4.24.17  Excise Summary Terminal Activity Reporting System (ExSTARS) Compliance Examination Procedures

Manual Transmittal

September 18, 2013

Purpose

(1) Updated IRM. This transmits updated IRM 4.24.17, Excise Tax, Excise Summary Terminal Activity Reporting System (ExSTARS) Compliance Examination Procedures.

Material Changes

(1) Moved ExSTARS information from IRM 4.24.4 to this section.

(2) Moved Terminal Control Number procedures from IRM 4.24.4 to this section.

(3) Moved and updated procedural guidance relating to extending the statute of limitations period from IRM 4.24.4 to this section.

(4) Updated IRM cites and hyperlinks

IRM Section Description of Change
4.24.17.1 Introduction to ExSTARS Compliance Examinations Significant updates made to add clarity. Add information relating Facility Control Number questionnaire.
NEW 4.24.17.1.1 Form 720-TO/CS Information Reporting Content moved from 4.24.4.2 and updated as warranted.
NEW 4.24.17.1.2 Procedural Guidance Relating to Facility Control Number Content moved from 4.24.4.13 and significantly updated.
New 4.24.17.1.3 Procedural Guidance for Change of Facility Status Content moved from 4.24.4.13.1 and updated.
4.24.17.2 ExSTARS Workload Selection Updated for clarity.
4.24.17.3 ExSTARS Report Filings Minor updates for clarity.
4.24.17.4 ExSTARS Statute Control and Extensions New content relating to SOL extensions. Added procedural guidance relating to completion of Request for Information form.
4.24.17.5 ExSTARS ERCS Procedures Edits made to add clarity, add reference to IMS at (6).
NEW 4.24.17.5.1 Case Coordination Guidance Add SBSE- 04-0213-019, Case Coordination Guidance for Examinations and Related Forms 720 -TO/CS Reviews.
4.24.17.6 ExSTARS Information Provider Initial Contact Minor edit for clarity.
4.24.17.7 ExSTARS Information Report Filing Issues Minor edits for clarity.
4.24.17.8 ExSTARS Information Report Accuracy Issues Minor edits for clarity.
4.24.17.9 Overview of ExSTARS Compliance Minor edits for clarity
4.24.17.9.1 ExSTARS Compliance Examination Case Closing Update for new titles to letters.
4.24.17.9.2 ExSTARS Compliance Examination-No Penalty Case Update IMS case closing procedures for clarity.
4.24.17.9.3 ExSTARS Penalty Case File-Agreed Minor edits and deletions for clarity.
4.24.17.9.4 ExSTARS Penalty Case File-Information Providor Agrees with Penalty Edits to change Letter 4599 title, update IMS closing procedures to reflect newly established MFT PH.
4.24.17.9.5 ExSTARS Penalty Case File-Unagreed Case Closing Information Edits for clarity and add link to the E-fax numbers at CCP.
4.24.17.9.6 ExSTARS Penalty Case File-Unagreed Case Closing Documents No Changes.
4.24.17.9.7 ExSTARS Penalty Case File-No Response Minor edits for clarity.
4.24.17.10 Instructions for Completing Form 8278 Minor edits for clarity.

Effect on Other Documents

This material supersedes IRM 4.24.17, dated 3-29-2012. Interim Guidance SBSE- 04-0213-019, Case Coordination Guidance for Examinations and Related Forms 720 -TO/CS Reviews, dated 2-26-2013 has been included in this IRM section.

Audience

Small Business/Self-Employed (SB/SE) Excise Exam Managers, National Quality Reviewers and Excise Employees.

Effective Date

(09-18-2013)



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

4.24.17.1  (09-18-2013)
Introduction to Excise Summary Terminal Activity Reporting System (ExSTARS) Compliance Examinations

  1. IRC 4101(d) authorizes the IRS to require information reporting from any person who is registered under IRC 4101 and from any other person who the IRS deems necessary to administer fuel tax rules. Under Treas. Reg. §48.4101-2, any person that is required to file these information reports must file the reports for a calendar month. These reports must be filed by the end of the month following the month to which the report relates.

  2. The IRS requires terminal operators to file Form 720-TO, Terminal Operator Report, to report the receipt and disbursement of all liquid products. The IRS also requires bulk carriers file Form 720-CS ,Carrier Summary Report. Vessel operators report all liquid product receipts and disbursements to and from approved terminals and refineries designated with a Terminal Control Number (TCN) and Refinery Control Number (RCN), respectively. A pipeline operator only reports receipts and disbursements to and from an approved terminal designated with a TCN.

  3. IRC4101(d) requires any person with 25 or more reportable transactions (e.g. those transactions required to be reported on Form 720-TO and 720-CS ) in a month to file any report required pursuant to IRC 4101(d) in an electronic format.

  4. ExSTARS is an electronic data interchange system that was developed by federal, state, and industry stakeholders to facilitate the electronic filing requirement of IRC4101(d). The IRS uses the information gathered through ExSTARS to plan fuel tax compliance and taxpayer service activities. Therefore, it is important that the IRS ensure that the information gathered through ExSTARS is accurate. As a result, ExSTARS compliance examinations are an important part of the IRS’s overall fuel tax compliance strategy.

