5).

4.24.2.10.1  (08-06-2012)
Mandatory Revocation or Suspension Rules for Activities K, M, S, AB, AF, AL, AM, BC, CB, CC, NB, UA, UB, UP, UV, X, and Y

  1. The field group manager must revoke or temporarily suspend the registration of any person registered for activities above if it is determined that at any time the registrant:

    1. Does not meet one or more of the applicable registration tests described in Treas. Reg. Section 48.4101-1(f) and has not corrected the deficiency within a reasonable period of time after notification by the field group manager.

    2. Has used its registration to evade, or attempt to evade, the payment of any tax imposed by IRC 4041(a)(1) or 4081, or to postpone or in any manner to interfere with the collection of any such tax.

    3. Has used its registration to make a fraudulent claim for a credit or payment.

    4. Has aided or abetted another person in evading, or attempting to evade, payment of any tax imposed by IRC 4041(a)(1) or 4081, or in making a fraudulent claim for credit or payment.

    5. Has sold, leased, or otherwise allowed another person to use its registration.

    6. Fails to follow corrective actions for Notice CP 241. See IRM 4.24.2.16.3 for more information regarding the notice CP 241.

  2. The field group manager must revoke or suspend the registration of any person registered for activities AB and/or NB if it is determined that the results of biodiesel samples obtained by FCO or FCA during a compliance review is not positive and doesn’t meet the requirements of IRC 40A (d)(1) which defines biodiesel.

4.24.2.10.2  (08-06-2012)
Mandatory Revocation or Suspension Rules for Activities A, B, C, D, E, F, I, Q, and V,

  1. The field group manager must revoke or temporarily suspend the registration of any person registered for activities above if it is determined that at any time the registrant:

    1. Is not a bona fide manufacturer, or a purchaser reselling direct to manufacturers or exporters.

    2. Is for some other reason not eligible under these regulations to retain a Certificate of Registry.

    3. Has used their registration to avoid the payment of any tax imposed by chapter 32 of the Code, or to postpone or interfere in any manner with the collection of such tax.

    4. For A, B, C, D, E, F, I , and Q, registrants, the registrant has failed to comply with the requirement of paragraph (c) of Treas. Reg. Section 48.4221(a)-1, relating to the evidence required to support tax-free sales.

    5. Revocation or suspension is necessary to protect the revenue.

  2. For V registrants, the field group manager may revoke or temporarily suspend a registration if it is determined that the registrant failed to comply with Treas. Reg. 52.4682-5(d) and (e).

4.24.2.11  (08-06-2012)
Mandatory Revocation/Suspension Rules Applicable to All Registrants

  1. If the excise field employee determines that a registrant does not meet one or more of the applicable registration tests, the registrant’s registration may be revoked or temporarily suspended. The field group manager will review the file and determine if they are in agreement with the excise field employee’s determination. If the field group manager agrees, Letter 3691 will be sent to the applicant notating the basis for the revocation or suspension. The field group manager is authorized to sign the revocation or suspension letter. See IRM 4.24.2.7.2 for revocation procedures.

  2. See IRM 4.24.2.7.2(2) for reasons for revocation or suspension:

  3. Contested revocation or suspensions are revocation or suspensions where the applicant objects in writing to the determination. For unagreed and contested revocations or suspensions procedures, see IRM 4.24.2.7.2(5) and (9).

  4. The revocation or suspension of registration is in addition to any other penalty that may apply under the law for any act or failure to act.

4.24.2.12  (08-06-2012)
Issue Management System (IMS) 637 Electronic Registration Process

  1. The Form 637 Registration Program no longer maintains Modernized Excise Tax Registration Authentication System (ExTRAS) and has migrated to Issue Management System (IMS). All Form 637 registration case files are now maintained and monitored electronically utilizing IMS.

  2. The 637 IMS registration case files will contain scanned documents from the historical paper files.

  3. IMS is utilized by the field group manager to:

    1. assign,

    2. review,

    3. approve or disapprove the excise field employee’s recommendation,

    4. send back the IMS 637 case file to the excise field employee if warranted, and

    5. forward the IMS 637 case file to the 637 Registration Group LT for issuance of the appropriate registration letter.

  4. IMS is utilized by the 637 Registration Group LT to assign cases to the field group manager’s Queue or assign cases to a 637 Registration Group TE.

  5. IMS is utilized by the excise field employee to:

    1. review,

    2. work,

    3. make recommendations, and

    4. forward the IMS 637 case file to manager for approval.

