4.24.16  Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures

Manual Transmittal

September 12, 2013

Purpose

(1) Updated IRM 4.24.16, Excise Tax, Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures.

Background

The March 30, 2012 IRM 4.24.13 has been updated to reflect changes listed in the table below. This section provides guidance pertaining to report writing, case processing and Appeals procedures.

Material Changes

(1) Updated 4.24.16 material changes listed below:

IRM Description
4.24.16 Excise Tax, Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures All sections edited to deliver IRM content in the "Active" voice and edited for clarity.
4.24.16.1.1 State Penalty Case Processing Edited to delete the requirement to enter different dates within IMS when State samples are picked up. All dates entered are the actual inspection date. The previous requirement to enter two different dates within IMS was confusing.
4.24.16.1.3 Penalty Case Processing Procedures Content edited to state employee will notify GM and input case on IMS within four days of finding a potential penalty. Rearranged paragraphs for better flow. New guidance on procedures for GM approving Form 5345D. Moved note from IRM 4.24.16.1.4.2(c) regarding the need to create two case files for multiple penalties to this section.
4.24.16.1.4 Case Closing Procedures for Penalty Proposals New paragraph added regarding completing Form 2363 when changes need to be made to master file.
4.24.16.1.4.2 Instructions for Completing Form 8278 for Penalty Proposals Content edited to remove the requirement for a signature on a designated page number. A signature is still required by both employee and manager.
4.24.16.1.4.4 Instructions for Completing Form 2363 New section added.
4.24.16.1.5 Inspections Resulting in a Potential IRC 6715 Violation New content added regarding not providing the Form 886A for penalties received from States. Added requirement to provide Notice 1416 in penalty packages issued for penalties received from States.
4.24.16.1.9 Case File Assembly for Penalty Inspection Cases Moved content from IRM 4.24.16.1.9.1 to this section. Paragraphs rearranged for better flow. Alpha list identifying Form 9667 edited to define which case work papers this label should be affixed to. Deleted requirement to mail cases overnight delivery to group manager.
4.24.16.1.9.1 Order of Assembly for Inspection Cases Deleted section and moved content to IRM 4.24.16.1.9 section above.
4.24.16.1.10 Case File Assembly for Fuel Compliance Examinations Deleted section, no added value to this IRM. All other sections below re-numbered.
4.24.16.1.11 Case Processing Managerial Responsibilities Deleted alpha list regarding the receipt of Form 12009, 12010, 12012, 12013 and 12014.
4.24.16.2.1 Appeals Case Routing Procedures for Penalty Cases New content added regarding properly completing Form 3198 and 3210 on cases being routed to Appeals.
4.24.16.3 Claims for Abatement of Fuel Compliance Penalties New content added regarding the completion of Letter 5008 once a claim determination has been made.

Effect on Other Documents

This material supersedes IRM 4.24.16, dated 3-30-2012.

Audience

This section provides direction to Supervisory Fuel Compliance Officers, Fuel Group Managers, Fuel Compliance Officers, and Fuel Compliance Agents. Information in this section may also support coordination with SBSE excise groups.

Effective Date

(09-12-2013)


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

4.24.16.1  (09-12-2013)
Report Writing and Case Processing Overview

  1. Fuel Compliance Officers and Fuel Compliance Agents (referred throughout this IRM section collectively as employees, and individually as employee) conduct inspections and may obtain fuel samples to ensure taxable fuel in the fuel distribution system is properly taxed and dyed. These inspections may result in the assertion of penalties if non-compliance is identified. Employees may assert penalties if non-compliance is identified during an inspection. When instances of non-compliance are identified during inspections, employees are directly responsible for asserting penalties.

  2. Employees process a variety of types of cases that involve building of Information Management System (IMS) case files (and, IMS is the exclusive case file system for excise tax, paper case files as well). The types of cases include:

    • Inspections that result in No Adverse Action (sometimes referred to as a no-change case);

    • Inspections that result in an IRC 6715 violation;

    • Inspections that result in an IRC 6715A violation;

    • Inspections that result in an IRC 6717 violation; and

    • Inspections that result in an IRC 6720A violation.

