- 4.24.4 Excise Fuel Taxes Workload, Policies and Procedures
- 220.127.116.11 Overview of the Excise Fuel Tax Program
- 18.104.22.168 Excise Operations Support (EOS) for the Excise Fuel Tax Program
- 22.214.171.124 Excise Forensic Lab (EFL)
- 126.96.36.199 PSP-WIC Fuel Workload Identification and Classification
- 188.8.131.52.1 Assignment and Grade Level of Form 637 Registration Initial Applications, Compliance Reviews, and Other IRC 4101 Case Work
- 184.108.40.206 Assignment of Fuel Related Inventory Coordinated Industry Case (CIC) Referrals
- 220.127.116.11 Fuel Examination Case Control Procedures
- 18.104.22.168.1 Aging Reason Code Procedures for FCA Cases
- 22.214.171.124 Fuel Abstract Examinations
- 126.96.36.199 Overview of Fuel Excise Taxes
- 188.8.131.52.1 Gasoline, Including Aviation Gasoline and Gasoline Blendstocks
- 184.108.40.206.2 Diesel Fuel and Diesel-Water Fuel Emulsion
- 220.127.116.11.3 Kerosene, Including Dyed Kerosene and Kerosene Used in Aviation.
- 18.104.22.168.4 Other Fuels (Including Alternative Fuels)
- 22.214.171.124.5 Fuels Used in Commercial Transportation on Inland Waterways
- 126.96.36.199.6 Leaking Underground Storage Tank Taxes (LUST)
- 188.8.131.52.7 Alcohol Sold As But Not Used As A Fuel
- 184.108.40.206.8 Biodiesel Sold As But Not Used As A Fuel
- 220.127.116.11.9 Environmental Taxes
- 18.104.22.168 Overview of Fuel Workload Initiatives
- 22.214.171.124.1 Taxation of Biodiesel and Biodiesel Mixture Credits
- 126.96.36.199.2 Chemical Companies
- 188.8.131.52.3 Exported Fuel Diversion
- 184.108.40.206.4 Importation and Mislabeling of Taxable Fuel
- 220.127.116.11.5 Excise Summary Terminal Activity Reporting System (ExSTARS) Comparative Analysis
- 18.104.22.168.6 Stand Alone Fractionator Examinations
- 22.214.171.124.7 NGL and Propylene Fractionator Examinations
- 126.96.36.199 Abnormal Fuel Referrals
- 188.8.131.52.1 Time Frames for Abnormal Fuel Referrals
- 184.108.40.206.2 Conducting an Examination Based on an Abnormal Fuel Referral
- 220.127.116.11 Investigative Sample Leads Identified During Normal Fuel Inspection Activities
Part 4. Examining Process
Chapter 24. Excise Tax
Section 4. Excise Fuel Taxes Workload, Policies and Procedures
September 19, 2013
(1) Update to IRM 4.24.4, Excise Taxes, Excise Fuel Taxes Workload, Policies and Procedures.
(1) Updated all IRM citations, titles and hyperlinks. Added information regarding NGL and PGP Fractionation Facilities. Updated for grammar and clarity. Added new subsections for workload coordination. Deleted all references made to the return of feedback sheets. ExSTARS content moved to IRM 4.24.17.
(2) Refer to the table below for a list of significant changes made to the subsections of this IRM.
|IRM Subsection||Nature of Change|
|18.104.22.168 Overview of the Excise Fuel Program||Updated table at (6) with correct IRM titles and add new IRM sections. Deleted cite at (7) as programs now incorporated into penalty IRM 4.24.9 and EOS IRM 4.24.18. Add fuel workload coordination information.|
|22.214.171.124 Form 720-TO/CS Information Reporting and Third party Contact Requirements||Moved relevant content to IRM 126.96.36.199.1.|
|188.8.131.52 Joint Operations Center Support||Moved relevant content to 184.108.40.206, updated title to Excise Operations Support (EOS), new subsection at 220.127.116.11.1 for EOS procedures relating to Request for Information forms, and new link to JOC web page.|
|18.104.22.168 PNNL||Title changed to excise Forensic Lab and content moved to 22.214.171.124.|
|126.96.36.199 Fuel Workload Identification and Classification||Content moved to 188.8.131.52, updated IRM citations, and made minor edits for clarity.|
|184.108.40.206.1 Assignment and Grade Level||Content moved to 220.127.116.11.1, updated IRM cites, added new procedures for workload assignment, and made minor edits for clarity.|
|18.104.22.168 Assignment of Fuel Related Inventory CIC Referrals||Content Moved to 22.214.171.124 and updated IRM cite at 126.96.36.199(3)|
|NEW 188.8.131.52.1 Coordination of Non-CIC Examinations with fuel and Non-Fuel issues||Incorporated content of Chief's Memo dated 7-25-2013 titled Coordination of Non-CIC Examinations with Fuel and Non-Fuel Issues|
|184.108.40.206 Fuel Examination Case Control||Content moved to 220.127.116.11 and updated cite at 18.104.22.168(4).|
|22.214.171.124.1 Aging Reason Code||Content moved to 126.96.36.199.1, edited for clarity and added (3) for additional procedures.|
|4.24.8 Fuel Abstract Examinations||Content moved to 188.8.131.52.|
|184.108.40.206 Overview of Fuel Taxes including 220.127.116.11 through 18.104.22.168||Content moved to 22.214.171.124 through 126.96.36.199.9 and updated hyperlink.|
|4.24.10 Overview of Fuel Workload Development Strategies (188.8.131.52 through 184.108.40.206)||Title change to Fuel Workload Initiatives to better reflect workload. Content moved to 220.127.116.11 through 18.104.22.168.6, updated content, IRM cites, and hyperlinks for each initiative.|
|NEW 22.214.171.124.7 NGL and Propylene Fractionator Examinations||New content added from SBSE IGM 04-0812-072.|
|126.96.36.199 Abnormal Fuel Referrals including 188.8.131.52.1 and 184.108.40.206.2||Content moved to 220.127.116.11, 18.104.22.168.1 and 22.214.171.124.2|
|126.96.36.199 Investigative Sample Leads||Content moved to 188.8.131.52.|
|184.108.40.206 Procedural Guidance Relating to Terminal Control Number||Content moved to IRM 220.127.116.11.2.|
|18.104.22.168 Procedural Guidance for Change of Terminal Status||Content moved to IRM 22.214.171.124.3.|
Note: SBSE 04-0213-019, Case Coordination Guidance for Examinations and Related Forms 720-TO/CSReviews dated 2-26-2013 originally referenced this IRM section. It was later determined that the procedural guidance found in this memo be entirely incorporated into IRM 4.24.17.
