4.24.2 Form 637 Excise Tax Registrations

Manual Transmittal

July 17, 2018

Purpose

(1) This transmits a revised IRM 4.24.2, Excise Tax, Form 637 Excise Tax Registrations.

Material Changes

(1) Content updated to incorporate the use of Issue Management System (IMS) in the Form 637 program. Content also updated to reflect change in law, and change in job titles. All hyper-links are updated.

(2) This IRM has been updated to include required information about the 637 Registration Program system of internal controls as required under IRM 1.11.2, Internal Revenue Manual (IRM) Process.

(3) Existing content reorganized and expanded covering duties and responsibilities of both the 637 Registration Group and the excise tax field groups.

(4) IRM has been edited to reflect the active voice along with cosmetic changes

(5) New tables included containing a list of 637 Program letters and IMS workflow status codes.

(6) Expanded content relating to the 637 Registration Group processing procedures.

(7) Listed below is a table of the material changes made.

IRM Subsection Description of Change
4.24.2.1, Overview of Form 637 Program Title changed to Program Scope and Objectives. New content added about the 637 Registration Program purpose, audience, owners and stakeholders to comply with rules and requirements under 1.11.2.1. Prior content moved as follows: paragraph (3) not moved, paragraphs (1), (2), (4), (11), (12), (13) and (17) moved to 4.24.2.1.1, paragraphs (5), (6), (7), (9), (15), (16) and (18) moved to 4.24.2.2, paragraph (14) moved to 4.24.2.5, .paragraph (8) moved to 4.24.2.8.2 and paragraph (10) was removed.
New 4.24.2.1.1 Title added Background. New content added about the 637 Registration Program background to comply with rules and requirements under 1.11.2.1.1. Added paragraphs (1), (2), (4), (11), (12), (13) and (17) moved from 4.24.2.1.
New 4.24.2.1.2 Title added Authority. New content added about Form 637 registration legal authorities to comply with rules and requirements under 1.11.2.1.2.
New 4.24.2.1.3 Title added Roles and Responsibilities. New content added about the roles and responsibilities in the 637 Registration Program to comply with rules and requirements under 1.11.2.1.3.
New 4.24.2.1.4 IRM 4.24.2.2 (6) & (13) - Purpose of Form 637 registration Title changed to Program Management and Reviews. New content added about the 637 Registration Program reports to comply with rules and requirements under 1.11.2.1.4.
New 4.24.2.1.5 Title added Terms and Definitions. New content added a list of terms (including definitions) frequently used in the 637 Registration Program to comply with the rules and requirements under 1.11.2.1.5.
New 4.24.2.1.6 Title added Acronyms. New content added a list of acronyms frequently used in the 637 Registration Program to comply with the rules and requirements under 1.11.2.1.6.
New 4.24.2.1.7 Title added Related Resources. New content added sources to obtain additional information about excise taxes to comply with rules and requirements under 1.11.2.1.7.
4.24.2.2, Disclosure Title changed General Overview of Form 637 Registration. New content added about who can sign Form 637, who is required to register, documenting 637 IMS case files, letters and initial taxpayer contact . Added paragraphs (5), (6), (7), (9), (15), (16) and (18) moved from 4.24.2.1 and updated. Prior content moved to 4.24.2.3.
New 4.24.2.2.1 Title added Use of Fax Machine or Enterprise e-Fax (EEFAX). New subsection added on the use for fax or EEFAX to communicate with taxpayers.
New 4.24.2.2.2 Title added Initial Contact -Overview. New subsection added to incorporate. Added guidance from SBSE-04-0816-0042, Initial Taxpayer Contact in Form 637 Follow-Up Reviews, dated 08/16/2016; SBSE-04-1216-0058, Form 637 Review Enclosures with Correspondence to Representatives and Appointees, dated 12/13/2016; SBSE-04-0817-0043, Letter 5708, Initial Contact - Form 637 Reviews, dated 08/24/2017; and SBSE-04-1017-0072, Letter 3686 , Appointment Scheduled - Form 637 Reviews, dated 10/04/2017.
4.24.2.3, Purpose and Objective of Form 637 Workload Stratification Title changed -Disclosure. Added content removed from 4.24.2.2 .Prior content moved to 4.24.2.5.
4.24.2.3.1, Annual Registration Work Plan Subsection removed. Prior content moved to 4.24.2.5.
4.24.2.3.2, Overview of Correspondence Form 637 Compliance Reviews Subsection removed. Prior content moved to 4.24.2.7.1.
4.24.2.3.3, Overview of Excise Field Group Compliance Reviews Subsection removed. Prior content moved to 4.24.2.8.
4.24.2.4, Responsibility of Centralized Specialty Tax Operations (CSTO) Title changed to Taxpayer Advocate Service (TAS) Referrals and Inquiries. Content removed and moved to 4.24.2.6. Added content moved from 4.24.2.6.1.
4.24.2.5, ,Responsibility of 637 Registration Group Title changed to Annual Registration Work Plan and Sample Criteria. Content removed and moved to 4.24.2.7. Added content moved from 4.24.2.3, 4.24.2.3.1, and updated. Guidance from SBSE-04-0617-0037, Reissuance Interim Guidance for Grade of Case Criteria for Form 637 Registration Cases, dated 06/19/2017, added.
4.24.2.5.1, Assignment of 637 IMS Case Files by LT– Queue 1 and Queue 2 Subsection removed. Prior content moved to 4.24.2.10.2.
4.24.2.5.1.1, Assignment of 637 IMS Case Files by LT to TE Subsection removed. Prior content paragraph (1) moved to 4.24.2.10.2, paragraph (2) moved to 4.24.2.10.4 and paragraphs (3) and (4) moved to 4.24.10.4.
4.24.2.5.1.2, Assignment of 637 IMS Case Files by LT to Excise Field Groups Subsection removed. Prior content moved to 4.24.2.10.4.2.
4.24.2.5.2, LT Review Responsibilities- 637 IMS Case Files in Status 30 and 70 Subsection removed. . Prior content paragraph (1) moved to 4.24.2.10.4 and paragraph (2) moved to 4.24.2.10.6.
4.24.2.5.3, LT Status 70 Case- Excise Field Group Recommendation to Approve or Continue Registration Subsection removed. Content moved to 4.24.2.10.6 and updated.
4.24.2.5.4, LT Status 70 Case- Excise Field Group Recommendation to Deny or Revoke Registration Subsection removed. Content moved to 4.24.2.10.6 and updated.
4.24.2.5.5, LT Status 30 Case- 637 Registration Group Cases Deemed Excise Field Group Cases or are Mixed Activity Letter Cases Subsection removed. Prior content paragraph (1) moved to 4.24.2.7.1 and paragraph (2) moved to 4.24.2.10.4.2.
4.24.2.5.6, LT Status 30 Case - 637 Registration Group TE Recommendation to Approve Application Subsection removed. Prior content moved to 4.24.2.10.4.1.
4.24.2.5.7, LT Status 30- 637 Registration Group TE Recommendation to Deny Application Subsection removed. Prior content moved to 4.24.2.10.5.2.
4.24.2.5.8, LT Status 30 Case-TE Recommendation to Deny Application with an Approved Registration Subsection removed. Prior content moved to 4.24.2.10.5.3.
4.24.2.5.9, TE Processing Form 637 Application IMS Case Files in Status 20 and 85 Subsection removed. Prior content paragraph (1a.) moved to 4.24.2.10.4 and paragraph (1b.) moved to 4.24.2.10.8.
4.24.2.5.10, IMS Status 20 – TE Compliance Review Subsection removed. Prior content moved and incorporated into 4.24.2.10.3, 4.24.2.10.3.1, 4.24.2.10.3.2 and 4.24.2.10.3.3.
4.24.2.5.11, IMS Status 85 – TE Final Determinations Subsection removed. Prior content moved to 4.24.2.10.8 and updated.
4.24.2.6, Responsibility of Excise Tax Field Groups Title changed to Responsibility of Centralized Specialty Tax Operations (CSTO). Content removed and moved to 4.24.2.8.1. Added content moved from 4.24.2.4 and updated.
4.24.2.6.1, Taxpayer Advocate Service (TAS) Referrals and Inquiries Subsection removed. Prior content removed and moved to 4.24.2.4.
4.24.2.7, Excise Field Group Registration Review Procedures Title changed to Responsibility of 637 Registration Group. Prior content removed and moved to 4.24.2.8. Added content moved from 4.24.2.5 and updated.
4.24.2.7.1, Action on the Initial Application and Approval Title changed to 637 Registration Group Correspondence Reviews. Prior content moved to 4.24.2.11. Added content moved from 4.24.2.3.2 and updated.
4.24.2.7.2, Denials and Revocations Subsection removed. Prior content moved to 4.24.2.11.1.
4.24.2.7.3, Follow-up Compliance Review Actions After Approval of Registration Subsection removed. Prior content moved to 4.24.2.11.2.
4.24.2.7.4, Applications under Section 4101 Subsection removed. Prior content moved to 4.24.2.11.3.
4.24.2.7.4.1, Registration Tests Subsection removed. Prior content moved to 4.24.2.9.11.1.
4.24.2.7.4.2, Visiting Applicants Subsection removed. Prior content moved to 4.24.2.9.11.2.
4.24.2.7.4.3, Bonds Subsection removed. Prior content moved to 4.24.2.9.11.3.
4.24.2.7.5, Applications under Sections 4222 and 4682 Subsection removed. Prior content moved to 4.24.2.11.4.
4.24.2.7.5.1, Registration Tests for Sections 4222 and 4662 Activities Subsection removed. Prior content moved to 4.24.2.11.4.1.
4.24.2.7.5.2, Visiting Applicants Subsection removed. Prior content moved to 4.24.2.11.4.2.
4.24.2.7.5.3, Bonds Subsection removed. Prior content moved to 4.24.2.11.4.3.
4.24.2.7.6, Relationship Between Compliance Reviews and Examinations Subsection removed. Prior content moved to 4.24.2.11.5.
4.24.2.8, Examinations Resulting from 637 Compliance Reviews Title changed to Overview of Excise Tax Field Groups Compliance Reviews. Prior content removed and moved to 4.24.2.12. Added content removed from 4.24.2.7 and updated.
New 4.24.2.8.1 Title added Excise Tax Field Group Manager Responsibilities and Procedures. Content removed from 4.24.2.6 added and updated.
New 4.24.2.8.2 Title added -Excise Examiner Responsibilities and Compliance Review Procedures. Added and incorporated content moved from 4.24.2.3.3, 4.24.2.7, and paragraph (8) from 4.24.2.6.2 and updated.
New 4.24.2.8.3 Title added - Excise Examiners Responsibilities and Excise Tax Examinations Conducted on Approved 637 Registrants. New content added regarding the excise examiner responsibilities and procedures when conducting an examination on an approved 637 registrant. Added and incorporated content moved from 4.24.2.3.3 and 4.24.2.7 and updated.
New 4.24.2.8.4 through 4.24.2.8.4.11 New titles and subsections added about Form 637 Mandatory Administrative (Admin) Forms used by excise examiners when conducting Form 637 compliance reviews. New subsections are titled after each Form 637 mandatory administrative forms and the content gives a descriptions of the form, which are similar in nature to the excise tax examination mandatory administrative forms.
4.24.2.9, Creating, Maintaining and Updating 637 Registration Files Title changed to IMS Workflow Process and Case Status Definitions
4.24.2.10, Overview of Actions, Including Adverse Actions, Relating to Registrants Title changed to 637 Registration Group IMS 637 Registration Process. New content added about 637 Registration Group case processing procedures. Prior content removed and moved to 4.24.2.14.
4.24.2.10.1, Mandatory Revocation or Suspension Rules for Activities K, M, S, AB, AF, AL, AM, BC, CB, CC, NB, UA, UB, UP, UV, X, and Y Title changed to Status 10 Pending -Assignment of 637 IMS Cases Queue Manager Q1. New content about the assignment of Form 637 in Status 10 pending. Prior content removed and moved to 4.24.2.14.1.
4.24.2.10.2, Mandatory Revocation or Suspension Rules for Activities A, B, C, D, E, F, I, Q, and V Title added Status 15 Territory Assigned- IMS 637 Case Assignments by LT. Added content moved from 4.24.2.5.1 and updated. Prior content removed and moved to 4.24.2.14.2.
New 4.24.2.10.3 Title added Status 20 Compliance Check - Overview Compliance Checks and Initial Compliance Reviews Conducted by the 637 Registration Group TE. New content added about the number of days to complete Status 20 compliance reviews. Added content moved from 4.24.2.5.10 and updated.
New 4.24.2.10.3.1 Title added Status 20- IDRS Compliance Check Procedures. New content added about making initial taxpayer contact.Added content moved from 4.24.2.5.10 and updated.
New 4.24.2.10.3.2 Title added IMS Status 20- Initial Compliance Review Procedures Specific to 637 Registration Group cases. New content added about conducting Accruint searches on applicants. Added content moved from 4.24.2.5.10 and updated.
New 4.24.2.10.3.3 Title added IMS Status 20- Compliance Review Procedures Specific to Excise Tax Field Group Cases. Added content moved from 4.24.2.5.10 and updated.
New 4.24.2.10.4 Title added Status 30 LT Review- 637 Case Criteria. Added paragraph (1)(a) moved from 4.24.2.5.9.
New 4.24.2.10.4.1 Title added Status 30- Procedures for 637 Registration Group Cases (TE Recommendation to Approve Application). New content added from 4.24.2.5.6 and updated. Paragraphs (7) and (8) added.
New 4.24.2.10.4.2 Title added Status 30- Procedures for Excise Tax Field Group Cases. Added content moved from 4.24.2.5.5 and updated.
New 4.24.2.10.5 Title added Status 65 Q Manager Deny/Revoke/Suspend- Overview. New content added about 637 IMS case file updated to Status 65, which includes updated requirements and procedures prior to updating 637 IMS case files to Status 65. Content added that 637 Registration Group manager may designate employee to take final action on Status 65 cases closed by field groups.
New 4.24.2.10.5.1 Title added Status 65- Action to Deny 637 Registration Group Cases. New content added about when a 637 Registration Group case should be denied.
New 4.24.2.10.5.2 Title added Status 65- Denial Procedures for 637 Registration Group Cases. Added content moved from 4.24.2.5.7 and updated.
New 4.24.2.10.5.3 Title added Status 65- Procedures for Applications Denied with an Approved Registration. Added content moved from 4.24.2.5.8 and updated.
New 4.24.2.10.6 Title added Status 70 LT Review from Field- Procedures Relating to Excise Tax Field Group Recommendation to Approve, Continue, Deny, Revoke, or Suspend a Registration. Content moved from 4.24.2.5.4 and updated.
New 4.24.2.10.7 Title added Status 80 Final Determination by LT- Procedures. New content added describing the cases in Status 80 and procedures for the LT.
New 4.24.2.10.8 Title added Status 85 Final Disposition by TE- Procedures. Added content moved from paragraph 4.24.2.5.9(1)b. and 4.24.2.5.11 and updated.
4.24.2.11, Mandatory Revocation/Suspension Rules Applicable to All Registrants Title changed to Excise Tax Field Group Procedures - Initial Application and Follow-up Compliance Reviews. Added content removed and moved from 4.24.2.7.1 and updated. Added guidance from IGMs SBSE-04-0816-0042, SBSE-04-0817-0043, and SBSE-04-1017-0072. Prior content removed and moved to 4.24.2.14.
New 4.24.2.11.1 Title added Procedures Relating to Denials, Revocations and Suspensions of Registrations. Incorporated and added content moved from 4.24.2.7.2 and 4.24.2.11 and updated.
New 4.24.2.11.2 Title added Follow-up Compliance Review Actions After Approval of Registration. Added guidance from IGMs SBSE-04-0816-0042, SBSE-04-0817-0043, and SBSE-04-1017-0072. Added content moved from 4.24.2.7.3 and updated.
New 4.24.2.11.3 Title added Applications under Section 4101. Added content moved from 4.24.2.7.4 and updated.
New 4.24.2.11.3.1 Title added Registration Tests. Content moved from 4.24.2.7.4.1. Added guidance from SBSE-04-0617-0038, Reissuance Interim Guidance for Obtaining Biodiesel Lab Samples When FCO/FCA Support is not Readily Available, dated 10/01/2017.
New 4.24.2.11.3.2 Title added Visiting Applicants. Added content moved from 4.24.2.7.4.2.
New 4.24.2.11.3.3 Title added Bonds. Content moved from 4.24.2.7.4.3.
New 4.24.2.11.4 Title added Applications under Sections 4222 and 4682. Added content moved from 4.24.2.7.5.
New 4.24.2.11.4.1 Title added Registration Tests for Sections 4222 and 4682 Activities. Added content moved from 4.24.2.7.5.1.
New 4.24.2.11.4.3 Title added Bonds. Added content moved from 4.24.2.7.5.3 and updated authority on the final approval of bond per Delegation Order 4-6 ( Rev. 1), Taxable Fuel Bond.
New 4.24.2.11.5 Title added Relationship Between Compliance Reviews and Examinations. Added content moved from 4.24.2.7.6.
4.24.2.12, Issue Management System (IMS) 637 Electronic Registration Process Title changed to Examinations Resulting from 637 Compliance Reviews. Added content moved from 4.24.2.8 and updated. Prior content removed and moved to 4.24.2.9.
4.24.2.13, Recording Time Charged to the 637 Registration Program Title changed to Creating, Maintaining and Updating 637 Registration Files. Added content moved from 4.24.2.9 and updated. Prior content removed and moved to 4.24.2.16.
4.24.2.14, Form 637 Indicator on Business Master File (BMF) Title changed to Overview of Actions, Including Adverse Actions, Relating to Registrants. Added content moved from 4.24.2.10 and updated. Prior content removed and moved to 4.24.2.17.
4.24.2.14.1, Purpose of the 637 Indicator Title changed Mandatory Revocation or Suspension Rules for Registrations Issued under IRC 4101. Added content moved from 4.24.2.10.1 and updated. Prior content removed and moved to 4.24.2.17.
4.24.2.14.2, Procedures to Post or Delete 637 Indicator on BMF Titled changed Mandatory Revocation or Suspension Rules for Registrations Issued under IRC 4222. Added content moved from 4.24.2.10.2 and updated. Prior content removed and moved to 4.24.2.17.1.
4.24.2.14.3, Use of Notice CP 241 by the Excise Tax Program Subsection removed. Prior content removed and moved to 4.24.2.17.2.
New 4.24.2.15 Title added Changes in the Information Submitted in Connection with Application for Registration. New content added guidance and procedures to take when a registrant information changes from the information previously submitted with their application.
New 4.24.2.15.1 Title added Procedures for Changes in Ownership. New content added about procedures to take relating to changes in ownership.
New 4.24.2.15.2 Title added Procedures for Name Changes. New content added about procedures to take relating to name changes.
New 4.24.2.15.3 Title added Procedures for a Change in Registration Activities. New content added about procedures to take relating to a changes in registration activities.
New 4.24.2.16 Title added Recording Time Charged to the 637 Registration Program. Added content moved from 4.24.2.13.
New 4.24.2.17 Added title Monitoring Registrants using Form 637 Indicator on Business Master File (BMF). Added and incorporated content moved from 4.24.2.14 and 4.24.2.14.1.
New 4.24.2.17.1 Title added New Procedures to Post or Delete the Form 637 Indicator on BMF. Added content moved from 4.24.2.14.2 and updated.
New 4.24.2.17.2 Title added Notice CP 241 Procedures. Added content moved from 4.24.2.14.3.
Exhibit 4.24.2-2, Excise Lead Technicians and Territory Assignments Title changed to Form 637 Program Letters. New Exhibit 4.24.2-2 added that contains a table of existing Form 637 program letters and description of their use. Prior content place on SharePoint .
Exhibit 4.24.2-3, Business Operations and Transaction Flow Title changed to IMS Workflow Status Codes. New Exhibit 4.24.2-3 contains a table of all the Form 637 IMS workflow status codes. Prior content moved to Exhibit 4.24.2-4.
Exhibit 4.24.2-4, Financial Analysis Techniques Title changed to Business Operations and Transaction Flow. Added content moved from Exhibit 4.24.2-3. Prior content moved to Exhibit 4.24.2-5.
Exhibit 4.24.2-5, Form 720 Filing, Deposit, and Payment Requirements Titled changed to Financial Analysis Techniques. Added content moved from Exhibit 4.24.2-4. Prior content moved to Exhibit 4.24.2-6.
Exhibit 4.24.2-6, Terms and Conditions of Registration for Registrations Issued under IRC 4101 Title changed to Form 720 Filing, Deposit and Payment Requirements. Added content moved from Exhibit 4.24.2-5. Prior content removed. Content contained the Terms and Conditions of Registrations Issued Under IRC 4101, which is now included in Pub 5039 and provided to each registrant.
Exhibit 4.24.2-7, Terms and Conditions of Registration for Registrations Issued under IRC 4222 or IRC 4682 Exhibit 4.24.2-7 removed. Prior content contained the Terms and Conditions of Registrations Issued Under IRC 4222, which is now included in Pub 5039 and provided to each registrant.

Effect on Other Documents

IRM 4.24.2, dated 08/06/2012, is superseded. This IRM incorporates procedural guidance found in the following Interim Guidance Memorandums: SBSE-04-0514-0042, Centralization of the Form 637 Registration Bond Requirements, dated 05/21/2014; Reissuance Interim Guidance for Grade of Case Criteria for Form 637 Registration Cases, dated 06/19/2017; SBSE 04-0617-0036, Reissuance Interim Guidance for Excise Manager IMS 637 User Guide and Addendum, dated 06/19/2017; SBSE-04-0617-0038, Reissuance Interim Guidance for Obtaining Biodiesel Lab Samples When FCO/FCA Support is not Readily Available, dated 10/01/2017; SBSE-04-0816-0042, Initial Taxpayer Contact in Form 637 Follow-Up Reviews, dated 08/16/2016; SBSE-04-1216-0058, Form 637 Review Enclosures with Correspondence to Representatives and Appointees, dated 12/13/2016; SBSE-04-0817-0043, Letter 5708, Initial Contact - Form 637 Reviews, dated 08/24/2017; SBSE-04-1017-0072, Letter 3686, Appointment Scheduled - Form 637 Reviews, dated 10/04/2017; and NHQ-04-0516, Change in Policy on Initial Contact in Examination Cases, dated 05/20/2016.

Audience

SBSE Specialty Examination, Excise Tax Examination employees and personnel at the Centralized Specialty Tax Operations (CSTO).

