Excise tax and associated penalties are important tools for IRS enforcement because they encourage voluntary compliance by taxpayers. See IRM 1.2.1.12.1, Policy Statement 20–1 (Formerly P-1-18), Penalties are used to enhance voluntary compliance.

The table below lists the authority for the administration of excise tax and associated penalties.

The Director, Business Support, is the director responsible for the servicewide civil penalty program.

Overall responsibility for civil penalty programs is assigned to the Office of Servicewide Penalties (OSP), an organization residing in the Business Support (Small Business/Self Employed) Function. OSP is charged with coordinating policy and procedures concerning the administration of civil penalty programs, ensuring consistency with the penalty policy statement, reviewing and analyzing penalty information, researching penalty effectiveness on compliance trends, and determining appropriate action necessary to promote voluntary compliance.

Each IRS organization is responsible for establishing an internal process for managing their procedures based upon these servicewide policies and may develop additional guidance or reference materials for their specific functional administrative needs. However, such reference material must receive approval from OSP prior to distribution and must remain consistent with the policies and general procedural requirements set forth in Policy Statement 20-1 in IRM 1.2.1.12.1, and any other guidance relating to civil penalties.

All employees should keep the following objectives in mind when handling each penalty case:

Every function in the IRS has a role in proper penalty administration. It is essential each function conducts its operations with an emphasis on promoting voluntary compliance. Appropriate reviews should be conducted to ensure consistency with the penalty policy statement (Policy Statement 20-1) and philosophy.

To promote the goal of consistency and fairness, OSP reviews semi-annually a sample of penalty assessments provided by SB/SE Research. See IRM 20.3.1, Civil Penalty Accuracy Review Process. The report of findings is shared with the Director, Business Support, the CFO, and other leadership as needed. The completed report is uploaded to an enterprise shared folder. Reports may be prepared when a significant issue develops, such as a correction to programming that affects many taxpayers.

OSP is organized into two sub-groups: Strategy & Analytics (SA) and Technical Analysis & Policy Specialist (TAPS). The SA group oversees penalty administration across multiple penalty programs. TAPS is a group of analysts assigned to specific penalties and serve as the subject matter expert. Each analyst is responsible for setting and maintaining policy and reviewing trends impacting their programs.

The table below lists terms, acronyms and definitions used in this IRM.

See the related resources below:

IRC 6751(b)(1) states, in general, no penalty under the IRC shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher-level official as the Secretary may designate. At this time, the Secretary has not designated any higher-level official to approve initial determinations.

The following penalties are excluded from this supervisory approval:

For all penalties subject to IRC 6751(b)(1), written supervisory approval must be obtained in a timely manner and retained in the case file. See IRM 20.1.1.2.3.1, Timing of Supervisory Approval, for policy related to the timing of supervisory approval.

The annual ISRP amount is the greater of a percentage of excess household income or a flat dollar amount, but is capped at the national average premium for a bronze level qualified health plan available through the Marketplace that would cover everyone in the household who does not have coverage and does not qualify for a coverage exemption.

Below is the summary table of 2014-2018 annual payment amounts and capped cost of the national average premium for a bronze level health plan available through the Marketplace:

The PRN for ISRP is 692. This is assessed on MFT 35 using Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties. See IRM 20.2.11.14, Affordable Care Act (ACA), for interest information on this penalty.

The law provides coverage exemptions such as the partial list below:

There is no reasonable cause exception for failure to maintain MEC.

The law prohibits the IRS from using liens or levies to collect any ISRP. If taxpayers owe an ISRP, the IRS may offset the liability with any tax refund that may be due to them.

If a taxpayer fails to timely pay the ISRP, the taxpayer is not subject to any criminal prosecution or penalty for the failure.

Unlike the ISRP, the employer shared responsibility payment (ESRP) under IRC 4980H is considered a tax for purposes of the IRC, and not a penalty. ESRP is assessed on BMF MFT 43 with TC 298, see IRM 20.2.11.14(3), Affordable Care Act (ACA), and IRM 4.10.5.13, Health Coverage Information Returns.

The penalty is 50% of the total amount of the underpayment of the tax for each failure to pay any tax that is payable by stamp, coupons, tickets, books, or other devices or methods.

The penalty is assessed on MFT 13 (for BMF) or MFT 55 (for IMF) using PRN 574 on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

If taxpayers want to contest the penalty assessment, they must fully pay the entire penalty and then file a claim for refund with the IRS.

The penalty for excessive claims for the use of certain fuels is an amount equal to the greater of:

The penalty is assessed on MFT 13 (for BMF) or MFT 55 (for IMF) using PRN 661 on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

The amount of an excessive claim, as well as the penalty imposed by IRC 6675 is assessable under IRC 6206, Special Rules Applicable to Excessive Claims Under Certain Sections.

If the taxpayer filed a quarterly claim, the penalty may apply to any excessive payment on the quarterly claim.

