4.24.6 Technical Guidance and Procedures for Excise Issues

Manual Transmittal

August 05, 2014

Purpose

(1) Revised IRM 4.24.6, Excise Tax, Excise Tax Examiner Responsibilities.

(2) IRM section title changed to Technical Guidance and Procedures for Excise Issues to better reflect updated content.

Material Changes

(1) Significant Changes made throughout this section. Report writing and case processing content moved to IRM 4.24.10. Editorial changes have been made throughout this IRM to add clarity and consistency. Hyperlinks and IRM references were reviewed and updated as necessary. See table below for detailed list of changes made.

IRM Section Description of Change
4.24.6.1 Overview of Excise Tax Examiner Responsibilities Updated and expanded to include key excise IRM cites. Updated hyperlink.
4.24.6.2 Excise Issue Management System (IMS) Revised content to reflect changes made to IMS. New or content added at 4.24.6.2.1 through 4.24.6.2.9 to expand procedural guidance relating to IMS.
4.24.6.2.1 Lead Sheets and the Notebook Job Aid Content moved to 4.24.6.2.4 and updated for clarity. Title changes to Notebook Job Aid.
4.24.6.2.2 IMS Time Reporting Content moved to 4.24.6.2.7 and 4.24.6.2.9 and updated for clarity.
4.24.6.3 Mandatory Administrative Forms For Revenue Agent Examinations Title changed to Mandatory Administrative Forms. Table created listing each form and specific IRM subsection. New or updated content found in subsections 4.24.6.3.1 through 4.24.6.3.12 which discuss in detail the forms and their use.
4.24.6.3.1 A105 Administrative Check Sheet Updated and expanded to include PDT and CUC guidance.
4.24.6.3.1.1 Pre-Audit Issues Collectibility Content moved to 4.24.6.3.1.2 and updated to reflect role of PSPWIC with regards to collectibility indicators. Retitled Processing Power of Attorney (POA) and new content added.
4.24.6.3.1.2 Specialist Referral System Content moved to 4.24.6.4.
4.24.6.3.1.2.1 International Case Referrals for Foreign Insurance Excise Tax Content moved to 4.24.6.9.1.1 and procedures updated. Added hyperlink.
4.24.6.3.1.3 Extending the Period of Limitations for Assessment of Tax Content moved to 4.24.6.3.12 and updated to include Form 895 procedures and new Form 872-EX procedures.
4.24.6.3.1.3.1 Extending the Period of Limitations for Form 720-TO and Form 720-CS Information Reports Content moved to 4.24.6.3.12 and revised.
4.24.6.3.1.3.2 Extending the Period of Limitations to Assess Air Transportation Taxes Content moved to 4.24.6.3.12.1 and updated.
4.24.6.3.1.3.3 Extending the Period of Limitations to Assess Communications Taxes Content moved to 4.24.6.3.12.2 and updated.
4.24.6.3.1.3.4 Six Year Period of Assessment under IRC 6501(e)(3) for Substantial Omissions of Excise Taxes Content moved to 4.24.6.3.12.3.
4.24.6.3.1.4 Issue Resolution and Risk Analysis Content moved to 4.24.6.3.8.1 and subsection retitled to Risk Analysis.
4.24.6.3.1.5 Third Party Contacts Content moved to 4.24.6.5 and updated notification procedures.
4.24.6.3.1.6 Inadequate Records Notice Content moved to 4.24.6.6.
4.24.6.3.2 A110 Excise Tax Plan to Close Check Sheet Updated for clarity.
4.24.6.3.3 A115 Group Manager Concurrence Meeting (GMCM) Check Sheet Updated to allow 30 business days for GMCM. Incorporated content from SBSE Exam IGM SBSE-04-1213-0098.
4.24.6.3.4 A120 Initial Appointment Check Sheet Updated for clarity.