  6. For specific guidelines for entering data, etc. into IMS, refer to the IMS and Notebook web page at http://mysbse.web.irs.gov/Specialty/excise/prog/imsnotebook/default.aspx.

4.24.2.13  (08-06-2012)
Recording Time Charged to the 637 Registration Program

  1. Time spent reviewing registrants and new applicants should be charged to Compliance Activity Code 588. AIMS control is not appropriate on these cases since there is no tax return involved. ERCS must be used to control applicants and registrants using MFT B0. The appropriate mandatory tracking codes listed below will be input on ERCS and IMS for monitoring purposes.

    • 7640 - Initial Review

    • 7641 - Sample Review

    • 7642 - Discretionary Review

  2. All 637 compliance reviews will use the current fiscal year and have a period of “01”.

  3. If a 637 compliance review results in an examination, the time recorded once the examination begins will be charged to the examination abstract. Project Code 637 will be used on all appropriate forms when establishing examination case controls and closing the examination case file.

    Note:

    No time should be charged to the 637 compliance review once the examination has started other than to close out the 637 compliance review.

4.24.2.14  (08-06-2012)
Form 637 Indicator on Business Master File (BMF)

  1. IDRS capability has been created to mark the Business Master File (BMF) with a 637 indicator for taxpayers who are registered.

4.24.2.14.1  (08-06-2012)
Purpose of the 637 Indicator

  1. The purpose of the 637 indicator is to aid in monitoring 637 registrants for compliance with registration requirements. Eleven conditions have been defined and are used to monitor registrants. See IRM 4.24.2.14.3(2) for description of these condition codes.

  2. When any of these conditions are met, a notice, referred to as a Notice CP 241 is generated indicating the registrant may no longer meet the registration requirements.

    Note:

    The Notice CP 241 monitoring system does not override the requirement to conduct periodic 637 compliance reviews. For example, registrants not required to file a Form 720 will not have an Excise Tax Form 720 filing and payment requirement.

4.24.2.14.2  (08-06-2012)
Procedures to Post or Delete 637 Indicator on BMF

  1. The procedures below are used to change the indicator on the BMF whenever a new applicant is registered or an existing registrant is to be deleted:

  2. The 637 Registration Group Manager or delegate will:

    1. Verify the accuracy of the TIN, applicant/registrant name, and name control.

    2. Ensure that the registrant is added to the Master File using "1" to turn the 637 indicator on or removed from Master File using "9" to turn the indicator off.

      Note:

      If the 637 Registration Group Manager or delegate has the necessary IDRS Command Codes BNCHG and ENREQ in their profile this can be accomplished without preparing Form 2363. Otherwise, Form 2363 must be prepared to effect the addition or removal of the 637 indicator.

  3. Where warranted, the Form 2363 is faxed to the Centralized Case Processing Unit in CSTO. The fax number may be found on the CCP web page at http://mysbse.web.irs.gov/AboutSBSE/aboutccs/ccsprog/casepro/cp/default.aspx.

  4. The 637 Registration Group Manager or delegate will use Command Codes ENMOD or BMFOLE to verify BMF is updated with the Form 2363 information.

  5. The 637 Registration Group Manager or delegate will document the 637 IMS case file with the BMF information.

4.24.2.14.3  (08-06-2012)
Use of Notice CP 241 by the Excise Tax Program

  1. Notice CP 241 is generated at CIRSC and mailed to the 637 Registration Group Manager. Notice CP 241 provides for monitoring of all activities on BMF concerning 637 registrants who have their indicator turned on in the BMF. The Notice CP 241 is generated weekly and only when one of the eleven conditions listed in (3) below is met. The condition printed on the notice identifies the reason the notice was generated.

  2. The Notice CP 241 must be reviewed by the 637 Registration Group Manager or delegate or a person with knowledge of the Form 637 program. The 637 Registration Group Manager or delegate will take the appropriate action as detailed 4.24.2.14.3(4) below.

  3. The eleven (11) conditions listed below are used to indicate that excise involvement may be required for the registrant account:

    • FTD PENALTY ASSESSED. The deposit penalty can be for any type of tax including income, excise or employment. The BMF indicator for the return for which a deposit was not made is listed in the information section of the notice.

    • RETURN NOT FILED. Failure to file a return of any type. This indicator is designed to protect unpaid taxes in a delinquency situation. The BMF indicator for the type of return not filed is indicated in the information section of the notice.

