Part 4. Examining Process

Chapter 24. Excise Tax

Section 16. Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures

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

Manual Transmittal

March 30, 2012

Purpose

(1) New IRM. This transmits a new IRM 4.24.16, Excise Tax, Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures.

Background

This section contains procedural guidance relating to report writing, case processing and Appeals for Excise Fuel Compliance Officers and Excise Fuel Compliance Agents. Some content included in this new section was previously found in IRM 4.24.13 which has been reorganized along functional lines. See table below for details.

Material Changes

(1) IRM 4.24.13 was reorganized along functional lines. Some content was moved here per table below

IRM Description
4.24.16.1 Report Writing and Case Processing Overview Content moved from 4.24.13.18 and updated.
4.24.16.1.1 State Penalty Case Processing New content has been added regarding the handling of state penalties for monitoring purposes.
4.24.16.1.2 Inspections Resulting in No Adverse Action Content moved from 4.24.13.18.1 and added Information Management System (IMS) procedures.
4.24.16.1.3 Penalty Case Processing Procedures New content added as follows: Requiring the use of appropriate tracking codes and UIL codes within IMS. Establishing all cases on ERCS within two days after a determination has been made to propose a penalty. Requirement for the GM to review all proposed penalty cases prior to the approval of the Form 5345D and the subsequent notification to the field employee that it has been approved. Placing all cases in status 12 on ERCS until it has been determined if it will be closed either as a no-change or an assessment to CCP or forwarded to Appeals. Specific IDRS guidance has been added
4.24.16.1.4 Case Closing Procedures for Penalty Proposals New content added.
4.24.16.1.4.1 Instructions for Completing Form 5345D for Penalty Proposals New content added.
4.24.16.1.4.2 Instructions for Completing Form 8278 for Penalty Proposals New content added.
4.24.16.1.4.3 Instructions for Completing Form 3198 for Penalty Proposals New content added.
4.24.16.1.5 Inspections Resulting in a Potential IRC 6715 Violation Content from 4.24.13.18.2 moved here and updated.
4.24.16.1.6 Inspections Resulting in a Potential IRC 6715A Violation Content from 4.24.13.18.3 moved here and updated.
4.24.16.1.7 Inspections Resulting in a Potential IRC 6717 Violation Content from 4.24.13.18.4 moved here and updated.
4.24.16.1.8 Inspections Resulting in a Potential IRC 6720A Violation Content from 4.24.13.18.5 moved here and updated.
4.24.16.1.9 Case File Assembly for Penalty Inspection Cases New content added relating to case file assembly guidance.
4.24.16.1.9.1 Order of Assembly of Penalty inspection Cases New content added.
4.24.16.1.10 Case File Assembly for Fuel Compliance Examinations New content added.
4.24.16.1.11 Centralized Case Processing (CCP) New content added.
4.24.16.1.12 Case Processing-Managerial Responsibilities Content moved from 4.24.13.18.6, expanded and retitled Case Processing-Managerial Responsibilities.
4.24.16.2 Administrative Appeals of Fuel Penalty Content moved from 4.24.13.19 and updated
4.24.16.2.1 Appeals Case Routing Procedures for Penalty Cases Content moved from 4.24.13.19.1 and updated for requirement for cases to be updated to status 14 on ERCS when the cases are forwarded to Appeals. Added hyperlink for AO cadre and APS locations.
4.24.16.2.2 Final Disposition of the Penalty Case File after the Appeal Content moved from 4.24.13.19.2 and updated.
4.24.16.3 Claims for Abatement of Fuel Compliance Penalties Content moved from 4.24.13.20 and 4.24.11.5 and updated.
4.24.16.4 Fuel Compliance Collection Duties Content moved from 4.24.13.22 and updated.

Effect on Other Documents

This IRM section includes procedural guidance found in the following Interim Guidance Memos: SBSE 04-1110-061, Interim Guidance for Dyed Fuel Penalty Case File Assembly dated 11-23-2010; SBSE 04-0111-011, Fuel Compliance Penalty Case Procedures, dated 1-25-2011; SBSE 04-1011-091, ERCS, IMS, Appeals and IDRS Procedures, dated 10-31-2011; and SBSE 04-1211-105, Reissue Installment Agreement Procedures, dated 12-6-2011.