/s/ John Imhoff
Director, Specialty Programs
Small Business/Self Employed
This section provides procedural guidance and information to support the examination and/or handling of:
Form 720, Quarterly Federal Excise Tax Return, fuel abstracts
Fuel Refineries and Terminals
Abnormal Fuel Referrals
This IRM section is designed to address the proper handling and disposition of fuel related examinations. All excise examiners need to become familiar with the content. It serves as a source for policies, procedures, instructions, and guidance relating to excise fuel taxes.
The Excise Fuel Tax Program is governed by policy statements and other internal guidance that apply to all personnel within the Excise Tax Program. The policy statements found in IRM 1.2.1, "General Management - Policies of the Internal Revenue Service," apply to all excise fuel tax issues and examinations. Excise examiners need to review these Policy Statements to properly complete their examination responsibilities.
The fuel territories were created to improve fuel tax compliance and to reduce the federal excise fuel tax gap. The term excise examiners used in this IRM section refers to Excise Program Revenue Agents (RA) and Fuel Compliance Agents (FCA). They have been specifically trained to conduct a wide variety of fuel related examinations, inspections, and compliance reviews. The fuel territories also contain Fuel Compliance Officers (FCO) who perform fuel inspections. See IRM 4.24.13 through 4.24.16 for information regarding FCO duties and responsibilities.
Excise fuel tax examinations are worked by fuel territory personnel within the Excise Tax Program. In some situations, fuel examinations may be worked outside the fuel territories. Approval of the Chief, Excise Program in conjunction with Excise Operational Support (EOS) is required before workload is assigned outside of the fuel territories.
References pertaining to the responsibilities of the fuel territories group manager/excise examiner, are also applicable to general program excise group manager/excise examiner when they are working an excise fuel tax examination or compliance review.
the excise examiner is required to utilize management specified examination software for compliance reviews and examinations. The Issue Management System (IMS) with affiliated Notebook, (which provides lead sheet templates, reports, letters, and closing forms), is the current excise tax examination case file software system.
The procedures found in the following Excise IRM sections may also apply to fuel examinations contained in this IRM:
Excise IRM Section Title 4.24.2 Form 637 Excise Tax Registrations 4.24.5 LB& I Examination Program Procedures for Excise Employees 4.24.6 Excise Tax Examiner Responsibilities 4.24.8 Examination Guidance for Excise Claims for Refund or Abatement 4.24.9 Excise Tax Penalty Procedures 4.24.10 Excise Tax Examination Reports, Case Closing and Appeals Procedures 4.24.13 Fuel Compliance Program Overview 4.24.14 Fuel Compliance Safety, Uniform and Motor Vehicle Requirements 4.24.15 Fuel Compliance, Inspection, Sampling and Shipping 4.24.16 Fuel Compliance Report Writing, Case Closing and Appeals Procedures 4.24.17 Excise Summary Terminal Activity Reporting System (ExSTARS) Compliance Examination Procedures 4.24.18 Excise Operations Support
EOS consists of two main groups:
Joint Operations Center (JOC) and the National Data Center (NDC), and
Planning and Special Programs Workload Identification and Classification (PSP-WIC).
Both groups collaborate to identify and deliver appropriate fuel and non fuel related excise tax compliance workload.
The JOC tracks and trends fuel movement to take action on irregular or unusual behaviors occurring throughout the Fuel Distribution System. The NDC contains a common excise fuel tax data repository used to support Federal and State excise fuel tax compliance. The NDC identifies, acquires and integrates Federal, State and other commercial third party data sources to track and trend fuel movement and identify leads for investigation by the fuel territories.
All Form 5346, Examination Information Reports, should be submitted electronically through the group manager to the EOS group mailbox. See IRM 126.96.36.199.1, Form 5346, Examination Information Report for more information regarding Form 5346 submission procedures.
Excise examiners shall use the RFI form to request data from the JOC and forward to the manager for approval. The manager will process the RFI which will transmit directly to the JOC mailbox. The RFI is used to ensure data requests are clearly communicated, enhance quality, accuracy of data provided, and accountability. A list of available data sources, case support and the RFI can be found on the JOC web page. http://mysbse.web.irs.gov/Specialty/excise/prog/joc/default.aspx
Requests should include pertinent entity information, data source(s), tax period(s), and time frames required. The JOC has multiple data sources, and this information may assist JOC analysts in extracting all relevant data.