  3. Employees must record all inspections and taxpayer contacts in IMS. See IRM 4.24.13.5

  4. For information regarding fuel sampling see IRM 4.24.15.

  5. Employees must record the inspection in IMS within four business days after the date of the inspection, unless:

    1. Employee's group manager gives employee specific permission to delay recording the inspection;

    2. Employee is participating in a Blitz activity, See IRM 4.24.15.7; or

    3. Computer malfunctions preclude the input (however, employee must record the inspection promptly after the computer problem is resolved).

      Note:

      Employees should notify the Help Desk and their group manager about a computer malfunction as soon as possible after employee encounters the problem.

  6. Employees must record any delays in the case history.

  7. If employee does not receive sample results within 10 business days after shipment, employee should inform their group manager, who may inquire about the status of the sample.

  8. Employees are responsible for building the hard copy penalty case files.

  9. Employees will forward the hard copy of the case file along with a referral (Form 5346, Examination Information Report ) if warranted, to their group manager. See IRM 4.24.13.8 for more information about submitting a referral.

  10. If the taxpayer has a representative with a valid power of attorney authorized to receive correspondence, then employee must send all correspondence to both the taxpayer and the representative. See IRM 4.11.55 for information about issues involving taxpayer representatives.

4.24.16.1.1  (09-12-2013)
State Penalty Case Processing

  1. Employees who receive samples from state officers must document the receipt of samples and upload state narratives in IMS.

  2. A state penalty does not automatically result in a federal penalty assessment. Information received from a state is considered along with all the other facts and circumstances. Each case is evaluated to determine if a federal penalty is warranted. In particular, carefully consider factors that affect the validity of the sample (for example, contamination of the sample) and the protection of the taxpayer’s rights. Employee may need to obtain additional samples and have additional contact with the taxpayer, if the employee identifies problems with the sample.

    1. If employee pursues a penalty for a federal violation, do not delay processing the federal case pending the outcome of the state case and any appeals related to the state case. The federal penalty case should be fully developed and able to stand on its own merits.

    2. If employee does not pursue a penalty for a federal violation, employee must input the case information and narrative in IMS, but will treat the inspection as though the employee did not find any violations.

4.24.16.1.2  (09-12-2013)
Inspections Resulting in No Adverse Action

  1. When creating a "no adverse action" case (also referred to as a "no-change" case) on IMS, use UIL Code 04081.00-00, "Gasoline and Diesel Fuel" .

  2. For non-terminal inspections that do not result in adverse action, issue Letter 3143, Non-violation IRC 6715 Inspection Letter. Employee should issue the letter and close the case in IMS by the end of the next business day after the inspection has been input and the determination has been made. If employee does not know the taxpayer identification number (TIN), employee may give Letter 3143 to the taxpayer without a TIN, if the letter is issued at the inspection site on the date of the inspection.

  3. For terminal inspections, employee should issue Letter 3144, Dyed Fuel Terminal Inspection Letter. Employee should issue the letter and close the case in IMS by the end of the next business day after the inspection has been input in IMS and the determination has been made.

4.24.16.1.3  (09-12-2013)
Penalty Case Processing Procedures

  1. Within four days of finding a potential penalty, employee must notify their group manager and create a case (with all necessary work papers) in IMS. Employees will create all proposed penalty cases in IMS.

  2. If multiple penalties (for example, IRC 6715(a)(1) and IRC 6717) are assessed on the same taxpayer, the employee must create two separate penalty case files with all appropriate closing forms (see IRM 4.24.16.1.4 below).

  3. The appropriate Tracking Code must be selected when creating the case. Refer to the chart below for the applicable Tracking Code that corresponds with the penalty code section.

    Select The Following Tracking Code If you have a....
    9992 IRC 6715(a)(1) Penalty - Dyed fuel held for sale or sold.
    9994 IRC 6715(a)(2) Penalty - Dyed fuel held for use or used.
    9994 IRC 6715(a)(3) Penalty - Willful alteration of the strength or composition of any dyed fuel.
    9994 IRC 6715(a)(4) Penalty - Has knowledge that dyed fuel has been altered and sells or holds for sale such fuel for any use which the person knows or has reason to know is not a nontaxable use of such fuel.
    9995 IRC 6715A(1) &(2) Penalty - Mechanical dye tampering and failure to maintain security requirements.
    9996 IRC 6717 Penalty - Refusal of entry.
    9997 IRC 6718(a) & (b) Penalty - Failure to display tax registration on vessels and multiple violations for such.
    9998 IRC 6720A(a) &(b) Penalty - Penalty with respect to certain adulterated fuels.

