4.24.4 Excise Fuel Taxes Workload, Policies and Procedures

Manual Transmittal

February 19, 2019

Purpose

(1) Update to IRM 4.24.4, Excise Taxes, Excise Fuel Taxes Workload, Policies and Procedures.

Material Changes

(1) Refer to the table below for a detailed list of changes made.

IRM Subsection Nature of Change
4.24.4.1.7 Electronic link updated.
4.24.4.4.4.1 Electronic link updated.

(2) Editorial changes have been made when necessary throughout this IRM to update electronic links.

Effect on Other Documents

This IRM supersedes IRM 4.24.4 dated October 5, 2018.

Audience

This Section is for SB/SE Excise Territory and Group Managers, Excise Examiners, Fuel Compliance Officers/Fuel Compliance Agents, Headquarters and Field Specialists.

Effective Date

(02-19-2019)

Lisa M. Piehl
Acting Director, Examination - Specialty Policy
Small Business/Self Employed

Program Scope and Objectives

  1. Purpose - This IRM section provides a conceptual foundation for the excise fuel tax framework by providing guidance and general information about basic excise examiner responsibilities, excise IRM sections, primary excise tax returns and claims forms, and materials about excise fuel tax abstracts and issues. The information primarily impacts excise Revenue Agents (RAs) and Fuel Compliance Agents (FCAs) (collectively and hereinafter, the "excise examiners" ), excise managers, and the personnel at the Cincinnati Service Center Campus who process excise returns, refunds, and claims. Managers, senior-level officials, and excise examiners who familiarize themselves with the information in this IRM section will be better equipped to prepare and submit accurate excise fuel tax reports, which is essential to increasing compliance.

  2. Audience - The audience of this IRM Section include the Director, Specialty Examination, Chief, Estate & Gift/Excise Tax Examination, Territory Managers, Group Managers and Excise Tax Examiners.

  3. Policy Owner - The Director Examination - Specialty Tax owns Excise Tax.

  4. Program Owner - The Director Examination - Specialty Policy is responsible for the administration, procedures and updates related to the technical guidance and information processing steps and methods specific to excise fuel tax examinations.

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

  6. 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) Division, Excise Tax-Examination.

Background

  1. This IRM section provides the intended audience the policies and procedures for a wide variety of excise fuel related examinations and compliance reviews.

  2. This IRM section also provides a discussion of the functions used to assist with workload identification and compliance determinations with respect to fuel tax and registration requirements.

Authority

  1. Excise taxes are primarily dedicated to specific trust funds, while others flow to general revenue. Refer to the following table for the statutes that are the most significant laws that affect fuel related excise taxes.

    Form: Type of Excise Tax: IRC Code Section: Trust Fund:
    720 Leaking Underground Storage Tank 4041, 4042, 4081 Leaking Underground Storage Tank
    720 Taxable Fuel (gasoline, diesel fuel and kerosene) 4041, 4081, 4082, and 6715 Highway, Airport and Airway
    720 Oil Spill Tax 4611 - 4612 Oil Spill Liability

Roles and Responsibilities

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

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

  3. Chief, Estate & Gift/Excise Tax Examination is responsible for ensuring the procedures within this IRM are adhered to.

  4. Territory Managers are responsible for ensuring that the group managers are aware and adhere to the procedures in this IRM.

  5. Excise Group Managers are responsible for ensuring their employees have current copies of this IRM and are adhering to the procedures in this IRM.

  6. Excise examiners are responsible for following the procedures and policies addressed in this IRM.

Program Management and Review

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

    • Headquarters Examination Monthly Briefing

    • Program Manager Monthly Briefing

    • Examination Operational Review and Business Performance Reviews

  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 - The Excise Fuel Policy Program Manager is responsible for reviewing the information in this IRM to ensure accuracy and promote consistent tax administration.

Terms

  1. Below are the terms frequently used throughout this IRM.

    • Form 637, Application for Registration (For Certain Excise Tax Activities) - A form that is used to apply for registrations to conduct certain excise tax activities.

    • Form 720, Quarterly Federal Excise Tax Return - A return used to report liability for excise taxes.

    • Form 8849, Claim for Refund of Excise Taxes - A form used to claim a refund of certain excise taxes.

    • Tax abstract - The specific type of excise tax, which is assigned a unique number to properly identify the tax paid.