Examples of JOC data assistance include:
Analysis of ExSTARS data-provided in pivot table format.
Excise Form 637 Registration information data relating to pipelines and vessels not operated by taxable fuel registrants-Terminal Operators are required to report the name and Employee Identification Number (EIN) of pipeline and vessel operators delivering product to, and/or receiving product from, any terminal it operates. Registration information may be cross referenced by JOC to identify unregistered operators.
Form 637 Registration information data relating to unregistered position holders- Terminal Operators are required to report the name, EIN, description of product and volume with respect to each position holder operating within any terminal it operates. Registration information may be cross referenced by JOC to identify unregistered position holders.
Analysis of Customs Form 7501 Entry Summary- data related to imported products compared to excise tax return filings.
The EFL provides fuel testing and other services as a contractor for the IRS. They assist with compliance determinations with respect to fuel tax and registration requirements. Samples of questionable fuels may be obtained by requesting the services of a FCO or FCA.
The EFL is not part of the IRS organization and there are specific rules and guidelines which govern interaction with EFL personnel.
Under no circumstances may a taxpayer be provided with EFL's contact information or encourage them to contact the EFL directly to discuss sample test results.
The excise examiner will follow report writing and case processing procedures found in IRM 4.24.16 which address communicating sample results to the taxpayer.
If the excise examiner is unable to answer the taxpayer questions regarding the lab sample, the excise examiner and their manager are to contact the Fuel Policy Program Manager who will coordinate with the EFL and to communicate the taxpayer's questions and issues. If it is determined that a discussion is needed with the EFL, the Fuel Policy Analyst will make the necessary arrangements
PSP-WIC utilizes a variety of fuel taxpayer information sources to identify and provide inventory or leads to the territories, including JOC derived workload. See IRM 4.24.18, Excise Operations Support, , for more information.
The Chief, Excise Program, along with the EOS Program Manager and the fuel territory managers will communicate annual fuel compliance program priorities, and will provide ongoing guidance throughout the fiscal year to group managers and excise examiners as warranted.. Group managers should elevate any concerns about fuel compliance initiatives and priorities to their respective territory managers.
When a case lead is developed for any excise issue, PSP-WIC will run an EIN match against the workload sources and against the Form 637 Registration data. Leads that support fuel compliance initiatives for the fuel territories or that have an active Form 637 registration activity letter that pertains to the fuel industry will be forwarded to the fuel territories for consideration.
If the lead does not contain potential fuel related issues, PSP-WIC will follow normal classification procedures found in IRM 4.24.18.
Fuel territories have primary responsibility for all fuel related compliance work, with fuel related case work or compliance reviews being assigned to general territories when workload or staffing deficiencies dictated.
Approval of the Chief, Excise Tax Program and the EOS Program Manager is required before any assignment of fuel workload outside of the fuel territories.
Fuel territories are responsible for conducting all fuel related Form 637 Registration initial applications and compliance reviews
Excise examiners will conduct Form 637 registration initial applications and compliance reviews. The degree of complexity is a group manager case assignment consideration.
Due to the limited audit scope, grade-of-case for IRC 4101 compliance case work will be assigned at the excise examiner journey level grade (grade 11) and below. Group managers may change the grade level should circumstances warrant.
IRC 4101 compliance case work, consists of:
Form 720-TO/CS ExSTARS compliance examinations,
Form 637 registration initial applications and compliance reviews, and
IRC 6719 and 6725 penalty cases.
This grade level assignment will be maintained as long as there is separation between IRC 4101 compliance case work and Form 720 examinations.
The primary IRC 4101 compliance case plus any subsequent and/or prior periods of a Form 637 registrant, or any related Form 637 registrants examined by the same excise examiner, will carry the same grade level.
A related Form 637 registrant that is examined by other excise examiners will be graded separately.
An excise examiner may not expand the audit scope from a compliance review to a Form 720 examination, or Form 8849, Claim for Refund of Excise Taxes. examination. without proper notification to PSP-WIC. A referral must be submitted using Form 5346, Examination Referral Form. See IRM 188.8.131.52 for more information.
All "S" "X" or "CB" activity letter cases requiring reassignment beyond the fuel territories must be coordinated through the 637 Registration Group Manager and PSPWIC Manager.
Fuel territories are responsible for all fuel related Form 637 activity letters (for example, K, M, W, Y, AB, AF, AL, AM, BC, CC, NB, UA, UB, UP and UV).
The following steps will be taken by the group manager in coordination with the appropriate territory manager and the Excise Tax Policy CIC Coordinator when a CIC case referral is received:
If the primary issue is within a fuel or petroleum/chemical industry and there are no other issues present, then the fuel manager will control the case.
If the primary issue is within a fuel or petroleum/chemical industry and there are some non fuel related issues (for example Foreign Insurance or Air Transportation), the fuel manager will still control the case but the examination of the non fuel issues will be coordinated with the general excise manager.
If non fuel issues are discovered during a fuel related examination, a Specialist Referral System (SRS) referral will be initiated to request general excise exam support.
If the case is within a fuel or petroleum/chemical industry and no fuel related issues are present, the manager will reassign the SRS referral to a general excise manager.
If the primary issue is within the general excise program (for example Air Transportation) and potential fuel issues are present, the general excise manager will still control the case but the examination of the fuel issues will be coordinated with the fuel manager.
Any case transfer needs to be approved and coordinated between the appropriate territory managers.