  4. The appropriate Uniform Issue List (UIL) Code must be selected when creating the case. See the following chart for the applicable UIL Code that corresponds with the penalty code section.

    UIL Code Description Penalty Type
    06715.00-00 Dyed fuel sold for use or used in a taxable manner For IRC 6715(a)(1), (2), (3) & (4) penalty proposals.
    06715A.00-00 Tampering with or failing to maintain security requirements for mechanical dye injection systems. For IRC 6715A penalty proposals.
    06717.00-00 Refusal of entry For IRC 6717 penalty proposals.
    06718.00-00 Failure to display registration For IRC 6718 penalty proposals.
    06720A.00-00 Penalty with respect to certain adulterated fuels. For IRC 6720A penalty proposals.

  5. Once employee receives the lab results, complete Form 5345-D,Examination Request - ERCS (Examination Returns Control System) Users, and forward electronically to the group manager for approval. Employees must use Form 5345-D to establish the case on ERCS. See IRM 4.24.16.1.4 for specific guidance on how to prepare Form 5345-D.

  6. Employee must research Integrated Data Retrieval System (IDRS) to determine if any previous violations were assessed against the taxpayer. Employee must perform the research prior to the issuing the penalty package. Employee must record the dates, IRC sections and total number of prior penalties for each of those IRC sections in the IMS case file.

  7. Employees should review the following IDRS command codes for taxpayers with Employee Identification Numbers (EINs):

    • SUMRY

    • TXMODA

    • BMFOLI

    • BMFOLT

  8. Employees should review the following IDRS command codes that should be reviewed for taxpayers with Social Security Numbers (SSNs):

    • SUMRY

    • TXMODA

    • IMFOLI

    • IMFOLT

    Note:

    TXMOD shows adjustments pending to post to Master File. IMFOLT and BMFOLT display transactions that have posted to Master File.

  9. Employee must carefully review the IDRS transcripts. All proposed penalties will reflect a Transaction Code 240, Assessment of Miscellaneous Civil Penalty , and a Transaction Code 290, Additional tax Assessment, with the applicable penalty reference code (for example, 656). If the assessment amounts shown in IDRS is zero, then IRC 6715(b)(2) and IRC 6715(e) do not apply when employee determines the current penalty assessment amount and whether any of the taxpayer's appeal rights are limited.

  10. The group manager must review the case in IMS prior to approving the penalty proposal.

  11. If the group manager agrees with employees proposal, the group manager must notify employee via secure e-mail or by telephone that the penalty proposal is approved.

  12. After employee receives approval from the group manager, employee will then issue the thirty day letter (i.e. penalty package, and Letter 3145, Dyed Fuel Penalty 30 day Letter) to the taxpayer. See IRM 4.24.16.1.5 through, IRM 4.24.16.1.8 for guidance on what is included in the penalty package.

  13. The group manager will notify the group secretary to establish the case on the Examination Returns Control System (ERCS). The group secretary will establish the case on ERCS within two days of receiving the approval from the group manager. The group secretary must place the case into status 12 on ERCS.

  14. Employee will mail the case file to the group manager at the same time that the thirty-day letter is issued.

  15. Employee must sync the case and then place the case in closed status on IMS.

4.24.16.1.4  (09-12-2013)
Case Closing Procedures for Penalty Proposals

  1. Employees must complete the following forms for every penalty case:

    • Form 5345-D,

    • Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties

    • Form 3198, Special Handling Notice for Examination Case Processing

  2. Employees will complete Form 2363, Master File Entity Change when an account needs to be established on master file or when changes to the entity record on master file are evident (for example, the taxpayer's name and/or address has changed). The employee will complete Form 2363 and electronically forward via secure e-mail to the group secretary for processing. The group secretary must either Efax the completed form to the Centralized Case Processing (CCP) at 1-855-386-5123 or mail the form to the following address: CCP, 201 W. Rivercenter Blvd, Stop 8412-G, Covington, KY 41011 via Form 3210. The facsimile cover sheet or Form 3210 will be annotated as to what actions need to take place (for example: taxpayer entity needs to be established on master file/IDRS). The group secretary will annotate the date the form was either Efaxed or mailed to CCP on Form 3198 in the section directly below the "Taxpayer Name and Address" section and on the copy of Form 2363 when the case file is closed to CCP.