Effective Date

(07-17-2018)

Daniel R. Lauer
Director, Examination - Specialty Policy
Small Business/Self Employed

Program Scope and Objectives

  1. Purpose - This IRM section provides specific requirements and procedures for processing Form 637, Application for Registration (for Certain Excise Tax Activities),compliance reviews. Form 637 registration compliance reviews consist of initial applications, sample reviews, and discretionary reviews. This IRM addresses the standards and procedural guidance for processing and monitoring Form 637 registration compliance reviews, for which application is made on Form 637, relating to the following actions:

    • Approving

    • Denying

    • Revoking

    • Suspending

    • Monitoring

  2. Audience - The audience of this IRM includes the SB/SE Director, Examination - Specialty, Chief, Estate & Gift and Excise Exam, 637 Registration Group employees, Excise Tax Territory Managers, Excise Tax Field Group Managers (hereinafter referred to as “field group manager” throughout this IRM), Excise Tax Revenue Agents (RAs) and Fuel Compliance Agents (FCAs) (collectively and hereinafter referred to as “excise examiner” throughout this IRM) and Centralized Specialty Tax Operations (CSTO) employees.

  3. Policy Owner - Director, Examination - Specialty Policy is responsible for the administration, procedures and updates related to processing Form 637 applications and follow-up compliance reviews.

  4. Program Owner - Director, Examination - Specialty Examination owns Excise Tax Examination.

  5. Primary Stakeholders - Primary stakeholders include the Chief, Estate & Gift and Excise Tax Exam, Eastern Territory Manager, 637 Registration Group Manager and Excise Case Selection.

  6. Other Stakeholders - Other areas that follow these policies and procedures include Appeals, Agency Wide Shared Services (AWSS), Counsel, SB/SE Examination, Large Business, International (LB&I) and Tax Exempt and Government Entities (TEGE).

  7. Program Goals - The processes and procedures provided in this IRM are consistent with the objectives or goals for Excise Tax - Examination that are addressed in IRM 1.1.16.3.3.1, Organization and Staffing, Small Business and Self/Employed (SB/SE), Excise Tax Examination.

Background

  1. The Internal Revenue Code (IRC) requires each person who engages in certain activities subject to federal excise tax (FET) must be registered by the IRS as a taxpayer who engages in these activities. The taxpayer must register with the IRS before undertaking the activity. In other situations, a person must register with the IRS as a taxpayer who conducts certain types of sales or other activities to receive an excise tax benefit that may come with such activity, such as, buying or selling an article tax-free or filing a claim for refund or credit. The taxpayer must use Form 637 to apply for registration under sections 4101, 4222, or 4682 for the specified activity.

  2. This IRM section provides procedural requirements and guidelines for processing Form 637 applications and conducting Form 637 compliance reviews. Form 637 compliance reviews consist of:

    • Initial Application Reviews

    • Sample Reviews

    • Discretionary Reviews

    Note:

    Sample and discretionary reviews are follow-up compliance reviews conducted on an existing registrant to determine if the registrant still qualifies for the registration.

  3. Form 637 includes a listing of activities for which registration is required or allowed. Refer to the tables found in IRM 4.24.2.11.3, Applications under Section 4101, and IRM 4.24.2.11.4, Applications under Sections 4222 and 4682, that list all applicable activity letters. Thus, for example, a Q registrant is the first retail seller of certain heavy vehicles.

  4. Letter 3689, Letter of Registration, is issued when an application is approved. A copy of the Form 637 application is not considered proof of registration. Letter 3689 should be retained as proof of registration.

  5. If an application for registration is denied or an approved registration is revoked or suspended, the applicant or registrant will be notified in writing by the IRS that the application for registration has been denied or the existing registration has been revoked or suspended. The reason for the denial, revocation, or suspension will be provided.

  6. An approved registration remains valid until revoked or suspended. Registration status can be confirmed online at http://www.irs.gov/app/exciseTax .

  7. All Form 637 registration numbers issued after February 2004 are comprised of 10 digits. For registration numbers issued prior to 2004:

    1. The non-UV/UP registration number has 8 digits.

    2. The activity letters UP and UV registration numbers are comprised of 9 digits.

Authority

  1. Form 637 registrations are processed under the following authorities:

    • IRC 4101 - Taxable Fuel Registration with respect to the tax imposed by section 4041(a)(1) or 4081

    • IRC 4222 - Registration for certain tax-free sales under section 4221

    • Treas. Reg. 52.4682-5(d) - Registration relating to the tax imposed under section 4681 on ozone-depleting chemicals (ODC's) that are exported

  2. Delegation Order SBSE-1-23-7 (formerly SBSE DO 4.36, Rev. 3), Approval or Rejection/Disapproval or Revocation of Form 637, Application for Registration (For Certain Excise Tax Activities), delegates the authorities for approving, denying, revoking, and suspending Form 637 registrations.

  3. Delegation Order 4-6 ( Rev. 1), Taxable Fuel Bond, delegates the authority to make the final determination as to the amount of bond required to be given by an applicant or existing registrant, to satisfy certain registration requirements under section 4101 with respect to the tax imposed by section 4041(a)(1) or 4081, to Excise Tax Examination Territory Managers. The authority to require the posting of a bond to satisfy certain registration requirements under section 4101 for Form 637 registration and to set the value of such bond is delegated to Excise Tax Examination Field Group Managers and 637 Registration Program Group Manager.

  4. The authority to require the posting of a bond to satisfy certain registration requirements under section 4101 for Form 637 registration and to set the value of such bond is delegated to Excise Tax Examination Field Group Managers and 637 Registration Program Group Manager.

Roles and Responsibilities

  1. Director, Examination - Specialty Policy is responsible for the procedures and policies addressed in this IRM.

  2. Program Manager, Excise Fuel Policy is responsible for ensuring that the procedures are accurate and updated regularly, as needed.

  3. The Chief, Estate & Gift and Excise Exam is responsible for ensuring the procedures within this IRM are adhered to by employees in Excise Tax Examination.

  4. Form 637 registration case work is processed by the following areas:

    • Centralized Specialty Tax Operations (CSTO) - All initial Form 637 Applications are received by the Cincinnati IRS Center (CIRSC), date stamped, and forwarded to CSTO for initial processing. See IRM 4.24.2.6, Responsibility of Centralized Specialty Tax Operations.

    • Excise Case Selection, Excise Workload Selection and Delivery (WSD) - Selects sample review cases and monitors the Annual Registration Work Plan.

    • Form 637 Registration Group - The 637 Registration Group administers and maintains Form 637 Registrations. The 637 Registration Group consists of Lead Technicians (LTs) and Tax Examiners (TEs). A Lead Technician will be referred to as an LT and a Tax Examiner will be referred to as a TE throughout this IRM. See IRM 4.24.2.7,Responsibility of the 637 Registration Group. The 637 Registration Group compliance reviews are conducted by correspondence.

    • Excise Tax Field Groups - Form 637 compliance reviews assigned to excise field groups are conducted by excise examiners. Field group managers are responsible for concurring with the excise examiner's compliance review recommendation. See IRM 4.24.2.8, Overview of Excise Tax Field Groups Compliance Reviews.

Program Management and Reviews

  1. Program Reports - Information regarding the reporting of program objectives are included on, but not limited to:

    • Examination Headquarters Monthly Briefing

    • Program Manager Monthly Briefing

    • SB/SE and Examination Operational Reviews and Business Performance Review

  2. Program Effectiveness - Program goals are measured with Excise Embedded Quality Performance Reports that monitor whether quality attributes are applied uniformly and consistently.

  3. Annual Review - Excise Tax Policy - Program Manager is responsible for reviewing the information in this IRM annually to ensure accuracy and promote consistent tax administration.

Terms and Definitions

  1. Below are definitions for terms frequently used throughout this IRM:

    Term Definition
    Applicant A person that has applied for registration on Form 637.
    BMFOLI Command code to request on/off line status of entity and tax modules.
    BMFOLT Command code to request Business Master File (BMF) tax module screen information.
    BNCHG Command code to enter an entity change to an account.
    ENREQ Command code to request either an INCHG or BNCHG format for input of an entity change transaction.
    Form 637 Form 637, Application for Registration (For Certain Excise Tax Activities), is used to apply for excise tax registration for activities under sections 4101, 4222, and 4682.
    IMFOLI Command code to display an index of all tax modules available for a requested Social Security Number (SSN).
    IMFOLT Command code to display various module amounts and dates along with a listing of posted transactions for the specified tax module.
    INOLES Command code to display specific data for the account addressed.
    IRPTRO Command code to request on-line payee transcripts of income reported on various document types.
    Letter of Registration Letter 3689 is issued when an application is approved for registration.
    Notice CP 241 Notice that is generated indicating a registrant may no longer meet the registration requirements and follow-up actions may be required.
    Registrant A person that has been issued a letter of registration (Letter 3689).
    SUMRY Command code to request a summary of all Taxpayer Information File (TIF) modules available for a particular Taxpayer Identification Number (TIN).
    TXMODA Command code to request a display of tax information for a specific Business Master File (BMF) or Individual Master File (IMF) module.

Acronyms

  1. Below are the acronyms and their definitions used throughout this IRM.

    Acronym Definition
    AIMS Audit Information Management System
    BMF Business Master File
    CBRS Currency and Banking Retrieval System
    CCP Centralized Case Processing
    CLA Case Level Activities
    CIC Coordinated Industry Case
    CIRSC Cincinnati IRS Center
    CSTO Centralized Specialty Tax Operations
    ECS Exam Case Selection
    EEFAX Enterprise e-Fax
    EFT Excise Forensics Laboratory
    EFTPS Electronic Federal Tax Payment System
    EIN Employer Identification Number
    EQ Embedded Quality
    ERCS Examination Returns Control System
    FCA Fuel Compliance Agents
    FCO Fuel Compliance Officers
    FET Federal Excise Tax
    IDR Information Document Request
    IDRS Integrated Data Retrieval System
    IMS Issue Management System
    IRC Internal Revenue Code
    IRS Internal Revenue Service
    LB&I Large Business and International Division
    LT Lead Technician
    ODC Ozone Depleting Chemical
    PPA Planning Performance and Analysis
    TAS Taxpayer Advocate Service
    TE Tax Examiner
    WSD Workload Selection & Delivery

Related Resources

  1. Refer to IRM 4.24.4, Excise Fuel Taxes Workload, Policies and Procedures, for general information about basic excise examiner responsibilities, Excise IRM Sections, primary excise tax returns and claims forms, and materials about fuel excise tax abstracts.

  2. For general guidance, procedures, tax law and regulations on a wide variety of excise issues, refer to My SB/SE Web page - Excise Tax Program - Issues and Procedures, located at: http://mysbse.web.irs.gov/examination/specialty/excise/issues/default.aspx.

  3. Form 637 registration status can be confirmed online at : http://www.irs.gov/app/exciseTax.

  4. IRS formally adopted a Taxpayer Bill of Rights (TBOR) in June 2014, which provides the nation’s taxpayers with a better understanding of their rights and helps reinforce the fairness of the tax system. In 2015, Congress charged the Commissioner with ensuring IRS employees are familiar with and act in accordance with taxpayer rights as afforded by IRC 7803(a)(3). IRS employees must be informed about taxpayer rights and be conscientious in the performance of their duties to honor, respect and must communicate effectively those rights that may aid in reducing taxpayer burdens. IRS employees must administer the law with integrity and fairness and exercise professional judgment in conducting enforcement activities. Refer to Pub 1, Your Rights as a Taxpayer, for additional information.

  5. For information relating to identity theft, see IRM 25.23.1.3.2, Identity Theft Victim Assistance (ITVA) Program Responsibilities.

General Overview of Form 637 Registration

  1. Form 637 must be signed by a person with authority to bind the applicant. The authority to bind means the ability to execute agreements that are binding and legally enforceable against the applicant under state law.

  2. The following persons are required to register under IRC 4101(a):

    • Pipeline operators or vessel operators: activity letter X

    • Enterers, position holders, refiners and terminal operators: activity letter S

    • Blenders: activity letter M

    • Producers or importers of alcohol, agri-biodiesel and biodiesel (including renewable diesel): activity letters AF, AB, and NB, respectively

    • Producers of second generation biofuel: activity letter SB

    • Persons extending credit on certain exempt sales of taxable fuel: activity letter CC

  3. An approved registration is a public statement by the Internal Revenue Service (IRS) that it considered relevant aspects of the taxpayer’s business operations, financial condition, and the taxpayer met all the required registration tests for the specified activity. See IRM 4.24.2.11.3.1, Registration Tests for Section 4101 Activities, and IRM 4.24.2.11.4.1, Registration Tests for Section 4222 and 4682 Activities, for additional information on registration tests.

  4. The United States or a state or local government will not be registered for any activities under IRC 4222. If a governmental entity applies for a registration that is not required, the application will be denied and the entity will be informed it is not required to be registered. However, a state or local government may be registered, as appropriate, for activities listed under IRC 4101.

  5. Each entity that has, or is required to hold a separate EIN, is treated as a separate person and must apply for registration. Thus, two business units, such as a parent corporation and a subsidiary corporation, are two different persons each requiring a different EIN. Only the entity that engages in an activity that requires registration is allowed to register.

  6. Entities that have U.S. business transactions involving taxable fuel and other IRC 4101 activities are required to register, regardless of their domicile. For example, a business located in a foreign country is required to register under IRC 4101 if it conducts U.S. business transactions with regard to taxable fuel or other IRC 4101 activities.

  7. All Form 637 Registration files are processed and maintained electronically.

  8. The Issue Management System (IMS) is a computer-based system that manages the Form 637 case workload. IMS obtains and retains Form 637 workload information in a centralized location on the IMS Server.

  9. Excise examiners must utilize IMS and the appropriate mandatory administrative forms and Form 637 activity letter job aids currently found in the Notebook Job Aid. See IRM 4.24.2.8.4, Mandatory Administrative (Admin) Forms for Excise Examiners.

  10. Form 637 Registration compliance reviews are completed by excise examiners in excise field groups and by TEs in the Form 637 Registration Group. Form 637 Registration Group compliance reviews are conducted by correspondence.

  11. All Form 637 IMS case files are to be adequately documented as follows:

    1. Form 637 Registration Group will document its case actions using the 637 IMS case file CLA.

    2. Excise examiners will document his or her case actions using the IMS activity record or Form 9984, Examining Officer's Activity Record.

    3. Field group managers will document his or her case actions using the 637 IMS case file CLA.

  12. Pub 5170, Taxpayer Bill of Rights, will be provided to all applicants/registrants during each compliance review. The TE or excise examiner conducting the initial, sample, or discretionary review should document the 637 IMS case file of his or her actions.

  13. This following list includes the Forms, Publications and Letters that are frequently utilized throughout this IRM, with their respective title. They are described in more detail in Exhibit 4.24.2-3.

    • Letter 3681, 637 Notification Letter

    • Letter 3682, Additional Information Request

    • Letter 3684, Denial of Appeal for Registration

    • Letter 3685, Denial of Registration - Uncontested

    • Letter 3686, Appointment Scheduled - Form 637 Reviews

    • Letter 3687, Form 637 Registration Correspondence Review

    • Letter 3689, Letter of Registration

    • Letter 3690, Letter of Revocation – Contested

    • Letter 3691, Letter of Revocation - Uncontested

    • Letter 3692, Letter of Suspension – Uncontested

    • Letter 3693, Letter of Suspension – Contested

    • Letter 3695, Notice of Intent to Revoke Registration

    • Letter 3696, Results of 637 Compliance Review

    • Letter 5023, Notification of Change in Form 637 Registration Number

    • Letter 5708, Initial Contact - Form 637 Reviews

    • Form 637, Application for Registration (for Certain Excise Tax Activities)

    • Form 13499 C, Current 637 Recommendation

    • Pub 510, Excise Taxes

    • Pub 5039, Terms and Conditions of Registration for Form 637

    • Pub 5170, Taxpayer Bill of Rights

    • Notice 609, Privacy Act Notice

Use of Fax Machine or Enterprise e-Fax (EEFAX)

  1. In May 2003, the Tax Administration Council approved the use of faxes for receiving information and documents from taxpayers and practitioners when contact with the taxpayer has been made and documented on Form 9984 , or in the 637 IMS case file CLA. Documentation on Form 9984 or CLA must include the date of the contact and a notation indicating the taxpayer wanted to send information by fax.

  2. Documents, forms, letters, and interactions can be allowed via fax unless there is a specific prohibition. Faxes received via Enterprise Electronic Facsimile (EEFAX) origin must be documented. To document the origin of an EEFAX, upload the incoming e-mail that identifies the origin into the 637 IMS case file.

  3. See IRM 11.3.1.11, FacsimileTransmission of Tax Information, for additional information.

Initial Contact - Overview

  1. The "initial contact" is the first contact with the applicant/registrant. ALL initial contacts on a Form 637 compliance review must be made by mail using the appropriate initial contact letter.

  2. Excise examiners in excise field groups must use Letter 5708, Initial Contact - Form 637 Reviews, for all initial contacts related to Form 637 compliance reviews.

  3. TEs in the 637 Registration Group use one of the following letters to make initial contact on Form 637 compliance reviews:

    • Letter 3681 - Initial application reviews

    • Letter 3687 - Sample and discretionary reviews

  4. Excise examiners and TEs must allow the applicant/registrant 14 calendar days to respond (includes time for mailing) to the initial contact letter before making an attempt to contact the applicant/registrant by telephone.

  5. The following documents must be enclosed with the initial contact letter:

    • Pub 5170, Taxpayer Bill of Rights (Brochure) and

    • Notice 609, Privacy Act Notice

    Note:

    Pub 5170 and Notice 609 should not be sent to a representative.

  6. If a valid Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, is on file for the applicant/registrant, the initial contact letter will be mailed to the applicant/registrant and a copy of the letter will be mailed to the representative with Letter 937, Transmittal Letter for Power of Attorney.

    Note:

    Form 2848 or Form 8821 that only reflects Form 637 representation cannot be forwarded to the CAF unit as there is no master file for Form 637. Form 2848 or Form 8821s must be scanned and uploaded into 637 IMS file. However, if Form 2848 or Form 8821 representation contains tax returns, e.g., a Form 720 , Form 1120, it must be forwarded to the CAF unit for processing. For additional information regarding a power of attorney. See IRM 4.11.55 , Power of Attorney Rights and Responsibilities, for additional information.

  7. Publications and forms sent to the taxpayer should always agree with the enclosures listed on the representative’s or appointee’s Letter 937 to avoid confusion. However, blank forms and publications available on IRS.gov should not be included with Letter 937 when sending, for example, Letter 5708, Letter 3689, Letter 5023, or Letter 3696 to representatives and appointees. For example, Pub 5039 should not be included with the representative’s or appointee’s copy of Letter 3689, Letter 5023, or Letter 3696. This guidance is consistent with the Form 2848 and Form 8821 instructions, which state that representatives and appointees will not receive forms, publications, and other related materials with notices.

Disclosure

  1. IRC 6103(k)(7), Disclosure of Excise Tax Registration Information, provides to the extent the Secretary determines that disclosure is necessary to permit the effective administration of subtitle D, that the Secretary may disclose:

    1. The name, address, and registration number of each person who is registered under any provision of subtitle D (and, in the case of a registered terminal operator, the address of each terminal operated by such operator), and

    2. The registration status of any person.

  2. All Form 637 Registration information is available online on the Excise Tax Program web page at the irs.gov web site. This web application confirms whether an individual or business has a valid Form 637 Registration. See http://apps.irs.gov/app/exciseTax.

  3. Any request for disclosure not listed in (1) above will be forwarded to the 637 Registration Group Manager. The request will concisely state the administrative necessity for disclosure.

  4. All contacts and disclosures will be recorded on Form 9984, and uploaded into the applicant/registrant’s 637 IMS case file or in the 637 IMS case file CLA.

Taxpayer Advocate Service (TAS) Referrals and Inquiries

  1. The Excise Technical Advisor is the point of contact for all TAS referrals and inquiries. When inquiries are received from TAS concerning initial Form 637 registration applications about which no determination has been made and the applicant requests the application be expedited. The referral is submitted to the 637 Registration Group manager for review. The 637 Registration Group manager and the field group manager will review the facts and circumstances surrounding the case and determine, if the application should be expedited. Factors to consider include, but are not limited to the following:

    1. What hardship would the applicant suffer should the application not be expedited?

    2. When was the application filed and how long has the application been in process?

    3. Does the applicant have a deadline that is beyond his or her control?

    4. What documented case actions have occurred to date?

    5. What is the reason for the delay?

  2. If it is decided to expedite the case, the 637 Registration Group Manager will issue the registration number and forward the case to the field group manager for a final determination. At or shortly after receipt, the field group manager will direct the excise examiner to complete the case and forward his or her recommendation to the 637 Registration Group. The excise examiner is responsible for communicating his or her decision to the applicant.

  3. If the inquiry originates directly from the applicant via the Excise Tax Hotline, the 637 Registration Group Manager should be contacted within two business days to allow him or her to review and discuss the situation and involve the assigned group manager, if warranted.

Annual Registration Work Plan and Sample Selection Criteria

  1. SB/SE Performance Planning & Analysis (PPA) is responsible for developing the workplan in coordination with WSD, and Excise Tax Examination.

  2. The SB/SE Specialty Excise Tax Examination Workplan will contain a component Registration Workplan.

  3. SB/SE Specialty Excise Tax Examination will provide assistance as needed to ECS who is responsible for identifying and allocating sample reviews to excise field groups in the appropriate territories.

  4. The sample selection criteria may exclude certain activity letters, which will be worked by the 637 Registration Group.

  5. The Form 637 sample reviews identified by WSD will be started on a pro-rata basis to ensure the delivery of the Registration Work Plan each fiscal year.

  6. SB/SE Specialty Excise Tax Examination will monitor the Annual Registration Work Plan status monthly and will coordinate Registration Program workload delivery with SB/SE ECS.

  7. The grade of case criteria for a Form 637 initial application, sample and discretionary reviews will follow the guidelines found in IRM 4.24.4.4.1, Assignment and Grade Level of Form 637 Registration Initial Applications, Compliance Reviews, and Other IRC 4101 Case Work.

  8. SB/SE Specialty Excise Tax Examination, in collaboration with ECS, may include reviews identified as Risk Reviews as needed to promote compliance with required registration requirements. The following are categories of conditions warranting potential risk reviews:

    1. CP 241 Notices

    2. Change in business ownership

    3. Bonds (invalid bonds, bond changes, notice of cancellations, etc.)

    4. Correspondence reviews that cannot be resolved by the 637 Registration Group

Responsibility of Centralized Specialty Tax Operations (CSTO)

  1. CSTO creates the 637 IMS case file and scans all Form 637 applications and attachments received at CIRSC. CSTO maintains the original application request for 45 days. After 45 days expire, the original application is mailed to the 637 Registration Group via Form 3210, Document Transmittal. For the current mailing address of the 637 Registration Group see http://mysbse.web.irs.gov/examination/specialty/excise/issues/637/contacts/default.aspx.