Any disagreements in handling CIC referrals will be elevated through proper management channels up to the Chief, Excise Tax Program if required. The above procedures will also apply to non-CIC cases but without the Excise Tax Policy CIC Coordinator involvement.
See IRM 184.108.40.206.6, Specialist Referral System (SRS) Leads for more information.
When, during the examination process, an issue is identified that is outside the fuel or non-fuel primary issue, the examiner assigned to the case will consult with their excise tax counterpart (for example a general excise tax agent will consult with a fuel compliance agent (FCA) or fuel compliance officer (FCO) if a fuel issue is identified on their case). The purpose of this consultation is to determine if technical support or examination support is needed. This consultation will be documented on Form 9984, Examining Officer’s Activity Record. The assigned examiner will retain control of the case and will be provided the agreed upon level of support.
In situations where technical support is warranted in less complex issues:
The controlling examiner will retain responsibility for working the issue with technical support provided by the consulting examiner.
The examiner controlling the case will add the consulting examiner (providing technical support) as a team member on the case in IMS and assign the issue to the consulting examiner. This will enable the consulting examiner to charge time to the issue and input comments as needed on their activity record for the technical support provided.
In situations where examination support is warranted in more complex issues:
The controlling examiner will control the case on IMS, designate the consulting examiner as an IMS team member and assign to them in IMS the issue in question.
The consulting examiner will charge time to the assigned issue, input comments on their activity record and import their workpapers into their issue in IMS.
The consulting examiner will provide any adjustment results, dollars and technical write-up, to the examiner controlling the case that will be responsible for issuing all reports to the taxpayer.
Any questions about the proper handling of a case with both fuel and non-fuel excise issues will be elevated to the next level of management.
Audit Inventory Management System (AIMS) and Examination Returns Control System (ERCS) procedures apply to fuel cases.
Form 720, Master File (MFT) cases will be established and controlled on AIMS and ERCS under MFT 03.
ERCS procedures for ExSTARS compliance examinations and associated penalties are found in IRM 220.127.116.11
ERCS procedures for Form 637 registrations are found in IRM 4.24.2.
Revenue Agents (RA) and Fuel Compliance Agents (FCA) conduct a wide variety of fuel related examinations, inspections, and compliance reviews. To distinguish between RA and FCA workload, an Aging Reason Code must be utilized for all FCA workload.
Aging Reason Code 62, "Excise Tax FCA" must be entered on ERCS and merged with the IMS case to properly identify FCA examination case inventory. Aging Reason Code 62 must be entered for all open FCA IMS inventory. This code is entered on IMS at the "Edit Entity" screen, ERCS Data Tab.
The aging reason code must also be entered on Form 5344 (page 2, line 410), Form 5345-D and Form 5348 when establishing and closing FCA returns.
The ultimate goal of an excise fuel examination is to determine if the tax liability reported is substantially correct or, in the case of a claim, determine if the amount reported on the claim is correct, valid and has not been duplicated. Excise examiners will keep the following guidelines in mind when conducting an excise fuel tax examination:
Treat similar cases and similarly situated taxpayers consistently.
Use each excise fuel tax case as an opportunity to help the taxpayers understand their legal obligations and rights.
Assist the taxpayers in understanding their appeal rights and in all cases, observe the taxpayer's procedural and administrative rights.
Resolve each case in a manner which promotes voluntary compliance in the fuel and petroleum industry.
Identify and elevate systemic problems and evidence of taxpayer burden to the proper management official.
Fuel examinations generally include tax issues found in the following categories:
Taxable Fuel Refining In general, a refinery is a facility used to produce taxable fuel and from which taxable fuel may be removed by pipeline, by vessel, or at a rack. Refinery operators are required to have a Form 637 registration activity letter "S." The refiner is generally liable for tax upon removal of taxable fuel from the refinery rack. Refiners are also liable for tax when crude oil is received at the refinery.
Taxable Fuel Position Holder A position holder, with respect to taxable fuel in a terminal, is the person that holds the inventory position in the taxable fuel, as reflected on the records of the terminal operator. A person holds the inventory position in taxable fuel when that person has a contractual agreement with the terminal operator for the use of storage facilities and terminaling services at a terminal with respect to the taxable fuel in its terminal. The term also includes a terminal operator that owns taxable fuel in its terminal. Position holders of taxable fuel are required to have a Form 637 registration activity letter "S." Position holders are generally liable for tax upon the removal of taxable fuel from the terminal rack.
Taxable Fuel Terminaling A terminal is a taxable fuel storage and distribution facility that is supplied by pipeline or vessel and from which taxable fuel may be removed at a rack. A terminal operator is defined as a person, partnership, or corporation that has responsibility and physical control over the operation of a terminal. The terminal operator may be the owner, or it may be a person or business that contracts with the owner to carry out these duties. A terminal operator can also be a position holder of fuel within its terminal. Terminal operators are required to have a Form 637 registration activity letter "S" . A terminal operator may be jointly and severally liable for tax upon removal of taxable fuel from the terminal rack.
Import of Taxable Fuel and Petroleum Products Importers of taxable fuel are subject to tax upon the entry of taxable fuel into the United States. Importers are also subject to tax on the import of petroleum products (including crude oil).
Blending of Taxable Fuel Blenders of taxable fuel with liquid products other than taxable fuel are generally liable for excise tax on the untaxed portion of a mixture. Entities involved in blends created outside of the bulk transfer terminal system are required to have a Form 637 registration activity letter "M."