  3. See IRM 4.24.16.1.4.1 through IRM 4.24.16.1.4.4, below, for guidance on completing the forms.

4.24.16.1.4.1  (09-12-2013)
Instruction for Completing Form 5345-D for Penalty Proposals

  1. Employee must complete Form 5345-D. Three critical sections on the form are:

    1. Applicable inspection activity code (see table below);

    2. Appropriate MFT that corresponds to the inspection activity code (see table below); and

      Activity Code MFT
      515 Terminal Inspections D5
      516 Wholesaler and Retailer Inspections D6
      517 Designated Inspection Site Screening and Inspections D7
      518 End User Inspections D8

    3. "EE" statute date, which is recorded using the month of the penalty+ "EE" + the year: "MMEEYYYY" .

      Note:

      For example, a penalty found in February 2011 is recorded as "02EE2011" .

4.24.16.1.4.2  (09-12-2013)
Instructions for Completing Form 8278 for Penalty Proposals

  1. Employee must complete Form 8278 Assessment and Abatement of Miscellaneous Civil Penalties.

    1. Do not enter the penalty amount unless the taxpayer has agreed to the assessment or paid in full. The group manager determines the penalty amount and records the amount on the form after the administrative appeal (if any) is complete.

    2. The "EE" statute date is recorded using the month of the penalty + "EE" + the year: "MMEEYYYY" . .

    3. Section G - the number of penalties is always "1" .

    4. The penalty reason code entered in column (f) is the same three-digit number as the penalty reference number listed in column (b), except for the penalty reason code for a IRC 6715A penalty. Use penalty reason code 665T for a penalty assessed under IRC 6715A(a)(1), and penalty reason code 665S for a penalty assessed under IRC 6715A(a)(2).

    5. Employee and group manager must sign Form 8278. The signature can be either electronic (using the signature tool in Adobe Acrobat) or manual.

    6. Centralized Case Processing (CCP) will return the case to the originating field group if employee and the group manager do not sign Form 8278.

4.24.16.1.4.3  (09-12-2013)
Instructions for Completing Form 3198 for Penalty Proposals

  1. Employees must properly complete all applicable sections on Form 3198. These sections (identified by section header) include:

    • Business Unit

    • Employee Preparing Form

    • Taxpayer Name

    • Forms Enclosed, (if applicable)

    • Expedite Processing, (if applicable)

    • Special Features, (if applicable)

    • Forward to CCP

    • Tax Period and all applicable line items

  2. Employee must complete Form 3198 with disposal code 12 for all dyed fuel penalty proposals.

4.24.16.1.4.4  (09-12-2013)
Instructions for Completing Form 2363

  1. Form 2363, is a multi-purpose form that is divided into two sections entitled "From " and "To" . The "From" section is used to record old information and the "To" section is used to record new information. The most common actions are requesting the entity to be established on master file or changes to the entity name and/or address.

  2. Employee must check the following transaction codes (listed below are the most common transaction codes) in the "From" section when requesting the following:

    • Transaction code "000" to request establishment of the entity on Master File/IDRS,

    • Transaction code "013" to request a name change for the taxpayer,

    • Transaction code "014" to request an address change for the taxpayer,

    • Transaction code "015" to request a zip code change for the taxpayer,

    • Any other transaction code listed in the "From" transaction code column, if changes are applicable.

  3. Employee must complete all applicable fields in the "To" section that pertain to either establishing the entity on master file or changes to the existing taxpayer entity record on master file.

4.24.16.1.5  (09-12-2013)
Inspections Resulting in a Potential IRC 6715 Violation

  1. The penalty package for an IRC 6715 dyed fuel violation is the written notification issued to the taxpayer informing the taxpayer about the proposed penalty. Employee should issue the penalty package immediately after the group manager notifies employee that they approved the penalty assessment.