  5. The IRS issues a Facility Control Number (FCN) to designate a storage location within the motor fuel, renewable fuel production, or bulk transfer/terminal system. Operators of an approved FCN facility are registered by the IRS on Form 637. These facilities include:

    • Approved refineries (RCN)

    • Approved terminals (TCN)

    • Biodiesel production facilities - Biodiesel Control Number (BCN), or

    • Ethanol production facilities - Ethanol Control Number (ECN)

    Currently, the TCN is the only FCN required to file ExSTARS reports.

    Note:

    Vessel and pipeline operators are not issued an FCN but must file ExSTARS reports. See IRM 4.24.17.1.2 for more information relating to FCN reporting requirements.

  6. ExSTARS compliance examinations are conducted by Excise Fuel Territory Revenue Agents (RA) and Fuel Compliance Agents (FCA) referred to as "excise examiners" in this IRM section.

  7. The excise examiner is required to utilize management specified examination software for all ExSTARS compliance examinations. The Issue Management System (IMS) with affiliated Notebook, (which provides lead sheet templates, reports, letters, and closing forms), is the current excise tax examination case file software system.

  8. The scope of an ExSTARS compliance examination is limited to ExSTARS filing requirement issues concerning:

    • Failure to make a report on or before the date prescribed.

    • Failure to include required information.

    • Failure to include correct information.

    • Failure to report electronically when there are greater than 25 transactions.

  9. ExSTARS compliance examination primary objectives are:

    • Identify large, unusual, and questionable (LUQ) items.

    • Ensure report data is accurate and timely.

    • Develop fraud issues.

    • Improve the probability of future reporting compliance.

    • Apply IRC 6719 and 6725 penalties impartially and consistently across the fuel tax territories.

  10. IRC 6725 imposes on any person required to file reports under IRC 4101(d) a penalty for failing to file the report or for failing to include all required information on the report. Absent reasonable cause, the penalty is $10,000 per failure for each vessel or facility (e.g., a terminal or other facility) for which information is required to be furnished.

  11. During an ExSTARS compliance examination, the excise examiner should determine whether the person under examination is required to be registered by the IRS under IRC4101(a) and if so, confirm their registration status. While the requirement to register and the information reporting requirements under IRC4101(d) are independent of each other, most persons with an IRC4101(d) information reporting obligation are also required to be registered under IRC4101(a). Absent reasonable cause, IRC 6719 imposes a penalty of $10,000 for each initial failure and $1,000 for each day that the failure to register or reregister continues.

    Note:

    An example of a person that has an information reporting obligation, but is not required to register under IRC 4101(a), is a vessel operator that transports nontaxable liquids to or from a terminal.

  12. Tax matters identified during an ExSTARS compliance examination are referred to Excise Operations Support (EOS). Excise examiners should prepare Form 5346, Examination Information Report, with supporting documentation and submit, through the manager for approval. Once approved, submit Form 5346 via secure e-mail to the EOS mailbox "SBSE Excise EOS" . See IRM 4.24.18.4, EOS Group Mailbox Receipt Leads, for more information.

  13. Form 637 registration deficiencies identified during ExSTARS compliance examinations must receive group manager concurrence. Submit Form 5346, Examination Information Report through their manager for approval. Once approved, submit Form 5346 to the Form 637 Registration Group Manager for registrations not under examination.

  14. Generally, a Facility Control Number (FCN) questionnaire is needed to request status changes to approved FCN facilities. However, if ExSTARS compliance exam technical support is needed, submit a Guidance Request Memorandum (GRM) to Fuel Policy: See IRM 4.24.6.13, Requesting Excise Subject Matter Expert (SME) Assistance. for GRM procedures. The FCN questionnaire may be found in the ExSTARS web page located at http://mysbse.web.irs.gov/Specialty/excise/prog/exstars/default.aspx.

4.24.17.1.1  (09-18-2013)
Form 720-TO/CS Information Reporting and Third Party Contact Requirements

  1. ExSTARS compliance examinations are conducted in accordance with the reporting requirements established in Pub 3536, Motor Fuel Excise Tax Electronic Data Interchange (EDI) Guide.

  2. The excise examiner will follow third party contact procedures if large, unusual, or questionable items are identified. For example; an excise examiner is unable to locate a corresponding bulk carrier disbursement report for a terminal receipt under examination, or a bulk carrier registration status is in question. The excise examiner should make a third party contact to resolve the potential reporting or registration issue.

  3. Taxpayer privacy rights must be protected when making third party contacts. The excise examiner should not discuss information that is subject to the third-party notification requirements under IRM 4.11.57,Examining Officers Guide/Third Party Contacts, and should not review third party information that would rise to the level of an examination.

4.24.17.1.2  (09-18-2013)
Procedural Guidance Relating to Facility Control Number (FCN)

  1. A TCN is used to identify individual terminals.

  2. The FCN Coordinator receives FCN requests from facility operators, excise examiners, and fuel compliance officers (FCOs). See http://mysbse.web.irs.gov/Specialty/excise/contacts/headquarters/20169.aspx for contact information.

  3. For FCN issues employees will:

    1. Verify whether the terminal operator is a taxable fuel registrant with an Activity letter “S” in the event a TCN is to be issued.

    2. If applicable, create or update the IMS Form 637 case file work papers.

      Note:

      Secure an initial Form 637 application if creating a new case file.