Audience

This section is primarily to provide 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

(03-30-2012)


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

4.24.16.1  (03-30-2012)
Report Writing and Case Processing Overview

  1. Employees 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 are directly responsible for assertion of penalties when instances of non-compliance are identified.

  2. Employees process a variety of types of case work involving building of Information Management System (IMS) and/or paper case files. Those cases are:

    • Inspections Resulting in No Adverse Action

    • Inspections Resulting in IRC 6715 Violation

    • Inspections Resulting in IRC 6715A Violation

    • Inspections Resulting in IRC 6717 Violation

    • Inspections Resulting in IRC 6720A Violation

  3. All inspections and contacts with taxpayers must be recorded in IMS. See IRM 4.24.13.5

  4. For information regarding fuel sampling see IRM 4.24.15.

  5. The recordation must take place within four (4) business days after the date of the inspection unless:

    1. specific permission to delay the input is obtained from the manager,

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

    3. computer breakdowns preclude the input.

      Note:

      Employees should notify the Help Desk and the group manager about a computer breakdown.

  6. Any delays should be annotated in the case history.

  7. If sample results have not been received within 10 business days after shipment, employees should inform the 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 to the manager. See IRM 4.24.13.8 for more information on submitting a referral.

  10. If the taxpayer has a power of attorney authorized to receive correspondence, the correspondence must be sent to both the taxpayer and the power of attorney. See IRM 4.11.55 for issues involving a taxpayer's representative.

4.24.16.1.1  (03-30-2012)
State Penalty Case Processing

  1. Samples and the narratives received by the IRS from state officers must be input into IMS.

  2. In order to properly account for the state initiated inspection follow the specific IMS procedures below.

  3. Input the actual date the state obtained the sample(s) in the "Add Manual Return" screen and the "Add Issue" screen.

    1. within the Add Manual Return Screen enter the applicable date in the "Tax Year" field, and

    2. within the Add Issue Screen enter the applicable date in the "Exam Start Date" field.

  4. Input the date you actually received the state sample(s) from the state official within all other fields residing on IMS that require an inspection date.

    Note:

    For example: The inspection date occurred on October 1, 2011, but the samples were not picked up from the state official until November 15, 2011. The tax year entered under the "Add Manual Return" screen and the exam start date entered under the "Add Issue" screen will be entered as 201110 and 10-01-2011, respectively. All other fields that require an inspection date within IMS will reflect the November 15, 2011 date that the samples were received from the state official.

  5. Form 5345D, Examination Request-ERCS (Examination Returns Control System) Users, Form 3198, Special Handling Notice for Examination Case Processing, and Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, will continue to accurately reflect the actual inspection date for penalty and interest computations.

  6. Letter 3145, Dyed Fuel Penalty 30 day Letter, will continue to accurately reflect the actual inspection date.

  7. A state penalty is not an automatic federal penalty. Information received from the state is considered along with all other facts and circumstances for evaluating if a federal penalty is warranted. In particular, careful consideration must be given to factors impacting the validity of the sample or the protection of the taxpayer’s rights. Additional samples and subsequent contact with the taxpayer may be needed.

    1. If a federal violation is pursued, the processing of the case should not be delayed pending the outcome of the state case and any appeals. The federal penalty case should be able to stand on its own merits.

    2. If a federal violation will not be pursued, the employee must input the sample information and narrative on IMS, but will consider the inspection a non-violation.

4.24.16.1.2  (03-30-2012)
Inspections Resulting in No Adverse Action

  1. When creating a no adverse action case on IMS, UIL Code 04081.00-00, "Gasoline and Diesel Fuel" must be utilized.

  2. For non-terminal inspections, Letter 3143, Non-violation IRC 6715 Inspection Letter, should be issued and the case closed by the end of the next business day after the inspection has been input on IMS and the determination has been made. If the taxpayer identification number (TIN) is not known, the Letter 3143 may be given 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, Letter 3144, Dyed Fuel Terminal Inspection Letter, should be issued and the case closed by the end of the next business day after the inspection has been input on IMS and the determination has been made.