  2. Scanning and uploading the Form 637 application and the creation of the 637 IMS case file places the case into IMS Status 10 and electronically transmits the 637 IMS case file to Queue Manager "Queue 1" .

  3. Form 637 applications that cannot be processed by CSTO include the following:

    • Missing or incorrect EIN

    • Missing activity letter

    • Duplicate filing

    • Missing name in signature section

  4. When an application cannot be processed, CSTO will take the following actions:

    1. The CSTO Tech Advisor will forward the application to the 637 Registration Group Manager employing secure e-mail for follow-up actions. See IRM 4.24.2.7, Responsibility of 637 Registration Group.

    2. The original application will be mailed to the 637 Registration Group via Form 3210.

  5. If a registrant contacts CSTO regarding a change in its Form 637 Registration, such as a change in business location or ownership, CSTO will via secure e-mail forward the updated information to the 637 Registration Group Manager for follow-up action. See IRM 4.24.2.7, Responsibility of 637 Registration Group.

  6. CSTO will establish Examination Returns Control System (ERCS) control for all Form 637 Registration compliance reviews.

  7. The LT assigning the IMS 637 case file will provide CSTO the information necessary to establish ERCS controls, including the appropriate case Tracking Code.

  8. The LT will send a secure e-mail to the CSTO mailbox "*SBSE Specialty Tax Team 203 Cincinnati." The secure e-mail will contain the information necessary to complete the 637 ERCS controls. CSTO will establish ERCS controls within one to three days after receipt and confirm this to the LT via secure e-mail.

    Note:

    Excise examiners are responsible for establishing ERCS controls on all discretionary reviews initiated at the field group level.

  9. Information necessary to complete the 637 ERCS control request may be found on the 637 ERCS Request web site listed below: See http://mysbse.web.irs.gov/examination/specialty/excise/issues/637/637regprog/25838.aspx.

Responsibility of 637 Registration Group

  1. The 637 Registration Group Manager is responsible for:

    • Overseeing the 637 Registration Program.

    • Overseeing the 637 Registration workflow process.

    • Making the final determination on IMS on applications that have been denied, or registrations that have been revoked or suspended.

    • Ensuring the 637 Registration indicator is added to new registrations that are approved and removed from registrations that are revoked or suspended.

    • Conducting correspondence Form 637 compliance reviews.

    • Disclosing authorized registration information.

    • Processing applications received from CSTO that cannot be processed and/or other correspondence received from a 637 registrant

    • Conducting periodic reviews of the correspondence reviews processed by LTs. Twice per month, the 637 Registration Group manager will select one day of work completed by the LTs and review the 637 IMS case files approved by the LT. In addition, the 637 Registration Group manager will maintain a record of each review that includes the name of the applicant/registrant, EIN, registration number, results of the review, and any feedback provided to the LT.

  2. The 637 Registration Group LT is responsible for maintaining the 637 IMS case files in his or her assigned territory. However, due to workflow of applications and registrations, the LT may also assist other territories. The LT is responsible for:

    • Assigning 637 Registration Group cases to the TEs.

    • Creating discretionary or sample reviews on IMS.

    • Adding new applications received from excise examiners to IMS and creating the applicable 637 IMS case file.

    • Uploading historical data in the 637 IMS case file.

    • Requesting ERCS controls on case files assigned to field groups.

    • Reviewing 637 Registration Group cases completed by the TE and making the final determination in IMS to approve or continue the registration.

    • Preparing and issuing 637 Registration letters.

    • Processing for completion, 637 IMS case files closed by the excise group managers.

    • Updating and maintaining the 637 IMS case files, such as, name or ownership changes, address changes, etc. in the assigned territory.

    • Ensuring the 637 Registration indicator is input on initial applications approved for registration.

  3. The TE in the 637 Registration Group is responsible for:

    • Performing Integrated Data Retrieval System (IDRS) research on all initial applications in Status 20.

    • Performing correspondence compliance reviews.

    • Performing Accurint searches on all initial applications in Status 20.

    • Making recommendations on 637 Registration Group cases to approve, deny, continue or revoke a registration.

    • Preparing 637 Registration letters.

    • Preparing and mailing Letter 3681, 637 Notification Letter, to all initial applicants assigned to the TE within five (5) calendar days from the assignment of the 637 IMS case.

  4. See IRM 4.24.2.9, IMS Workflow Process and Case Status Definitions, for detailed workflow procedural guidance.

637 Registration Group Correspondence Compliance Reviews

  1. Based on the needs of the Excise Tax Program, various activity letters will be worked as correspondence compliance reviews by the Form 637 Registration Group.

  2. An Annual Registration Work Plan will be distributed to the 637 Registration Group before the beginning of the fiscal year. Correspondence Form 637 compliance reviews will be started on a pro rata basis based on the Annual Registration Work Plan to ensure timely completion of the reviews by fiscal year end.

  3. Approved registrants under the Coordinated Industry Case (CIC) Program will not be selected for correspondence compliance reviews and will be referred to the excise field groups.

  4. Correspondence reviews that cannot be resolved by the 637 Registration Group will be sent to the appropriate excise field group for completion.

  5. All initial contacts made by a TE with a registrant on a sample or discretionary review must be made by mail using Letter 3687. Pub 5170 and Notice 609 must be enclosed with Letter 3687. See IRM 4.24.2.2.2 , Initial Contact: Overview, for additional information.

    Note:

    The TE will not make initial contact by telephone.

  6. The TE must allow the registrant sufficient time to respond to Letter 3687 (14 calendar days from mailing the letter) before contacting the registrant by telephone.

  7. If the registrant does not respond to Letter 3687 and it is not returned as undeliverable, follow-up attempts by telephone must be made to contact the registrant. See paragraph (9) below if follow-up attempts to contact the registrant are negative.

  8. If Letter 3687 is returned undeliverable on an approved registrant, and the address on IMS matches the address on IDRS, no further actions will be taken to locate the registrant. Each registrant must comply with the terms and conditions of registration to retain its registration. The registrant must notify the IRS within 10 days of any changes in the information submitted in connection with its application for registration, this includes, but is not limited to a change in address. The TE will scan and upload a copy of the returned envelope into the 637 IMS case file and recommend revoking the registration. See IRM 4.24.2.15, Changes in the Information Submitted in Connection with Application for Registration, and Pub 5039 for additional information.

  9. If the telephone attempts to contact the registrant in paragraph (7) are unsuccessful, or Letter 3687 is returned undeliverable, the TE should consider revoking the registration. See IRM 4.24.2.10.5, Status 65 Q Manager Deny/Revoke/Suspend- Overview, for additional information.

  10. Document all actions taken in the 637 IMS case file CLA.

Overview of Excise Tax Field Groups Compliance Reviews

  1. All technical analyses and determinations of Form 637 excise field group compliance reviews will be performed by an excise examiner.

  2. Excise tax field group compliance reviews will consist of:

    • All new applications that meet excise field group criteria

    • Sample reviews selected by Excise WSD

    • Discretionary reviews requested by the excise field groups

    • Any application or registration that could not be resolved by the 637 Registration Group

  3. Each compliance review may require an on-site visit.

  4. The field group manager may also select registrants for discretionary reviews (non-sample reviews) from the following:

    • Registrants with an Large Business and International Division (LB&I) designation that are currently under examination

    • Registrants currently under examination for excise related activities

  5. All initial 637 applications must be completed on ERCS within 60 days from assignment to the field group manager. Any delays in meeting the 60 day requirement should be discussed with the field group manager, documented by the excise examiner on the IMS activity record or Form 9984, and uploaded to the IMS case file. Managers must document any managerial delays in the 637 IMS case file CLA.

  6. The 637 IMS User Guides and job aids for managers and excise examiners will be maintained on the My SBSE Excise, IMS and Notebook home page at the following link:http://mysbse.web.irs.gov/examination/specialty/excise/prog/imsnotebook/default.aspx.

  7. All Form 637 initial application cases, as well as sample and discretionary compliance review cases are subject to Embedded Quality (EQ) review.

Excise Tax Field Group Manager Responsibilities and Procedures

  1. The field group manager is responsible for:

    • Ensuring all initial application reviews are completed on ERCS within 60 days of assignment to group manager.

    • Ensuring all sample reviews are completed on a pro-rata basis during the fiscal year.

    • Assigning 637 IMS case files to excise examiners and updating the IMS case file to Status 50.

    • Ensuring the excise examiner's recommendation to approve, continue, deny, revoke, or suspend a registration is adequately supported.

    • Documenting the IMS activity record, Form 9984, or the 637 IMS case file CLA to record his or her observations about the case review and whether he or she concurred with the excise examiner's recommendation. Form 9984, must be uploaded into the 637 IMS case file.

    • Making the final determination to approve or continue a registration within his or her geographic area and documenting that decision on IMS.

    • Preparing and issuing the appropriate registration letter to the applicant/registrant based on the excise examiner's recommendation to approve or continue that registration.

    • Inputting, as warranted, the appropriate follow-up date for the 637 IMS case file follow-up compliance review.

    • Ensuring all excise field group compliance reviews, which are approved and/or continued by the manager, are closed off ERCS (Status 90).

  2. If the initial application contains a combination of recommendations, the field group manager will complete and issue the Letter 3689 and/or Letter 3696. The field group manager will also update the Form 637 IMS case status to 70 (LT review) for the 637 Registration Group to issue the appropriate denial/revocation letter.

  3. If the field group manager elects to use an electronic signature, that electronic signature must be a graphic digital signature. Instructions for creating a graphic digital signature are included in the addendum to the guide to the GM 637 IMS User Guide. Refer to the link found in IRM 4.24.2.8(6), Overview of Excise Tax Field Groups Compliance Reviews.

Excise Examiner Responsibilities and Compliance Review Procedures

  1. Excise examiners must utilize IMS and the appropriate Form 637 mandatory administrative forms, activity letter job aids and Form 637 Registration letters currently found in the Notebook Job Aid.

  2. Form 637 reviews completed by excise examiners must include a complete analysis of the applicant's/registrant’s business operations. Refer to Exhibit 4.24.2-4 for more information regarding business operations and transactions flow. At a minimum, the review will consist of the following:

    • A plan on what to inspect.

    • How the inspection will be conducted.

    • The actual inspection, complete with applicant/registrant interview, business review, and review of necessary books and records.

    • A determination and issuance of an activity letter to the applicant/registrant.

  3. All 637 IMS case files must include documentation for the appropriate registration tests for each activity letter for which the applicant applied, and/or for which the registrant is registered.

  4. The excise examiner will complete and upload Form 13499-C into the 637 IMS case file. Form 13499-C documents or summarizes the following:

    • Registration determination

    • Registration tests performed

    • Reasons for a denial, revocation or suspension of registration

    • Any required follow-up actions

  5. The excise examiner will review transcripts, other IDRS research, Currency and Banking Retrieval System (CBRS) research, and any other internal IRS documents to make determinations on registration tests (e.g. the satisfactory history test).

  6. The excise examiner must analyze and document, via the C805, Internal Controls, the applicant/registrant internal controls. Internal controls must be analyzed and documented to demonstrate the effectiveness and efficiency of the business operations and the strengths, weaknesses, and reliability of the applicant’s/registrant’s financial reporting.

  7. A financial analysis must be completed, via the C800, Form 637 Financial Analysis, if the excise examiner determines the applicant/registrant poses a risk to revenue by not paying their tax liabilities or expected tax liabilities or by filing claims. Financial analysis is a picture of the business in dollars and cents. It shows levels of risks, measures business performance, and enables the excise examiner to make informed decisions about the health of the business. Excise examiners may select those financial ratios he or she feels best demonstrate the financial health of the business and must document the methods he or she employed. See Exhibit 4.24.2-5 for information regarding financial analysis techniques. A decision on the results of the applicant/registrant financial analysis must consider the analysis of internal controls. At a minimum, the excise examiner must consider and evaluate the applicant’s/registrant’s past payment history for tax liabilities.

    Note:

    Special attention should be given to the applicants/registrants (and related persons) past treatment of employment tax liabilities. No applicant/registrant with outstanding Federal Tax liabilities, which are not fully addressed, may be issued a new registration or allowed the continuation of an existing registration. The excise examiner must endeavor to bring the taxpayer into compliance by securing any and all unpaid liabilities or by securing any delinquent returns.

  8. The excise examiner will resolve all deficiencies and/or delinquencies on field group applications, which are identified and notated on the 637 Registration Group TE 's 637 Recommendation Job Aid before making a recommendation to approve or continue a registration.

  9. At the conclusion of each sample or discretionary review, the excise examiner will:

    • Prepare Letter 3696

    • Notate any deficiencies found, including deficiencies that were found and resolved, if warranted

    • Record his or her contact and return address information

    • Scan and upload the letter into the 637 IMS case file

    • Notify the LT, via secure email, of any IMS changes for the registrant (e.g., address, name, etc.)

      Note:

      The field group manager must date, sign, mail Letter 3696, and upload a signed copy into the 637 IMS case file.

  10. The excise examiner will explain to the new registrant:

    • The purpose of the registration and how to use it, and that a registration is required to conduct certain business transactions free of Federal Excise Tax, at a reduced rate of tax, or in order to file certain claims for credit or refund of tax.

    • The use and maintenance of exemption certificates that applies to the applicant, and that the exemption certificate must be accepted in good faith and must be secured prior to the exempt transaction and/or filing a claim for credit and/or refund. If this does not occur, the taxation of those items, or disallowance of the claims related to those transactions, may occur.

    • The format of exemption certificates and that any form of an exemption certificate is acceptable, if it includes all the information required in such a certificate by the pertinent sections of the applicable tax law. Provide, as warranted, or advise applicant/registrant that copies/examples of the applicable exemption certificate(s), may be found in the Treasury Regulations, IRS Notices, and Pub 510.

    • The terms and conditions of registration as noted on Pub 5039, under which the excise examiner will stress that the registration is subject to revocation or suspension, if there is not compliance with its terms and conditions.

  11. The excise examiner will discuss the filing, payment, reporting, and/or deposit requirements for:

    • Form 720, Quarterly Federal Excise Tax Return

    • Form 8849, Claim for Refund of Excise Taxes

    • Form 4136, Credit for Federal Tax Paid on Fuels

    • Form 720-TO, Terminal Operator Report

    • Form 720-CS, Carrier Summary Report

    • Form 2290, Heavy Highway Vehicle Use Tax Return

    Note:

    See Exhibit 4.24.2-6 for more information on Form 720 filing, deposit and payment requirements.

  12. The excise examiner will explain to the new registrant that a compliance review may be conducted in the future, the purpose of which is to determine if there is compliance with the registration tests. A compliance review includes, but is not limited to:

    • Inspecting exemption certificates

    • Inspecting filed returns

    • Analyzing internal controls

    • Performing a current financial analysis

    • Obtaining and/or reviewing other pertinent information related to the business and its operations

  13. The excise examiner will direct the applicant/registrant to the IRS web site for obtaining a copy of Pub 510, and discuss the applicable section(s) including any excise tax law updates that apply to the registrant. The excise examiner shall fully answer any relevant questions posed by the applicant/registrant.

Excise Examiners Responsibilities and Excise Tax Examinations Conducted on Approved 637 Registrants

  1. If an excise examiner conducts an examination on a current 637 registrant, the 637 Registration must be given due consideration, regardless of when the last compliance review was conducted.

  2. The excise examiner must select the appropriate box on the A105, Administrative Check Sheet, and comment on the actions taken at the conclusion of the examination to verify the registrant’s registration status.

  3. If the examination results in a no-change, or a refund, the excise examiner will conduct a limited scope discretionary review. He or she must ensure the registrant’s registration status should be “Continued” if all registration criteria is met. If a limited scope discretionary review is conducted, the examiner will follow the procedures in (6) thru (11) below.

  4. If the examination results in a change or proposes a change, a discretionary review is required. The procedures found in IRM 4.24.2.11.2, Follow-up Compliance Review Procedures After Approval of Registration, relating to Form 637 Registration follow-up compliance procedures after approval applies. The excise examiner will discuss initiating the discretionary review with the field group manager and secure approval before proceeding.

  5. If a discretionary review is conducted, the field group manager will request the LT to assign the 637 IMS case file to his or her group. See IRM 4.24.2.6(1), Responsibility of Centralized Specialty Tax Operations (CSTO), for a link to the list of LT territory assignments in the Form 637 Registration Group. Under no circumstances is a 637 IMS case to be created locally by the excise examiner. The Form 637 Registration group must assign all 637 IMS cases to the excise field groups.

  6. If a limited scope discretionary review is conducted, the excise examiner must comment on the A105 the actions taken to verify the registrant’s registration status, e.g., the registration status of registrant was considered and a limited scope discretionary review was conducted. In the limited scope discretionary review, it was ensured that the registrant:

    1. Is engaged in the activity or activities for which registered

    2. Has a satisfactory tax history, including any related person of the registrant

    3. Has adequate security (if applicable)

    4. Is an acceptable risk (if applicable)

  7. Prepare Letter 3696, Results of a 637 Compliance Review, if registration should be "continued" and include his or her contact information in the letter. Upload the letter into the examination case file. The group manager will sign, date and mail the letter.

    Note:

    The registrant’s current registration number is entered on Letter 3696.

  8. If the registration activity should be revoked or suspended, the procedures in IRM 4.24.2.11.1, Procedures Relating to Denials, Revocations and Suspensions of Registrations, applies, e.g., the excise examiner will:

    1. Obtain registrant’s written concurrence

    2. Document the reason for the revocation/suspension on the A105

    3. Upload registrant’s written concurrence into the examination case file

  9. If applicable, inform the registrant of issuance of a national registration number if registration currently has a registration number issued prior to February 1, 2004. Document all actions taken on the IMS activity record.

  10. Upon completion, review, and acceptance of the examination case file by the field group manager, he or she will sign, date and mail Letter 3696. In addition, the field group manager will forward via secure e-mail to the LT the following documents so that the 637 IMS case file can be updated:

    1. A copy of the A105

    2. A copy of the signed Letter 3696

    3. Registrant’s concurrence to revocation/suspension (if applicable)

    4. A copy of the IMS activity record or Form 9984 that documents all actions taken in the examination case file by the RA and the Field GM.

  11. The LT will:

    1. Create a discretionary review on IMS.

    2. Upload attachments in the secured e-mail into 637 IMS case file, i.e. the A105 and the signed copy of the Letter 3696, etc.

    3. Continue the registration on IMS.

    4. If applicable, prepare and issue Letter 5023, Notification of Change in Form 637 Registration Number, with Pub 5039, for the national registration number and upload a signed copy into the 637 IMS case file.

    5. If the registration is to be revoked or suspended, update the 637 IMS case file to Status 65, "Deny and Revoke" queue.

    6. If applicable, forward the request to have the 637 indicator removed from IDRS.

    7. Document the 637 IMS Case Level Activities (CLA) of all actions taken.

  12. Form 637 compliance reviews, including limited scope discretionary reviews documented on the A105, are subject to EQ reviews.

Mandatory Administrative (Admin) Forms for Excise Examiners

  1. The Notebook-generated forms and templates in the 637 Registration Program are accessed from the Mandatory Admin Forms tab on the Case Details page. One or more sets of Mandatory Admin Forms may be added to a Taxpayer Case. These Mandatory Admin Forms include information pre-populated with the Common Fields captured during the setup of a Taxpayer Case and User Details in the Notebook.

    Note:

    The 637 Program Admin Forms are similar in nature to the excise tax examination mandatory administrative forms. See IRM 4.24.6, Technical Guidance and Procedures for Excise Issues, for more information.

  2. Form 637 questionnaires have been developed for each activity letter and should be utilized as required. They are located in the Notebook forms library in the Activity Code 588 Registry and Exemption folder.

  3. Mandatory Admin Forms deployed are:

    Name Title
    IMS Activity Record Examining Officer’s Activity Record
    Form 13499-C Current 637 Recommendation
    637 New Applicant IDR Language for 637 New Applicant
    637 Follow Up IDR IDR Language for 637 Follow-Up
    A605 Administrative Check Sheet
    A610 637 Registration Plan to Close
    A615 Initial Appointment Agenda
    A625 Initial Interview Questions and Notes
    B700 637 Filing Checksheet
    C800 637 Financial Analysis
    C805 Internal Controls
    D900 Initial Contact Check Sheet
Form 13499-C Current 637 Recommendation
  1. Form 13499-C is a summary sheet that records the final recommendation for the applicant/registrant and supports the recommendation.

New Applicant and Follow Up Information Document Request (IDR) Language
  1. IMS Notebook files contain general language to assist with completing the Form 4564, Information Document Request.

IMS Examining Officer's Activity Record
  1. The IMS examining officer’s activity record documents all actions taken on the case. It is deployed in IMS notebook. If the IMS activity record is not utilized, Form 9984 can be used. If Form 9984 is used, the excise examiner will upload it into the 637 IMS case file. Documentation should include the date, location, time charged, and explain each significant activity or contact. The activity record should provide a complete and concise case history. Recordation of events are made by but not limited to:

    • Excise examiners

    • Field group managers

    Specific procedural guidance regarding entries made on the activity record are noted throughout this IRM section.

A605 Administrative Check Sheet
  1. The purpose of the A605 is to provide a set of administrative guidelines for tasks that may arise during the compliance review. The A605 is similar in nature to the A105 employed for excise tax examinations.

A610 637 Registration Plan to Close
  1. The A610 is a guide for planning the 637 compliance review. It is similar in nature to the A110 employed for excise tax examinations.

A615 Initial Appointment Agenda
  1. The A615 provides guidance for conducting the initial contact with the applicant/registrant. It is similar in nature to the A120 employed for excise tax examinations.

A625 Initial Interview Questions and Notes
  1. Interviews will be documented using the A625. It is similar in nature to the A125 employed for excise tax examinations. Detailed activity letter questionnaires can be found in the Notebook Job Aid forms library. The questionnaires will be reviewed and updated periodically as warranted.

    Note:

    The completion of the A625 does not necessarily constitute a completed interview.

B700 637 Filing Checksheet
  1. The purpose of the B700 is to document the tax history of the applicant/registrant. It is similar in nature to the B200-1 and B200-2 employed for excise tax examinations. To be classified with a satisfactory tax history, an applicant must have no outstanding non-addressed federal tax liabilities of any type and demonstrate to the examiner compliance with the filing, deposit, and payment histories for all federal taxes, including those for any related person or persons.