    3. Determine TCN requirements.

    4. Conduct an on-site inspection to verify status changes.

      Note:

      The FCN Coordinator and revenue agents may request a site visit by an FCO or FCA through the appropriate fuel territory group manager.

    5. Submit FCN questionnaire to FCN Coordinator to update facility status. See IRM 4.24.17.1(12).

    6. FCN Coordinator communicates the determination to the facility.

    Note:

    FCN technical support may be requested by submitting a GRM to:sbse.excise.exstars@irs.gov

  4. Facilities may have more than one FCN. For example, a refinery with an RCN may also meet the definition of an approved terminal which would require the facility to also have a TCN.

  5. The FCN Coordinator updates the applicable FCN location directory found on the IRS web page. See the following links:http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Terminal-Control-Number-(TCN)-Terminal-Locations-Directory and http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Refinery-Control-Number-(RCN)-Refinery-Location-Directory.

4.24.17.1.3  (09-18-2013)
Procedural Guidance for Change of Facility Status

  1. FCN facilities are required to contact the FCN Coordinator if there is a change in operator or business operations. Notification may be made via fax, phone or e-mail. The FCN Coordinator will follow authentication requirements found in IRM 11.3.2.3.2, Requirements for Verbal or Electronic Requests during contact.

  2. Verification is required for any FCN status update. The FCN Coordinator and revenue agent must request a site visit by an FCO or FCA, through the appropriate fuel territory group manager, to verify the terminal status change.

  3. FCN Coordinator makes final determination for all FCN status change requests.

  4. The FCN Coordinator will notify the facility of status change.

  5. FCN numbers are not removed from the ExSTARS database; however, the IRS web page only displays approved FCN location directories. See IRM 4.24.17.1.1(2) for more information on approved FCN facilities.

4.24.17.2  (09-18-2013)
ExSTARS Workload Selection, and Assignment

  1. Excise examiners should take a role in improving classification, workload selection, and assignment by providing information to EOS regarding industry trends, developments, arrangements, and preferences within their jurisdiction.

  2. IRM 4.24.4.4 provides workload stratification guidance specific to fuel related examination activities.

  3. IRC 4101 compliance case work, includes:

    • Form 720-TO/CS ExSTARS compliance examinations,

    • Form 637 Registration initial applications and compliance reviews, and

    • IRC 6719 and 6725 penalty cases,

  4. An IRC 4101 compliance exam is assigned at journey level or below grade.

  5. Grade level assignments may differ between IRC 4101 compliance case work and Form 720 examinations. Group manager assignment of a related Form 720 exam as a part of the IRC 4101 compliance exam will require an adjustment from the journey level or below status to match that of the Form 720 case grade.

  6. The primary IRC 4101 compliance case plus any subsequent and/or prior periods, or any related IRC 4101 compliance case work, controlled by an excise examiner, will carry the same grade level.

  7. A related registrant that is examined by other excise examiners will be graded separately.

  8. To expand the scope of IRC 4101 compliance case work to a Form 720 examination or Form 8849 claim for refund examination, the excise examiner must submit a referral using Form 5346, Examination Information Report, to their manager.

4.24.17.3  (09-18-2013)
ExSTARS Report Filings

  1. When information reports are submitted through ExSTARS, the system validates specific data field, syntax, and string structure, as described in Pub 3536. The validation process does not verify accuracy of the information or identify omitted transactions. ExSTARS generates an error report if issues are detected during the validation process.

  2. Examples of situations that would generate error reports are entering:

    • An invalid EIN or a social security number.

    • 777777777, 888888888, or 999999999 as the EIN for a terminal operators, position holder or bulk carrier.

    • 777777777 as the EIN for a Department of Defense (DOD) carrier or consignor.

    • 888888888 as the EIN for a carrier that operates a foreign-flagged vessel.

    • 999999999 as the EIN for any situation other than to report rail or truck carriers when EIN is unknown.

  3. Upon submitting monthly data, information providers receive an acknowledgment for the receipt of every electronic information report:

    1. Transmission acknowledgement (ACK) (997) file, and

    2. Validation (151) ACK file.

  4. The ACK files are placed in the electronic participant’s mailbox that was set up as part of the EDI testing.

  5. Filing date evidence is the receipt date of a 997-A (accepted) ACK and a 151 ACK. A TS-997 ACK file is created every time an ExSTARS Information Provider or Approved Excise Third Party Transmitter submission is successfully transmitted.

  6. If the information provider receives a TS-997 ACK with an “A” in the AK501 segment, followed by a TS-151 ACK Level 1 error, then the transaction set has been rejected in its entirety. The information provider is required to correct the problem and resubmit the transaction set as an original file.TS-151 ACK errors are considered "must fix errors" to be corrected within 15 calendar days in order to be deemed timely filed.

4.24.17.4  (09-18-2013)
ExSTARS Statute Control and Extensions

  1. The period of limitations is the allowable time period in which the IRS may make an assessment regarding an ExSTARS report. A person must file a report to start the limitation period provision. The period of limitations will remain open indefinitely if the person does not file a report.