    • Notebook - Issue Management System (IMS) folder that houses case work papers and forms.

Acronyms

  1. The following table represents the acronyms and the associated words or phrase they represent, as used throughout this IRM section.

    Acronym Meaning
    AIMS Audit Inventory Management System
    CIC Coordinated Industry Case
    CNG Compressed Natural Gas
    ECS Excise Case Selection
    EFL Excise Forensics Laboratory
    EFTPS Electronic Federal Tax Payment System
    ERCS Examination Returns Control System
    ExSTARS Excise Summary Terminal Activity Reporting System
    FCA Fuel Compliance Agent
    FCO Fuel Compliance Officer
    IDR Information Document Request
    IMS Issue Management System
    JOC Joint Operations Center
    LNG Liquefied Natural Gas
    LPG Liquefied Petroleum Gas
    LUST Leaking Underground Storage Tank
    MFT Master Tax File
    RFI Request for Information
    SRS Specialist Referral System
    WSD Workload Selection & Delivery

Related Resources

  1. Refer to IRM 4.24.1, Excise Tax, Introduction to Excise Taxes, for non-fuel related excise examination procedures.

  2. Refer to IRM 4.24.1.3, Excise Taxes - General Information, for a general description of excise taxes.

  3. Refer to IRM 4.24.1.4, Excise IRM - Part 4 - Chapter 24 - Overview, for a list of sections contained in IRM 4.24.

  4. Refer to IRM 4.24.1.5, Excise Tax Returns and Claim Forms, for a list of excise tax returns and claim forms.

  5. Refer to IRM 4.24.1.6, Excise Taxes Reported on Form 720, for a description of the sections composing Form 720.

  6. Refer to IRM 4.24.1.6.1, Electronic Federal Tax Payment System (EFTPS), for EFTPS applicability in the context of excise taxes.

  7. Refer to IRM 4.24.6, Technical Guidance and Information Processing for Excise Tax Examination Issues, for excise tax examination issues.

  8. Refer to IRM 4.24.8, Examination Guidance for Excise Claims for Refund or Abatement, for excise claims procedures.

  9. Refer to IRM 4.24.17, Excise Summary Terminal Activity Reporting System (ExSTARS) Compliance Examination Procedures, for ExSTARS procedures.

  10. For additional information about the material covered in this IRM, refer to the Fuels Book in Excise Tax Knowledge Management.

Basic Excise Examiner Responsibilities

  1. The following table focuses on the excise examiner responsibilities outlined in IRM 4.24.1.2, Excise Tax Considerations.

    IRM Number IRM Subsection Title
    IRM 4.24.1.2.1 Examination Scope
    IRM 4.24.1.2.2 Proper Use of Time
    IRM 4.24.1.2.3 Case File Documentation

The Excise Fuel Tax Program

  1. Excise examiners and FCAs have been specifically trained to conduct a wide variety of excise fuel related examinations and compliance reviews. The Excise territories also contain Fuel Compliance Officers (FCOs), who along with the FCAs, perform fuel inspections. See IRM 4.24.13 , Overview of Excise Fuel Compliance Program, IRM 4.24.14 , Excise Fuel Compliance Safety, Uniform, and Motor Vehicle Requirements, IRM 4.24.15 , Excise Fuel Compliance Inspection, Sampling, and Shipping, and IRM 4.24.16 , Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures, for information regarding the FCO duties and responsibilities.

  2. The excise examiner is required to utilize management specified examination software for compliance reviews and examinations. 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.

Excise Case Selection (ECS) for the Excise Fuel Tax Program

  1. ECS consists of two main groups:

    • Joint Operations Center (JOC), and

    • Workload Selection and Delivery (WSD).

    Both groups collaborate to identify and deliver appropriate fuel and non-fuel related excise tax compliance workload.

  2. The JOC operates a national data center that includes a technical foundation for a common data repository that supports the innovative use of technology to collect, analyze, and share information to provide qualified tax compliance leads.

  3. The compiled data is used to track and trend tax data for the purpose of:

    • Performing data analysis using economic indicators.

    • Demonstrating the benefits of enhanced contributions to excise tax trust funds including the Highway Trust Fund and the economic benefits to participating state partners.

    • Identifying areas resistant to compliance that require systemic or legislative changes.

    • Using tools and resources to identify leads for tax law compliance activities.