Retailing of Other Fuels (including Alternative Fuel) Other fuels include any liquid fuel other than taxable fuel (gasoline, diesel fuel and kerosene). Retailers of other fuels are subject to tax on the delivery of such fuel into the supply tank of the propulsion engine of a motor vehicle or motorboat. Retailers of alternative fuel are required to have a Form 637 registration activity letter "AL" in order to claim an alternative fuel credit. Incentive credit provisions apply to certain other fuels including alternative fuel.
Fuel Claim Examinations Claim examinations are covered in IRM 4.24.8, Examination Guidance for Excise Claims for Refund or Abatement.
Mislabeled Products Taxable fuel may be mislabeled in any of the above described categories (a through g).
Excise fuel taxes are distinguished based on their activity code, commonly referred to as abstract codes. The fuel related abstract groups are briefly discussed below.
Detailed information relating to the fuel abstract groups may be found on the Examining Excise Taxes web site Issues and Procedures web page found at http://mysbse.web.irs.gov/Specialty/excise/issues/fuel/default.aspx.
Tax is imposed on gasoline removals at the terminal rack, on events other than removal at the terminal rack, or the sale or removal of blended gasoline (ABS 62).
Tax is imposed on aviation gasoline removals from a refinery or terminal or upon entry into the United States (ABS 14).
Aviation gasoline includes all special grades of gasoline that are suitable for use in aviation reciprocating engines and covered by American Society for Testing and Materials (ASTM) specification D 910 or military specification MIL G5572.
See IRC Sections 4041 and 4081 for further explanation of the above items.
Tax is imposed on diesel fuel removals at the terminal rack, on events other than removals at the terminal rack, or the sale or removal of blended diesel fuel (ABS 60).
Tax is imposed at a reduced rate on a diesel-water fuel emulsion removal at the terminal rack or other taxable event (ABS 104).
See IRC Sections 4041 and 4081 for further explanation of the above items.
Tax is imposed on kerosene removals at the terminal rack or events other than removals at the terminal rack (ABS 35).
Tax is imposed on kerosene that is sold or used in a highway motor vehicle (ABS 60).
Tax is imposed on kerosene for use in aviation for kerosene removed directly from a terminal into the fuel tank of an aircraft for use in noncommercial aviation (ABS 69).
Tax is imposed on kerosene for use in commercial aviation for kerosene removed directly from a terminal into the fuel tank of an aircraft for use in commercial aviation, other than foreign trade (ABS 77).
See IRC Sections 4041 and 4081 for further explanation of the above items.
Tax is imposed on any liquid other than gas oil, fuel oil, or any product taxable under IRC 4081 when it is delivered into the fuel supply tank of a motor vehicle or motorboat, or on certain bulk sales. Examples of these alternative fuels are:
ABS 112 liquefied petroleum gas (LPG) which includes propane, butane, pentane, or mixtures of those gases,
ABS 118 "P Series" fuels,
ABS 120 compressed natural gas (CNG),
ABS 121 liquefied hydrogen,
ABS 122 any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process,
ABS 123 liquid hydrocarbons derived from biomass, and
ABS 124 liquefied natural gas (LNG).
Tax is imposed on ethanol produced from coal, methanol produced from coal, ethanol produced from natural gas, methanol produced from natural gas, B 100 (100% biodiesel), and other selected fuels when they are delivered into the fuel supply tank of a motor vehicle or motorboat or trains for B 100 (ABS 79 for the preceding products).
Tax is imposed on any liquid fuel used in the propulsion engine of commercial transportation vessels while traveling on certain inland and intercoastal waterways (ABS 64).
LUST taxes are generally imposed upon removal at the rack for the following products:
dyed diesel fuel (ABS 105),
dyed kerosene (ABS 107),
kerosene for use in aviation, on nontaxable uses on removals, entries, and sales of gasoline and diesel fuel (ABS 111) , and
any liquid fuel used on inland or intercoastal waterways that is not subject to tax under IRC 4041(d) or 4081. An example of such fuel is Bunker C residual fuel oil (ABS 125).
Tax is imposed (ABS 51) if the alcohol fuel mixture credit or the alcohol credit was claimed and any person later:
uses the mixture or straight alcohol for a purpose other than fuel,
separates the alcohol from the mixture, or
mixes the straight alcohol.
) Tax is imposed (ABS 117) if the biodiesel or renewable diesel mixture credit was claimed and any person later:
used the mixture or straight biodiesel or renewable diesel for a purpose other than fuel,
separates the biodiesel or renewable diesel from the mixture, or
mixes the straight biodiesel or renewable diesel.
Oil spill liability tax (ABS 18) generally applies to crude oil received at a U.S. refinery and to petroleum products entered into the United States for consumption, use or warehousing. The imported petroleum products oil spill tax (ABS 21) is imposed on petroleum products when they enter the United States for consumption, use or warehousing.
The JOC and PSP-WIC Units of the EOS develops and implements fuel initiatives that emphasize emerging and existing issues of noncompliance to ensure fuel tax compliance within the fuel distribution system. Fuel workload development initiatives are based on taxpayer reporting, filing, and paying behavior and are designed to address the fuel compliance tax gap. A very brief description and overview of various current workload initiatives are found in IRM 18.104.22.168.1 through 22.214.171.124.6.
The JOC and PSP-WIC utilize a wide variety of information, databases, and public sources to track and monitor the movement of fuel both inside and entering the country. For example the JOC works with the Department of Homeland Security Customs database to track imported fuel, ensuring that tax is appropriately assessed and collected on fuel entered into the United States for which excise tax is owed.