    • FORM 720 FILED-TAX OWING. Form 720 is filed reflecting a tax liability, but no payments or deposits have been made.

    • FORM 720 NO DEPOSITS. Form 720 was filed with full payment of tax liability with return, but the applicant/registrant is required to make deposits.

    • FINAL RETURN. Form 720 is filed noting "final return" .

    • DELINQUENCY-THIRD NOTICE. The registrant is in collection Status Code 56 and a third notice for payment has been issued. The delinquent taxes can be for any type of return. The form number and tax period are shown in the information section of the notice.

    • DUPLICATE REGISTRATION. The registrant has either attempted to obtain, or has obtained, a second registration using the same EIN.

    • DEPOSITS NOT RECEIVED. Two months after the date the Form 637 indicator was input to BMF, the registrant did not make a deposit of excise tax.

    • FORM 720 NOT FILED. Eight months after the date the Form 637 was input to BMF, a Form 720 was not filed by the registrant.

    • BANKRUPTCY. The registrant has filed for bankruptcy.

    • CID FREEZE. A CID freeze code has been posted.

  4. When a Notice CP 241 is received from CIRSC, the 637 Registration Group Manager or delegate must take the following actions:

    1. Review all notices and sort by priority using the indicator phrases discussed above.

    2. Action is required on conditions 1, 2, 3, 4, 6, 8, 9, and 10.

    3. Review the registrant's IMS 637 case file and note any prior activity.

    4. Order and review a transcript for all delinquency and non-filer cases to ensure all tax modules requiring attention are known.

    5. If CID freeze code is indicated, contact CID to determine reason for their involvement. Obtain CID’s approval before making contact with the registrant.

    6. If conditions 1, 2, 3, 4, 6, 8, and 9 are indicated, contact the registrant and discuss the problem. The registrant will be notified in writing that the condition must be addressed within 30 days.

    7. Document all contacts in the registrant's 637 IMS case file using Form 9984.

    8. If the conditions 1, 2, 3, 4, 6, 8, and 9 are not addressed in a satisfactory matter within 30 days of contact (see (f) above), action must be started to revoke or suspend the registration until the condition is corrected.

    9. The registrant will be notified in writing of the final determination.

    10. All decisions or actions will be documented on Form 9984 and uploaded into registrants IMS 637 case file.

Exhibit 4.24.2-1 
Form 637 IMS Data Screen

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Exhibit 4.24.2-2 
Excise Lead Technicians and Territory Assignments

Name Location Territory Assignment
Harvey Battle Middle Village NY Fuels
Chui-Ling Mak Middle Village NY Northeast
Karen Tarver Houston TX Southeast
Estella Johnson Houston TX Western

Exhibit 4.24.2-3 
Business Operations and Transaction Flow

  1. Purpose of a Diagram of the Business Operations:

    1. Allows excise field employee to visualize business operations to easily identify specific areas of concern and develop examination techniques.

    2. Allows quick analysis of various points of taxation.

    3. Provides a concise view of the business so anyone reviewing the examination/637 file has a clear understanding of the business operations.

  2. Purpose of a Diagram of the Business Transaction Flow:

    1. Allows analysis of processes so excise field employee can follow business transaction flow. This facilitates easy identification of specific areas warranting further consideration.

    2. Expedites research of appropriate answers to excise field employee’s questions and helps to formulate audit techniques. A record of the name and telephone number of the person who prepared the report is helpful.

    3. Lists the names of the reports and attached sample of the document to the flow chart. This gives the excise field employee and reviewers a better understanding of documents that are specific to that business and prevents any misinterpretation by the excise field employee and applicant/registrant regarding these records.

    4. Promotes efficiency of audit process by allowing the excise field employee to identify the individual directly responsible for the report.

Exhibit 4.24.2-4 
Financial Analysis Techniques

A financial analysis is mandatory and must be completed for all Form 637 visitations where the excise field employee determines the applicant/registrant poses a risk to revenue by not paying a tax liability or by filing claims.

Note:

This technique is useful, but not mandatory, when conducting an examination. If the applicant/registrant is having financial difficulty, the excise field employee should protect the government’s interest by ensuring the applicant/registrant is not using Federal Excise Tax (FET) deposits to pay other liabilities and, is not filing false claims to increase cash flow.