  4. WSD collaborates on the selection, classification, and delivery of inventory for the Excise Tax Program.

Examination Information Reports and Request for Information (RFI) Form

  1. All Form 5346, Examination Information Reports, should be submitted electronically through the group manager to the JOC at the following mailbox: sbse.excise.joc@irs.gov . See IRM 4.24.18.10.7, Information Report Leads, and IRM 4.24.6.5.8.1, Form 5346, Examination Information Report, for more information regarding Form 5346 submission procedures.

  2. 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.

  3. 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.

Excise Forensic Lab (EFL)

  1. 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.

  2. The EFL is not part of the IRS organization and there are specific rules and guidelines which govern interaction with EFL personnel.

  3. 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.

  4. The excise examiner will follow report writing and case processing procedures found in IRM 4.24.16, Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures, which address communicating sample results to the taxpayer.

  5. 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 Excise Tax 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 Excise Tax Policy Analyst will make the necessary arrangements.

Assignment of Fuel Related Inventory Coordinated Industry Case (CIC) Referrals

  1. All CIC case referrals received will be controlled and worked by the appropriate Excise Territory Manager and the Excise Tax Policy CIC Coordinator.

  2. See also IRM 4.24.18.10.6, Specialist Referral System (SRS) Leads, for more information and IRM 4.24.5, Large Business and International (LB&I) Examination Program Procedures for Excise Employees.

Case Coordination for Examinations and Related Forms 720-TO/CS Reviews

  1. Refer to IRM 4.24.17.5.1, Case Coordination Guidance for Examinations and Related Forms 720-TO/CS Reviews, for procedures.

  2. Refer to the following link for additional guidance: https://portal.ds.irsnet.gov/sites/vl037/pages/home.aspx?bookshelf= exstars

Fuel Examination Case Control Procedures

  1. AIMS and ERCS procedures apply to fuel cases.

  2. Form 720, Quarterly Federal Excise Tax Return, cases will be established and controlled on AIMS and ERCS under MFT 03.

  3. ERCS procedures for ExSTARS compliance examinations and associated penalties are found in IRM 4.24.17.5, ExSTARS Examination Return Control System (ERCS) Procedures.

  4. ERCS procedures for Form 637, Application for Registration (For Certain Excise Tax Activities), registrations are found in IRM 4.24.2, Form 637 Excise Tax Registrations.

Aging Reason Code Procedures for FCA Cases

  1. Excise examiners 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.

  2. 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.

  3. The aging reason code must also be entered on Form 5344, Examination Closing Record, (page 2, line 410), Form 5345-D , Examination Request-ERCS (Examination Return Control System) Users, and Form 5348, AIMS/ERCS Update (Examination Update), when establishing and closing cases worked by FCAs.

Fuel Abstract Examinations

  1. The ultimate goal of an excise fuel tax 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:

    1. Treat similar cases and similarly situated taxpayers consistently.

    2. Use each excise fuel tax case as an opportunity to help the taxpayers understand their legal obligations and rights.

    3. Assist the taxpayers in understanding their appeal rights and in all cases, observe the taxpayer's procedural and administrative rights.

    4. Resolve each case in a manner which promotes voluntary compliance in the fuel and petroleum industry.

    5. Identify and elevate systemic problems and evidence of taxpayer burden to the proper management official.

  2. Excise fuel tax examinations generally include tax issues found in the following categories:

    1. 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, Application for Registration (For Certain Excise Tax Activities), 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.

    2. 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. 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, Application for Registration (For Certain Excise Tax Activities), registration activity letter S. Position holders are generally liable for tax upon the removal of taxable fuel from the terminal rack.

    3. 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 any person that owns, operates, or otherwise controls 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, Application for Registration (For Certain Excise Tax Activities), registration activity letter S. A terminal operator may be jointly and severally liable for tax upon removal of taxable fuel from the terminal rack.

    4. 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).

    5. 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, Application for Registration (For Certain Excise Tax Activities), registration activity letter M.

    6. 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, Application for Registration (For Certain Excise Tax Activities), registration activity letter AL in order to claim an alternative fuel credit. Incentive credit provisions apply to certain other fuels including alternative fuel.

    7. Fuel Claim Examinations - Claim examinations are covered in IRM 4.24.8, Examination Guidance for Excise Claims for Refund or Abatement.