The JOC may evaluate and analyze information from Excise Summary Terminal Activity Reporting System (ExSTARS) and the Terminal Control Number (TCN) listing along with excise tax returns and information reports to identify potential areas of non-compliance. These items are also analyzed in conjunction with other Federal and State agency data as well as public information.
Excise examiners should verify the current status and information available about a particular fuel workload initiative before they initiate compliance actions. The fuel workload initiative guidelines below may apply to:
Examiners should attempt to secure any and all case built information regarding audit issues. Refer to IRM 126.96.36.199, Casebuilding for current case building information and guidance.
Project codes are usually assigned for each fuel workload initiative examination. A tracking code may also be assigned as warranted.
A list of current excise related project and tracking codes may be found at :https://organization.ds.irsnet.gov/sites/dcse/sbse/specialty/et/ExTAC/HQPolicyAnalysts/Excise_PSP/CampusClassification/Project%20and%20Tracking%20Codes/Forms/AllItems.aspx.
It is also important that the examinations be completed in a timely manner since the results of these examinations will be compiled and analytical reports issued. These reports will assist in determining if there is a need for additional examinations for a particular workload initiative.
In addition to the normal responsibilities outlined under IRM 4.24.6, Excise Examiner Responsibilities, the excise examiner will:
Conduct an in depth examination focused on the issues or questionable/targeted areas specified in the audit help guide, ATG, or case information guidance.
Keep the information relating to each tax issue separate. Do not combine examination results into a single issue.
If there are any questions regarding the audit help guide, ATG, or case information guidance for the assigned cases, or the workload development initiatives, the group manager will contact the appropriate Excise Fuel Policy Analyst. For a listing of contacts see http://mysbse.web.irs.gov/Specialty/excise/contacts/headquarters/20166.aspx.
Most workload development initiatives have a current updated version of:
audit help guide, ATG, or case information guidance,
IDR to support the evaluation of the various products, or
information relating to the effective and efficient examination of the particular return.
The workload initiative items listed in this IRM may also be found in the Audit Techniques Guides web page located on the Examining Excise Taxes web site http://mysbse.web.irs.gov/Specialty/excise/library/atg/19022.aspx.
The excise examiner must complete and submit Form 5346, Examination Information Report, to the SBSE Excise EOS mailbox when areas of audit potential or potential non-compliance are discovered and not currently identified under a workload initiative. This form should be discussed with the group manager prior to completion. The manager will assist the excise examiner in determining whether to extend the audit to other taxpayers or submit an information report. See IRM 4.24.18 for more information.
Excise examiners are still responsible for following the fuel and expanding examinations where fuel related audit potential is noted. Following the fuel is a critical aspect to conducting any fuel examination or compliance review.
The primary focus in this area is to address issues regarding the correct excise tax and claims for incentive credits for biodiesel and biodiesel mixtures.
Fuel examinations involving biodiesel or biodiesel mixture credits require the excise examiner to take the following actions:
Perform a Form 637 discretionary review for the taxpayer under audit in addition to the claims and excise return examinations. The excise examiner will request the IMS Form 637 case file. Upon completion of the case, the excise examiner will include a copy of the examination results in the IMS Form 637 case file as well as appropriate comments about the Form 637 follow-up in the examination case file.
Fuel Compliance Officers (FCO) or Fuel Compliance Agents (FCA) will work with the excise examiner to obtain fuel samples to determine whether biodiesel registrants and applicants meet the requirements of IRC 40A(d)(1) which defines biodiesel. If a fuel sample is needed, an FCA may secure the sample as well as determine whether biodiesel registrants and applications meet the requirements which defines biodiesel.
The request for an FCO/FCA to work with the examiner will be initiated through contact and coordination between their respective managers.
The Biodiesel Help Guide provides guidance on the examination procedures for the taxation and refund provisions of biodiesel and biodiesel mixture credits. This document is intended to assist in the examination of a biodiesel claim and credit case. The Biodiesel Help Guide can be found in the Audit Guides folder in the Notebook Forms Library.
The primary focus in this area is to determine whether waste products from chemical companies are being diverted into taxable fuel and if products produced by the companies are suitable for use as a fuel. If the products are found to be suitable for use, federal excise tax is assessed on the product.
The data used to select these cases is drawn from review of the internet listings of chemical companies and the types of products that they produce. This listing is cross checked against ExTRAS to ensure companies are registered with Form 637 activity letter "S."
The excise examiner should attempt to obtain a chemical analysis description of the questionable product. Questionable products may require that samples be obtained and a chemical analysis be performed. Excise examiners must discuss questionable product sampling with their manager. The manager will forward the request to sample and analyze the questionable product the Fuel Policy Program Manager before proceeding to collect any samples.
The Chemical Companies ATG provides guidance on the examination procedures and instructions on how to prepare the feedback sheet, as required. It also contains examination techniques and an IDR to support the evaluation of the various products. It can be found in the Audit Guides folder in the Notebook Forms Library.
The primary focus of the Exported Fuel Diversion workload initiative is to identify products (motor fuels) being diverted from the export stream of commerce back into the United States without payment of appropriate State or Federal tax. The most common instance of this occurs when barge loads of taxable fuel products identified for export are instead off-loaded at U.S. locations. The excise examiner needs to:
Determine if a claim has been filed by the position holder or another party who purchased and exported the fuel. For non-bulk removals of taxable fuel from an approved terminal, tax is imposed on the position holder when the product crosses the rack.