  2. Employee should issue Form 886-A, Explanation of Items, at the time of the inspection (and hand deliver the form to the taxpayer) or by the next business day after a potential IRC 6715 violation is found.

    Note:

    If the potential violation is found by a state, do not issue Form 886-A to the taxpayer for that violation. Rather, employee will include Notice 1416, with the penalty package. This notice explains that the IRS is assessing a penalty for a violation based on information provided to it from a state with an information sharing Memorandum of Understanding (MOU) with the IRS.

  3. The penalty package for IRC 6715 penalties includes:

    1. Letter 3145, Dyed Fuel Penalty 30 day Letter;

    2. Two (2) copies of Form 12010, Report of Proposed Penalty - IRC 6715;

    3. Form 12009, Request for an Informal Conference and Appeal Review;

    4. Notice 1215, What to Do if You Disagree with the Fuel Penalty;

    5. Publication 1, Your Rights as a Taxpayer; and

    6. Notice 1416, State Penalty Notice (if applicable to the case).

  4. Employee must conduct a follow-up inspection within 60 days of the issuance of the penalty package to verify whether the taxpayer is in compliance of the laws that were violated that resulted in employee assessing a penalty. A follow-up inspection to verify that the taxpayer is no longer using dyed fuel in a taxable manner is treated as a separate inspection for the purposes of determining whether there are multiple violations pursuant to IRC 6715(b)2 and calculating multiple violations. Employee should create a separate case file in IMS for each inspection.

4.24.16.1.6  (09-12-2013)
Inspections Resulting in a Potential IRC 6715A Violation

  1. The penalty package for an IRC 6715A violation is the written notification issued to the taxpayer informing them about the proposed penalty. The penalty package should be issued immediately after employees group manager notifies employee that the penalty is approved.

  2. The penalty package includes:

    1. Letter 3145;

    2. Two (2) copies of Form 12012, Report of Proposed Penalty - IRC 6715A;

    3. Form 12009;

    4. Notice 1215; and

    5. Publication 1.

  3. Employees must conduct a follow-up inspection within 60 days of the issuance of the penalty package to verify whether the taxpayer is in compliance of the laws that were violated which resulted in employee assessing the penalty. Employee should create a separate case file in IMS for each inspection.

4.24.16.1.7  (09-12-2013)
Inspections Resulting in a Potential IRC 6717 Violation

  1. The penalty package for an IRC 6717 violation is the written notification issued to the taxpayer informing them about the proposed refusal penalty. Employee should issue the penalty package immediately after employees group manager notifies employee that the penalty is approved.

  2. The penalty package includes:

    1. Letter 3057, Refusal Letter Under IRC 4083(d);

    2. Two (2) copies Form 12011, Report of Proposed Penalty - IRC 6717;

    3. Form 12009;

    4. Notice 1215; and

    5. Publication 1.

4.24.16.1.8  (09-12-2013)
Inspections Resulting in a Potential IRC 6720A Violation

  1. The penalty package for an IRC 6720A violation is the written notification issued to the taxpayer informing them about the proposed adulterated fuel penalty. Employee should issue the penalty package immediately after employees group manager notifies employee that the penalty is approved.

  2. Penalty reference code 673 pertains to IRC 6720A penalties.

  3. The penalty package includes:

    1. Letter 3145;

    2. Two (2) copies Form 12013, Report of Proposed Penalty - IRC 6720A;

    3. Form 12009;

    4. Notice 1215; and

    5. Publication 1.

  4. Employee must conduct a follow-up inspection within 60 days of the issuance of the penalty package to verify whether the taxpayer is in compliance of the laws that were violated that resulted in employee assessing the penalty. Employee should create a separate case file in IMS for each inspection.

4.24.16.1.9  (09-12-2013)
Case File Assembly for Penalty Inspection Cases

  1. Employees must follow the procedures outlined in this section for all penalty inspection case files.

  2. Proper assembly of a case file minimizes delays, administrative problems, and procedural errors.

  3. Each penalty case file is placed in a separate folder.

  4. All related cases are submitted together with the controlling case on top. The files are bound together with a rubber band or strap.