    8. Mislabeled Products - Taxable fuel may be mislabeled in any of the above described categories (a through g).

Fuel Excise Taxes

  1. Excise taxes are distinguished based on their activity code, commonly referred to as a tax abstract. There are two major groups of excise taxes, fuel related and non-fuel related taxes. The fuel related tax abstracts are briefly discussed below.

  2. Refer to IRM 4.24.1, Introduction to Excise Taxes, for information about non-fuel tax abstracts.

  3. Additional information relating to excise taxes may be found in Pub 510, Excise Taxes.

Gasoline, Including Aviation Gasoline and Gasoline Blendstocks (ABS 62 and 14)

  1. Tax is imposed on gasoline removals at the terminal rack, or events other than removal at the terminal rack (ABS 62).

  2. Tax is imposed on aviation gasoline removals from a refinery or terminal, or upon entry into the United States (ABS 14).

Diesel Fuel and Diesel-Water Fuel Emulsion (ABS 60 and 104)

  1. Tax is imposed on diesel fuel removals at the terminal rack, on events other than removals at the terminal rack (ABS 60).

  2. Tax is imposed on a diesel-water fuel emulsion removal at the terminal rack or other taxable event (ABS 104).

Kerosene, Including Kerosene Used in Aviation (ABS 35, 69, 77 and 111)

  1. Tax is imposed on kerosene removals at the terminal rack or events other than removals at the terminal rack (ABS 35).

  2. Tax is imposed on kerosene removed directly from a refinery or terminal into the fuel tank of an aircraft for use in noncommercial aviation (ABS 69).

  3. Tax is imposed on kerosene removed directly from a refinery or terminal into the fuel tank of an aircraft for use in commercial aviation, other than foreign trade (ABS 77).

  4. Tax is imposed on kerosene removed directly from a refinery or terminal into the fuel tank of an aircraft for nontaxable uses (ABS 111). This is also referenced under IRM 4.24.4.10.6, Leaking Underground Storage Tank Taxes (LUST), below.

Other Fuels - Including Alternative Fuels (ABS 112, 118, 121, 123, 124 and 79)

  1. 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:

    1. Liquefied petroleum gas (LPG) (ABS 112),

    2. "P Series" fuels (ABS118),

    3. Compressed natural gas (CNG) (ABS 120),

    4. Liquefied hydrogen (ABS 121),

    5. Fischer-Tropsch process liquid fuel derived from coal (including peat) (ABS 122),

    6. Liquid fuel derived from biomass (ABS 123), and

    7. Liquified natural gas (LNG) (ABS 124).

  2. Tax is imposed on ethanol produced from coal, methanol produced from coal, ethanol produced from natural gas, methanol produced from natural gas, B100 (100% biodiesel), liquefied gas derived from biomass, and other selected fuels when they are delivered into the fuel supply tank of a motor vehicle or motorboat (or trains for B100 - ABS 79 for the preceding products).

Fuels Used in Commercial Transportation on Inland Waterways

  1. 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).

Leaking Underground Storage Tank Taxes (LUST) (ABS 105, 107, 111 and 119)

  1. LUST taxes are generally imposed upon removals, entries, and sales of gasoline, diesel fuel, and kerosene described as exempt transactions as follows:

    1. dyed diesel fuel (ABS 105),

    2. dyed kerosene (ABS 107),

    3. kerosene for use in aviation, when kerosene removed directly from a terminal into the fuel tank of an aircraft for nontaxable uses (ABS 111), and

    4. other exempt removals, gasoline blendstocks, kerosene used for a feedstock purpose, and diesel or kerosene sold or used in Alaska (ABS 119).

    5. 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).

Any Liquid Fuel Used in a Fractional Ownership Program Aircraft (ABS 13)

  1. A surtax is imposed on fuel in a fractional ownership program aircraft (ABS 13). The surtax applies in addition to any other taxes imposed on the removal, entry, use, or sale of the fuel.

Credit Recapture Taxes Involving Fuels: Section 40 Fuels (ABS 51) and Biodiesel Sold as but Not Used as a Fuel (ABS 117)

  1. Tax is imposed (recaptured) on Section 40 fuels (ABS 51) if the second generation biofuel producer credit was claimed and any person later doesn’t use the fuel for the purposes described under Qualified Second Generation Biofuel Production in the instructions for Form 6478, Biofuel Producer Credit.