  2. ExSTARS information reports do not post to IDRS therefore a statute of limitation (SOL) date will not automatically post to the master file. The ExSTARS report filing date can generally be found in the case file building material. If the SOL cannot be determined, the excise examiners shall use the Request For Information (RFI) form to request data from the JOC and forward to the manager for approval. The manager will process the RFI which will transmit directly to the JOC mailbox. The RFI can be found on the JOC web page. at http://mysbse.web.irs.gov/Specialty/excise/issues/joc/default.aspx.

  3. Pursuant to IRC 6501(a), in the case of a filed Form 720-TO or 720-CS information report that does not contain the required information, or contains incorrect information, the penalty imposed by IRC 6725 generally must be assessed within 3 years from the due date or the date of filing, whichever is later.

    Note:

    A filed paper or electronic report starts the statute of limitation running, regardless of the electronic filing requirement.

  4. In general, an examination of an ExSTARS information report and assessment of penalties must be completed timely and within the statute of limitation period. In cases where a compelling business reason exists, Form 872-EX, Consent to Extend the Time on Assessment of Information Report Penalty, may be solicited. Examples of when to secure a Form 872-EX extension include:

    1. Penalty issue(s) that require the compliance examination to remain active.

      Note:

      Civil penalties under IRC 6719 and 6725 may be imposed without an examination.

    2. Statute of limitation period will expire within 180 days

    3. There is insufficient time to complete and process the case. For example, an examination with less than 12 months remaining on the statute of limitations, cannot be initiated without group manager approval.

  5. The excise examiner must secure group manager concurrence prior to a statute extension solicitation.

  6. Letter 907-C, Request to Extend Assessment Statute EXSTARS Statute Extension Initial Letter, along with Form 872-EX are mailed to the taxpayer to request to extend the statue. If the taxpayer:

    1. Agrees to the extension, the taxpayer will sign and return the Form 872-EX. The IRS will send a copy of the signed Form 872-EX along with Letter 929-C, Transmittal to Taxpayer of Copy of Signed Consent, signed by the Chief Excise Tax Program.

    2. Does not return a signed Form 872-EX when requested, the excise examiner will mail the taxpayer follow up Letter 928-C, Follow Up Letter Requesting Return of Consent.

  7. Excise examiner must submit through their manager Form 5348, AIMS/ERCS Update, upon securing Form 872-EX to reflect the new statute date.

4.24.17.5  (09-18-2013)
ExSTARS Examination Return Control System (ERCS) Procedures

  1. ExSTARS information reports are not established on the Audit Inventory Management System (AIMS) and therefore do not post to the Integrated Document Retrieval System (IDRS). ExSTARS compliance examinations and associated penalties are controlled on ERCS. Assessed penalties post to IDRS under MFT 13.

  2. Terminal operators may operate multiple approved terminal facilities under a single Taxpayer Identification Number (TIN). The use of a substitute "TIN" , reflecting the facilities specific terminal control number is used for ERCS purposes. See IRM 4.24.17.5(4)(f).

  3. Bulk carriers, who report information on Form 720-CS, use actual taxpayer identification numbers.

  4. ExSTARS compliance case files will generally be established on ERCS. If a case is not established on ERCS, the excise examiner must complete and submit Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users, to the group manager. See IRM Exhibit 4.4.23-3, Form 5345-D Assistance, for detailed guidance on how to complete this form. In addition to completion of the basic information fields, the excise examiner must:

    1. Check the "Control Non-AIMS DET Items" box.

    2. Enter 214 in the PBC field.

    3. Enter the excise examiner's territory Business Code in the SBC field.

    4. Enter the excise examiner's group code in the EGC field.

    5. Enter the excise examiner's ERCS Employee ID and Name.

    6. Enter the Carrier Summary Tax Identification Number (TIN) or Terminal Operator TIN for the entity under examination.

      Note:

      If the entity has only one TCN, use the TIN. If an entity has multiple TCN's use a substitute TIN to identify the specific facility. The substitute TIN format for ERCS control is 00-0 plus the 6 digits from the entities TCN. Example: The TCN for ABC Terminal is 61-KY-1234; therefore the substitute TIN is 00-0611234.

    7. MFT – B1.

    8. Form Type - Form 720-TO or 720-CS.

    9. Tax Period – period under exam is identified in the classification package.

    10. Activity Code – 547 Form 720TO/CS.

    11. Source Code – 20 Regular Classification.

    12. Status Code – 10 Unstarted.

    13. Statute Date – Contact the JOC for filing date information to calculate the statute date.

    14. Tracking Code – for Form 720-TO case use 7664 (Form 720-TO Penalty Case); for Form 720-CS case use 7770 (Form 720-CS Penalty Cases).

    15. Project Code – 0063 Fuel Terminal.

  5. Prior and/or later compliance periods also require the excise examiner to submit Form 5345-D which should include the items a through i in 4.24.17.5(4). In addition the excise examiner needs to complete the following data field information:

    1. Tax Period – Applicable examination period.

    2. Activity Code - 547.

    3. Source Code – 40 Filed prior and/or Subsequent Year Pick-Up.

    4. Status Code – 10, once time is applied status will update to 12.

    5. Statute Date –Contact the JOC for filing date information to calculate the statute date.

    6. Tracking Code – for Form 720-TO case use 7664; for Form 720-CS case use 7770.

    7. Project Code – 0063 Fuel Terminal.

    8. The related return information section for the primary period.

  6. The penalty assessments under IRC 6719 & 6725 resulting from IRC 4101 compliance case work requires a separate IMS case file. The excise examiner must submit Form 5345-D to establish the case. Include all necessary information, including the following data field information:

    1. Entity's name and address.

    2. Check the "Control Penalty Investigation" box.

    3. The Tax Identification Number (TIN) – Penalty cases must use an accurate TIN, do not use terminal compliance exam substitute numbers.