  2. Notice CP 241 information may also be utilized as warranted. See IRM 4.24.2.17.2 for more information.

C800 637 Financial Analysis
  1. The C800 documents the applicant/registrant's financial analysis. A financial analysis is required when the excise examiner determines the applicant/registrant poses a risk to revenue by not paying a tax liability or filing excise tax claims.

  2. If the applicant/registrant is experiencing financial difficulty, the excise examiner should protect the government’s interests by ensuring the applicant/registrant is not using Federal Excise Tax (FET) deposits to pay other liabilities nor is filing excise tax claims to increase cash flow.

C805 Internal Controls
  1. The C805, documents the analysis of internal controls and the business operations of the applicant/registrant. It is similar in nature to the C305 employed for excise tax examinations.

  2. Internal controls must be analyzed and documented to demonstrate:

    • The effectiveness and efficiency of the business operations

    • The strengths, weakness and reliability of the applicant/registrant’s financial reporting

  3. The excise examiner must verify the applicant/registrant has adequate resources and proper internal controls to ensure the collection of and payment of tax. This can be documented by:

    • Flowcharting key business operations

    • Narrative documentation that's comparable to flowcharting

    Note:

    It is necessary to identify the name and title of each person making decisions or taking actions that affect the financial and tax position of the applicant/registrant during the key business operations process being analyzed. The name and type of documents that flow through the key business operations process should also be identified.

D900 Initial Contact Check Sheet
  1. The D900 contains action items to consider at the time initial contact occurs. It is similar in nature to the A120 employed for excise tax examinations. The D900 documents the excise examiner:

    • Provided identification and contact information

    • Discussed compliance review process

    • Discussed applicant/registrant's role in compliance review

    • Addressed any questions with the applicant/registrant

IMS Workflow Process and Case Status Definitions

  1. All Form 637 Registration case files are maintained and monitored electronically utilizing the IMS Team Website. They contain scanned documents from the historical paper files.

  2. All Form 637 Registration cases are designated as one of the following review types on IMS:

    • 588I - Initial Application Review

    • 588S - Sample Review

    • 588D - Discretionary Review

  3. The IMS Team Website is utilized by the 637 Registration Group LT to assign cases to the field group manager’s queue or to a 637 Registration Group TE. IMS is utilized by the 637 Registration Group to work all aspects of initial applications and sample reviews, which are not limited to, but include the following:

    • Review

    • Make recommendations

    • Forward the IMS 637 case file to manager for approval

  4. IMS is utilized by field group managers to:

    • Assign the case to an excise examiner

    • Review cases currently in process

    • Approve the excise examiner’s recommendation regarding an applicant/registrant or seek further information before making a decision

    • Return the 637 IMS case file to the excise examiner, if warranted

    • Issue Letter 3689, and Letter 3696, to the applicant/registrant

    • Forward the 637 IMS case file to the 637 Registration Group LT for issuance of Letter 3685, or Letter 3691, as warranted

  5. 637 Registration Group and excise field group cases are controlled on IMS under status codes. See Exhibit 4.24.2-3 for a table containing a list of all IMS status codes and a brief description about their uses and purposes.

637 Registration Group IMS 637 Registration Process

  1. The sections below cover case processing procedures for 637 IMS case work flow for initial applications and compliance reviews. Each subsection describes the IMS life cycle of a case from the time a case is created on IMS until it is moved to closing status.

Status 10 Pending -Assignment of 637 IMS Cases Queue Manager Q1

  1. The 637 Registration Group Manager's Queue Manager Q1 displays all 637 IMS case files in Status 10 (Pending) that have been input by CSTO or created by an LT, as follows:

    • New applications

    • Follow-up compliance reviews

  2. The 637 Registration Group Manager shall assign territory assignments on all 637 IMS cases in Status 10 and update the IMS status to Status 15 (Territory Assigned). Territory assignments are determined on the geographical location of the applicant or registrant.

  3. Once the territory has been assigned, the 637 IMS case file will be placed in Status 15 in the case inventory for the LT assigned to the territory.

Status 15 Territory Assigned- IMS 637 Case Assignments by LT

  1. Status 15 IMS case files include:

    • Initial applications

    • Discretionary or sample reviews

  2. The LT will assign 637 IMS case files in Status 15 to the TE in the 637 Registration Group and to excise field groups from:

    • LT Assignment Queue 1, or

    • LT Process Queue 2

  3. The LT will assign Status 15 initial applications for assignment to the TE in Status 20 (Compliance Check) from LT Assignment Q1.

    Note:

    When a case is updated to Status 20, IMS automatically generates an e-mail to the TE assigned to the case.

  4. The LT assigning a sample or discretionary review to the excise field group must first create the discretionary or sample review issue on IMS in order to update the case to Status 10 so it will be assigned to the LT's territory. Once the 637 IMS case file is placed in Status 15, the LT will assign the 637 IMS case file to the field group.

  5. The LT assigning a discretionary or sample review to an excise field group will:

    1. Complete the 637 ERCS Request for sample reviews and verify the correct project and tracking code(s) are assigned to the case on ERCS, if applicable.

    2. E-mail the completed 637 ERCS request to CSTO via secured e-mail using the "*SBSE Specialty Tax Team 203 Cincinnati" mailbox. CSTO will input the ERCS control.

    3. Upload 637 historical file into the 637 IMS case file (if applicable).

    4. Update the 637 IMS case file to Status 40 (GM Compliance Review) and select the appropriate team code.

    5. Assign the 637 IMS case file to the field group manager queue.

      Note:

      The excise field group is responsible for establishing ERCS controls on discretionary reviews.

  6. The LT will assign Status 15 discretionary or sample reviews to the TE in the 637 Registration Group in Status 20. An ERCS control is not required on 637 Registration Group cases.

Status 20 Compliance Check - Overview Initial Application and Sample Reviews Conducted by the 637 Registration Group TE

  1. A 637 IMS case file in Status 20 is either an initial application or sample review assigned to the 637 Registration group TE to allow the TE to:

    • Conduct an IDRS compliance check on the applicant's payment and filing history, and all related persons of the applicant.

    • Conduct Accurint search on the applicant.

    • If applicable, complete the initial application or sample review.

  2. If the initial application is designated a 637 Registration Group case, the TE will complete the initial application review. The TE will perform the applicable registration tests and make a final determination on the initial application or sample review. The TE will:

    • Conduct the activity test

    • Verify satisfactory tax history

    • Recommend approval or denial on an initial application review

    • Recommend revoking or suspending a registration on a sample review

  3. If the initial application is designated an excise field group case, the appropriate registration tests and final determination will be conducted and made by the excise field group.

  4. If the LT returns an initial application or sample review to the TE for corrections, it will be placed into Status 20 and returned to the TE.

  5. The 637 review for an initial application in Status 20 designated a 637 Registration group case will be completed within 45 days of assignment on IMS. If deficiencies are discovered on a 637 Registration group case, the TE has 60 days from the day of assignment to complete the initial application review.

  6. The IDRS compliance check for an initial application in Status 20 designated an excise field group case will be completed within 45 days of assignment on IMS. If deficiencies are found on an application designated an excise field group case, the TE will notate the deficiencies found on the 637 Recommendation Job Aid and in the 637 IMS case file CLA.

  7. Applications in Status 20 that contain mixed activity letters assigned to both the 637 Registration Group and excise field groups will be worked as an excise field group case. For example, an application with Activities Letter A for the manufacturer of taxable medical devices and D the for exporter of taxable medical devices will be worked as an excise field group case. The excise field group will make the final determination on all activity letters, which were applied for on the application. The TE is not required to complete the activity letter Job Aid. These types of applications will be processed as an excise field group case with the procedures found in IRM 4.24.2.10.3.3 .

Status 20- IDRS Compliance Check Procedures
  1. The following procedures apply to all applications processed in Status 20 by the 637 Registration Group TE. The TE will:

    1. Review the original Form 637 application in IMS on the "Original 637 Application" screen.

    2. Print the "F637.pdf" file for reference when conducting the compliance check and use it when completing the "Form 637 Data" screen in IMS. See Exhibit 4.24.2-1 .

    3. Verify the name and address on the application with the name on IDRS and obtain an "INOLES" that will be uploaded into the 637 IMS case file.

    4. Complete the Form 637 Data screen in IMS. Review and change information as necessary and complete Part III of the screen.

    5. Prepare and mail Letter 3681 within 5 calendar days from the assignment of the 637 IMS case file and include their name, employee ID number, telephone, and fax numbers in the contact information. If the application is a 637 Registration Group case, the TE must enclose Pub 5170 and Notice 609 with Letter 3681 . The signed copy of Letter 3681 must be uploaded into the 637 IMS case file.

      Note:

      Pub 5170 and Notice 609 should not be enclosed with Letter 3681 on excise field group cases. These documents will be enclosed with Letter 5708, which is mailed by the excise examiner.

    6. Secure appropriate IDRS research necessary to complete the IDRS compliance check. If deficiencies are discovered, the applicable IDRS research documents will be scanned and uploaded in the 637 IMS case file to support the TE's findings. These include: BMFOLT/BMFOLI, IMFOLT/IMFOLI, SUMRY or TXMODA.

    7. If additional information is required to complete the activity test or IDRS compliance check, the TE must allow sufficient time to lapse (14 calendar days after mailing Letter 3681) before contacting the applicant by telephone. See IRM 4.24.2.2.2, Initial Contact - Overview for additional information. Any request for sensitive information, e.g., an EIN or SSN to complete the IDRS compliance check, must be in writing using Letter 3682, Additional Information Request, refer to (l) below for additional information on issuing Letter 3682.

      Note:

      When making or receiving phone calls, the TE must follow IRM 21.1.3.2.3, Required Taxpayer Authentication, to ensure he or she is speaking to the appropriate taxpayer or taxpayer's representative to prevent unauthorized disclosure of tax information.

    8. Scan and upload into the 637 IMS case file any information received relating to processing the application, such as corrected signatures, tax returns secured, address change request, or verification of payments on tax account balances due.

    9. Conduct a follow-up contact within two days, if the applicant has not responded to requests and issue Letter 3682.

    10. If an initial application is incomplete, secure the information necessary to complete the application. The case will be placed in suspense for two weeks to allow the applicant time to provide necessary information. Information obtained will be added to the "637 Data" screen.

    11. If an application does not contain a valid signature, secure a new signature and dated application from a person whose signature binds the applicant.

    12. Issue Letter 3682, which may be faxed to the applicant, when requesting additional information from the applicant. The TE will include his or her name, employee ID number, telephone number, and fax number in the contact information. If Letter 3682 is faxed to the applicant, the Department of the Treasury/IRS seal must be on the fax cover sheet. Refer to IRM 4.24.2.2.1, Use of Fax Machine or Enterprise e-Fax (EEFAX), for additional information on the use of fax machines and EEFAX.

  2. The TE will forward any non-filed returns secured to the appropriate IRS Submission Processing campus. A copy of any non-filed return(s) that are secured will be uploaded in the 637 IMS case file and the word/phrase "Copy-Do Not Process" notated of the face of the return(s).

  3. On field designated cases, if the IDRS compliance check establishes there are non-filed excise tax returns, such as, Form 720 or Form 2290, the TE will notate the non-filed returns on the 637 Recommendation Job Aid and in the 637 IMS case file CLA and recommend forwarding the 637 IMS case file to the excise field group. The excise field group will secure the non-filed returns and make the final determination on the application.

  4. If necessary, a non-filer referral using Form 5346, Examination Information Report, will be prepared for other federal taxes such as income or employment taxes. Form 5346 will be prepared by the LT and forwarded to the 637 Registration Group manager for approval and submission to Planning and Special Programs (PSP). See IRM 4.4.23.3.4, Form 5346, Examination Information Report, for additional information.

  5. Record all actions taken on the application in the 637 IMS case file CLA.

IMS Status 20- Initial Compliance Review Procedures Specific to 637 Registration Group Cases
  1. The following procedures apply to an application in Status 20 that is designated a 637 Registration Group case and must be followed by the 637 Registration Group TE. The TE will:

    1. Perform Internet research. For example, he or she may "Google" the applicant to determine if the business entity is in the business activity for which registration was submitted. The Internet can also be used to confirm and establish further facts and information about the applicant, including alternate addresses and operating locations. If the results of Internet research do not establish activities subject to excise taxes, the TE will refer the application to the 637 Registration Group manager for follow-up action. For example, the web page of a 637 applicant, requesting activity letter F registration establishes no information regarding educational activities.

    2. Consider Accurint business or people searches. Accurint may reflect name/address/TIN that are geographically or name-linked and may show employees at a given company or location. Research can then be conducted on those names via Command Code IRPTRO to identify W-2's, K1's, and the correct TIN. If Accurint research reveals any unusual information about the applicant, such as criminal or civil charges, the TE will refer the application to the 637 Registration Group manager for follow-up action.

    3. Complete the 637 Activity Job Aid for each activity letter to establish if the applicant is engaged in the business or organization associated with the activity letter, or likely to be engaged in such activity in the near future. Upload 637 Job Aid(s) into the 637 IMS case file.

    4. Contact the applicant and/or related person by telephone to secure any non-filed returns and/or payments that were discovered during the compliance check. If internet research does not establish any information relating to the activity for which application was made, follow-up with the applicant.

    5. Complete the 637 Recommendation Job Aid for a 637 Registration Group case with the filing requirements and payment histories of the applicant and the same for any related person for the prior two years. Any compliance issues found beyond a two year time span will be documented on 637 Recommendation Job Aid and in the 637 IMS case file CLA.

    6. Upload the 637 Recommendation Job Aid in the 637 IMS case file.

    7. If the applicant and all related persons of the applicant have a satisfactory tax history and the applicant meets the activity test, recommend the approval of application.

    8. If the applicant does not meet the activity test or applicant and/or any related person does not have a satisfactory tax history, solicit a withdrawal statement from the applicant. If no response is received, document the CLA and recommend denial of the application. If no response is received to a request for additional information needed to complete the 637 Registration process within a reasonable amount of time, recommend denial of the application.

    9. Record all actions taken on the application in the 637 IMS case file CLA. This includes closing recommendation and supporting reasons why.

    10. Close the 637 IMS case file to the LT for review and update the IMS status to Status 30 (LT Review).

  2. When a 637 Registration Group case application is denied by the TE, the TE will:

    1. Notate the reason for the denial in the 637 IMS case file CLA, on the 637 Recommendation Job Aid, and/or activity letter Job Aid.

    2. If denied because of outstanding tax balances, upload the IDRS research that substantiates the outstanding tax balances.

    3. Deny the application on IMS.

  3. If a 637 Registration Group case has multiple activity letters, and the TE recommends that certain activities be approved and others be denied, the TE will close the case to the LT for the final determination on activity letter(s) with a recommendation to approve those selected. The 637 IMS case file will be updated to Status 30 and placed in the LT Process Q2.

  4. If it is determined that an applicant did not apply for the correct activity letter on a 637 Registration Group case, and may qualify for another activity letter, the TE will:

    1. Secure a new application with the activity letter that applies.

    2. Secure a withdrawal statement from the applicant for the application with the incorrect activity letter.

    3. Deny the incorrect activity letter on IMS.

  5. If a 637 Registration Group case is returned to a TE to address an issue or issues that prevented the LT from approving the registration, the TE must take action on the IMS 637 case file within 10 days upon reassignment. The TE will:

    1. Resolve all issues notated in the 637 IMS case file and, if necessary, contact the LT for clarification of issue(s).

    2. Document all actions taken to resolve issue(s) in the 637 IMS case file CLA.

    3. Upload any documentation requested by the LT or that is necessary to resolve the issue(s).

    4. Close the case back to the LT and update the IMS status to Status 30.

  6. A 637 Registration Group case will not be returned to a TE from Status 30 a second time to address or resolve a newly found issue, unless it has been approved by the 637 Registration Group manager via the 637 IMS case file CLA. However, it will be returned a second time to TE, if the TE did not resolve or address the previous issue(s) notated by the LT on the first review for the 637 IMS case file.

IMS Status 20- Compliance Review Procedures Specific to Excise Tax Field Group Cases
  1. After the 637 Registration Group TE completes the procedures in IRM 4.24.2.10.3.1, Status 20 - IDRS Compliance Check Procedures, the following actions must be taken on applications designated excise field group cases. The TE will:

    1. Complete the 637 Recommendation Job Aid for a field group case with the filing requirements and payment histories for the applicant and related person(s) for the prior two years.

    2. If no deficiencies were discovered on the IDRS compliance check, recommend "Approve" on IMS.

    3. If deficiencies were discovered on the IDRS compliance check, the application will not be denied. The TE will notate the deficiencies discovered on the 637 Recommendation Job Aid, the 637 IMS case file CLA, and recommend "Approve" on IMS to forward the 637 IMS case file to the excise field group.

    4. Upload the 637 Recommendation Job Aid.

    5. Document the 637 IMS case file CLA.

    6. Close the IMS case file to the LT. The IMS case file will be updated to Status 30.

  2. The LT will document the 637 IMS case file CLA that the IMS case file was forwarded to the excise field group to address the deficiencies discovered and make a final determination on the application.

Status 30 LT Review- 637 Case Criteria

  1. The criteria for what constitutes a 637 Registration Group or an excise field group case will be reviewed as warranted based on the needs of the Excise Tax Program. If excise field groups need additional work, cases that were previously considered 637 Registration Group cases may be reclassified as excise field group cases. Conversely, if a case has been assigned to a particular excise field group that has other higher priority workload, the case may be reassigned to the 637 Registration Group.

  2. Both 637 Registration Group and excise field group 637 IMS case file initial applications completed and approved by the TE will be updated to IMS Status 30 for an LT review.

  3. The 637 IMS case file is returned to the LT that assigned the 637 IMS case file to the TE in Status 20.

  4. The LT will determine, if the 637 IMS case file is:

    • An excise field group case, or

    • A 637 Registration Group case

  5. 637 Registration Group cases are kept within the 637 Registration Group and the LT will make the determination to approve the application for registration.

  6. 637 Registration Group cases that are denied on IMS by the TE are updated to Status 65 (Q Manager Deny/Revoke) and placed in the 637 Registration Group Manager Queue Manager Q2 for concurrence and to make the final determination.

  7. If a 637 Registration Group case has multiple activity letters and some are being denied and others are being approved, the IMS 637 case file will be updated to Status 30 and placed in the LT Process Q2 for a final determination on the activity letter(s) that the TE recommended be approved.

Status 30- Procedures for 637 Registration Group Cases (TE Recommendation to Approve Application)
  1. 637 IMS case files in Status 30 will be reviewed in IMS by the assigned territory LT. If the LT is in agreement with the TE's recommendation to approve the 637 application, the LT will make a final determination and approve the application on IMS.

  2. Upon the approval of an application, the LT (or TE) will:

    1. Prepare and issue Letter 3689, to the applicant and enclose Pub 5039. Letter 3689 contains the approved registration number and the effective date of registration.

    2. Upload the signed Letter 3689 into the 637 IMS case file.

    3. Complete and forward the Form 2363, Master File Entity Change, to have the 637 indicator added to IDRS. See IRM 4.24.2.17.1, Procedures to Post or Delete the Form 637 Indicator on BMF, for procedural guidance.

    4. Document 637 IMS case file CLA of all actions taken.

  3. If the LT assigns procedures in (2) above to a TE, the LT will:

    1. Update the 637 IMS case file status to Status 85 (Final Disposition by TE) and assign to the TE.

    2. Provide closing instructions to the TE via 637 IMS case file CLA, if applicable.

  4. When a 637 Registration group case has multiple activity letters and some are being denied and others are being approved by the TE, the final determination on the activity letter(s) recommended for approval will be made by the LT. If the LT concurs with the TE recommendation to approve, the LT will:

    1. Approve the activity letter(s) on IMS

    2. Follow the procedures in (2) above

    3. Update the 637 IMS case file to Status 65

    Note:

    The LT will not delegate the procedures in (4) to the TE and update the 637 IMS case file to Status 85 because of the denial.

  5. When the LT reviews a 637 Registration group case and issues are discovered, which prevent the LT from approving the application, it will be returned to the TE in Status 20 for corrective actions. The LT will:

    1. Notate the issue or issues and actions the TE should take, if applicable, in the 637 IMS case file CLA.

    2. Update the 637 IMS case file to Status 20.

  6. If the issue(s) can be resolved via phone or e-mail, the LT will document his or her actions in the 637 IMS case file CLA and approve the registration.

  7. The LT will not send a 637 IMS case file back to the TE a second time for newly found issues unless the LT has the approval of the 637 Registration Group Manager. However, an LT may return an 637 IMS case file to the TE a second time, if the TE did not resolve or address the previous issue(s) notated by LT on the first review and return of the 637 IMS case file. Any disagreements between the LT and the TE on case actions will be elevated to the 637 Registration Group Manager for resolution.

Status 30- Procedures for Excise Tax Field Group Cases
  1. Status 30 637 IMS cases that are considered excise field group cases will be sent to the excise field groups to make the final determination on the application and/or registration. This includes:

    • Initial applications with/without compliance issues designated as an excise field group case.

    • Initial applications with mixed activity letters, i.e., containing , an excise field group and a 637 Registration Group activity letters.

    • Initial applications with/without compliance issues received from an approved registrant adding a excise field group activity letter(s) to its current registration.

    • Initial applications deemed a 637 Registration Group case that can not be processed by the 637 Registration Group.

  2. 637 IMS cases will be assigned to an excise field group from the LT Process Queue 2.

  3. The LT assigning an initial application to the excise field group must request ERCS controls before assignment to the field group. The LT will:

    1. Complete the 637 ERCS Request and verify the correct Project and Tracking Code(s) are assigned to the case on ERCS, if applicable.

    2. E-mail the completed 637 ERCS Request to CSTO via secured e-mail using the "*SBSE Specialty Tax Team 203 Cincinnati" mailbox. CSTO will input the ERCS control.

    3. Upload the 637 historical file into the 637 IMS case file, if applicable.

    4. Update the 637 IMS case file to Status 40 (GM Compliance Review) and select the appropriate team code.

    5. Assign the 637 IMS case file to the field group manager queue.

  4. If compliance issues were discovered during the IDRS compliance check, the LT will notate in 637 IMS case file CLA. The excise field group must address and resolve any deficiencies prior to making a final determination to approve the application and/or to continue a registration.

  5. If an applicant/registrant who submits an application designated an excise field group case does not have compliance issues, but a related person to the applicant has a compliance issue, the 637 Registration Group manager will allow the 637 application to go to the field. If the related person is a 637 registrant, the LT will establish a sample review and ERCS controls on the related person, and assign the sample review to the excise field group along with the initial application.