  2. Tax is imposed (recaptured) on biodiesel sold as but not used as a fuel (ABS 117) if the biodiesel or renewable diesel mixture credit was claimed and any person later:

    1. used the mixture or straight biodiesel or renewable diesel for a purpose other than fuel,

    2. separates the biodiesel or renewable diesel from the mixture,

    3. mixes the straight biodiesel or renewable diesel, or

    4. uses the agri-biodiesel on which the small agri-biodiesel producer credit was claimed for a use not described under "Qualified Agri-Biodiesel Production" in the instructions for Form 8864, Biodiesel and Renewable Diesel Fuels Credit.

Environmental Taxes Involving Fuels (ABS 18 and 21)

  1. Domestic petroleum oil spill tax (ABS 18) is imposed on crude oil received at a U.S. refinery and on domestic crude oil used in or exported from the United States.

    Note:

    The term crude oil includes crude oil condensates and natural gasoline. Natural gasoline is commonly used as a denaturant in the ethanol production process. If a prior imposition of the oil spill tax cannot be established, then the oil spill tax is imposed on natural gasoline when used as a denaturant in the ethanol production process.

  2. 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 term "petroleum product" includes crude oil.

Abnormal Fuel Referrals

  1. The excise examiner must conduct a follow-up examination or review whenever the 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 anywhere 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.

  2. Abnormal results are generally identified by the FCO or FCA within the territories as a result of Blitz operations. Blitz operations involve a high volume of fuel samples collected from a wide geographic area in a relatively short period of time. See IRM 4.24.15.8, Blitz Inspection Procedures, for more information on Blitz procedures.

  3. 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.

  4. The Audit Guides folder of the Notebook Library contains guidance relating to Blitz activities to assist with abnormal fuel cases.

Time Frames for Abnormal Fuel Referrals

  1. The EFL will inform the group manager about abnormal sample results within five (5) business days of receipt of the samples at the lab.

  2. If the EFL report identifies an abnormal sample during a Blitz operation and the results are received in a FCO group, the excise manager of the FCO group will immediately contact the excise manager of the appropriate group and transfer the inspection file and abnormal results for priority action.

  3. The group manager of the excise examiner 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.

  4. Within two (2) 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:

    1. the source of the fuel,

    2. if the owner of the fuel should be registered as a blender,

    3. if a follow-up fuel sample should be taken, and

    4. if any potential fuel tax liability exists.

    Note:

    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.

Conducting an Examination Based on an Abnormal Fuel Referral

  1. Abnormal fuel referral cases are to be controlled on ERCS using MFT B0, Activity Code 588 and Tracking Code 7583.

  2. Third party contacts may be necessary to verify purchases and sales. See IRM 4.11.57, Third Party Contacts, for more information.

  3. Form 637 excise compliance review procedures found in IRM 4.24.2, Excise Tax, Form 637 Excise Tax Registrations, are to be followed.

  4. 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 under MFT 03, Activity Code 060 and Tracking Code 7583.

  5. For taxpayers who have not filed a Form 720 , Quarterly Federal Excise Tax Return, the excise examiner will follow the SFR procedures found in IRM 4.24.6.10, Establishing Substitute for Return (SFR) Controls on Non-Filer Cases.

  6. See IRM 4.24.9.9 , IRC Section 7272 Penalty for Failure to Register, for more information regarding penalty case procedures.

  7. Abnormal fuel examination cases will follow the examination procedures found in IRM 4.24.6 , Technical Guidance and Information Processing for Excise Tax Examination Issues, and the report writing and case processing procedures found in IRM 4.24.20 , Excise Tax Report Writing Guide, and IRM 4.24.21 , Case Closings.

Investigative Sample Leads Identified During Normal Fuel Inspection Activities

  1. These leads are closely related to the Abnormal Fuel Referrals, as discussed in IRM 4.24.4.11, Abnormal Fuel Referrals. The potential technical issues and overall approach to working these leads are similar.

  2. These leads do not have similar time frames as specified for working abnormal fuel referrals. The group will assign and ensure these leads are worked as expeditiously as possible to determine the extent of any fuel non-compliance. See IRM 4.24.15.14 , Investigative Samples, for more information.

  3. 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 group manager. The group manager will forward the request to sample and analyze the questionable product to the Excise Tax Policy Program Manager before proceeding to collect any samples.

  4. Depending on the facts and circumstances developed during the investigation of the sample results, the Audit Guides in the Notebook Library should be utilized.