4.24.16.1.3  (03-30-2012)
Penalty Case Processing Procedures

  1. All proposed penalty cases will be created on IMS utilizing the procedures listed below.

  2. 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.

  3. 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.

  4. All proposed penalty cases must be established on Examination Returns Control System (ERCS) within two days after the determination has been made that a penalty should apply.

  5. Form 5345D must be used to establish the case on ERCS. The completed form must be forwarded to the manager electronically for approval. See IRM 4.24.16.1.4 for specific guidance on how to prepare Form 5345D.

  6. The manager shall review the case on IMS prior to approval of the penalty proposal.

  7. The manager shall notify the employee via secure e-mail or by telephone that the penalty proposal has been approved.

  8. Once the employee receives approval from the manager, the case must be established on ERCS and placed into status 12. This should occur no later than two days after the determination has been made to propose a penalty.

  9. Integrated Data Retrieval System (IDRS) research must be conducted to determine if any previous violations have been assessed against the taxpayer. This must be done prior to the issuance of the penalty package. The date(s) and number of prior penalties must be recorded in the IMS case file.

  10. The IDRS command codes that should be reviewed for taxpayers with Employee Identification Numbers (EINs) are:

    1. SUMRY,

    2. TXMODA,

    3. BMFOLI, and

    4. BMFOLT.

  11. The IDRS command codes that should be reviewed for taxpayers with Social Security Numbers (SSNs) are:

    1. SUMRY,

    2. TXMODA,

    3. IMFOLI, and

    4. IMFOLT.

    Note:

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

  12. Employees 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 (i.e. 656). If the assessment amount is zero, IRC 6715(b)(2) and IRC 6715(e) will not apply in determining multiple violations (current assessment amount) and any administrative appeal rights. Zero amounts indicate the case was closed as a no-change and a penalty did not apply.

  13. Once the manager has notified the employee that the penalty has been approved, the 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 guidance on what is included in the penalty package.

  14. The case file will be mailed to the manager at the same time the thirty day letter is issued.

  15. The case should be synced and closed on IMS.

4.24.16.1.4  (03-30-2012)
Case Closing Procedures for Penalty Proposals

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

    • Form 5345D

    • Form 8278

    • Form 3198

4.24.16.1.4.1  (03-30-2012)
Instruction for Completing Form 5345D for Penalty Proposals

  1. Employee must complete Form 5345D. These sections include, but not limited to:

    1. Record the applicable inspection activity code.

    2. Record the appropriate MFT that corresponds to the activity code.

      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. An "EE" statute date is recorded using the month of the penalty, EE, and the year - "MMEEYYYY" .

      Note:

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

4.24.16.1.4.2  (03-30-2012)
Instructions for Completing Form 8278 for Penalty Proposals

  1. Employee must complete Form 8278. These sections include, but not limited to:

    1. The penalty amount should not be entered unless the taxpayer has agreed to the assessment and/or paid in full. This figure is determined and entered by the manager after the administrative appeal (if any).

    2. The "EE" statute date is recorded using the month of the penalty, EE, and the year as "MMEEYYYY" .

      Note:

      For example, if the penalty occurred in August of 2011, it would be recorded as "08EE2011"

      .

    3. Section G - the number of penalties will always be one (1).

      Note:

      If multiple penalties (i.e. IRC 6715(a)(1) and IRC 6717) are assessed on the same taxpayer, the employee must complete a separate page page 6 of the Form 8278 for each penalty. A separate case file will exist for each penalty assessed.

    4. The penalty reason code matches the penalty reference number with the exception of an 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. Form 8278 must be signed on both page 1 and page 6, by the employee and their manager either electronically or manually.

    6. If Item 10 of Form 8278 does not contain a signature by the employee and the manager, the case will be returned to the field group for appropriate action.

4.24.16.1.4.3  (03-30-2012)
Instructions for Completing Form 3198 for Penalty Proposals

  1. Employees must properly complete all required sections on Form 3198. These sections include, but not limited to:

    1. business unit,

    2. employee preparing form,

    3. taxpayer name/address,

    4. expedite processing,

    5. special features, and

    6. forward to Centralized Case Processing (CCP).