    4. MFT– PH

    5. Tax Period – The controlling period for the IRC 6719 penalty is the month when the failure to register first occurred. Note: The IRC 6719 penalty may be assessed on an entity who is not required to file ExSTARS information reports. The controlling period for the IRC 6725 penalty is month when the failure first occurred.

    6. Activity Code - 506 Information Return Penalty Case.

    7. Source Code – 99 Non AIMS Miscellaneous Penalty.

    8. Status Code – 10, once time is applied status will update to 12.

    9. Statute Date – Enter the statute date provided by the JOC as reflected in the B1 case.

    10. Tracking Code – Form 720-TO case will use Tracking Code 7664 (Form 720-TO Penalty Case ); Form 720-CS cases will use Tracking Code 7770 (Form 720-CS Penalty Cases ).

    11. Project Code – leave blank.

4.24.17.5.1  (09-18-2013)
Case Coordination Guidance for Examinations and Related Forms 720 -TO/CS Reviews

  1. Case Coordination Procedures When the Exam Case is in Status 12- If an MFT 03 examination is currently in status 12, and a number of related Form 720-TO/CS reviews (B1 reviews) are identified for classification, the JOC manager will seek input from the assigned field group manager on the number of B1 sample reviews to be selected, and where possible, the specific locations to be reviewed.

    1. PSP WIC Classification Check Sheets for the selected B1 reviews will be noted that "case coordination is required with the excise examiner assigned to the MFT 03 case " .

    2. The excise examiner conducting the B1 review must inform the controlling case excise examiner of their intent to contact the taxpayer and will also forward to them a copy of the Form 4564, Information Document Request (IDR) issued to the facility.

    3. The excise examiner assigned to the MFT 03 case will schedule a conference call with the excise examiner assigned to the related B1 reviews to share any information pertinent to the reviews.

    4. When the excise examiner completes the B1 review, a conference call will be held with the excise examiner assigned to the MFT 03 exam to discuss the findings prior to the issuance of any reports.

    5. The excise examiner will provide a copy of the B1 review results via secure e-mail to the excise examiner assigned to the MFT 03 case for possible use/inclusion in the audit file.

    6. It is the responsibility of the excise examiner assigned to the MFT 03 case to ensure consistency is achieved across all entities. Concerns will be addressed by the exam and review managers.

  2. Case Coordination Procedures When the Exam Case is in Status 10- If an MFT 03 examination is currently in status 10, assigned to a field group, and a number of related B1 reviews are identified for classification, the JOC manager will seek input from the assigned field group manager on the number of B1 sample reviews to be selected, and where possible, the specific locations to be reviewed.

    1. PSP WIC Classification Check Sheets for the selected B1 reviews will be noted that “case coordination is required with the field manager of the group in which the exam case resides”.

    2. The excise examiner conducting the B1 review will notify the assigned field case group manager of their intent to contact the taxpayer and will forward a copy of the IDR being issued to the facility.

    3. When the excise examiner completes the B1 review, a conference call will be arranged with the excise examiner, their manager, and the assigned field exam group manager to discuss the finding prior to the issuance of any reports.

    4. The excise examiner will provide a copy of the B1 review results via secure e-mail to the assigned field exam group manager for possible use/inclusion in the audit file.

    5. It is the responsibility of the field exam group manager to ensure consistency is achieved across all entities. Concerns will be addressed by the exam and review managers.

  3. Case Coordination Procedures When No MFT 03 Case is Selected for Examination- If there are a number of B1 reviews identified for classification and the related MFT 03 case is not in status 10 or 12, the JOC Manager will determine the number of cases to be selected for review and identify a field group manager to coordinate the reviews.

    1. PSP WIC Classification Check Sheets for the B1 reviews will include a note that “case coordination is required with the selected coordinating field group manager”.

    2. The excise examiner conducting the B1 review will be instructed to notify the coordinating field group manager of their intent to contact the taxpayer and will forward to them a copy of the IDR being issued to the facility.

    3. When the excise examiner completes the B1 review, a conference call should be held with the coordinating field group manager to discuss their finding prior to the issuance of any reports

    4. It is the responsibility of the coordinating field group manager to ensure consistency is achieved across all entities. Concerns will be addressed by impacted group managers.

4.24.17.6  (09-18-2013)
ExSTARS Information Provider Initial Contact

  1. Before starting an ExSTARS compliance exam, the excise examiner must ask the group manager to perform an ERCS/AIMS review to identify other excise examiners auditing related entities, subsidiaries, and facilities.

  2. IRM 4.24.5, requires initial communication with the LB & I team coordinator before contacting an entity. Similarly, communication must first be held with other excise examiners auditing related entities, subsidiaries, and facilities to discuss and coordinate the exam process.

