Coal Excise Tax - Chapter 3, General Audit Techniques
Revision Date - May, 2005
NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date
- Reconcile Form 720 return to taxpayer's worksheet. If tax is reported under abstracts 37 or 39, ask how tax was calculated to determine if tax was calculated correctly under the manufacturer's excise tax guidelines.
- If state severance tax returns are required, reconcile the Form 720 to state returns.
- Reconcile the Form 720 to the Office of Surface Mining (OSM) quarterly returns. Currently, OSM does not exempt export coal sales.
- The tax is to be calculated on a load-by-load basis. Documentation should be available stating the rate paid for each load delivered to the purchaser; average sales price calculations are not acceptable.
- Reconcile the monthly sales journal to the sales invoice worksheet. The sales invoice worksheet should be supported by delivery tickets which support the number of tons delivered. A remittance advice should be available which details the loads being paid for by the purchaser.
- Reconcile weekly production reports to the sales journal. Weekly production reports should show the tonnage reported from each mine.
- If coal is purchased, and thus not subject to tax because the tax was supposedly paid by the producer, review the canceled checks to support the purchases. Obtain the EIN, name, and address of the company from whom the coal was purchased and review their transcript to ensure that the other company has filed a Form 720.
- Taxpayers often mine someone else's mineral rights for which royalties are paid. Ask to see mineral right agreements to determine if royalties are payable; how royalties are calculated; and to whom royalties are paid. Some agreements call for a minimum annual payment or a set rate per ton. Royalties per the agreements should be reflected on the income tax return; if not, why not.
- Ask how many seams are being mined; how many mines are being operated; how many miners employed; how many shifts are run?
- How is coal transported? Transportation costs to the buyer may be deductible.