  2. Disposal code 12 will be used for all dyed fuel penalty proposals. If the case is closed no-change by the group secretary, the disposal code should be changed by the group secretary to reflect disposal code 02 before closing to CCP.

4.24.16.1.5  (03-30-2012)
Inspections Resulting in a Potential IRC 6715 Violation

  1. The penalty package for an IRC 6715 violation is the written notification issued to the taxpayer informing them about the proposed penalty. The penalty package should be issued immediately, once the manager has notified the employee that the penalty has been approved.

  2. Form 886-A, Explanation of Items, should be issued by the next business day after a potential violation of IRC 6715 has been found.

    Note:

    If the potential violation was found by a state, the Memorandum of Understanding will dictate when the Internal Revenue Service will pursue the case and issue the Form 886-A.

  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 a State penalty.

  4. The Employee must conduct a follow-up inspection within 60 days of the issuance of the penalty package to ensure the taxpayer is in compliance. A follow-up inspection to ensure dyed fuel is no longer being used in a taxable manner is a separate inspection for the purposes of applying and calculating multiple violations and should be entered separately into IMS.

4.24.16.1.6  (03-30-2012)
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, once the group manager has notified the field employee that the penalty has been 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 ensure the taxpayer is in compliance.

4.24.16.1.7  (03-30-2012)
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. The penalty package should be issued immediately, once the group manager has notified the field employee that the penalty has been 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  (03-30-2012)
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 penalty. The penalty package should be issued immediately, once the group manager has notified the field employee that the penalty has been 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. Employees must conduct a follow-up inspection within 60 days of the issuance of the penalty package to ensure the taxpayer is in compliance.

4.24.16.1.9  (03-30-2012)
Case File Assembly for Penalty Inspection Cases

  1. The procedures listed below must be followed for all penalty inspection case files.

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

  3. Each case file is placed in a separate folder. The oldest period (if applicable) is placed on top, followed by the other years, in order.

  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 to ensure they are not separated in error. The files should be bound together with a rubber band or strap.

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

    Note:

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

  7. A properly completed Form 3210, Document Transmittal, must accompany the case file.

  8. The case file must be sent for next business day delivery (overnight).

4.24.16.1.9.1  (03-30-2012)
Order of Assembly of Penalty Inspection Cases

  1. Form 3198 along with Form 3210 must be attached to the outside of the folder.

  2. The following forms should be stapled to the inside of the left side of the folder in the following order (top to bottom):

    1. Form 5346, Examination Information Report, where warranted.

    2. Copy of Form 2363, Master File Entity Change. Annotate on Form 3198 the date the Form 2363 was faxed to Centralized Case Processing (CCP).

    3. IDRS research.

  3. The following forms should be stapled 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 was 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.

    5. Form 433-D, Installment Agreement.

      Note:

      Form 3198 should indicate the inclusion of Form 433-D. See IRM 4.24.16.4 for more guidance on installment agreements.

    6. Form 2848, Power of Attorney and Declaration of Representative.

      Note:

      Form 3198 should indicate the inclusion of Form 2848

      .

    7. Form 12175, Third Party Contact Form,

    8. Form 12180, Third Party Contact Authorization Form.

    9. Form 9984, Examining Officer's Activity Record.

    10. Lab results, with the file copy of the Form 9667, Sample Bottle Seals and Identification Labels, attached.

    11. All supporting documents/photographs.

    12. All research material such as Accurint.

    Note:

    Do not include a form or document if it doesn't apply to the case.

4.24.16.1.10  (03-30-2012)
Case File Assembly for Fuel Compliance Examinations

  1. Fuel Compliance Agent examination case files must be assembled in accordance with IRM 4.10.9.5. See IRM 4.24.10, Excise Tax Examination Reports, Case Closing and Appeals Procedures, for more information.

4.24.16.1.11  (03-30-2012)
Centralized Case Processing (CCP)

  1. All proposed penalty case files are processed through CCP. This includes cases that result in a penalty being applied and those that are no-changed by management after a determination has been made to propose a penalty.

  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.