  3. Initial ExSTARS compliance exam communication must be made to the excise tax information contact person listed on the entity’s Motor Fuel Excise Tax Electronic Data Interchange (EDI) Letter of Application (LOA). This information should be part of the case building material. If it is not included, submit a GRM to the FCN Coordinator. See IRM 4.24.6.13 for GRM procedures.

  4. The excise examiner must follow authentication requirements found in IRM 11.3.2.3.2, Requirements for Verbal or Electronic Requests to avoid unauthorized disclosure.

  5. If telephone contact fails, the excise examiner will issue Letter 2205-A, Initial Contact Letter, to the LOA contact person. Identify the TCN, if applicable, under the header subsection titled "Form." If an excise examiner is unable to communicate with the LOA person or a principal officer, call the Form 637 registration application contact person.

  6. Upon scheduling an initial visit, the excise examiner must issue:

    1. Letter 4591, Appointment Letter,

    2. Form 4564, Information Document Request,

    3. Pub 1, Your Rights as a Taxpayer, and

    4. Notice 609, Privacy Act Notice.

4.24.17.7  (09-18-2013)
ExSTARS Information Report Filing Issues

  1. The examination issues described in this section emphasize due dates and extensions of ExSTARS information report filings. Excise tax examiners are reminded to always consider and document reasonable cause.

  2. ExSTARS information reports must be filed monthly. The failure to file/late filed report is due on the last day of the following month.

  3. A 30 day automatic extension is granted to requests received in writing on or before the due date of a report. Additional 30-120 day extension requests may be granted if received timely and contain a valid explanation.

  4. Excise examiners may request ExSTARS extension information by submitting a GRM to the FCN Coordinator.

  5. The excise examiner should consider all facts and circumstances in the consideration of a late filed report. Group manager concurrence must be obtained for all late filed report determinations.

4.24.17.8  (09-18-2013)
ExSTARS Information Report Accuracy Issues

  1. The accuracy of ExSTARS information is crucial to the Service’s ability to effectively measure compliance. Timely, complete, and accurate filing is essential. The examination issues described in this section emphasize potential errors that may result from noncompliant reporting. Excise examiners are reminded to always consider and document reasonable cause.

  2. Listed below are some of the ExSTARS information report terminal operator accuracy issues that the excise examiner may encounter during a compliance examination:

    • Carrier (receipt and removal)

    • Position holder product code

    • Mode code

    • Volume received/removed, bulk and non-bulk

    • 2-party exchanges

    • Gains/losses

    • Summary reporting

    • Information omitted or not required

  3. Listed below are some of the ExSTARS information report carrier summary issues that the excise examiner may encounter during a compliance examination:

    • Volume discrepancies

    • Erroneous terminal control number

    • Erroneous position holder/owner

    • Erroneous product code

    • Erroneous transaction dates

    • Information omitted or not required

4.24.17.9  (09-18-2013)
Overview of ExSTARS Compliance Examination, Penalty Case Closing and Appeals Procedures

  1. The ExSTARS compliance examination case file should contain all the information necessary to ensure a clear understanding of audit step actions.

  2. Examination reports are only issued for ExSTARS compliance examinations that result in a penalty assessment.

  3. Examination reports (unlike work papers) are legally binding documents which serve as the basis for assessment and collection action. Excise examiners should take all necessary precautions to ensure the accuracy and proper execution of examination reports.

  4. Excise examiner contact information must be provided to the information provider upon issuance of a report. Refer to IRM 4.10.1.6.9, Providing Taxpayers with Employee Contact Information.

  5. The procedural guidance found in IRM 4.24.6, Excise Tax Examiner Responsibilities, and IRM 4.24.10 Excise Tax Examination Reports, Case Closing and Appeals Procedures generally apply to ExSTARS compliance examinations except where noted in this IRM section.

4.24.17.9.1  (09-18-2013)
ExSTARS Compliance Examination Case Closing Result Letters

  1. Results of an ExSTARS compliance examination may conclude as follows:

    • Substantially correct – no penalty

    • Immaterial error(s) – no penalty

    • Material error(s) – penalty imposition

  2. In cases where the ExSTARS information reports were substantially correct and no penalty is applicable, the excise examiner will issue Letter 4574-A, No Deficiency Letter for ExSTARS Report Found, to inform the information provider that an examination has been completed and no further action is required.

  3. In cases where the ExSTARS information reports were substantially correct, immaterial error(s) were found, and no penalty is applicable, the excise examiner will issue Letter 4574, Deficiency Warning Letter for ExSTARS Report, along with supporting documentation as warranted. Letter 4574 is used to inform the information provider that an examination has been completed, but states the various deficiencies that require corrective action by the information provider.

    1. In most cases a deficiency may be summarized on the letter but in cases where more space is needed, Form 886A or an attachment is appropriate.

    2. Letter 4574 and supporting documents should be associated with the IMS 637 case file.

    3. Secure e-mail a copy of Letter 4574 and supporting documents to the FCN Coordinator.

  4. In cases where the ExSTARS information reports were incorrect or material error(s) were found and a penalty is imposed, the excise examiner will issue Letter 4599, IRC 6725 Penalty Letter for ExSTARS Information Report, to inform the information provider that an examination has been completed and penalties are being imposed. See IRM 4.24.17.9.5 for information regarding unagreed case closing guidance.