The minimum steps required for a financial analysis are:

1. What is the expected excise tax liability the applicant will have?

  1. Each week

  2. Each month

  3. Each quarter

2. What is the applicant's available cash position for each of the past 12 months?

3. What is the profit margin on the sale of the taxable product before consideration of the excise tax?

  1. What is the profit margin after deducting all applicable direct expenses?

  2. What is the profit margin after deducting the applicable excise tax?

4. Consideration of the other expenses that the applicant has that will compete with the applicants ability to pay the excise tax such as:

  1. Interest payments

  2. Salaries

  3. Equipment purchases

  4. Debt

  5. Any personal expenses that may be paid by the business.

5. From the sale of the taxable product, how much money will be left to pay the tax if the expenses in (4) are paid first?

If a financial analysis reveals poor financial status of the applicant/registrant, the excise field employee should consider securing a bond (for fuel registrants other than ultimate vendors, pipeline operators, and vessel operators) to satisfy the adequate financial resources part of the adequate security test. For all other applicants/registrants, the excise field employee should consult with their group manager to determine whether examination of Form 720 (or claim) is appropriate.

The excise field employee may conduct one or more of the following analysis to determine the financial condition of an applicant/registrant. Though other methods may be used, work papers must be documented regardless of analysis performed:

  1. Quick Ratio (Current Assets-Inventory/Current Liabilities This may be applied when the excise field employee determines that inventory held by applicant/registrant must be sold to meet its short-term liabilities. If the quick ratio of applicant/registrant is 1.0 or greater, it indicates that applicant/registrant should be able to meet its short-term liabilities. This check is more advantageous when reviewing applicants/registrants where the inventory might be hard to liquidate.

  2. Current Ratio (Current Assets/Current Liabilities If the excise field employee determines that inventory should be easy to liquidate, the current ratio should be considered. Fuel is normally a very liquid asset. The excise field employee may review listings of current ratios for several industries in the excise in a book published by Robert Morris & Associates (RMA Annual Statement Studies). For most fuel dealers, if the current ratio drops below 1:1, excise field employee should discuss bonding or monitoring options with their group manager.

  3. Retained Earnings Retained Earnings should be positive. Per IRC 537, a limit is placed on the amount of retained earnings that may be held by the company. The greater the amount of retained earnings, the better the financial solvency of the company. Negative retained earnings indicate possible financial problems (i.e., .the company may be using loans or shareholder equity to operate). However, if the company is new or does not maintain a balance sheet (Example: Schedule C operation), the company will not have retained earnings. If there are no retained earnings, other tests should be considered.

  4. Cash Flow Cash Flow (Income-Expenses, not including depreciation and amortization) should be positive. If the applicant/registrant is an existing company, prior year tax returns should be reviewed for losses. This may be difficult if the applicant is new and has not started business. The excise field employee should view existing contracts with suppliers and customers to determine projected income and expense items. This review and a thorough investigation of potential suppliers, customers and other income and expenses items will provide an indication of applicant/registrants potential cash flow.

  5. Bankruptcy The following techniques may be used to identify bankruptcy issues:

    1. Reviewing information from bankruptcy courts in the states where the company or related member has lived or operated businesses.

    2. Researching Choice Point to determine if the company or related member has declared bankruptcy anywhere in the country.

    3. Researching IDRS (Command code UNCLER) to determine whether a Trust Fund Recovery Penalty has been assessed against the company or related member.

  6. Failure to Deposit or Pay Penalties The financial Status of the applicant/registrant should be reviewed. While occasional or de minims failure to pay or failure to deposit penalties may not indicate poor financial condition, repeated or substantial penalties may mean the applicant/registrant is experiencing financial problems.

Example:

XYZ Oil Company applied for S registration. The balance sheet of the company is below. A review of the tax returns for the past two years indicates that the applicant/registrant has had losses of $13,827 in 2010 and $18,764 in 2011, after adding back depreciation expense.

Assets   Liabilities  
Cash $34,302 Accounts Pay. $75,968
Accounts Receivables $13,859 Current Notes Pay. $70,207
Inventories $97,019 Current taxes Pay. $29,875
Building 7 Equip. $175,000 Accrued Expenses $2,471
Less Depreciation ($25,000) Long Term Loans $85,000
    Loans from Stockholders $50,000
    Common Stock $500
    Retained Earnings ($18,841)
Total Assets $295,180 Total Liability & Equity $295,180

Financial Analysis:

Current Ratio: Current Assets ($145,180) / Current Liabilities ($178,521) = .08/1.