Expand the scope of the examination to include related parties like the consignee who purchased the fuel from the position holder for export.
Document the actual export of the taxable fuel products in order to establish:
there has been no diversion,
that all excise tax has been paid, and
any claims filed are accurate and correct.
The excise examiner must review the filing of claims for exported fuel. Multiple exported fuel claims can create the potential for claiming excessive and erroneous claims.
The Export Fuel Diversion Help Guide has been created to assist with these examinations. It can be found in the Audit Guides folder of the Notebook Forms Library. It contains examination techniques and an IDR to support the evaluation of the various transactions. Also included is a document entitled Forty (40) Steps of an Export Shipment. This document can be utilized to understand the export process, the entities involved, and type of documentation that is prepared at every step of the process. Any of these steps may be encountered in determining if the product was actually exported.
The primary focus in this area is to:
determine whether taxable fuel is imported into the United States without payment of appropriate tax,
ensure imported products are correctly identified,
verify the importer of taxable fuel is properly registered,
determine if the information recorded on the Form 720 return or Form 720-TO information report is accurate,
determine that all taxable products are properly classified, and
determine if appropriate amounts of oil spill tax have been paid on taxable, imported products.
Inaccurate information or mis-classification of a product may result in the assertion of penalties or create taxable events.
Cases are selected from Currency Banking Retrieval System (CBRS) information. CBRS has a section which allows access to U.S. Customs Excise Tax Documents which is provided to the Excise Tax Program by the United States Customs and Border Protective Service.
An Import Exam Help Guide has been created to assist with these examinations. It can be found in the Audit Guides folder of the Notebook Forms Library. It contains examination techniques and an IDR to support the evaluation of the various imported products.
The primary focus in this area is to:
determine differences in the volumetric analysis of the Form 720-TO information report and the Form 720 tax return filed by the terminal operator and/or the position holder,
determine if the position holder is subject to excise tax on taxable fuels removed from the terminals or from any other terminal from which taxable fuel has been removed,
determine if petroleum products are being off-loaded or diverted (barges off-loading diversion) between the barge shipping point and final destination and then being sold and used for on-road taxable use without payment of the excise tax,
Barge off-loading analysis must be conducted for every Form 720-TO examination involving terminals with vessel receipt and removal capability.
determine if the entity identified requires registration and the filing of Form 720.
ExSTARS summary and detail reports may be requested from the JOC to assist with these areas.
When examining shipment of product via barges, the excise examiner must determine whether the inland waterway tax, and other fuel tax credits claimed on Form 720 have been accurately reported/claimed. Refer to the Inland Waterways ATG located at http://mysbse.web.irs.gov/Specialty/excise/library/atg/19022.aspx for guidance relating to any examination or review involving barges, vessels, tugboats, etc.
For detailed guidance relating to ExSTARS compliance action cases see IRM 4.24.17 Excise Summary Terminal Activity Reporting (ExSTARS) Compliance Examination Procedures .
The excise examiner must be aware of issues relating to stand alone fractionator facilities. These are facilities that produce taxable fuel mainly from non-conventional sources. They may be operating without a required Form 637 registration and may not be filing Form 720 and paying applicable Federal excise taxes.
In general these stand alone fractionator leads are identified from analysis pertaining to potential operators of unregistered refineries. The data is matched with ExSTARS information on known taxable fuel registrants. The goal of the examination is to determine if the entity identified in this lead requires registration and the filing of Form 720.
The Form 720-TO and Stand Alone Fractionator Exam Help Guides has been created to assist with these examinations. It can be found in the Audit Guides folder of the Notebook Forms Library.
Fractionation facilities typically have access to extensive bulk storage capacity or interconnectivity with other fractionators, pipelines, chemical plants, manufacturers, and multiple markets within the fuel distribution system. To ensure industry compliance, excise examiners follow the fuel upon identification of any large, unusual, or questionable item.
Natural Gas Liquid (NGL) is a feedstock that is separated by fractionation into:
taxable Gasoline Blendstocks such as; Normal Butane, Isobutene, Natural Gasoline, and Pentane.
Product codes like Heavy Hydrocarbon Liquids and Condensate are interchangeable industry product descriptions for Pentane. Excise examiners should scrutinize these and other nondescript product descriptions to determine product type.
Propylene is a colorless, gaseous hydrocarbon consisting of three grades:
refinery grade (RGP),
chemical grade (CGP), and
polymer grade (PGP)
that can be separated into Propane and a gasoline blend stock called Mixed Butane.
Generally, federal excise tax is imposed on the removal of gasoline blendstocks. However, Treasury Regulation 48.4081-4, Gasoline; special rules for gasoline blendstocks, prescribes exemptions to the general rule. Failure to adhere to the requirements provided in the regulations may result in the imposition of federal excise tax, IRC 4101 registration and reporting requirements, and penalties.
Operators of plants that process NGL or Propylene feedstock to produce gasoline blendstocks within the meaning of Treasury Regulation 48.4081(c)(3) must be registered by the IRS on Form 637 Activity Letter “S” registration. The IRS also assigns these plants a Refinery Control Number (RCN).
An approved "S" registrant of an NGL and Propylene fractionation facility that operates a pipeline, regardless of distance, to supply a disbursement rack, (which may include storage tanks), is exempt from Form 637, Activity Letter "X" (pipeline operator) requirements.