Status 65 Q Manager Deny/Revoke/Suspend- Overview

  1. When it is determined that a 637 Registration should be denied, revoked, or suspended, or the taxpayer requests withdrawal of a registration, the 637 IMS case file is updated to Status 65 and placed in IMS Queue Manager Q2 (Q Manager Q2), Deny and Revoke/Suspend queue, to make the final action on IMS. The term Q Manager Q2 is IMS’s queue name for the Deny and Revoke/Suspend queue within IMS and has certain administrative permissions for processing 637 IMS case files. These permissions include denying or revoking/suspending a 637 IMS case file. The Q Manager Q2 is assigned to the 637 Registration Program with oversight by the 637 Registration Group manager. Field group managers do not have an IMS Deny and Revoke/Suspend queue and must close 637 IMS case files to the 637 Registration Group for final action on IMS. Field group managers are required to follow the procedures in (3) below.

  2. The 637 Registration Group manager's concurrence is required on all 637 IMS case files that are denied, revoked, or suspended in his or her group. He or she will:

    • Review the 637 IMS case file and TE’s recommendation to deny, revoke, or suspend registration.

    • Document his or her concurrence in the 637 IMS case file CLA.

    • Take final action on IMS.

    • Update the 637 IMS case file to Status 80 (Final determination by the LT) or Status 85 (Final disposition by the TE) for the appropriate registration letter(s) to be issued.

  3. The field group manager’s concurrence is required on all 637 IMS case files that are denied, revoked or suspended in his or her group. He or she will:

    • Review the 637 IMS case file and ensure any required documentation is uploaded into the 637 IMS case file, e.g., registrant’s written concurrence letter on a revocation or a denial.

    • Make the final determination on the excise examiner’s recommendation to deny, revoke, or suspend registration.

    • Document his or her concurrence in the 637 IMS case file CLA.

    • Update the 637 IMS case file to Status 70 (LT Review from field) for the final action on IMS and issuance of the appropriate registration letter(s).

  4. The 637 Registration Group manager may designate an employee to make the final action on IMS on Status 65 cases closed by excise tax field groups, where the taxpayer requests withdrawal of the registration, or concurs with the field’s determination to deny, revoke, or suspend a registration. The designated employee will take the final action on IMS and assign the case to a TE for preparation, mailing, and uploading of the appropriate closing letter, and if applicable, removal of the 637 indicator.

  5. If the denial, revocation, or suspension is contested, the Chief, Estate & Gift and Excise Exam will make the final determination on the denial, revocation, or suspension of registration.

  6. See IRM 4.24.2.11.1, Procedures Relating to Denials, Revocations and Suspensions of Registrations, for additional procedures relating to denials, revocations and suspensions.

Status 65- Action to Deny 637 Registration Group Cases
  1. When it is determined that an applicant, including a related person to the applicant, as defined under Treas. Reg. 48.4101-1(b)(5), does not meet all of the applicable registration tests, or the applicant has not responded to a request for additional information, the application will be denied.

  2. The applicant must be notified, in writing, that the application for registration is denied and the basis for the denial stated. Letter 3685 is used for this purpose.

  3. An application should be denied if an applicant:

    • Does not meet all of the applicable registration tests. See IRM 4.24.2.11.1(2), Procedures Relating to Denials, Revocations and Suspensions of Registrations, for registration tests not met.

    • Meets the exceptions to the requirement for registration under Treas. Reg. 48.4222-1(b).

      Note:

      Only applies to manufacturer's excise taxes

    • Has requested, in writing, to withdraw the Form 637 application.

    • Applied for the wrong activity letter(s).

    • Has not provided a request for additional information within 30 days.

  4. Exceptions to the requirement for registration under Treas. Reg. 48.4222-1(b), which apply only to manufacturer's retailer's excise taxes, are :

    • State and local governments

    • Foreign purchasers for export

    • United States

    • Supplies for vessels and aircraft

Status 65- Denial Procedures for 637 Registration Group Cases
  1. If the 637 Registration Group manager concurs with the denial for registration, he or she will:

    1. Detail his or her concurrence and the basis for the denial via 637 IMS case file CLA.

    2. Update the 637 IMS case file to Status 80 (Final Determination by LT) or Status 85 (Final Determination by TE).

  2. The LT or the TE will:

    1. Prepare and issue Letter 3685, to the applicant.

    2. Notate the basis/reason for the denial in the letter.

    3. Upload a copy of the signed Letter 3685, into the 637 IMS case file.

    4. Update the 637 IMS case file to Status 90.

  3. The applicant will have 10 days from the post mark date, not the letter date, indicated on Letter 3685 to submit a written appeal regarding the denial. After 10 days, the applicant will be required to reapply for registration.

  4. If an applicant appeals the denial in writing within 10 days, the applicant's appeal will be uploaded into the 637 IMS case file. The LT will review the applicant’s appeal.

  5. If the LT determines that the 637 Registration process should continue, the LT will take the appropriate actions to continue the registration process and document his or her actions via the 637 IMS case file CLA.

  6. After reviewing the applicant's appeal, if the LT determines that the registration process should not continue, the LT will forward the 637 IMS case file to the 637 Registration Group manager who will follow the contested denials and revocations procedures found in IRM 4.24.2.11.1, Procedures Relating to Denials, Revocations and Suspensions of Registrations.

  7. If an applicant is denied a registration due to deficiencies (e.g., unfiled tax returns or balances due) and such deficiencies are satisfied within 30 days from the date of Letter 3685, the LT will approve the registration. The LT will document actions taken in the 637 IMS case file CLA and upload any correspondence submitted by the applicant in the 637 IMS case file and update to Status 85 to have registration letter issued.

  8. If an applicant is denied a registration due to missing information and such information is provided within 30 days from the date of Letter 3685, the LT will update the 637 IMS case file to Status 20 and assign TE to complete the 637 review.

  9. If the 637 Registration Group manager does not concur with the denial of a registration, the 637 IMS case file CLA will be documented and case sent back to the TE for follow-up actions. The 637 IMS case file will be updated to Status 20.

Status 65- Procedures for Applications Denied with an Approved Registration
  1. If a current 637 registrant submits an application designated a 637 Registration Group case and compliance issues are found or a related person has compliance issues, the application will be denied by the TE. The LT or the TE will:

    1. Prepare and issue Letter 3685, for the activity letter(s) denied (refer to IRM 4.24.2.10.5.1(2), Status 65 - Action to Deny 637 Registration Group Cases.

    2. Prepare and issue Letter 3696, along with Pub 5039, notating the noncompliance issues.

    3. Upload signed copies of Letter 3685 and Letter 3696 into the 637 IMS case file.

  2. The 637 IMS case file will not be closed to Status 90. It will remain in Status 80 or 85 for follow-up action by the TE or the LT on the compliance problems identified in Letter 3696.

  3. The registrant will be given 30 days to resolve compliance issues. If the 637 registrant becomes compliant within 30 days of the issuance of Letter 3696, the additional activity will be approved. Letter 3689, will be issued for the approved activity along with Pub 5039. The LT or the TE will update IMS 637 case file to Status 90.

  4. If after 30 days, the registrant has not resolved the compliance issue(s) and has not responded, the LT will recommend revocation of the approved registration. The LT will document the basis for the revocation in the 637 IMS case file CLA and update the case to Status 65. If 637 Registration Group manager concurs with the revocation, he or she will:

    1. Detail his or her concurrence and basis for the revocation in the 637 IMS case file CLA.

    2. Revoke the approved registration on IMS.

    3. Assign the 637 IMS case file back to the LT in Status 80 or the TE in Status 85 to issue Letter 3691. Refer to IRM 4.24.2.11.1, Procedures Relating to Denials, Revocations and Suspensions of Registrations, for revocation procedures.

Status 70 LT Review from Field- Procedures Relating to Excise Tax Field Group Recommendation to Approve, Continue, Deny, Revoke, or Suspend a Registration

  1. Status 70 cases are 637 IMS case file initial applications, sample reviews, and discretionary reviews closed by excise field groups to the LT.

  2. The LT will not review any determinations made by the excise field groups to:

    • Approve a registration.

    • Continue a registration after a discretionary or sample review.

    • Deny, revoke, or suspend a registration.

  3. The excise field group manager has the responsibility to:

    • Ensure a 637 IMS case file adequately supports a recommendation to approve, continue, deny, revoke, or suspend a registration.

    • Review the IMS 637 case file and concur with the excise examiner’s recommendation to approve, continue, deny, suspend or revoke a registration.

    • Approve or continue a registration on excise field group cases.

    • Date, sign and mail Letter 3689 or Letter 3696.

    • Upload signed copy of registration letter(s) into the 637 IMS case file.

    • Document his or her actions and approval in the 637 IMS case file CLA.

  4. For 637 IMS case files where the excise field group proposes to deny, revoke, or suspend a registration, or the applicant requests withdrawal of an application, and the applicant/registrant concurs with the excise examiner's determination, the LT will:

    • Ensure the excise examiner obtained the concurrence in writing from the applicant/registrant.

    • Ensure the excise examiner uploaded Form 13499-C, and workpapers into the 637 IMS case file.

    • Ensure the field group manager documented his or her concurrence in the 637 IMS case file CLA.

    • Notate the 637 IMS case file CLA of actions taken and update the 637 IMS case file to Status 65.

      Note:

      If any of these items are absent, the case will be returned to the field group manager for correction.

  5. If there is no applicant/registrant written concurrence uploaded in the 637 IMS case file, the LT reviewing the denial, revocation, or suspension will review the facts, circumstances, and documentation in the 637 IMS case file to determine, if the applicant/registrant is in agreement with the denial, revocation, or suspension. If there is no indication the statement was solicited, the case will be returned to the field group.

  6. The 637 Registration Group manager may designate an employee to make the final approval on IMS on 637 IMS case files that are denied, revoked or suspended. The designated employee will update the 637 IMS case file and assign the case to a TE for preparation, mailing and uploading of the closing letter.

  7. The designated employee will make the final approval on IMS and forward the case file to a TE in Status 85 for preparation of the closing letter.

  8. In situations where the excise examiner approves an application or continues a registration for an activity/activities and also denies, revokes or suspends an activity/activities in the same 637 IMS case file, the LT will:

    1. Ensure the field group manager has approved or continued the activity/activities on IMS.

    2. Ensure the field group manager has uploaded a signed copy of Letter 3689 or Letter 3696 into the 637 IMS case file.

    3. Update the 637 IMS case file status to 65 (Q Manager Deny/Revoke) on the denied, revoked or suspended activity/activities.

    4. Document 637 IMS case file CLA of all actions taken and reason for the denial, revocation or suspension. If any of these items are absent, the case will be returned to the field group manager for correction.

Status 80 Final Determination by LT- Procedures

  1. 637 IMS case files assigned to an LT in Status 80 include, but are not limited to, ownership changes, name changes, or those ready for final disposition.

  2. The LT will document all actions taken and contacts made in 637 IMS case file CLA.

  3. When an 637 IMS case file is assigned to Status 80 for a final disposition, the LT will:

    1. Prepare the applicable 637 Registration letter(s) or other correspondence to the applicant/registrant and sign the 637 Registration Group manager’s name or stamp the 637 Registration Group manager’s name using a signature stamp, if available.

    2. Scan and upload signed letter(s) into the 637 IMS case file under "administrative issue section," and mail original letter to the applicant/registrant.

    3. Input or remove the 637 indicator. See IRM 4.24.2.17.1, Procedures to Post or Delete the Form 637 Indicator on BMF, for details on removing or adding the 637 indicator.

  4. Once the preceding actions are completed, the LT will change the 637 IMS case file status to "Complete Review" and update the 637 IMS case file to Status 90 – Complete. The 637 IMS case file is now finalized in IMS.

Status 85 Final Disposition by TE- Procedures

  1. Once the final determination has been made by the LT to approve a registration or the 637 Registration Group manager to deny, revoke, or suspend a registration, applicable 637 Registration correspondence will need to be prepared and sent to the applicant/registrant. The TE assigned to a 637 IMS case file in IMS Status 85 will:

    1. Prepare the applicable 637 Registration letter(s) or other correspondence to the applicant/registrant and sign the 637 Registration Group manager’s name or stamp the 637 Registration Group manager’s name using a signature stamp, if available.

    2. Scan and upload signed letter(s) into the 637 IMS case file under "administrative issue section" and mail original letter to the applicant/registrant.

    3. Forward Form 2363 request to have the 637 indicator added to or removed. See IRM 4.24.2.17.1, Procedures to Post or Delete the Form 637 Indicator on BMF, for details on removing or adding the 637 indicator.

    4. Document all actions taken on 637 IMS case file CLA.

  2. Once the above actions are completed, the TE will change the 637 IMS case file status to "Complete Review" and update the 637 IMS case file to Status 90 – Complete. The 637 IMS case file is now finalized in IMS.

Excise Tax Field Group Procedures - Initial Application Reviews

  1. The excise examiner will review an initial application for registration, make an on-site visit, if necessary, and recommend approval or denial of the application. All Mandatory Administrative Forms must be completed to support the recommendation and uploaded to the 637 IMS case file.

  2. All initial contacts with an applicant on an initial application review must be made by mail using the appropriate initial contact letter. The excise examiner will not make initial contact by telephone.

  3. Excise examiners must use Letter 5708, Initial Contact - Form 637 Reviews, to notify the applicant of their initial application review and allow sufficient time to lapse after mailing Letter 5708 (14 calendar days from mailing the letter) before contacting the applicant by telephone. A copy of signed Letter 5708 will be uploaded into the 637 IMS case file. The excise examiner must enclose the following taxpayer rights documents with Letter 5708:

    • Pub 5170 and

    • Notice 609

  4. See IRM 4.24.2.2.2, Initial Contact - Overview, for additional information on initial taxpayer contact.

  5. After the initial telephone conversation with the applicant and the appointment is scheduled, the excise examiner will prepare and issue Letter 3686, Appointment Scheduled - Form 637 Reviews, to confirm the initial appointment. A copy of the signed Letter 3686 will be uploaded into the 637 IMS case file.

  6. If the applicant fails to respond to the initial contact letter after 14 days, and it was not returned as undeliverable, the excise examiner must determine why the applicant is not responding. Follow-up attempts must be made to contact the applicant (including by telephone). See IRM 4.10.2.8.3, No Response/No Show Procedures, for additional guidance.

  7. If follow-up attempts are unsuccessful and the excise examiner has exhausted all available avenues to locate the applicant to conduct the review, e.g., IDRS, CBRS, Accruint, and telephone directories, the excise examiner should recommend denying the registration. See IRM 4.24.2.11.1(5), Procedures Relating to Denials, Revocations and Suspensions of Registrations.

  8. If the initial contact letter is returned undeliverable, the excise examiner must take steps to determine if a more current address or contact information can be obtained and document the actions taken in the 637 IMS case file. See IRM 4.10.2.8.4, Undeliverable Initial Contact Letters, for additional information on obtaining a current address. If the applicant cannot be located, the excise examiner will scan and upload a copy of the returned envelope into the 637 IMS case file, complete Form 13499-C and recommend denying the registration.

  9. See IRM 4.24.2.11.1, Procedures Relating to Denials, Revocations and Suspensions of Registrations, for additional information.

  10. If an applicant meets all the applicable registration tests, the excise examiner will:

    1. Complete Form 13499-C and include a written narrative summarizing the applicant’s business activity and the appropriate registration tests for each activity.

    2. Upload Form 13499-C along with supporting workpapers to support the recommendation into the 637 IMS case file.

    3. Recommend approval of registration on IMS and update the 637 IMS case file to the field group manager for his or her review and concurrence with the recommendation.

    Note:

    If a bond is required, and a surety bond is used, a registration will not be issued before receipt of a letter from the surety company certifying a bond has been issued to the applicant.

  11. The field group manager will document on the IMS activity record or on the 637 IMS case file CLA he or she completed a review of the file and concurs with the excise examiner’s recommendation. If Form 9984 is used, the field group manager will upload it into the 637 IMS case file.

  12. The field group manager will also:

    1. Make the final determination on IMS to approve the registration.

    2. Prepare, date, sign, and mail Letter 3689 to the applicant. The Letter 3689 will include excise examiner contact information.

    3. Upload a signed copy of letter in the 637 IMS case file.

    4. Forward the Form 2363 to have the 637 indicator added to IDRS. Refer to IRM 4.24.2.17.1, Procedures to Post or Delete the Form 637 Indicator on BMF, for procedures on posting or deleting the Form 637 indicator on BMF.

    5. Document all actions taken in the 637 IMS case file CLA.

  13. One national registration number with approved activity letter(s) will be issued to each registrant. Multiple registration numbers will not be issued.

    1. If the applicant is already registered for other activities and has a registration number issued prior to February 2004, the excise examiner must inform the registrant that a new national registration number will be issued. The excise examiner will inform the registrant to discontinue the use of any previously "approved" registration number(s) once the national registration number is received. The group manager will prepare and issue the registrant Letter 3689 and Letter 5023 with Pub 5039, Terms and Conditions of Registration for Form 637.

    2. If a registrant already has a national registration number, any additional activity letter(s) approved will be added to the end of the approved national registration number.

    3. If the registrant has two valid registration numbers, i.e., an old registration number, as well as a national registration number, IMS will look to the oldest approved status date for both numbers and may generate a new national registration number. If this occurs, a HELP ticket must be created to remove the newly-issued national registration number. The group manager will issue the letter of registration using the existing national registration number and approved activity letter(s). The group manager will document the 637 IMS case file CLA for all actions taken.

  14. If a person or entity later qualifies for registration for activities not covered by the current approved registration number, a Form 637 application must be submitted with the additional activity letter(s) for approval. An updated Letter 3689 will be issued to reflect the additional activity letter(s).

  15. If a determination is made that an applicant did not apply for the correct activity letter, but qualifies for an activity letter listed on the Form 637 application, the excise examiner will:

    1. Secure a signed Form 637 application with the correct activity letter and scan it into the 637 IMS case file.

    2. Obtain a withdrawal statement from the applicant regarding the incorrect activity letter.

    3. Via secure e-mail forward the correct application to the designated 637 Registration Group LT. The LT will upload the application and add the correct activity letter in the 637 IMS case file at the time the 637 IMS case file closes from the excise field group.

    Note:

    If the withdrawal statement is not secured, the 637 IMS case file CLA should be documented showing the date the withdrawal statement was solicited.

  16. Form 637 indicators must be input on Master File for all approved registrations. See IRM 4.24.2.17.1, Procedures to Post or Delete the Form 637 Indicator on BMF, for procedures. Form 2363, must be completed and input by either the 637 Registration Group LT or the TE as warranted. If the required command code is not in their IDRS profile, the TE or the LT will complete Form 2363 and forward it to CSTO for input. The 637 IMS case file CLA will be documented that this procedure was completed.

Procedures Relating to Denials, Revocations and Suspensions of Registrations

  1. When it is determined that an application for registration should be denied or an existing registration revoked or suspended, the applicant or registrant will be notified in writing stating the basis for the denial, revocation, or suspension.

  2. An application for registration should be denied if the excise examiner determines that the applicant:

    1. Does not meet all of the applicable registration tests for the activity applied for, as described in (4) below,

    2. Has not responded within 30 calendar days to a request for additional information relating to its application.

  3. An existing registration should be revoked or suspended if the excise examiner determines that the registrant:

    1. Does not meet all of the applicable registration tests for its registration, as described in (4) below;

    2. Has not responded within 30 calendar days to a request for additional information relating to its approved registration;

    3. Has failed, at any time, to comply with the terms and conditions of registration under Treas. Reg. 48.4101-1 (h); or

    4. Has used its registration to evade, or attempt to evade, the payment of any tax imposed by IRC 4041(a)(1) or 4081; or to postpone, or in any manner to interfere with the collection of any such tax; or to make a fraudulent claim for a credit or payment; or has aided or abetted another person in evading, or attempting to evade, payment of any tax imposed by IRC 4041(a)(1) or 4081; or in making a fraudulent claim for a credit or payment; or has, at any time, failed to comply with the terms and conditions of registration.

  4. The applicant/registrant does not meet the registration test if:

    1. Activity Test - The applicant or registrant is not engaged in the appropriate trade or business to receive or continue the registration for the activity letter for which the applicant applied or registrant is registered.

    2. Acceptable Risk Test - The applicant/registrant or related person has been penalized for a wrongful act or creates a significant risk of nonpayment or late payment of the tax imposed by IRC 4041(a)(1) and IRC 4081.

    3. Adequate Security Test - The applicant/registrant did not have adequate financial resources and/or a satisfactory tax history in their filing, deposit, payment, reporting and claim history for all federal taxes and/or a related person did not have satisfactory tax history, or applicant/registrant did not post a bond.

  5. An application should be denied or an approved registration revoked when an applicant/registrant fails to respond to the initial contact letter after 14 calendar days and it was not returned as undeliverable or an initial contact letter is returned undeliverable for an applicant and the excise examiner exhausted all avenues to locate the applicant/registrant. The excise examiner will:

    1. Complete Form 13499-C, document his or her actions to locate the applicant/registrant and include the reason for the denial or revocation. Upload Form 13499-C into the 637 IMS case file.

    2. Complete Form 1900-B, to document the actions taken to locate the applicant/registrant and upload Form 1900-B into the 637 IMS case file.

    3. Recommend the issuance of the appropriate registration letter, i.e., Letter 3685 or Letter 3691.

    4. Document his or her actions on the IMS activity record.

  6. The procedures listed in (7) will apply in cases where the applicant/registrant:

    • Concurs with the excise examiner’s determination to deny the application, revoke, or suspend their approved registration.

    • Requests a withdrawal of an application.

    • Requests a revocation/suspension of an approved registration.

  7. The excise examiner will:

    1. Obtain applicant/registrant concurrence in writing (an e-mail from the applicant/registrant is sufficient) to the action.

    2. Complete Form 13499-C and include the reason for the denial, revocation, or suspension. Upload both the written concurrence from the applicant/registrant and Form 13499-C into the 637 IMS case file.

    3. If a statement cannot be secured, document the IMS activity record and Form 13499-C with the date the request was made and the applicant/registrant response.

    4. Recommend the issuance of the appropriate registration letter, i.e., Letter 3685,Letter 3691, or Letter 3692.

  8. If the field group manager concurs with the denial, revocation, or suspension, he or she will:

    1. Detail his or her concurrence and the basis for the denial, revocation, or suspension via 637 IMS case file CLA. See IRM 4.24.2.8, Overview of Excise Tax Field Groups Compliance Reviews, for additional information on denials, revocations, and suspensions.