4.24.17.9.2  (09-18-2013)
ExSTARS Compliance Examination – No Penalty Case File Documentation

  1. The IMS Case file should contain the following documentation:

    1. Form 3198, Special Handling Notice for Examination Case Processing

    2. Form 4318, ExSTARS Compliance Index

    3. Form 9984, Examining Officer’s Activity Record

    4. A105 Administrative Plan to Close

    5. A110 Pre-Plan Analysis

    6. A125 Group Manager Concurrence Meeting Sheet

    7. A130 Initial Contact Check Sheet

    8. B205 Initial Interview Questions

    9. C300 Form 720-TO Review Lead Sheet

    10. E500 Penalty Check Sheet - Penalty Approval Form

    11. Index ZZ Supporting Workpapers

    12. A copy of Letter 4574 or 4574-A

  2. When deficiencies are found, the excise examiner will associate a copy of the examination closing Letter 4574 and a summary of each deficiency with the Form 637 registration case file by sending a secure e-mail to the appropriate Form 637 registration Lead Tech. For a list of Form 637 Lead Tech see http://mysbse.web.irs.gov/Specialty/excise/contacts/headquarters/20343.aspx.

  3. Prepare Form 3198. Include the following information:

    1. ExSTARS information provider name,

    2. ExSTARS information provider address,

    3. ExSTARS information provider substitute TIN,

    4. excise examiner contact information,

    5. period(s),

    6. time applied,

    7. MFT-B1, and

    8. Disposal Code 02.

    Attach Form 3198 to the top outside cover of the case file and ensure form is uploaded into the IMS case file. Note in the "other Instructions" section of "Special Feature" include the following "ExSTARS No Change Penalty Examination, Letter 4574 or 4574-A letter issued."

  4. A completed case file is submitted for group manager review. Upon approval, the case is closed and the group clerk updates ERCS to status 90. The group manager retains custody of the paper compliance exam file.

  5. Excise examiner will move case to closed status in IMS when the case is closed to the group manager.

4.24.17.9.3  (09-18-2013)
ExSTARS Penalty Case File- Agreed Case Closing Documents

  1. In the event a penalty proposal is warranted, the excise examiner will prepare and submit the following documents to the group manager:

    1. Form 5345-DERCS Control Request, to request control of the penalty period(s),

    2. Work-paper E500-Penalty Approval Lead Sheet, and

    3. Form 886-A, Explanation of Items.

    Note:

    Penalty assessments require an actual TIN. Form 5345-D must reflect the actual TIN of an approved terminal and not the substitute TIN used for controlling the ExSTARS compliance exam. Additionally, excise examiners should provide group managers with information regarding any other penalty proposals under consideration from other excise examiners, pertaining to the controlled TIN and any related TINs. Efforts must be made to coordinate the issuance of penalty reports.

  2. Upon approval, the group manager will establish the ERCS penalty period(s), and return the executed forms to the excise examiner. The original documents will be placed in the ExSTARS compliance examination IMS case file with a copy of each document included in a newly established IMS penalty case file.

  3. Upon receipt of the executed E500 Penalty Approval Lead Sheet, the excise examiner should discuss the penalty proposal with the ExSTARS information provider. If the contact person is unavailable, address the penalty proposal(s) with an entity principal or officer.

    Note:

    If the LOA contact person has changed, the excise examiner will secure a new LOA.

  4. Posting of the assessed penalty amount to IDRS is made using MFT 13, penalty reference number 667.

4.24.17.9.4  (09-18-2013)
ExSTARS Penalty Case File-Information Provider Agrees with Penalty Proposal

  1. The IMS penalty case file should include the following documents:

    1. Form 3198,

    2. Form 8278, Computation and Assessment of Miscellaneous Penalties, Non-Return Related Civil Penalties

    3. Form 5384, Excise Tax Examination Changes

    4. Form 886-A, Explanation of Items

    5. Form 4318, ExSTARS Compliance Index

    6. Form 9984

    7. E500 Penalty Check Sheet, Penalty Approval Form and all related workpapers

    8. Copy of Letter 4599, IRC 6725 Penalty Letter for ExSTARS Information Report

      Note:

      Letter 4599 is used for both agreed and unagreed penalty cases.

    9. Index ZZ – Supporting Workpapers

    10. Registrant written response, if applicable

    11. Form 3244-A, Payment Posting Voucher, if applicable

  2. Prepare Form 3198, include the following information:

    1. ExSTARS information provider name,

    2. ExSTARS information provider address,

    3. ExSTARS information provider TIN,

    4. excise examiner contact information,

    5. exam period(s),

    6. time applied,

    7. MFT-13 (not MFT PH), and

    8. Disposal Code 03, or 04 if agreement received after issuance of 30 day letter.

  3. Prepare Form 3198 and check the "Other Instructions" box in the "Special Features" section and insert the following language: "6725 Penalty Case File – Assess using reference code 667 for month’s mm/yy through mm/yy."

  4. The excise examiner will forward the completed ExSTARS compliance exam and IMS penalty case files to the group manager for approval.

  5. Upon approval, the manager will issue Letter 4599 to the information provider.

  6. If the case is not approved, the group manager will return the IMS case file to the excise examiner for further development or other actions. This activity is to be documented in the case file.