This registration and reporting exemption is restricted to the approved/active "S" registrant plant operator only. Any other facility pipeline or bulk plant operator, regardless of registration status, relationship or agreement with the plant operator is not exempt from IRC 4101 registration and reporting requirements.
Facility operators that process additional types of feedstock or store taxable fuels not derived from plant NGL or PGP feedstock are required to have a:
Form 637 Activity Letter "S" registration,
Terminal Control Number (TCN), and
file monthly ExSTARS reports.
Excise examiners should determine that all inventory and disbursements are derived from plant feedstock.
Refer to IRM 4.24.17, Excise Tax, Excise Summary Terminal Activity Reporting System (ExSTARS) Compliance Examination Procedures, Publication 3536, Motor Fuel Excise Tax Electronic Data Interchange (EDI) Guide, and the ExSTARS Compliance, and Penalty Guide in the event a TCN is required.
NGL and PGP fractionation facilities are subject to IRC 6719 penalties absent reasonable cause. Refer to IRM 4.24.2, Form 637 Excise Tax Registrations for registration compliance review procedures.
A Facility Control Number (FCN), (includes subcategories RCN and TCN), is issued by the FCN Coordinator.
An excise examiner submits an FCN questionnaire for processing. See IRM 188.8.131.52.2, Procedural Guidance Relating to facility Control Number for more information.
The FCN coordinator issues a determination notification to the facility operator, excise examiner, and group manager.
The excise examiner associates the FCN coordinator determination notification with the Form 637 case file.
The excise examiner must conduct a follow up examination or review whenever the Excise Forensic Laboratory (EFL) identifies and quantifies adulterants found in a taxable fuel sample. The presence of adulterants means that untaxed product may be blended with taxed fuel and tax may be due on the volume of adulterant. Analytical results showing the presence of adulterants are called "abnormal results" . The source of the adulterant can occur any where from the terminal down to the truck that makes the delivery. The person responsible for blending such adulterant with the taxable fuel is generally liable for tax on the amount of the adulterant blended.
Abnormal referrals are generally identified by the FCO or FCA within the fuel territories as a result of Blitz operations. Blitz operations involve a high volume of fuel sample collection from a wide geographic area in a relatively short period of time. See IRM 184.108.40.206 for more information on Blitz procedures.
The FCO and FCA are the only IRS personnel authorized to enter taxable fuel terminals and other locations below the terminal rack unannounced to conduct on-site fuel inspections. Under certain circumstances, the FCO and FCA are to secure and subsequently submit samples of fuel products to the EFL for compliance purposes.
The Audit Guides folder of the Notebook Forms Library contains the BTR Exam Help Guide and procedural guidance relating to Blitz activities to assist with abnormal fuel case examinations. The BTR Exam Help Guide contains examination techniques and an IDR to support the evaluation of this lead/information.
The EFL will inform the fuel group manager and/or the FCO group manager about abnormal sample results within five (5) business days of receipt of the samples at the lab.
If the EFL report identifies an abnormal sample during a Blitz operation and the results are received in a FCO group, , the FCO group manager will immediately contact the appropriate fuel group manager and transfer the inspection file and abnormal results for priority action.
The fuel group manager will establish controls and assign the case to the excise examiner within one (1) business day of receiving it. The excise examiner must be experienced in conducting a Form 637"M" initial registration visit.
Within two business days of assignment, the excise examiner is required to make contact with the owner of the abnormal fuel sample and conduct the Form 637 initial on-site visitation to determine:
the source of the fuel,
if the owner of the fuel should be registered as a blender,
if a follow-up fuel sample should be taken, and
if any potential fuel tax liability exists.
If possible, these cases should be assigned to an FCA because there generally is a need to obtain a follow-up sample of the fuel.
Abnormal fuel referral cases are to be controlled on ERCS using MFT B0, Activity Code 588 and Tracking Code 7583.
Third party contacts may be necessary to verify purchases and sales. See IRM 4.11.57, Third Party Contacts, for more information.
Form 637 excise compliance review procedures found in IRM 4.24.2 are to be followed.
If the excise examiner determines there are records to substantiate the non-taxed blending, Master File case controls need to be established and an examination started. All cases will be controlled on Master File with MFT 03, Activity Code 060 and Tracking Code 7583
For taxpayers who have not filed a Form 720, the excise examiner will follow the Substitute for Returns (SFR) procedures found in IRM 220.127.116.11, Overview of SFR Action on Non-Filer Cases.
See IRM 18.104.22.168 and IRC Section 7272, Penalty for Failure to Register, for more information regarding penalty case procedures.
Abnormal Fuel cases will follow the examination procedures found in IRM 4.24.6 and the report writing and case processing procedures found in IRM 4.24.10.
These leads are closely related to the Abnormal Fuel Referrals in IRM 22.214.171.124. The potential technical issues and overall approach to working these leads are basically very similar.
These leads do not have similar time frames as specified for working abnormal fuel referrals. The fuel group manager will assign and ensure these leads are worked as expeditiously as possible to determine the extent of any fuel non-compliance. See IRM 126.96.36.199, Investigative Samples, for more information.
The excise examiner should attempt to obtain a chemical analysis description of the questionable product. Questionable products may require that samples be obtained and a chemical analysis be performed. Excise examiners must discuss questionable product sampling with their manager. The manager will forward the request to sample and analyze the questionable product to the Fuel Policy Program Manager before proceeding to collect any samples.
Depending on the facts and circumstances developed during the investigation of the sample results, one or more of the ATG's and Help Guides found in the Audit Guides folder in the Notebook Forms Library should be utilized.