    2. Update the 637 IMS case file to Status 70 (LT Review from Field).

  9. The 637 Registration Group manager will assign a specific LT to review all denials or revocations/suspensions for required documentation, e.g., taxpayer’s or manager’s concurrence. If the documentation is sufficient to show the applicant/registrant or manager has agreed to the denial or revocation/suspension, the LT will:

    1. Process the denial consistent with Treas. Reg. 48.4101-1(g)(2) or the revocation/suspension consistent with Treas. Reg. 48.4101-1(i)(3).

    2. Document the CLA with the appropriate reason for the denial, revocation or suspension and update case to Status 65 for the final action on IMS.

    3. The 637 Registration Group manager or designated employee will make the final approval on IMS and assign case to TE for the issuance of the appropriate registration letter.

    4. The TE will remove the 637 indicator; or complete and forward Form 2363 for removal of the 637 indicator by the appropriate the function.

  10. The designated LT will:

    • Ensure the excise examiner uploaded Form 13499-C and Form 1900-B (if applicable) into the 637 IMS case file.

    • Ensure the field group manager documented his or her concurrence in the 637 IMS case file CLA.

    • Notate his or her actions in the 637 IMS case file CLA and the reason for the revocation that will be used by the TE in preparing Letter 3691. If applicable, the LT will enter any special instructions to the TE.

    • Update the 637 IMS case file Status 65 for final approval on IMS.

    • The 637 Registration Group manager or designated employee will make the final approval on IMS and assign case to TE to issue Letter 3691 and have the 637 indicator removed from IDRS.

      Note:

      If any of these items are absent, the case will be returned to the field group manager for correction.

  11. In cases where the excise examiner proposes to deny an application or revoke/suspend an approved registration, and the applicant/registrant does not agree with the denial or revocation/suspension, the field group manager will review the excise examiner's determination. The following procedures will apply:

    1. The excise examiner will complete and upload into the 637 IMS case file Form 13499-C and a reason for his or her decision in an unagreed format using Form 886-A , Explanation of Items. The format shall include the facts summarizing why the registration is being denied, revoked or suspended, tax law and argument, applicant’s/registrant’s position, and the final conclusion. Form 886-A will be enclosed with the denial, revocation or suspension letter. Form 13499-C and Form 886-A will be uploaded into the 637 IMS case file

    2. The field group manager will review the 637 IMS case file to determine whether the group manager agrees with the excise examiner's determination to deny, revoke or suspend the registration.

    3. The field group manager will offer a conference with the applicant/registrant to discuss the unagreed issues. The field group manager will document in the 637 IMS cases file CLA, indicating that he or she offered a conference with applicant/registrant and is in concurrence with the excise examiner's recommendation.

    4. The field group manager will update the 637 IMS case file to the designated LT.

  12. The designated LT will:

    • Ensure the excise examiner uploaded Form 13499-C, and workpapers into the 637 IMS case file.

    • Ensure the field group manager documented his or her concurrence in the 637 IMS case file CLA.

    • Notate his or her actions in the 637 IMS case file CLA and the reason for the denial, revocation, or suspension that will be used by the TE in preparing the appropriate registration letter. If applicable, the LT will enter any special instructions to the TE.

    • Update the 637 IMS case file to Status 65 for final approval on IMS by the 637 Registration Group manager.

      Note:

      If any of these items are absent, the case will be returned to the field group manager for correction.

  13. The 637 Registration Group manager will review the 637 IMS case file and notate his or her concurrence with the field group’s recommendation in the 637 IMS case file CLA. The 637 Registration Group manager will make the final approval on the 637 IMS case file and assign the case to a TE for preparation, mailing and uploading of the closing letter.

  14. The registrant will have 10 days from the date of the denial, revocation or suspension letter to submit a written appeal of the decision. After the 10 days expire, the registrant will have to reapply for registration.

  15. Contested denials, revocations and suspensions are those where the registrant objects in writing to the denial of their application or the revocation/suspension of the registration and has provided a written appeal within 10 days from the date the Letter 3685, Letter 3691 or Letter 3692 was issued.

  16. The Chief, Estate & Gift and Excise Exam is authorized to sign Letter 3684,Letter 3690, or Letter 3693.

  17. If an applicant/registrant appeals a denial, revocation or suspension, the designated LT will document the receipt of the applicant’s/registrant’s appeal in 637 IMS case file CLA and upload the appeal into the 637 IMS case file. The 637 IMS case file will be forwarded to the 637 Registration Group manager to review prior to meeting with the Chief, Estate & Gift and Excise Exam.

  18. If the Chief, Estate & Gift and Excise Exam concurs with the denial, revocation or suspension, the applicant/registrant will be issued Letter 3684, Letter 3691, or Letter 3693 accordingly. Once the appropriate letter has been signed, the letter will be forwarded to the 637 Registration Group manager to be issued and uploaded into the 637 IMS case file.

  19. If the Chief, Estate & Gift and Excise Exam determines the registration should be granted or reinstated, the 637 IMS case file will be updated to the designated LT who will update the IMS 637 Registration status to approved. The designated LT will issue Letter 3689 and input the 637 indicator. The designated LT will document 637 IMS case file CLA and upload Letter 3689 into the 637 IMS case file.

  20. The 637 Registration Group manager will maintain a list of all applicants or registrants that contest the denial, revocation or suspension of their registration.

  21. In both non-contested and contested revocations/suspensions, Form 2363 will be used to remove the 637 Registration indicator from Master File. This action shall be documented in 637 IMS case file CLA.

  22. For registrations that have been revoked and approved upon appeal, a new registration number will be issued.

  23. For registrations that have been suspended and subsequently continued, the same registration number will be continued in IMS and will be reissued to the registrant.

  24. For registrations that have been previously suspended and are now considered revoked, follow the guidance in this section above, starting at paragraph 3.

Follow-up Compliance Review Procedures After Approval of Registration

  1. The Chief, Estate & Gift and Excise Exam, is responsible for ensuring the registrant is:

    1. Using the registration properly.

    2. Meeting all the applicable registration tests.

    3. Complying with the terms and conditions of the registration.

  2. Terms and conditions for registrants may be found at:

    1. Treas. Reg. 48.4101-1(h) for registrants for activities governed by IRC 4101. See IRM 4.24.2.11.3.1, Registration Tests, for registration tests.

    2. Treas. Reg. 48.4222-1(a), 48.4222-1(b), and 48.4222-1(c) for registrants for activities that are governed by IRC 4222. See IRM 4.24.2.11.3.1, Registration Tests, for registration tests.

    3. Treas. Reg. 52.4682-5 for for activity V. See IRM 4.24.2.11.3.1, Registration Tests, for registration tests.

  3. The field group manager will be responsible to ensure that all sample compliance reviews are completed by fiscal year end.

  4. The territory manager and/or field group manager may request a 637 registrant for a discretionary review derived from a lead if facts and circumstances warrant. If a registrant is selected for review, the field group manager will notify his or her assigned territory LT to update the 637 IMS case file to the field group. The field group must establish ERCS controls for all discretionary reviews.

  5. Each sample compliance review may require an on-site visitation.

  6. All initial contacts with a registrant on a sample or discretionary review must be made by mail using Letter 5708, Initial Contact - Form 637 Reviews. The examiner must allow the registrant sufficient time to respond (14 calendar days from mailing the letter). The examiner must enclose the following taxpayer rights documents with Letter 5708:

    • Pub 5170 and

    • Notice 609

    Note:

    The excise examiner will not make initial contact by telephone.

  7. See IRM 4.24.2.2.2, Initial Contact - Overview, for additional information on initial taxpayer contact.

  8. After the initial telephone conversation with the registrant and the appointment is scheduled, the excise examiner will prepare and issue Letter 3686 to confirm the initial appointment.

  9. If the registrant fails to respond to the initial contact letter after 14 days, and it is not returned as undeliverable, the excise examiner must determine why the registrant is not responding. Follow the procedures above in IRM 4.24.2.11(6) & (7), Excise Tax Field Group Procedures - Initial Application Reviews. Substitute “applicant” for “registrant” and “denying” for “revoking”.

  10. If the initial contact letter is returned undeliverable on an approved registrant, and the address on IMS matches the address on IDRS, no further actions will be taken to locate the registrant. Each registrant must comply with the terms and conditions of registration to retain its registration. The registrant must notify the IRS within 10 days of any changes in the information submitted in connection with its application for registration, this includes, but is not limited to a change in address. See IRM 4.24.2.15, Changes in the Information Submitted in Connection with Application for Registration, and Pub 5039 for additional information. The excise examiner will scan and upload a copy of the returned envelope into the 637 IMS case file, complete Form 13499-C and recommend revoking the registration.

  11. See IRM 4.24.2.11.1, Procedures Relating to Denials, Revocations and Suspensions of Registrations, for additional information.

  12. All 637 IMS case files must be documented thoroughly. The excise examiner conducting the follow-up compliance review will document the IMS activity record or Form 9984 with all registrant contacts. The 637 IMS case file will be documented sufficiently to show what was done during the review. In addition, the excise examiner must follow the excise field group registration procedures found in IRM 4.24.2.9, IMS Workflow Process and Case Status Definitions.

  13. The excise examiner will review the 637 IMS case file, perform IDRS and CBRS research, and review any other relevant internal documents. Exemption certificates must be inspected to ensure the registrant is compliant with the registration requirements. The excise examiner performing the review will document his or her findings, any follow-up actions, and record his or her determination on Form 13499-C and include the follow-up date. All mandatory administrative forms must be completed and uploaded to the 637 IMS case file.

  14. The excise examiner will document any deficiencies discovered in a clear and concise manner in the body of Letter 3696. The description should be specific to the registrant's situation. Examples of deficiency statements include the following:

    1. You failed to make timely Federal Tax Deposits on your Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return and Form 941, Employer's Quarterly Federal Tax Return.

    2. You failed to secure and maintain exemption certificates for your tax-free export sales.

    3. You failed to properly report your Federal Excise Taxes for the following periods (list periods).

  15. The registrant will receive Letter 3696 summarizing the compliance review and indicating if any deficiencies were found. The excise examiner will prepare Letter 3696, notating the deficiencies discovered, record his/her contact and return address information, scan and upload into the 637 IMS case file. The field group manager will date, sign, mail and upload a copy of the signed Letter 3696 into the 637 IMS case file. If a deficiency was found, the field group manager will enter a follow-up date on the final disposition screen in IMS.

  16. The excise examiner must include a follow-up date on the Letter 3696 by which time the registrant must correct the stated deficiencies. The excise examiner must follow-up with the registrant when this date occurs.

  17. On the follow-up date, the excise examiner is to request the 637 IMS case file as a discretionary review.

  18. If after the follow-up review the registrant has corrected the deficiencies, a new Letter 3696 should be prepared.

  19. If after the follow-up review the registrant has not corrected the deficiencies, the excise examiner should discuss possible revocation or suspension with the field group manager and then take the appropriate actions.

Applications under Section 4101

  1. Listed below is a table containing a description of the activities governed by IRC 4101 and Treas. Reg. 48.4101-1(c) and (d):

    Activity Letter Description Applicable Registration Tests
    K Buyer of kerosene for a feedstock purpose. The kerosene tax on kerosene does not apply if, among other conditions, the buyer of the kerosene for feedstock purposes is registered.
    • Activity Test

    • Acceptable Risk Test

    • Adequate Security Test

    M Blender of gasoline, diesel fuel (including a diesel-water fuel emulsion), or kerosene, producing a taxable fuel outside the bulk transfer/terminal system, including blenders of alcohol fuel mixtures, biodiesel mixtures, and renewable diesel mixtures. Registration as a blender does not allow a person to buy any fuel tax-free; however, a blender will be required to file Form 720.
    • Activity Test

    • Acceptable Risk Test

    • Adequate Security Test

    S Enterer, position holder, refiner, terminal operator, or throughputter of gasoline, diesel fuel (including a diesel-water fuel emulsion), or kerosene, or industrial user of gasoline. Each enterer, refiner, position holder, terminal operator, and throughputter (that is a position holder) is required to be registered.
    • Activity Test

    • Acceptable Risk Test

    • Adequate Security Test

    X Pipeline Operator or Vessel Operator. Registration does not allow this person to buy any taxable fuel tax-free. Registration of pipeline and vessel operators allows the IRS to identify persons that transport taxable fuel within the bulk transfer/terminal system.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    Y Buyer of kerosene for use in commercial aviation (other than in foreign trade). The term "commercial aviation " means any use of an aircraft in a business of transporting persons or property for compensation or hire by air, unless properly allowable to any transportation exempt from the taxes imposed by sections 4261 and 4271 by reason of section 4281 or 4282 or by reason of subsection (h) or (i) of section 4261.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    AB Producers and Importers of agri-biodesel.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    AF Producers and Importers of alcohol.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    AL Alternative Fueler that sells for use or uses alternative fuel as a fuel in a motor vehicle or motorboat.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    AM Alternative Fueler that produces an alternative fuel mixture that is sold for use or used in the alternative fueler’s trade or business.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    BC Qualified blood collector organization buying taxable fuel, taxable tires, and certain heavy vehicles; claiming exemption from the communications tax and heavy highway vehicle use tax; or to claim a credit or payment of certain excise taxes, for its exclusive use in the collection, storage, or transportation of blood.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    SB Producers of second generation biofuel.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    CC Credit Card Issuer that issues credit cards for sales of taxable fuel to a state or local government for its exclusive use or for sales of gasoline to a nonprofit educational organization for its exclusive use.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    NB Producers and Importers of biodiesel (other than agri-biodiesel) and renewable diesel.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    QR Qualified retailer of diesel fuel or kerosene sold in Alaska for nontaxable uses. See note below.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    UA Ultimate Vendor that sells aviation-grade kerosene for use in aviation.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    UB Ultimate Vendor that sells undyed diesel fuel or undyed kerosene for use in certain intercity and local buses.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    UP Ultimate vendor that sells kerosene from a blocked pump.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    UV Ultimate Vendor that sells (a) undyed diesel fuel or undyed kerosene to a state or local government for its exclusive use, or (b) gasoline (including aviation gasoline) to a state or local government for its exclusive use or to a nonprofit educational organization for its exclusive use.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    Note:

    Prior to October 2013, activity letter QR registrations were not established on IMS. Treas. Reg. 48.4082-5 provides a special rule relating to diesel fuel and kerosene taxes in Alaska. This rule applies to diesel fuel or kerosene removed, entered, or sold in Alaska for ultimate sale or use in an exempt area of Alaska. This rule generally allows a qualified dealer to buy undyed diesel fuel and undyed kerosene tax-free for resale. Under the regulations, a qualified dealer is any person (generally a wholesale distributor) that holds a qualified dealer license from the state of Alaska or has been registered by the IRS as a qualified retailer. These businesses previously held an activity letter AK registration. Valid holders of these AK registrations are being issued a QR registration in IMS.

Registration Tests for Section 4101 Activities
  1. Registration tests are defined in Treas. Reg. 48.4101-1(f). Different activity letters have different test requirements; some require all three tests are passed. See paragraph (9) and (10) below. The tests are:

    • Activity Test

    • Acceptable Risk Test

    • Adequate Security Test ( Financial Resources and Satisfactory Tax History)

  2. A review of the applicant’s business operations will be made to verify that the applicant is regularly engaged, or will be regularly engaged, within a reasonable time, in the activity for which the registration is being requested.

  3. Activity Test - Under Treas. Reg. 48.4101-1(f)(2), an applicant meets the activity test only if it is determined that the applicant:

    • Is, in the course of its trade or business, regularly engaged as or in the characteristic activity of a person described above in Treas. Reg. 48.4101-1(c)(1) or 48.4101-1(d), or

    • Is likely to be (because of such factors as the applicant’s business experience, financial standing, or trade connections), in the course of its trade or business, regularly engaged as or in the characteristic activity of a person described in Treas. Reg. 48.4101-1(c)(1) or 48.4101-1(d) within a reasonable time after becoming registered under IRC 4101 .

    Examples of items that may be inspected to meet the activity test include contracts or agreements, copies of Form 720, and state licenses. If necessary, third party contacts can be made. See IRM 4.11.57, Examining Officers Guide (EOG), Third Party Contacts, for additional guidance when making a third party contact. Potential third party contacts made by the examiner must be documented on Form 12175, Third Party Contact Report Form, found in IRM 4.11.57.4.3, Third Party Contacts, Record Each Third Party Contacted.

    Note:

    Record each third party contacted on Form 12175.

  4. Acceptable Risk Test - An applicant meets the acceptable risk test only if it is determined that:

    • Neither the applicant nor a related person has been penalized for a wrongful act, or

    • Even though the applicant or a related person has been penalized for a wrongful act as defined under Treas Reg 48-4101-1(b)(4), the Chief, Estate & Gift and Excise Exam or delegate determines, after review of evidence offered by the applicant, that the registration of the applicant does not create a significant risk of nonpayment or late payment of the tax imposed by IRC 4041(a)(1) and IRC 4081.

  5. Under Treas. Reg. 48.4101-1(f)(3)(ii), in making the determination whether an applicant does not create a significant risk of nonpayment or late payment of tax, the Chief, Estate & Gift and Excise Exam or delegate may consider factors such as:

    • The time elapsed since the applicant or related person was penalized for a wrongful act.

    • The present relationship between the applicant and any related person that was penalized for any wrongful act.

    • The degree of rehabilitation of the person penalized for any wrongful act.

    • The amount of bond given by the applicant.

      Note:

      The Chief, Estate & Gift and Excise Exam or delegate may accept a bond without regard to the limits on the amount of the bond as defined in Treas Reg. 4101-1(j)(2). See IRM 4.24.2.11.3.3, Bonds, for bonding information.

  6. Adequate Security Test - Under Treas. Reg. 48.4101-1(f)(4), an applicant meets the adequate security test only if it is determined that the applicant has:

    1. Both adequate financial resources and a satisfactory tax history, or posts a bond.

    2. An applicant has adequate financial resources only if it is determined that the applicant is financially capable of paying its expected tax liability under IRC 4041(a)(1) andIRC 4081 for a representative six month period as determined by the Chief, Estate & Gift and Excise Exam or delegate.

    3. In the case of a terminal operator, the expected tax liability under IRC 4081 of persons other than the terminal operator with respect to taxable fuel removed at the racks of its terminals during a representative one month period as determined by the Chief, Estate & Gift and Excise Exam or delegate.

    4. The determination of whether an applicant has adequate financial resources must be based on all information relevant to the applicant's financial status.

  7. Satisfactory Tax History - Under Treas. Reg. 48.4101-1(f)(4)(iii) an applicant has a satisfactory tax history only if the Chief, Estate & Gift and Excise Exam or delegate is satisfied with the filing, deposit, payment, reporting, and claim history for all federal taxes of the applicant and any related person defined below. Complete transcripts or other equivalent research will be used for this purpose.

  8. Related Person - Under Treas. Reg. 48.4101-1(b)(5), a related person is a person that:

    1. Directly or indirectly exercises control over an activity of the applicant, if the activity is described in paragraph (c)(1) or (d) of Treas. Reg. 48.4101-1.

    2. Owns, directly or indirectly, five percent or more of the applicant.

    3. Is under a duty to assure the payment of a tax for which the applicant is responsible.

    4. Is a member, with the applicant, of a group of organizations as defined in Treas. Reg. 1.52-1(b) that would be treated as a group of trades or businesses under common control for purposes of Treas. Reg. 1.52-1.

    5. Distributed or transferred assets to the applicant in a transaction in which the applicant's basis in the assets is determined by reference to the basis of the assets in the hands of the distributor or transferor.

  9. An applicant will be registered for activities K, M, or S only if the excise examiner determines that the applicant meets all three registration tests found in Treas. Reg. 48.4101-1(f):

    • Activity test

    • Acceptable Risk Test, and

    • Adequate Security Test

      Note:

      All related persons of the applicant must have a satisfactory tax history.

  10. An applicant will be registered for activities as an X, Y, AB, AF, AL, AM, SB, CC, NB, QR, UA, UB, UP, or UV only if the excise examiner determines that the applicant meets:

    • The Activity Test, and

    • The applicant and all related persons have a Satisfactory Tax History. See paragraph (7) above.

  11. In addition to the registration tests discussed in (10) above, the excise examiner must determine that biodiesel or renewable diesel producer applicants and registrants (AB or NB applicants and registrants) are adhering to the American Society for Testing and Materials (ASTM) 396 or 975 requirement for biodiesel or renewable diesel. AB and NB applicants must also meet the requirements of IRC 40A(d)(1), which defines biodiesel as the monoalkyl esters of long chain fatty acids derived from plant or animal matter, which meet the following:

    1. The registration requirements for fuels and fuel additives established by the Environmental Protection Agency under Section 211 of the Clean Air Act (42 USC. 7545), and

    2. The requirements of the ASTM D6751 for biodiesel.

  12. A sample of B100 produced is required for testing for the ASTM standard. Fuel Compliance Officers (FCOs) or Fuel Compliance Agents (FCAs) must be used to obtain biodiesel samples from the biodiesel producer/importer applicant during the initial registration process and in follow-up compliance reviews. However, there may be instances when an FCO/FCA is not readily available. An excise examiner may allow an applicant/registrant, or designated proxy, to collect and ship biodiesel samples to the Excise Forensics Laboratory (EFL). The collection and shipping of biodiesel samples without an FCO/FCA may occur under the following circumstances and procedures:

    1. Agent requests FCO/FCA support through his or her group manager. If an FCO/FCA is not available to obtain the sample, the group manager will direct an FCA in the group to send the necessary sampling and shipping supplies to the agent. The supplies include sample bottles and caps, Form 9667, "Sample Bottle Seals and Identification Labels" , and shipping supplies with instructions.

    2. Agent should contact the designated Fuel Policy analyst to obtain a shipping air bill and provide the expected shipping date the samples will be obtained. Fuel Policy must be notified immediately if the date changes.

    3. Agent should request from Fuel Policy the fax number and e-mail address information for the Excise Forensics Laboratory (EFL).

    4. Agent must review IRM 4.24.15, Excise Fuel Compliance Inspection, Sampling, and Shipping to become familiar with the safety, sampling, and shipping aspects of handling fuel.

      Note:

      IRM 4.24.15.14.2, Investigative Sample Procedure, describes completion of required Form 14403, Investigative Sample Information. This form is available on the forms repository on the IRWeb.

    5. Agent should schedule an appointment to observe the collection of the samples.

      Note:

      The taxpayer's designation of a proxy requires a valid Form 2848, Power of Attorney and Declaration of Representative and Form 56, Notice Concerning Fiduciary Relationship, from the applicant prior to sample collection activity.

    6. At the time of the appointment, the agent will observe the applicant/registrant fill four one ounce production run samples (fill to the one ounce line on each sample bottle) for each tank product to be tested.