Retained Earnings: ($18,841) = Applicant/registrant has negative retained earnings.

Cash Flow: Taxpayer has negative cash flow for the past two years.

Conclusion:

The excise field employee reviewed applicant’s income tax return for the calendar years 2010 and 2011 and found losses in both years. excise field employee researched IDRS and identified failure to deposit penalties were assessed for five quarters in the past two years. Excise field employee checked Choice Point and found no record of bankruptcy for the company or any related person. The controller informed the excise field employee that the company experienced financial difficulty during the past several years and, it was decided to operate above the rack in hopes of creating profitability. Excise field employee discussed findings with group manager and a decision was made to bond the applicant/registrant.

Exhibit 4.24.2-5 
Form 720 Filing, Deposit, and Payment Requirements

  1. The excise field employee should explain to applicant/registrant their filing, deposit and payment requirements for Form 720 Quarterly Federal Excise Tax Return. Form 720 is to be used by the applicant/registrant to report their excise tax liability. The excise field employee should point out to the applicant/registrant to:

    1. Complete the top portion of the Form 720 return with Name, Address, City, State, etc.

    2. File the Form 720 each calendar quarter until you file a final return.

    3. File on the line for the abstract (IRS Number) that you are reporting tax.

    4. If you are not reporting tax on the abstract that you normally report, enter zero on the line for that tax.

    5. Be sure to sign the return. An unsigned return is considered not to have been filed.

    6. The filing due dates for the Form 720 is the last day of the month following the end of the calendar quarter for which it is due; that is:

      • Jan, Feb, Mar. - due April 30

      • Apr, May, Jun. - due July 31

      • Jul, Aug, Sept. - due October 31

      • Oct, Nov, Dec. - due Jan. 31

  2. The excise field employee should explain to applicant/registrant that Form 720X, Amended Quarterly Federal Excise Tax Return, is used to make adjustments to tax liability reported for previous quarters.

  3. The excise field employee should explain to applicant/registrant about the payments and deposit requirements for Form 720 that:

    1. If you have to file a quarterly excise tax return on Form 720, you may have to make deposits of your excise taxes before the return is due.

    2. If you are not required to make deposits, you pay the tax when you file the return. No deposits are required if the tax liability is under $2,500, for the quarter.

    3. If you need to make a payment when you file your quarterly return, complete Form 720-V Payment Voucher.

    4. Payments can be made by check or money orders to the United States Treasury.

    5. Ozone Depleting Chemical (ODC) floor stocks tax (held Jan. 1) must be deposited by June 30 of that year.

    6. If you do not make your deposits electronically they must be accompanied by a Form 8109 Federal Tax Deposit Coupon.

    7. You must use the Electronic Federal Tax Payment System ( EFTPS) to make deposits in excess of $200,000.

    8. No deposits are required for the following taxes - inland waterways, fuel use, sport fishing equipment, electric outboard motors and sonar devices, bows, arrows components, certain gasohol removals from refineries, one-time filings, and floor stock tax on ozone depleting chemicals.

    9. Generally deposits must be at least 95% of the net tax liability incurred during the semi-monthly period.

  4. The deposit of tax for a semi-monthly period is due by the fourteenth day following this period. Generally, this is the 29th day of the month for the first semi-monthly period and the fourteenth day of the following month for the second semi-monthly period.

    1. Except for deposits of communication and air transportation taxes the deposit period may be based on amounts billed or tickets sold during a semimonthly period instead of on taxes actually collected during the period. Under the alternative method, the tax included in amounts billed or tickets sold during a semimonthly period is considered collected during the first 7 days of the second semimonthly period. The deposit of tax is due by the 3rd banking day after the 7th day of the period.

      Example:

      The tax included in amounts billed or tickets sold for the period June 16-30, 2007, is considered collected from July 16-22, 2007, and must be deposited by July 25, 2007.

    2. To use the alternative method, the applicant/registrant must keep a separate account of the tax included in amounts billed or tickets sold during the month and report on Form 720 the amount of tax that is actually collected.

      Example:

      Amounts billed in December, January, and February are considered collected during January, February, and March and are reported on Form 720 as the tax for the first quarter of the calendar year.