  7. Group manager approved ExSTARS MFT PH penalty case files are sent to Centralized Case Processing (CCP) at the Cincinnati Service Center (CCSC). The group clerk updates the case to status 51 and mails the case to:

    Mail MFT PH Case File To:
    IRS-Cincinnati Service Center
    IRS Case Processing- Exam
    CCP Team 205, Stop 8412G
    201 W. Rivercenter Blvd.
    Covington, KY 41011
  8. Place a copy of the Form 5384 in the Form 637 registration IMS case file. If the excise examiner does not have access to the Form 637 registration IMS case file, send a secure e-mail to the appropriate Form 637 Lead Tech for case file association.

  9. Upon input of Form 8278, CCP will close ERCS database to Status 90.

    Note:

    The excise examiner should have already moved the case to closed status in IMS when the case was closed to the group manager.

4.24.17.9.5  (09-18-2013)
ExSTARS Penalty Case File- Unagreed Case Closing Information

  1. Appeals has jurisdiction over penalties provided by Chapter 68, Subchapter B (Additions to the Tax, Additional Amounts, and Assessable Penalties). These penalties are subject to a reasonable cause determination, provided that the ExSTARS information provider has requested appeals office consideration and, if required, has either made a small case request (total amount of penalties for each tax period is $25,000 or less) or filed a formal written protest. See Pub 3498, The Examination Process. The excise examiners will close appeal protest cases using disposal code 07.

  2. Appeal of a reasonable cause penalty may be made before or after payment, but it must be made before a claim for refund is filed.

  3. See IRM 20.1.1.4, Methods of Appealing Penalties, and Rev. Proc. 86-10, 1986-1 CB 534 regarding establishing procedure on a trial basis for appeal of reasonable cause penalty assessments. Appeals case routing procedures found in IRM 4.24.10.7.1 also apply to ExSTARS penalty cases.

  4. Letter 4599 is used to transmit the report and all required letter enclosures to the ExSTARS information provider.

    Note:

    Letter 4599 is used for both agreed and unagreed penalty cases.

  5. In general, no penalty will be imposed if reasonable cause is established. Penalty assertion requires careful consideration of the facts and circumstances of each case. Excise examiners will consider and document the exam issue and any reason, as it relates to the issue, furnished by the information provider.

  6. If the ExSTARS information provider does not agree with the penalty assessment, they can request:

    • A managerial conference,

    • Appeals consideration, or

    • Pay the penalty and file a claim for refund or petition the court.

  7. Penalty case files where information providers fail to respond, or wish to pay the penalty and file a claim for refund or petition the court, will be closed unagreed and forwarded to CCP at the address notated in IRM 4.24.17.9.4(7).

  8. Appeals request requires the group clerk to update the case to Status 21 and forward the case to Technical Services.

  9. As prescribed by IRM 25.6.23.8.1, Minimum Time Remaining to ASED, unagreed cases received in Appeals must have a 180 day minimum remaining on the assessment statute of limitation.

  10. Unagreed penalty assessments prior to closing the IMS case file require group manager approval. Assessments are made by E-faxing the following forms to CCP: Form 3198, 5385, and 8278 for each period. The current CCP E-fax number may be found at http://mysbse.web.irs.gov/AboutSBSE/aboutccs/ccsprog/casepro/cp/cont/28100.aspx.

4.24.17.9.6  (09-18-2013)
ExSTARS Penalty Case File- Unagreed Case Closing Documents

  1. In cases where the ExSTARS information provider does not agree with proposed penalty, the IMS penalty case file should contain the following documents:

    1. Form 3198

    2. Form 4665, Report Transmittal

    3. Form 8278

    4. Form 5385, Excise Tax Examination Changes and Consent to Assessment & Collection

    5. Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment

    6. Form 886-A

    7. ExSTARS Information Provider’s written responses

    8. Form 4318, ExSTARS Compliance Index

    9. Form 9984

    10. E500 Penalty Check Sheet, Penalty Approval Form and all related workpapers

    11. Copy of Letter 4599

      Note:

      Letter 4599 is used for both agreed and unagreed penalty cases

    12. Index ZZ – Supporting Workpapers

    13. Form 3244-A if applicable

4.24.17.9.7  (09-18-2013)
ExSTARS Penalty Case File- No Response from ExSTARS Information Provider

  1. In cases where an information provider fails to respond to a proposed penalty issued under a 30 day letter, excise examiners will follow case processing procedures prescribed under IRM 4.24.17.9.5(7).

4.24.17.10  (09-18-2013)
Instructions for Completing Form 8278, Computation and Assessment of Miscellaneous Penalties, Non-Return Related Civil Penalties

  1. Form 8278 is an adjustment document used by CCP to make a manual assessment or abatement of miscellaneous civil penalties not subject to deficiency procedures.

  2. A separate Form 8278 is required for each tax period and penalty code section.

  3. Multiple facilities that are controlled by the same TIN are to be combined by period on the Form 8278 whenever possible.

  4. Refer to the instructions to Form 8278 which provides specific excise related penalty fields.

  5. The IMS case file should only include the relevant penalty assessment page, not all pages of Form 8278.

  6. If necessary, the excise examiner must complete Form 5348 to update the statute date on ERCS.

  7. Both the excise examiner and the manager are required to sign the Form 8278. Failure to have both signatures will cause CCP to return the case to the field, causing delay of input.


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