      Note:

      The applicant/registrant generally provides equipment but the agent should inquire about safety requirements prior to the visit.

    7. Agent shall complete Form 9667 in the presence of the applicant/registrant.

    8. Applicant/registrant places the two security strips and label from the Form 9667 onto each bottle. Each Form 9667 can label four sample bottles of the same product from the same tank. The Form 9667 also has a label that may be included in the case file.

    9. Crisscross the top two narrow labeling strips over the top of the capped bottle so that four approximately equal lengths come down the outside of the bottle.

      Note:

      Carefully press these strips against the side of the cap while one end of the strip is still not applied to the bottle.

      Wrap the third section, identified as "Bottle Label" on Form 9667 around the bottle, covering the bottom ends of the two crisscrossed strips.

    10. Agent shall prepare Form 13927, Chain of Custody and Shipping Record. The completed form will be enclosed inside the shipping box. The form is available on the forms repository on the IRWeb.

    11. Applicant/registrant ships the samples to EFL the day of the visit unless the daily courier pickup deadline has passed. If the deadline has passed, the sample must be shipped the next day. Fuel Policy will inform the agent of the shipping deadline prior to the visit. The agent must ensure that the shipping box is sealed prior to leaving the sampling site.

    12. Agent shall complete Form 14403, Investigative Sample Information and either fax or e-mail the completed form to the EFL.

    13. The EFL will send the sample results to the individual(s) listed on Form 14403.

  13. The results of biodiesel samples obtained will support efforts in determining if the applicant meets the IRC requirements for biodiesel.

  14. Approval or Continuation of registration for AB or NB will be granted only if the results from the lab test for the biodiesel samples submitted by the applicant/registrant met the IRC requirements for biodiesel.

  15. Use of fuel in foreign trade. A buyer of aviation-grade kerosene fuel for use in foreign trade does not need to be registered to buy aviation fuel tax-free for that purpose. See Section 4(e) of Notice 2005-04, I.R.B. 2005-2 (December 15, 2004).

  16. Specific rule for qualified fuel sales in Alaska. Treas. Reg. 48.4082-5(b) provides that the Chief, Estate & Gift and Excise Exam or delegate will register a person as a qualified retailer (QR) only if the following requirements are met:

    1. If it is determined that the person, in the course of its trade or business, regularly sells diesel fuel or kerosene for use by its buyer in a nontaxable use.

    2. If the person has satisfied the filing, deposit, payment, and claim history for all federal taxes of the person and any related person.

      Note:

      Treas. Reg. 48.4101-1 does not address qualified retailers. Treas. Reg. 48.4082-5(f) provides that each person that has been registered as a qualified retailer, the rules of Treas. Reg. 48.4101-1(g), (h), and (i) apply.

Visiting Applicants
  1. It is required that an onsite visit be conducted at the principal business location and/or production facility of the applicant for activities AB, NB, SB, AF, K, M, S, and X.

  2. An onsite visit by an excise examiner may be warranted to the principal business location of the applicant for activities AL, AM, and Y.

  3. An onsite visit by an excise examiner is not required for activity QR.

Bonds
  1. Activities M, K, and S are subject to bonding.

  2. Bonds and Liens - Under IRC 4101(b)(1) and Treas. Reg. 48.4101-1(j), as a condition of permitting any person to be registered under IRC 4101(a), the Chief, Estate & Gift and Excise Exam may require such person to give a bond and, as appropriate, agree to a lien on their property as a condition of registration. Persons that fail to meet the acceptable risk test or the adequate security test may post bond as a condition of registration.

  3. When a Bond is Required - A bond is required when the applicant or registrant:

    1. Does not have adequate financial resources.

    2. The applicant or registrant, (or any related person), does not have a satisfactory tax history.

    3. The applicant or registrant, (or any related person), does not have a tax history.

    4. The applicant or registrant, (or any related person), has been penalized for a wrongful act or creates a significant risk of nonpayment or late payment of the tax imposed by IRC 4041(a)(1) and IRC 4081.

    The excise examiner may recommend that the applicant/registrant post a bond as a condition of registration. The excise examiner must discuss bonding with their group manager.

  4. Amount of bond - The field group manager will set the value of the bond. The bond must be in an amount that is determined to ensure timely collection of taxes imposed under IRC 4041(a)(1) and IRC 4081, see Treas. Reg. 48.4101-1(j)(2). Generally, to satisfy the adequate security test, the amount of the bond is determined by taking into account the person’s financial capabilities, tax history, and expected tax liabilities under IRC 4041(a)(1) and IRC 4081. The amount of an existing bond may be increased or decreased to take into account changes in the registrant’s financial capabilities, tax history, and expected liability under IRC 4041(a)(1) and IRC 4081. In no case, however, may the amount of the bond be greater than the amount of:

    1. The person’s expected tax liability under IRC 4041(a)(1) and IRC 4081 for a representative six month period.

    2. For a terminal operator, the expected liability of persons other than the terminal operator with respect to taxable fuel removed at the racks of its terminals during a representative one month period.

    Note:

    The amount of a bond given for the acceptable risk test does not have limits.

  5. Types of Bonds - Under Treas. Reg. 48.4101-1(j)(1), the following types of bonds may be accepted:

    1. A public debt obligation of the United States Government.

    2. An obligation the principal and interest of which are unconditionally guaranteed by the United State Government.

    3. A bond executed by a surety company listed in Department of the Treasury Department Circular 570, Companies Holding Certificates of Authority as Acceptable Securities on Federal Bonds, etc., as an acceptable surety or reinsurer of federal bonds. Department of the Treasury Department Circular 570, may be found at https://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/c570_a-z.htm, and is usually printed each year in the July 1 edition of the Federal Register.

    4. Any other bond with security including liens under IRC 4101(b)(1)(B) considered acceptable by the Chief, Estate & Gift and Excise Exam.

    5. See Treas. Reg. 301.7101-1, Form of bond and security required, for additional information.

  6. Procedures for Surety Bonds - Any person required to furnish a bond as a condition of registration shall execute such bond on Form 928, Taxable Fuel Bond, and with satisfactory surety. The field group manager will ensure the accuracy bond, i.e., that the bond is payable to the United States Treasury and is not revocable by the taxpayer without prior notification by the surety company to the Chief, Estate & Gift and Excise Exam. Upon acceptance of the bond, the field group manager shall forward the bond to the territory manager for final approval. The territory manager must sign Form 928. The field group manager should consider the following items when securing a bond:

    1. Treasury Department Circular No. 570 periodically lists the companies certified by the Secretary of the Treasury as acceptable sureties on Federal bonds. This list also shows the areas in which the companies are licensed to transact business and the underwriting limitations applicable to each company.

    2. A bond executed by surety not holding a certificate of authority approved by the Secretary of the Treasury shall be accompanied by financial statements of the surety or sureties. The taxpayers proposal to pay will be submitted with the bond.

    3. Bonds or notes that are not in the public debt obligations of the United States must be unconditionally guaranteed by the United States as to both interest and principal.

  7. Bond Approval - The territory manager makes the final determination on the bond and signs Form 928. Upon final approval of bond by the territory manager, the applicant’s/registrant’s registration will be approved/continued. The signed Form 928 will be forwarded to the 637 Registration Group Manager for safekeeping.

  8. Bond Maintenance - When a bond is secured, the following procedures apply:

    1. The bond should be forwarded to the Form 637 Registration Group manager within three business days after final approval by the territory manager.

    2. A copy of the signed bond must be uploaded into the registrant's 637 IMS case file.

    3. The bond must be indicated on IMS. Under the 637 Recommendation Screen, the excise examiner should select the “Bond Indicator” as a part of his or her recommendation. The excise examiner must also notate the amount of the bond, the bond number, and the date bond was secured.

  9. Collection of Taxes from Bonds- If a bonded registrant does not pay the amount of tax it incurs under IRC 4041(a)(1) and IRC 4081 by the time prescribed in IRC 6151 for paying that tax, the IRS may collect the amount of the unpaid tax (including penalties and interest with respect to that tax) from the bonded registrant.

  10. Determination that a Bond is No Longer Required - There are several situations that give rise to the determination that a bond is no longer required. These decisions will be made by the field group manager. If it is determined that a bonded registrant subsequently meets the adequate security test or acceptable risk test without a bond, the bond obligation is released, see Treas. Reg. 48.4101-1(j)(5). A copy of the letter that was issued to the registrant must be uploaded into the registrant’s 637 IMS case file. When the IRS receives a bond cancellation or bond reduction request, the 637 Registration Group will take the appropriate action:

    1. Forward requests for a bond decrease to the appropriate excise field group for reconsideration.

    2. Conduct an IDRS compliance check on requests to cancel a bond and ensure the registrant does not have any outstanding tax liabilities under sections 40141(a)(1) and/or 4081, delinquent Forms 720, and/or under a Form 720 examination, before releasing the bond.

  11. Termination of Surety Bond - A surety on a bond may give written notice to the Chief, Estate & Gift and Excise Exam and the bonded registrant that the surety desires to be relieved of liability under the bond after a certain date, which date must be at least 60 days after the receipt of the notice by the Chief, Estate & Gift and Excise Exam. The surety will be relieved of any liability that the bonded registrant incurs after the date named in the notice. However, the surety remains liable for the amount of tax that the bonded registrant incurred under IRC 4041(a)(1) and IRC 4081 during the term of the bond and for penalties and interest with respect to that tax.

  12. Other Bond Terminations - A bond (other than a surety bond) may be returned to the bonded registrant only after the earlier of:

    • The date that the Chief, Estate & Gift and Excise Exam determines that the bonded registrant has paid all taxes that the bonded registrant incurred under IRC 4041(a)(1) and IRC 4081 during the period covered by the bond and any penalties and interest with respect to the taxes,

    • The expiration of the period for assessment of the taxes that the bonded registrant incurred under IRC 4041(a)(1) and IRC 4081 during the period covered by the bond, as determined under the provisions of subchapter A of chapter 66 of the IRC, or

    • The date that the Chief, Estate & Gift and Excise Exam receives from the registrant a substitute bond.

    Note:

    See Treas. Reg. 48.4101-1(j)(4)(i)(i).

Applications under Sections 4222 and 4682

  1. The description of the activities governed by IRC 4222 and Treas. Reg. 48.4222(a)-1, 48.4222(b)-1 and 48.4222(c)-1) are listed in the table below.

  2. These activities are A, B, C, D, E, F, I, Q and V.

    Activity Letter Description Applicable Registration Tests
    A Manufacturer of gas-guzzler automobiles, sport fishing equipment (including fishing rods and fishing poles), fishing tackle boxes, bows, quivers, broadheads, points, arrow shafts, taxable tires, taxable medical devices or vaccines.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    B Buyer of sport fishing equipment (including fishing rods and fishing poles), fishing tackle boxes, gas-guzzler automobiles, bows, quivers, broadheads, points, taxable medical devices or vaccines for further manufacture or for resale to a buyer for further manufacture.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    C Buyer of tires for use on or in connection with the sale of another article the buyer manufacturers and sells (1) for export, (2) to state and local governments, (3) to nonprofit educational organizations, or (4) as supplies for vessels or aircraft.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    D Buyer with a place of business in the United State purchasing taxable medical devices, vaccines, gas guzzler automobiles, taxable tires, sport fishing equipment (including fishing rods and fishing poles), fishing tackle boxes, bows, quivers, broadheads, points, or arrow shafts, for export or for resale to a second purchaser for export.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    E Buyer (other than state or local government) of gas guzzler automobiles for ambulance, law enforcement, or fire fighting.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    F Nonprofit educational organization, other than a public school, buying tires, certain heavy vehicles, sport fishing equipment, bows, or arrow components for its exclusive use, intercity, local or school bus.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    I Buyer (other than nonprofit educational organization or state or local government) of tires for use on certain intercity, local or school buses.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    Q First retail seller of certain heavy vehicles. See note below.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    V Manufacturer, importer, or buyer of ozone-depleting chemicals (ODC’s) for export.
    • Activity Test

    • Adequate Security Test (only the Satisfactory Tax History)

    Note:

    Heavy vehicle retailers that make tax-free sales listed in IRC 4221(a) must be registered as a Q registrant prior to making such tax-free sales. Thus, IRC 4222 registration requirements continue to apply to heavy vehicle retailers that sell to persons described in IRC 4221(a). Also, retailers that make occasional sales to one of the persons described in IRC 4221(a) must be registered to make the sale tax-free. Heavy vehicle retailers that make sales to persons described in IRC 4221(a) should not be denied registration solely on the basis of prior inactivity in making such sales.

Registration Tests for Activities under Sections 4222 and 4682
  1. An applicant will be registered for activities A, Q, or V only if it is determined that the applicant:

    1. Is in the course of its trade or business, regularly engaged in making certain tax-free sales described under IRC 4221, or is likely to be (because of such factors as the applicant's business experience, financial standing, or trade connections), regularly engaged in making certain tax-free sales described under IRC 4221, and

    2. Both the applicant and related person have satisfactory tax history.

  2. An applicant will be registered for activities B, C, D, E, F, or I only if it is determined that the applicant:

    1. Is, in the course of its trade or business, regularly engaged in purchasing taxable articles under Chapter 32, Manufacturers Excise Taxes, (other than under section 4121 or 4081), (or under subchapter C of chapter 31), or is likely to be (because of such factors as the applicant's business experience, financial standing, or trade connections), regularly engaged in purchasing taxable articles under Chapter 32, Manufacturers Excise Taxes, (other than under section 4121 or 4081), (or under subchapter C of chapter 31), and

    2. The applicant and all related persons have satisfactory tax history.

  3. For a description of characteristic activities see the table found at IRM 4.24.2.11.4(2), Applications under Sections 4222 and 4682.

  4. See IRM 4.24.2.11.3.1(7), Registration Tests, for description of a satisfactory tax history.

Visiting Applicants
  1. A field visit by an excise examiner may be warranted to the principal business location of applicants for activities A, B, Q, and V.

Bonds
  1. A, B, C, D, E, F, I, Q, and V registrants are not subject to bonding.

Relationship Between Compliance Reviews and Examinations

  1. If an applicant/registrants books and records are inspected for a filed, delinquent, or potentially delinquent return, an examination has been initiated and appropriate examination procedures will be followed.

  2. Inspection of books and records for periods for which a return is not filed (excluding delinquent returns) is not an examination.

  3. Inspection of exemption certificates, contracts, financial statements, and other records not used in determining a tax liability is not an examination.

  4. Inspection of a filed return that does not involve an inspection of supporting books and records is not an examination.

Examinations Resulting from 637 Compliance Reviews

  1. When substantial noncompliance is found during a compliance review, the excise examiner will expand the scope into an examination after receiving approval from the group manager. The excise examiner will submit a Form 5345-D, Examination Request-ERCS, to establish case control within three business days after approval from the group manager.

  2. Excise examiner must use Project Code 637 on the ERCS request.

  3. It is the responsibility of the excise examiner and the field group manager to evaluate the examination information and determine whether the registration should be:

    • Continued,

    • Revoked, or

    • If a bond will be required to continue registration (for those activity letters, which may be subject to a bond).

      Note:

      Not all activity letters are subject to a bond

      .

  4. If the decision is made to continue the registration, the excise examiner will prepare Letter 3696, notating the deficiencies discovered if applicable, record the contact and return address information, and upload the letter into the 637 IMS case file. The field group manager’s approval will be notated on 637 IMS case file CLA, or on the IMS activity record, or Form 9984 and uploaded into the 637 IMS case file. The field group manager will date, sign, mail and upload a copy of the signed letter in IMS.

  5. If the decision is made to revoke the registration, the excise examiner and field group manager will follow the procedures outlined in IRM 4.24.2.11.1, Procedures Relating to Denials, Revocations and Suspensions of Registrations.

Creating, Maintaining and Updating 637 Registration Files

  1. All Form 637 Registration case files are created, maintained, and updated on IMS by the 637 Registration Group LT's.

  2. If a 637 application is received by the excise field group, the excise examiner will scan the application and forward via secure e-mail to the 637 Registration Group. The original application will also be mailed to the 637 Registration Group.

  3. All telephone contacts with registrants by the 637 Registration Group during the course of a review will be documented on 637 IMS case file CLA. All telephone contacts with registrant by the excise examiner during the course of a review will be documented on IMS activity record or Form 9984 and uploaded into the 637 IMS case file. All telephone contacts with registrants by the excise examiner between compliance reviews will be documented on the IMS activity record or Form 9984 and e-mailed to the LT to upload into the 637 IMS case file. All telephone contacts with registrants by the 637 Registration Group between compliance reviews will be documented in 637 IMS case file CLA.

  4. Upon completion of any sample or discretionary review, or an examination, which requires an update to the 637 IMS case file, a national registration number will be issued to those registrants who do not have a national number. The excise examiner will inform the registrant that a new national registration number will be issued. Letter 5023 will be issued by the field group manager or the 637 Registration Group along with the new number and Pub 5039 . The excise examiner will include this information in the recommendation section of the Form 13499-C. See IRM 4.24.2.11(5), Excise Tax Field Group Procedures - Initial Application and Approval, for more information.

Overview of Actions, Including Adverse Actions, Relating to Registrants

  1. This section discusses the adverse actions (e.g. revoke or suspend) that must be taken against a registrant by the Chief, Estate & Gift and Excise Exam under Treas. Reg. 48.4101-1(i).

  2. For procedures relating to revocations or suspensions, refer to IRM 4.24.2.11.1, Procedures Relating to Denials, Revocations and Suspensions of Registrations.

Mandatory Revocation or Suspension Rules for Registrations Issued under IRC 4101

  1. The Chief, Estate & Gift and Excise Exam must revoke or temporarily suspend the registration of any person registered for activities above, if it is determined that at any time the registrant:

    1. Does not meet one or more of the applicable registration tests described in Treas. Reg. 48.4101-1(f) and has not corrected the deficiency within a reasonable period of time after notification by the field group manager.

    2. Has used its registration to evade, or attempt to evade, the payment of any tax imposed by IRC 4041(a)(1) or IRC 4081, or to postpone or in any manner to interfere with the collection of any such tax.

    3. Has used the registration to make a fraudulent claim for a credit or payment.

    4. Has aided or abetted another person in evading, or attempting to evade, payment of any tax imposed by IRC 4041(a)(1) or IRC 4081, or in making a fraudulent claim for credit or payment.

    5. Has sold, leased, or otherwise allowed another person to use the registration.

    6. Fails to follow corrective actions for Notice CP 241. See IRM 4.24.2.17.2, Notice CP 241 Procedures, for more information regarding the notice CP 241 procedures.

  2. The excise examiner must recommend revoking or suspending the registration of any person registered for activities AB and/or NB, if it is determined the results of biodiesel samples obtained during a compliance review are not positive and do not meet the requirements of IRC 40A (d)(1), which defines biodiesel.

Mandatory Revocation or Suspension Rules for Registrations Issued under IRC 4222

  1. The excise examiner must recommend revoking or temporarily suspending the registration of any person registered for activities above, if it is determined that at any time the registrant (see Treas. Reg. 48.4222(c)-1):

    1. Is not a bona fide manufacturer, or a purchaser reselling direct to manufacturers or exporters.

    2. Is for some other reason not eligible under these regulations to retain a Certificate of Registry.

    3. Has used their registration to avoid the payment of any tax imposed by chapter 32 of the Code, or to postpone or interfere in any manner with the collection of such tax.

    4. For A, B, C, D, E, F, I, and Q registrants, the registrant failed to comply with the requirement of paragraph (c) of Treas. Reg. 48.4221(a)-1, relating to the evidence required to support tax-free sales.

    5. Revocation or suspension is necessary to protect the revenue. See Treas. Reg. 48,4222(c)-1.

  2. For V registrants, the excise examiner may recommend revoking or temporarily suspending a registration, if it is determined the registrant failed to comply with Treas. Reg. 52.4682-5(d) and (e).

Changes in the Information Submitted in Connection with Application for Registration

  1. Under Treas. Regs. 48.4101-1(h)(1)(v) each registrant must notify the Chief, Estate & Gift and Excise Exam or designee of any change in the information the registrant submitted in connection with its application for registration, or previously submitted under this paragraph (h)(1)(v), within 10 days after the change occurs. This includes, but is not limited to:

    • Changes in ownership

    • Name

    • Address

    • Business activities

  2. When verbal or written notification is received from a registrant that there has been a change in the information submitted in connection with the application for registration, such information will be forwarded to the 637 Registration Group manager via secured e-mail, fax, mail, or telephone call for further action.

  3. Upon receipt of the notification, the 637 Registration Group manager will:

    1. Document the receipt of the notification in the 637 IMS case file CLA.

    2. If applicable, assign the 637 IMS case file to the LT who will update the 637 IMS case file and take additional actions as warranted.

    3. Update 637 IMS case to Status 80 - Final Determination by the LT.

  4. If a registrant fails to notify the Secretary within 10 days after the change occurs, the Chief, Estate & Gift and Excise Exam may take remedial action on the registration, such as, revoking or suspending the registrant's registration. See Treas. Reg. 48.4101-1(i)(2).

Procedures for Changes in Ownership

  1. Changes in ownership that do not involve obtaining a new 637 application will be properly documented in the 637 IMS case file CLA by the LT. At a minimum, the LT will:

    1. Secure the names and TINs of the new owners.

    2. Conduct and IDRS compliance check on the new owners.

    3. Ensure that the person who signed the approved application can continue to bind the registrant, if not, obtain a new 637 application signed by a person that can bind the registrant.

    4. Document the 637 IMS case file CLA of all actions taken.

  2. For changes in ownership that require reregistration under IRC 4101(a)(5) and where the EIN did not change. The LT will:

    1. Obtain a new Form 637 application (if not provided) and ensure the application is signed by a person that can bind the applicant.

    2. Create a sample review and assign the 637 IMS case file to the appropriate excise field group.

    3. Upload the application and documentation on the change in ownership in the existing 637 IMS case file under "workpapers." The change in ownership on IMS will be made after the excise field group makes a final determination on the application, completes the sample review, and updates the 637 IMS case file to Status 70- LT Review. The 637 registration group will update the change in ownership on IMS and issue the appropriate registration letters.

    4. E-mail the field group manager, via secured e-mail, of the sample review, change in ownership, and the new application.

    5. Document the 637 IMS case file CLA of all actions taken.

  3. For changes in ownership that require reregistration under IRC 4101(a)(5) and the EIN number changed. A new Form 637 application will be required and processed in accordance with the procedures found in IRM 4.24.2.10.3.1, Status 20 - IDRS Compliance Check Procedures. Once the case is returned back to the LT in Status 30, the assigned territory LT will:

    1. Create a sample review on the existing 637 IMS case file and notify the field group manager via secure e-mail of the ownership change and the initial application.