4.24.16.1.12  (03-30-2012)
Case Processing-Managerial Responsibilities

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

    1. Review all proposed penalty cases on IMS.

    2. Approve Form 5345D and notify employees that the penalty has been approved.

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

    4. Receipt of Form 12009,Form 12010, Form 12012, Form 12013, or Form 12014, Report of Proposed Penalty - IRC 6718.

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

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

    7. Update the case to status 51 and closing to CCP, once the thirty-day statutory period has expired and the taxpayer has not responded.

    8. Recording of all contacts with the taxpayer and results of the review of the case in IMS utilizing the managers activity record.

  2. If the taxpayer requests a manager's conference and a determination is made by the manager that a penalty will no longer apply, 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 a taxpayer the right to a pre-assessment appeal of a proposed IRC 6715 penalty. The appeal rights under this revenue procedure also apply to IRC 6715A, IRC 6720A, and IRC 6717 penalties.

  2. If the taxpayer does not make a timely appeal request, the penalty may be assessed. If the taxpayer still wants to appeal the penalty, the penalty must be paid and a claim for refund submitted for abatement of the penalty. See IRM 4.24.16.3 .

  3. Though the taxpayer may contact the manager to discuss the inspection at any time prior to its completion, the appeals process does not begin until the penalty package has been issued.

  4. The penalty package includes instructions for the taxpayer on appealing the penalty. Form 12009 is to be submitted if a decision to appeal is made.

  5. Under IRC 6715(e), a person's right to appeal an IRC 6715 violation is limited if the person has been penalized under this section at least twice after October 22, 2004. The person may still file an appeal, but only if in the case of a claim regarding:

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

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

  6. The manager will record all taxpayer contacts including those involving determination and basis for determination, tax law, and taxpayer's position utilizing the manager activity record in IMS.

  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 manager within 30 days.
    The taxpayer submits the Form 12009. The 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 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 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 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 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  (03-30-2012)
Appeals Case Routing Procedures for Penalty Cases

  1. All cases should already be established in status 12 on ERCS once a determination was made that a penalty may apply. Once it has been determined that the case will be forwarded to Appeals, the case will be updated to Status 14 on ERCS. Status 14 will indicate that the case is in Appeals for monitoring purposes. The case will remain in Status 14 on ERCS until the case has been returned from Appeals.

  2. Cases must be forwarded to the designated Appeals Processing Services (APS) for the area in which the specially trained Appeals Officer resides for proper assignment. The following link should be utilized in determining the appropriate routing address information: http://appeals.web.irs.gov/APS/excisetaxcaserouting.htm.

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

    1. current inspection file including statements made by employees, 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 and results of the laboratory and field testing,

    4. record of all taxpayer contacts, including results of the informal appeal,

    5. prior inspections, both violation and non-violation, if available, and

    6. record of the results of the informal appeal conference with the manager.

      Note:

      A completed Form 3198 and Form 3210 will accompany the case file.

  4. After 180 days, the manager shall follow up quarterly with Appeals to determine the status of the case.

4.24.16.2.2  (03-30-2012)
Final Disposition of the Penalty Case File after the Appeal

  1. After a decision has been 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 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 manager to ensure the case file on IMS is updated to reflect the disposition of the penalty. The group manager must verify that the Appeals Case Memorandums (ACMs) and Form 5402, Appeals Transmittal and Case Memo, are included in the completed IMS case file that is forwarded to CCP.

4.24.16.3  (03-30-2012)
Claims for Abatement of Fuel Compliance Penalties

  1. The taxpayer may dispute a penalty 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 shall forward the claim to the appropriate manager utilizing Form 3210.

  4. The manager shall take into consideration the facts and documentation accompanying the claim to make a determination. The manager may disallow in full, partially allow or fully allow the claim.

  5. Once a determination has been made regarding the claim, the appropriate closing letter shall be forwarded to the taxpayer.

  6. When all appropriate actions are completed, the manager shall send the 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  (03-30-2012)
Fuel Compliance Collection Duties

  1. Letter 3145, which is included in the penalty package, solicits 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 paying 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 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 the employee receives a "completed" installment agreement from the taxpayer the employee will:

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

    2. Fax the completed Form 3177 within 24 hours of receipt from the taxpayer. The fax is sent to the attention of General Case Processing. 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 shall be marked accordingly to indicate that the completed installment agreement is enclosed in the file.


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