Exhibit 4.24.2-6 
Terms and Conditions of Registration for Registrations Issued under IRC 4101:

  1. This information is also included in Pub 5039, Terms and Conditions of Registration, that is sent to each registrant.

  2. The excise field employee should explain to all fuel applicant/registrants that they must:

    1. Make deposits, file returns, and pay taxes required by the Internal Revenue Code and the regulations.

    2. Keep records sufficient to show their tax liability under IRC 4041(a)(1) and 4081 and payments or deposits of such liability.

    3. Make all information reports required under IRC 4101(d).

    4. Make available for inspection on demand by the Internal Revenue Service during normal business hours records relevant to a determination of tax liability under IRC 4041(a)(1) and 4081.

    5. Notify the 637 Registration Group LT of any change (such as a change in ownership) in the information submitted in connection with your application for registration, or previously submitted under paragraph (h)(1)(v) of Treas. Reg. 48.4101, within 10 days after the change occurs.

  3. The excise field employee should also explain that the fuel applicant/registrants may not:

    1. Sell, lease or otherwise allow another person to use their registration.

    2. Make any false statement in connection with a submission under paragraph (h)(1) or (h)(3) of Treas. Reg. 48.4101.

    3. Make any false statement on, or violate the terms of, any certificate given to another person to support an exemption from, or a reduced rate of, the tax imposed by IRC 4081.

    4. In the case of an ultimate vendor (blocked pump), deliver kerosene (or allow kerosene to be delivered) into the fuel supply tank of a diesel-powered highway vehicle or diesel-powered train from a blocked pump.

  4. Terminal Operators have additional requirements. For terminal operators, The excise field employee should explain the following additional information:

    1. Explain the notice required with respect to dyed diesel fuel and dyed kerosene. A legible and conspicuous notice stating "DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE" must be provided by each Terminal Operator to any person that receives dyed diesel fuel at a terminal rack of that operator. A legible and conspicuous notice stating "DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE" must be provided by each Terminal Operator to any person that receives dyed kerosene at a terminal rack of that operator. These notices must be provided by the time of the removal and must appear on all shipping papers, bills of lading, and similar documents that are provided by the Terminal Operator to accompany the removal of the fuel.

    2. Explain the type of records to be maintained relating to removals of diesel fuel or kerosene. Each Terminal Operator must keep the following information with respect to each rack removal of diesel fuel or kerosene at each terminal it operates:

      • The bill of lading or other shipping document.

      • The record of whether the fuel was dyed and marked in accordance with Treas. Reg. 48.4082-1.

      • The volume and date of the removal.

      • The identity of the person, such as a common carrier, that physically received the fuel.

      • Any other information required by the Commissioner.

    3. Explain the type of records to be maintained relating to dye. With respect to each of its terminals, a Terminal Operator must keep records relating to dye inventories and usage.

    4. Explain the records retention requirements. In addition to any other requirement relating to the retention of records, the Terminal Operator must:

      • Maintain the information described in paragraph b) above at the terminal from which the removal occurred for at least 3 months after the removal to which it relates.

      • Maintain the information described in paragraph c) above at the terminal where the dye was received for at least 3 months after the receipt.

    5. Explain the prohibition on providing incorrect information. In connection with the removal of diesel fuel or kerosene that is not dyed and marked in accordance with Treas. Reg. 48.4082-1, a Terminal Operator may not provide any person (including the position holder with respect to the fuel) with any bill of lading, shipping paper, or similar document indicating that the diesel fuel or kerosene is dyed and marked in accordance with Treas. Reg 48.4082-1.

Exhibit 4.24.2-7 
Terms and Conditions of Registration for Registrations Issued under IRC 4222 or IRC 4682:

  1. This information is also included in Pub 5039, Terms and Conditions of Registration, that is sent to each registrant

  2. Explain to all other applicant/registrants that :

    1. They must make deposits, file returns, and pay taxes required by the Internal Revenue Code and the regulations.

    2. Keep records sufficient to show the registrant’s tax liability under applicable sections of the Internal Revenue Code and of payment or deposits of the tax.

    3. Notify the 637 Registration Group LT of any change (such as a change in ownership) in the information the registrant gave in applying for registration, within 10 days after the change occurs.

  3. And that they must not:

    1. Sell, lease or otherwise allow another person to use their registration.

    2. Use the registration to avoid the payment of any tax, or to postpone or in any manner to interfere with the collection of any such tax.

    3. Fail to secure the documentation on the exempt purpose for which the article or articles are being purchased tax-free and the registration number, if required, of the purchaser. Such information must be in writing and may be noted on the purchase order or other document furnished by the purchaser to the seller in connection with each sale.


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