    2. Upload documentation of the ownership change in both 637 IMS case files.

    3. Assign the initial application and sample review to the excise field group to make the final determinations on both 637 IMS case files.

    4. Document the 637 IMS case file CLA of all actions taken.

Procedures for Name Changes

  1. When notification of a name change is received and the name does not match the name on IMS or IDRS, the LT will:

    1. Contact the registrant and secure documentation of the name change, if applicable, such as, filings with the Secretary of State or corporate minutes. An internet search can also be conducted at the registrant's Secretary of State website.

    2. Once documentation on name change is received, change the name on IMS and issue a Letter 3689 with the new name to the registrant.

    3. Complete Form 2363, and forward the completed form to Centralized Case Processing (CCP) Unit in CSTO who will update the indicator on the BMF account. See IRM 4.24.2.17.1(2), Procedures to Post or Delete the Form 637 Indicator on BMF.

    4. Upload the documentation of name change, Letter 3689, and Form 2363 in the 637 IMS case file.

    5. Document the 637 IMS case file CLA for all actions taken.

  2. When notification of a name change is received and the new name does not match IMS, but matches the name on IDRS, (e.g. the ENMOD), the LT will:

    1. Secure an ENMOD of the 637 IMS case file and ensure the prior name shown on the ENMOD matches the name on IMS.

    2. Change the name on IMS.

    3. Prepare and issue Letter 3689 with the new name to the registrant.

    4. Upload a signed copy of Letter 3689 and ENMOD into the 637 IMS case file.

    5. Document the 637 IMS case file CLA for all actions taken.

    Note:

    If the prior name shown on the ENMOD is not the same as IMS, a compliance review may be warranted.

Procedures for a Change in Registration Activities

  1. If a registrant requests to add an additional activity to its approved registration , a new 637 application is required for the additional activity. The new 637 application will be processed in accordance with the established procedures in IRM 4.24.2.10.3.1, Status 20 - IDRS Compliance Check Procedures.

  2. When notification is received from a 637 registrant that the taxpayer no longer engages in activity for which the registrant is approved for, the LT will:

    1. Secure a written consent, from a person that can bind the registrant, to revoke the activity that is (are) no longer needed and upload consent into the 637 IMS case file.

    2. Prepare Letter 3691 and update the 637 IMS case file to status 65.

    3. If applicable, prepare and issue Letter 3689 with the current approved activity and upload signed copy of letter into the 637 IMS case file.

    4. Document all actions taken on the 637 IMS case file CLA.

Recording Time Charged to the 637 Registration Program

  1. Time spent reviewing registrants and new applicants should be charged to Compliance Activity Code 588. ERCS must be used to control applicants and registrants using MFT B0. The appropriate mandatory tracking codes listed below will be input on ERCS and IMS for monitoring purposes.

    • 7640 - Initial Review

    • 7641 - Sample Review

    • 7642 - Discretionary Review

  2. All 637 compliance reviews will use the current fiscal year and show a period of “01”.

  3. If a 637 compliance review results in an examination, the time recorded once the examination begins will be charged to the examination abstract. The excise examiner will request examination case controls using Form 5345-D showing Project Code 637.

    Note:

    No time should be charged to the 637 compliance review once the examination has started other than to close out the 637 compliance review.

Monitoring Registrants using Form 637 Indicator on Business Master File (BMF)

  1. A Form 637 indicator can be placed on Business Master File (BMF).

  2. The 637 indicator is designed to aid in monitoring 637 registrants for registration requirements compliance. Eleven conditions have been defined that monitor registrants. When any of these conditions are met, a notice, referred to as a Notice CP 241 is generated indicating the registrant may no longer meet the registration requirements and follow-up actions may be required. See IRM 4.24.2.17.2(3), Notice CP 241 Procedures, for description of these condition codes.

  3. The Notice CP 241 monitoring system does not override the requirement to conduct periodic 637 compliance reviews.

Procedures to Post or Delete the Form 637 Indicator on BMF

  1. The indicator on the BMF account should be updated when:

    1. A new applicant is registered.

    2. An existing registrant is to be deleted.

    Note:

    The 637 IMS case file will be documented via 637 IMS case file CLA that this procedure was completed.

  2. Form 2363, must be completed and faxed to the CCP in CSTO who will update the indicator on the BMF account.

    Note:

    If the 637 Registration Group manager or delegate has the necessary IDRS Command Codes BNCHG and ENREQ in his or her profile, this can be accomplished without preparing Form 2363.

  3. The E-fax number for CCP may be found at http://mysbse.web.irs.gov/AboutSBSE/aboutccs/ccsprog/casepro/cp/cont/28100.aspx.

  4. The 637 Registration Group manager or delegate will:

    1. Verify the accuracy of the EIN, applicant/registrant name, and name control.

    2. Ensure that the registrant is added to the BMF using "1" to turn the 637 indicator on or removed from BMF using "9" to turn the indicator off.

  5. The 637 Registration Group manager or delegate will use command codes ENMOD or BMFOLE to verify that the BMF account is updated with the Form 2363 information.

Notice CP 241 Procedures

  1. Notice CP 241 provides for monitoring activities on BMF concerning 637 registrants whose indicators are active in the BMF. The Notice CP 241 is generated weekly by CIRSC when one or more of the eleven conditions listed below is met. The condition printed on the notice identifies the reason the notice was generated. Paper copies of Notice CP 241 are forwarded to the 637 Registration Group manager for follow-up actions.

  2. The Notice CP 241 is reviewed by the 637 Registration Group manager, delegate, or a person with knowledge of the Form 637 program and appropriate action as described in IRM 4.24.2.17.2(4) below are taken.

  3. The 11 conditions listed below indicate that excise involvement may be required for the registrant's account:

    • (1) FTD PENALTY ASSESSED. The deposit penalty can be for any type of tax including income tax, excise tax, or employment tax. The BMF indicator for the return for which a deposit was not made is listed in the information section of the notice.

    • (2) RETURN NOT FILED. Failure to file a return of any type. This indicator is designed to protect unpaid taxes in a delinquency situation. The BMF indicator for the type of return not filed is indicated in the information section of the notice.

    • (3) FORM 720 FILED-TAX OWING. Form 720 is filed reflecting a tax liability, but no payments or deposits have been made.

    • (4) FORM 720 NO DEPOSITS. Form 720 was filed with full payment of tax liability with return, but the applicant/registrant is required to make deposits.

    • (5) FINAL RETURN. Form 720 was filed noting "final return" .

    • (6) DELINQUENCY-THIRD NOTICE. The registrant is in collection Status Code 56 and a third notice for payment has been issued. The delinquent taxes can be for any type of return. The form number and tax period are shown in the information section of the notice.

    • (7) DUPLICATE REGISTRATION. The registrant has either attempted to obtain, or has obtained, a second registration using the same EIN. These cases are either worked by the 637 Registration Group or forwarded to the field for a sample review.

    • (8) DEPOSITS NOT RECEIVED. Two months after the date the Form 637 indicator was input to BMF, the registrant did not make a deposit of excise tax.

    • (9) FORM 720 NOT FILED. Eight months after the date the Form 637 was input to BMF, a Form 720 was not filed by the registrant.

    • (10) BANKRUPTCY. The registrant filed for bankruptcy.

    • (11) CID FREEZE. A CID freeze code has posted.

  4. When a Notice CP 241 is received from CIRSC, the 637 Registration Group manager or delegate must take the following actions:

    1. Review all notices and sort by priority using the indicator phrases discussed above.

    2. Action is required on conditions 1, 2, 3, 4, 6, 8, 9, and 10.

    3. Review the registrant's 637 IMS case file and note any prior activity.

    4. Order and review a transcript for all delinquency and non-filer cases to ensure all tax modules requiring attention are known.

    5. If CID freeze code is indicated, contact Criminal Investigation Division (CID) to determine reason for their involvement. Obtain CID’s approval before making contact with the registrant.

    6. If conditions 1, 2, 3, 4, 6, 8, and 9 are indicated, contact the registrant and discuss the problem. Letter 3696, will be sent to the registrant identifying the condition and the registrant must address condition within 30 days.

    7. All decisions, actions, and contacts with the registrant will be documented in the 637 IMS case file using IMS CLA.

    8. If the conditions 1, 2, 3, 4, 6, 8, and 9 are not addressed in a satisfactory matter within 30 days of contact, action must be initiated to revoke or suspend the registration until the condition is corrected.

    9. Written notification of the final determination will be provided to the registrant.

Form 637 IMS Data Screen

This is an Image: 28303001.gif
 

Please click here for the text description of the image.

Form 637 Program Letters

The following table contains a list of Form 637 Program letters and their use.

Letter Name Use
3681 637 Notification Letter Letter notifies applicant that if they have not heard from someone within 60 days regarding their registration application, to call the name and phone number of the person in the letter.
3682 Additional Information Request Letter notifies applicant that there was missing information on their 637 application that needs to be submitted before their registration can be processed.
3684 Denial of Registration - Contested Letter notifies applicant that they are being denied an appeal of a denied registration and the reasons for denial.
3685 Denial of Registration - Letter notifies applicant that they are being denied a registration and the reasons for denial. Letter informs applicant that if they would like to appeal the decision, they must send their position in writing within 10 days from the date of this letter.
3686 Appointment Scheduled - Form 637 Reviews Letter schedules an appointment of a compliance review to determine if registrant still qualifies for the registration that they currently have.
3687 Follow-up Correspondence Review Letter requests information to be mailed so a determination can be made if the registrant still qualifies for the registration that they currently have.
3689 Letter of Registration Letter informs registrant of their approved registration number and the activities for which the registration allows the registrant to engage.
3690 Denial of Appeal for Revocation of Registration Letter notifies registrant that their appeal for revocation of their is denied and the reasons for the revocation. Letter is issued after the 637 Registration Group Manager has reviewed the registrants case file and appeals letter.
3691 Letter of Revocation - Uncontested Letter notifies registrant that their registration is being revoked and the reasons for the revocation. Letter informs registrant that if they would like to appeal the decision, they must send their position in writing within 10 days from the date of this letter.
3692 Suspension of Registration Letter notifies registrant that their registration is being suspended and the reasons for the suspension. Letter informs registrant that if they would like to appeal the decision, they must send their position in writing within 10 days from the date of this letter.
3693 Denial of Appeal for Suspension of Registration Letter notifies registrant that their appeal of the suspension of their is denied and the reasons for the denial.. Letter is issued after the 637 Registration Group Manager has reviewed the registrants case file and appeals letter.
3695 Notice of Intent to Revoke Registration Letter notifies registrant that if they have not supplied information previously requested within 10 days of the date of this letter that their registration will be revoked.
3696 Summary of Compliance Review Letter notifies registrant of the results of their recent Form 637 compliance review.
4316 Notice of Form 637 Appeal Expiration This letter is sent to applicants that were denied registration and the time to appeal their denial of registration has expired.
5023 Notification of Change in Form 637 Registration Number This letter is sent to persons who have an approved registration number issued under Internal Revenue Code sections 4101, 4222, or 4682. Letter informs registrant that their approved registration number has been reissued due to a change in the Internal Revenue Service numbering system.
5708 Initial Contact - Form 637 Reviews This letter is used by SBSE by both, excise examiners and tax examiners to make initial contact to notify the taxpayer of their Form 637 initial application, sample or discretionary review.

IMS Workflow Status Codes

IMS Status Code Use by 637 Group Use by Field Group Description
10-Pending Yes No Initial status after input by CSTO. Cases are sent to the 637 Registration Manager Queue 1.
15-Territory Assigned Yes No Assignment to an excise territory. Cases are sent to the territory LT Assignment Queue 1 (general) or Queue 2 (fuel).
20-Compliance Check Yes No Assign to TE for compliance check.
30-LT Review Yes No TE has completed the compliance review and sent to the LT. LT will send cases to field groups.
40-GM Compliance Review Yes Yes The LT has assigned the case to the field group manager’s queue.
50-RA Compliance Review No Yes Field group manager has assigned case to excise examiner.
60-GM Final Review No Yes Excise examiner has closed case back to group manager.
65-Deny/Revoke Yes Yes Manager Deny/Revoke 637 Registration.
70-LT Review from Field Yes Yes Used for all Initial applications, sample reviews, and discretionary reviews closed by excise field groups.
80-Final Determination by LT Yes No LT final review of case.
85-Final Disposition by TE Yes No Final actions assigned by the LT or 637 group manager.
90-Complete Yes Yes 637 IMS case file closed.

Business Operations and Transaction Flow

  1. The purpose for a Diagram of the Business Operations:

    1. Allows the excise examiner to visualize business operations to easily identify specific areas of concern and develop examination techniques

    2. Allows a quick analysis of various points of taxation

    3. Provides a concise view of the business so any knowledge person reviewing the case file has a clear understanding of the business operations

  2. The purpose for a Diagram of the Business Transaction Flow:

    1. Allows analysis of processes so the excise examiner can follow the business transaction flow. This facilitates easy identification of specific areas warranting further consideration.

    2. Expedites research of appropriate answers to the excise examiner’s questions and helps to formulate audit techniques. A record of the name and telephone number of the person who prepared the report is helpful.

    3. Lists the names of the reports and attached sample of the document to the flow chart. This gives the excise examiner and reviewers a better understanding of documents that are specific to that business and prevents any misinterpretation by the excise examiner and applicant/registrant regarding these records.

    4. Promotes the efficiency of the audit process by allowing the excise examiner to identify the individual directly responsible for the report.

Financial Analysis Techniques

A financial analysis is mandatory and must be completed for all Form 637 compliance reviews where the excise examiner determines the applicant/registrant poses a risk to revenue by not paying a tax liability or by filing claims.

Note:

This technique is useful, but not mandatory, when conducting an examination. If the applicant/registrant is experiencing financial difficulty, the excise examiner should protect the government’s interest by ensuring the applicant/registrant is not using Federal Excise Tax (FET) deposits to pay other liabilities and is not filing false claims to increase cash flow.

The minimum steps required to conduct a financial analysis include:

1. What is the expected excise tax liability for the applicant?

  1. Each week?

  2. Each month?

  3. Each quarter?

2. What is the applicant's available cash position for each of the past 12 months?

3. What is the profit margin on the sale of the taxable product before consideration of the excise tax?

  1. What is the profit margin after deducting all applicable direct expenses?

  2. What is the profit margin after deducting the applicable excise tax?

4. How can the other expenses the applicant incurs that will compete with the ability to pay the excise tax be considered? These may include:

  1. Interest payments?

  2. Salaries?

  3. Equipment purchases?

  4. Debt?

  5. Any personal expenses that may be paid by the business?

5. From the sale of the taxable product, how much money will be left to pay the tax, if the expenses in (4) are paid first?

If a financial analysis reveals poor financial status of the applicant/registrant, the excise examiner should consider securing a bond (for fuel registrants other than ultimate vendors, pipeline operators, and vessel operators) to satisfy the adequate financial resources part of the adequate security test. For all other applicants/registrants, the excise examiner should consult with their group manager to determine whether examination of Form 720 (or claim) is appropriate.

The excise examiner may conduct one or more of the following analysis to determine the financial condition of an applicant/registrant. Though other methods may be used, work papers must be documented regardless of analysis performed:

  1. Quick Ratio (Current Assets-Inventory/Current Liabilities This may be applied when the excise examiner determines that inventory held by applicant/registrant must be sold to meet its short-term liabilities. If the quick ratio of applicant/registrant is 1.0 or greater, it indicates that applicant/registrant should be able to meet its short-term liabilities. This check is more advantageous when reviewing applicants/registrants where the inventory might be hard to liquidate.

  2. Current Ratio (Current Assets/Current Liabilities If the excise examiner determines that inventory should be easy to liquidate, the current ratio should be considered. Fuel is normally a very liquid asset. The excise examiner may review listings of current ratios for several industries in the excise in a book published by Robert Morris & Associates (RMA Annual Statement Studies). For most fuel dealers, if the current ratio drops below 1:1, excise examiner should discuss bonding or monitoring options with their group manager.

  3. Retained Earnings Retained Earnings should be positive. Per IRC 537, a limit is placed on the amount of retained earnings that may be held by the company. The greater the amount of retained earnings, the better the financial solvency of the company. Negative retained earnings indicate possible financial problems (i.e., the company may be using loans or shareholder equity to operate). However, if the company is new or does not maintain a balance sheet (Example: Schedule C operation), the company will not have retained earnings. If there are no retained earnings, other tests should be considered.

  4. Cash Flow Cash Flow (Income-Expenses, not including depreciation and amortization) should be positive. If the applicant/registrant is an existing company, prior year tax returns should be reviewed for losses. This may be difficult if the applicant is new and has not started business. The excise examiner should view existing contracts with suppliers and customers to determine projected income and expense items. This review and a thorough investigation of potential suppliers, customers and other income and expense items will provide an indication of applicant/registrants potential cash flow.

  5. Bankruptcy The following techniques may be used to identify bankruptcy issues:

    1. Reviewing information from bankruptcy courts in the states where the company or related member has lived or operated businesses.

    2. Researching Choice Point to determine if the company or related member has declared bankruptcy anywhere in the country.

    3. Researching IDRS (Command code UNCLER) to determine whether a Trust Fund Recovery Penalty has been assessed against the company or related member.

  6. Failure to Deposit or Pay Penalties The financial status of the applicant/registrant should be reviewed. While occasional or de minims failure to pay or failure to deposit penalties may not indicate poor financial condition, repeated or substantial penalties may mean the applicant/registrant is experiencing financial problems.

Example:

XYZ Oil Company applied for S registration. The balance sheet of the company is below. A review of the tax returns for the past two years indicates that the applicant/registrant has had losses of $13,827 in 2010 and $18,764 in 2011, after adding back depreciation expense.

Assets   Liabilities  
Cash $34,302 Accounts Pay. $75,968
Accounts Receivables $13,859 Current Notes Pay. $70,207
Inventories $97,019 Current taxes Pay. $29,875
Building 7 Equip. $175,000 Accrued Expenses $2,471
Less Depreciation ($25,000) Long Term Loans $85,000
    Loans from Stockholders $50,000
    Common Stock $500
    Retained Earnings ($18,841)
Total Assets $295,180 Total Liability & Equity $295,180

Financial Analysis:

Current Ratio: Current Assets ($145,180) / Current Liabilities ($178,521) = .08/1.

Retained Earnings: ($18,841) = Applicant/registrant has negative retained earnings.

Cash Flow: Taxpayer has negative cash flow for the past two years.

Conclusion:

The excise examiner reviewed applicant’s income tax return for the calendar years 2010 and 2011 and found losses in both years. Excise examiner researched IDRS and identified failure to deposit penalties were assessed for five quarters in the past two years. Excise examiner checked Choice Point and found no record of bankruptcy for the company or any related person. The controller informed the excise examiner that the company experienced financial difficulty during the past several years and, it was decided to operate above the rack in hopes of creating profitability. Excise examiner discussed findings with group manager and a decision was made to bond the applicant/registrant.

Form 720 Filing, Deposit, and Payment Requirements

  1. The excise examiner, including TE approving an activity letter A registration for taxable medical devices, should explain to applicant/registrant their filing, deposit and payment requirements for Form 720 Quarterly Federal Excise Tax Return. Form 720 is to be used by the applicant/registrant to report their excise tax liability. The excise examiner should point out to the applicant/registrant to:

    1. Complete the top portion of the Form 720 return with Name, Address, City, State, etc.

    2. File the Form 720 each calendar quarter until you file a final return.

    3. File on the line for the abstract (IRS Number) that you are reporting tax.

    4. If you are not reporting tax on the abstract that you normally report, enter zero on the line for that tax.

    5. Be sure to sign the return. An unsigned return is considered not to have been filed.

    6. The filing due dates for the Form 720 is the last day of the month following the end of the calendar quarter for which it is due; that is:

      • Jan, Feb, Mar. - due April 30

      • Apr, May, Jun. - due July 31

      • Jul, Aug, Sept. - due October 31

      • Oct, Nov, Dec. - due Jan. 31

  2. The excise examiner should explain to applicant/registrant that Form 720X, Amended Quarterly Federal Excise Tax Return, is used to make adjustments to tax liability reported for previous quarters.

  3. The excise examiner should explain to applicant/registrant about the payments and deposit requirements for Form 720 that:

    1. If you have to file a quarterly excise tax return on Form 720, you may have to make deposits of your excise taxes before the return is due.

    2. If you are not required to make deposits, you pay the tax when you file the return.

    3. If you need to make a payment when you file your quarterly return, complete Form 720-V Payment Voucher.

    4. Payments can be made by check or money orders to the United States Treasury.

    5. Ozone Depleting Chemical (ODC) floor stocks tax (held Jan. 1) must be deposited by June 30 of that year.

    6. The Electronic Federal Tax Payment System ( EFTPS) must be used to make deposits of taxes reported onForm 720 , Part I, if the net liablity for the quarter is in excess of $2,500.

    7. Generally deposits must be at least 95% of the net tax liability incurred during the semi-monthly period.

    8. No deposits are required are required for the situations listed below. The taxes are payable with the return.

    • The net liability for taxes listed on Form 720 , Part I, does not exceed $2,500 for the quarter.

    • The liability is for taxes listed onForm 720 , Part II, except the floor stocks tax, which generally requires a single deposit.

    • The Patient Centered Outcomes Research Institute (PCORI) trust fund fee, which is paid annually using Form 720. The payment paid through EFTPS, should be applied to the second quarter.

    • The gas guzzler tax is being paid on a one-time filing.

  4. The deposit of tax for a semi-monthly period is due by the fourteenth day following this period. Generally, this is the 29th day of the month for the first semi-monthly period and the fourteenth day of the following month for the second semi-monthly period.

    1. Except for deposits of communication and air transportation taxes the deposit period may be based on amounts billed or tickets sold during a semimonthly period instead of on taxes actually collected during the period. Under the alternative method, the tax included in amounts billed or tickets sold during a semimonthly period is considered collected during the first 7 days of the second semimonthly period. The deposit of tax is due by the 3rd banking day after the 7th day of the period.

      Example:

      The tax included in amounts billed or tickets sold for the period June 16-30, 20013, is considered collected from July 16-22, 2013, and must be deposited by July 25, 2013.

    2. To use the alternative method, the applicant/registrant must keep a separate account of the tax included in amounts billed or tickets sold during the month and report on Form 720 the amount of tax that is actually collected.

      Example:

      Amounts billed in December, January, and February are considered collected during January, February, and March and are reported on Form 720 as the tax for the first quarter of the calendar year.