  5. If more than one folder is used, the folders should be numbered using the "'# folder' of 'total folders' system" to ensure they are not separated in error. The files should be bound together with a rubber band or strap.

  6. Employees must print all pertinent work papers from each IMS case file.

  7. Staple or paperclip Form 3198Special Handling Notice for Examination Case Processing along with Form 3210Document Transmittal to the outside of the folder.

  8. Staple the following forms to the inside of the left side of the folder in the following order (top to bottom):

    1. Form 5346, Examination Information Report, (if applicable).

    2. Form 2363,Master File Entity Change.Form 2363 is completed after IDRS research indicates that entity is not on master file or when changes need to be made to the existing master file entity record (for example to correct name or address information). See IRM 4.24.16.1.4(2) and IRM 4.24.16.1.4.4 for additional guidance on Form 2363.

    3. IDRS research.

  9. Staple the following forms to the inside of the right side of the folder in the following order (top to bottom):

    1. Copy of approved Form 5345-D. The case should already be established on ERCS at this point. The original Form 5345-D will be maintained at the group level and will not be forwarded with the case file to CCP.

    2. Form 8278.

    3. Copy of the penalty package that employee mailed to the taxpayer.

      Note:

      The closing letter is on top followed by the report of proposed penalty, the Form 12009 and the Form 886-A.

    4. Copy of Form 3244-A, Payment Posting Voucher, (if applicable).

    5. Form 433-D, Installment Agreement,( if applicable).

      Note:

      Form 3198 should indicate whether Form 433-D. is included in the file. See IRM 4.24.16.4 for more guidance on installment agreements.

    6. Form 2848, Power of Attorney and Declaration of Representative, (if applicable).

      Note:

      Form 3198 should indicate whether Form 2848 is included

      .

    7. Form 12175, Third Party Contact Form, (if applicable).

    8. Form 12180, Third Party Contact Authorization Form, (if applicable).

    9. Case file history documentation (comments/inspection summary) or Form 9984, Examining Officer's Activity Record.

    10. Copy of lab results.

    11. Case file portion of Form 9667, Sample Bottle Seals and Identification Labels, affixed to a case file work paper (for example, blank sheet of paper or inspection case history work paper).

    12. All supporting documents/photographs.

    13. All research material such as Accurint, (if applicable).

      Note:

      Do not include a form or document if it does not apply to the case.

  10. The completed penalty case file should be sent to the manager in a confidential envelope that states "to be opened by addressee only" . Notify the manager by a secured e-mail message that the case has closed and will be sent.

    Note:

    The group manager may direct employee to send the case file to the group secretary instead of the group manager. If so, employee should send the secured e-mail message to the manager and group secretary to notify them of the status of the case file.

  11. The case file should be mailed to the manager utilizing current mailing procedures.

4.24.16.1.10  (09-12-2013)
Centralized Case Processing (CCP)

  1. All proposed penalty case files are processed through CCP. This includes cases that result in a penalty assessment and those cases that are no-change.

  2. CCP:

    1. Receives all penalty case files forwarded via Form 3210; and

    2. Processes all closed penalty case files and updates to status 90 on ERCS.

      Note:

      If problems arise regarding ERCS/AIMS, the group secretaries should contact their local ERCS/AIMS analyst for resolution.

4.24.16.1.11  (09-12-2013)
Case Processing-Managerial Responsibilities

  1. The group manager is responsible for the following case actions:

    1. Review all proposed penalty cases in IMS.

    2. If the group manager agrees with the proposed penalty, approve Form 5345-D and notify employees that the penalty is approved.

    3. Establish all penalty proposals on ERCS and update to status 12 within two (2) business days after the determination is made to pursue a penalty.

    4. Monitor the expiration of the thirty-day statutory period for penalty cases.

    5. Record the appropriate penalty amount on Form 8278 prior to sending the penalty case file to CCP, if a penalty is applicable.

    6. If the penalty will not be applied, Form 3198 will be updated to reflect disposal code 02 (no-change) and the case will be updated to disposal code 02, prior to closing.

    7. Update the case to status 51 and close to CCP, after the thirty-day statutory period expires if the taxpayer has not responded to the notice.