The penalty does not apply to an excessive credit taken on an income tax return including on Form 4136, Credit for Federal Tax Paid on Fuels, or Form 8864, Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels Credit or Form 6478, Biofuel Producer Credit. See Rev. Rul. 79-298.

The penalty will not be imposed if the taxpayer demonstrates the claim for the excessive amount was due to reasonable cause. See IRM 20.1.1.3, Criteria for Relief from Penalties.

The penalty is assessed on four types of misuse of dyed fuel.

For the first violation, the amount of the penalty on each act is the greater of:

For additional violations, the amount of the penalty is the greater of:

The penalty is assessed on MFT 13 (for BMF) or MFT 55 (for IMF) using PRN 656 on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

There is no reasonable cause exception to this penalty.

The IRS notifies the taxpayer in writing of the intention to impose the IRC 6715 penalty. Within 30 days from the date of the notification, a taxpayer can contest the penalty by completing Form 12009, Request for an Informal Conference and Appeals Review. If, after the conference, the IRS still proposes to assert the penalty and the taxpayer still disagrees with the decision, the taxpayer can request an Appeals review of the case.

Any person subject to the IRC 6715 penalty at least twice after 10/22/2004, as determined by chemical analysis, will be denied the right to an administrative appeal of a subsequent IRC 6715 penalty, unless the claim asserts:

If the penalty is assessed on any business, each officer, employee or agent of the business, who willfully participated in any part of the act giving rise to the penalty, is jointly and severally liable with the business for the penalty, per IRC 6715(d), Joint and several liability of certain officers and employees.

The penalty for tampering with mechanical dye injection systems is the greater of:

The penalty for failure to maintain security standards is:

The penalty is assessed on MFT 13 (for BMF) or MFT 55 (for IMF) using PRN 665 on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties.

There is no reasonable cause exception for tampering with or failing to maintain security requirements for mechanical dye injection systems.

If the penalty is assessed on any business, each officer, employee, or agent of the business, who willfully participated in any part of the act giving rise to the penalty is jointly and severally liable with the business, per IRC 6715A(c)(1), Joint and several liability - In general.

If a penalty under IRC 6715A is assessed against an entity that is part of an affiliated group (as defined in IRC 1504(a)), the parent corporation of the business will be jointly and severally liable with the business for the penalty under IRC 6715A(c)(2).

IRC 6717 adds an assessable penalty for refusing entry or not permitting an action per IRC 4083(d)(1).

IRC 6718 provides for a penalty for any operator of a vessel who is required to register under IRC 4101 and who does not display proof of registration using an identification device as defined by the IRS on vessels transporting taxable fuel per IRC 4101(a)(3).

IRC 6719 provides an assessable penalty for every person required to register or reregister under IRC 4101, Registration and bond and fails to do so.

IRC 6720A(a) provides for a penalty for any person who knowingly transfers for resale, sells for resale or holds out for resale any liquid for use in a diesel-powered highway vehicle or a diesel-powered train which does not meet applicable Environmental Protection Agency (EPA) regulations (as defined in IRC 45H(c)(3), Credit for production of low sulfur diesel fuel - Definitions and special rule - Applicable EPA regulations).

IRC 6720A(b) provides for a penalty for retailers who knowingly hold out for sale any liquid for use in a diesel-powered highway vehicle or a diesel-powered train, which does not meet EPA regulations (as defined in IRC 45H(c)(3)).

For purposes of this penalty, the term "applicable EPA regulations" means the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency.

The Excise Summary Terminal Activity Reporting System (ExSTARS) is the IRS's fuel information reporting system requiring terminal operators and bulk transport carriers to report monthly on the movement of any liquid product into or out of a terminal per IRC 4101(d).

IRC 6725 imposes an assessable penalty for failing to report as required by the ExSTARS system on a vessel or facility. For example, a terminal. The failure includes providing inaccurate or incomplete information.

The penalty is a fine of double the amount of the tax.

The penalty is administered by the Excise tax examination function.

Taxpayers must first fully pay the entire penalty and then file a claim for refund with the IRS within two years of the date of payment or three years from the date the return was filed. If the IRS does not issue a determination allowing or disallowing the claim within six months, the taxpayer may file suit in the district court or U.S. Court of Federal Claims. If the IRS issues a disallowance letter, the taxpayer has two years from the date the disallowance letter was sent to the taxpayer to file suit contesting this penalty in the district court or U.S. Court of Federal Claims.

IRC 7275(a) requires taxable air transportation to show the total tax and transportation charge on passenger tickets.

Specifically, in the case of taxable air transportation as defined in IRC 4262, Definition of Taxable Transportation, the ticket for such transportation shall show the total of:

For the purposes of this penalty, the term "taxable transportation" means:

IRC 7275(b) provides any advertising made by or on behalf of any person furnishing taxable transportation by air (or offering to arrange such transportation) must:

The penalty for any person who violates any provision of IRC 7275 will, for each violation be guilty of a misdemeanor, and upon conviction shall be fined not more than $100.