    8. Record in IMS all contacts with the taxpayer and results of the case review.

  2. If the taxpayer requests a manager's conference and because of that conference the group manager determines that the IRS will not assert a penalty, the manager will enter zero dollar amounts on Form 8278 and Form 3198. See IRM 4.24.16.2, below, for additional guidance regarding administrative appeals.

4.24.16.2  (03-30-2012)
Administrative Appeals of Fuel Penalty

  1. Revenue Procedure 2001-33, Administrative Appeal of Certain Dyed Fuel Penalties, gives the taxpayer the right to a pre-assessment appeal of proposed IRC 6715, IRC 6715A, IRC 6720A, and IRC 6717 penalties.

  2. If the taxpayer does not make a timely appeal request, assess the penalty. If the taxpayer requests an appeal of the penalty after the 30-day period ends, the taxpayer must pay the penalty and then file a claim for abatement of the penalty. See IRM 4.24.16.3 .

  3. Although the taxpayer may contact the group manager to discuss the inspection at any time prior to its completion, the administrative appeals process does not begin until the penalty package is issued.

  4. The penalty package includes instructions to the taxpayer regarding how to appeal the penalty. The taxpayer must complete Form 12009 and send it to the group manager within 30 days for an informal conference. During the informal conference with the group manager, if the taxpayer requests the case be forwarded to Appeals, the group manager will annotate Form 12009 with the date the taxpayer requested the case be forwarded to Appeals. .

  5. Under IRC 6715(e), a person's right to appeal an IRC 6715 violation is limited if the person has been penalized under that section at least twice before during the period that began after October 22, 2004. The person may still file an appeal, but only if the grounds for appeal are:

    1. fraud or a mistake in the chemical analysis, or

    2. a mathematical calculation of the amount of the penalty.

  6. The group manager will record in IMS all taxpayer contacts, including those related to a penalty determination, and the taxpayer's position, based on discussions or information received.

  7. The table below contains procedures for an Administrative Appeal:

    If ... Then ...
    The taxpayer disagrees with the penalty and wants an appeal. The taxpayer must complete Form 12009 and send it to the group manager within 30 days.
    The taxpayer submits the Form 12009. The group manager will attempt to resolve the dispute through an informal conference. If the taxpayer has been penalized twice under IRC 6715 since October 22, 2004, the manager will inform the taxpayer about the limited scope of the appeal under IRC 6715(e).
    The informal conference results in an agreement. The group manager will issue Letter 3165, Results of Dyed Fuel or Refusal Penalty Informal Conference, and two copies of Form 12010 (if a penalty is to be assessed). The taxpayer has 30 days to respond.
    The taxpayer does not respond to the Letter 3165 within 30 days. The group manager will direct the group secretary to update the case to status 51 and close the case to CCP on ERCS and the penalty will be assessed. Penalty amounts will be entered on both Form 3198 and 8278.
    The informal conference does not result in an agreement. The group manager will issue Letter 3142, Dyed Fuel Penalty Case to Appeals, advising the taxpayer of the decision and the actions that will follow. Case must be updated to status 14 on ERCS.
    The informal conference results in the penalty no longer being applicable. The group manager will issue Letter 3165, Results of Dyed Fuel or Refusal Penalty Informal Conference . Case will be updated to status 51 and closed to CCP on ERCS. Disposal code 02 will be used on ERCS to reflect a no-change penalty case.

4.24.16.2.1  (09-12-2013)
Appeals Case Routing Procedures for Penalty Cases

  1. Once the group manager determines that the case will be forwarded to Appeals, the case will be updated from Status 12 to Status 14 on ERCS. Status 14 will indicates that the case is in Appeals for monitoring purposes. The case will remain in Status 14 on ERCS until the case is returned from Appeals.

  2. The group manager must forward the case to the designated Account and Processing Support (APS) for the area in which the excise tax trained Appeals Officer resides for proper assignment. The following link should be utilized to determine the appropriate routing address information:http://appeals.web.irs.gov/APS/caserouting.htm .

  3. Cases being forwarded to Appeals must include the following:

    1. Current inspection file, including statements made by the Fuel Compliance Agent or Fuel Compliance Officer, taxpayer and group manager;

    2. If applicable, include relevant workpapers indicating fuel tank measurement procedures, location of additional dyed fuel tanks, and confirmation of responsible party;

    3. Computation of the penalty;

    4. Results of the laboratory and field testing;

    5. Record of all taxpayer contacts, including results of the informal appeal;

    6. Prior inspections, both violation and non-violation, if available; and

    7. Results of the informal appeal conference with the manager.

  4. Form 3210 must be completed and accompany the case file. The remarks section of Form 3210 must state: "This case should be carded in and assigned to an Excise trained Appeals Officer" .

  5. Form 3198 must be completed and accompany the case file. Under the section entitled "Forward to Technical Services" , mark unagreed to Appeals and under "Other" state: "This case should be carded in, and assigned to, an Excise trained Appeals Officer" .

  6. Beginning after 180 days, the group manager must follow up quarterly with Appeals to determine the status of the case.

4.24.16.2.2  (09-12-2013)
Final Disposition of the Penalty Case File after the Appeal

  1. After a decision is reached by the Appeals Officer, the Appeals Team Manager will send the completed case to the appropriate fuel territory manager. See IRM 8.7.10 for more information regarding Appeals case closing procedures.

  2. The fuel territory manager will send the file to the appropriate group manager.

  3. The group manager will update Form 3198 and Form 8278 based on the Appeals determination, update the case from status 14 to 51 on ERCS, and close the case file to CCP as either an assessable penalty or a no-change case.

  4. It is the responsibility of the group manager to ensure the case file in IMS is updated to reflect the final disposition of the penalty. The group manager must verify that the Appeals Case Memorandums (ACMs) and Form 5402, Appeals Transmittal and Case Memo, are either scanned in or uploaded to the completed IMS case file that is forwarded to CCP.

4.24.16.3  (09-12-2013)
Claims for Abatement of Fuel Compliance Penalties

  1. The taxpayer may dispute a penalty that has been paid in full by filing a claim for refund. The claim is filed using Form 843, Claim For Refund and Request for Abatement.

  2. Dyed fuel claims are processed through the Cincinnati Compliance Service Center (CCSC) and forwarded directly to the appropriate fuel territory manager.

  3. The fuel territory manager must forward the claim to the appropriate group manager utilizing Form 3210.

  4. The group manager must consider the facts and documentation accompanying the claim to make a determination. The group manager may disallow the claim in full, partially allow the claim or fully allow the claim.

  5. Once the group manager makes a determination regarding whether to pay the claim, the group manager must complete and forward, Letter 5008 to the taxpayer.

  6. The group manager must send the completed claim file back to the CCSC utilizing Form 3210 ..

  7. These claims are not controlled on ERCS.

  8. See IRM 4.24.8, Claims for Refund or Abatement, for more information.

4.24.16.4  (09-12-2013)
Fuel Compliance Collection Duties

  1. Letter 3145, which is included in the penalty package, demands payment of the penalty amount and instructs the taxpayer to send the payment to the address of record for the employee.

  2. If the taxpayer contacts the employee regarding payment of the penalty, employee should first solicit full payment.

  3. Employee may not accept cash for the payment of the penalty.

  4. If a check or money order is received as payment for the penalty, the following actions must be taken:

    1. Complete Form 3244-A, Payment Posting Voucher - Examination. See IRM 3.8.45.5 for instructions on how to complete Form 3244-A.

    2. Update IMS case history to reflect the collection of funds.

  5. If the taxpayer can not pay in full, employee will refer the taxpayer to Form 9465, Installment Agreement Request, or to the IRS website to request an online payment agreement.

  6. If employee receives a "completed" Form 9465 from the taxpayer, the employee will:

    1. Complete Form 3177, Notice of Action for Entry on Master File. In the "other (specify)" box record "TC 971/AC 43" and record the MFTs and all tax periods that apply.

    2. Fax the completed Form 3177 to the attention of General Case Processing within 24 hours of receipt from the taxpayer. The fax number is (267) 941-1515.

    3. Place the installment agreement in the case file. The installment agreement should be sent with the completed case file to CCP. Form 3198 must be marked accordingly to indicate that the completed installment agreement is enclosed in the file.


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