4.24.6.3.5 A125 Initial Interview Questions and Notes Updated for clarity. Include information on tour of business at 4.24.6.3.5.1.
4.24.6.3.6 B200-1 Multi-Period and Related Returns Check Sheet and B200-2 FET Check Sheet Retitled to required Filing Checks (RFC). Added new content at 4.24.6.3.6.1 titled Exam Information Reports.
4.24.6.3.7 C300 Books to Returns Reconciliation Check Sheet Added hyperlink to books to return job aid.
4.24.6.3.8 C305 Internal Controls Check Sheet Title changed to C305 Internal Controls. New content added at 4.24.6.3.8.1 titled Risk Analysis.
4.24.6.3.9 C310 Fraud Awareness Check Sheet Updated fraud procedures. New content added at 4.24.6.3.9.1 titled Suspicious Activity Reports (SAR).
4.24.6.3.10 E500 Penalty Check Sheet and Managerial Approval for Penalty Assessments Content moved to 4.24.6.3.11. Section retitled D400 Initial Taxpayer Contact Sheet and new content added.
4.24.6.4 Case File Documentation Content moved to 4.24.6.2.7 and updated.
4.24.6.5 Conversion of QuickBooks Accounting Software Content moved to 4.24.6.7.
4.24.6.6 Source Codes, Examination Activity Codes, Project and Tracking Codes Content moved to 4.24.6.8 and updated for clarity.
4.24.6.6.1 Use of Excise Project and Tracking Codes Content moved to 4.24.6.8.1 and updated to reflect current PSPWIC procedures. Add requirement to verify project codes on all ACA case work.
4.24.6.6.2 Excise Lead Feedback Form Obsolete as now incorporated into IMS. IGM 04-0813-0070 is obsolete.
4.24.6.7 Procedural Guidance for Certain Types of Excise Examinations Content moved to 4.24.6.9.
4.24.6.7.1 Excise Examinations with International Issues Content moved to 4.24.6.9.1.
4.24.6.7.2 Excise Examinations of Federal Agencies Content moved to 4.24.6.9.2.
4.24.6.7.3 Excise Examinations with Wagering Issues Content moved to 4.24.6.9.3 and updated to reflect Collection ATAT procedures.
4.24.6.7.4 Excise Examinations Relating to Facilities and Services Taxes Under IRC 4251, 4261 and 4271 Content moved to 4.24.6.9.4..
4.24.6.7.5 Excise Examinations of an Air Collector for Taxes Imposed Under IRC 4261 Content moved to 4.24.6.9.5.
4.24.6.7.6 Direct Assessment Procedures Under IRC 4251, 4261, and 4271 Content moved to 4.24.6.9.6 and updated to reflect changes made to Letter 898.
4.24.6.7.7 Excise Examinations Relating to Structured Settlement Factoring Transactions Content moved to 4.24.6.9.7.
4.24.6.7.7.1 Examples of Closing Procedures for Excise Tax on Structured Settlement Factoring Transactions Content moved to 4.24.6.9.7.1.
4.24.6.7.7.2 Disposal Codes for Excise Tax Cases on Structured Settlement Factoring Transactions Content moved to 4.24.6.9.7.2.
4.24.6.7.8 Product Testing Procedures for Ozone Depleting Chemicals (ODCs) Content moved to 4.24.6.9.8.
4.24.6.7.9 Executing Blanket Export Exemption Certificates Content moved to 4.24.6.9.9.
4.24.6.7.10 Jeopardy Assessment Transferor/Transferee Cases Content moved to 4.24.6.9.10.
NEW 4.24.6.9.11 Procedural Guidance Relating to Doubt as to Liability (DATL), Offer in Compromise Cases New content added per SBSE-04-0813-0071.
4.24.6.8 Processing of Excise Substitutes for Return Relevant content moved to 4.24.10 since related to case processing procedures. This includes procedural guidance found in Interim Guidance memos SBSE-04-1013-0085 and SBSE 04-1013-0086.
4.24.6.9 Overview of SFR Action on Non-Filer Cases Content moved to 4.24.6.10 and retitled as Establishing SFR Controls on Non-Filer Cases.
4.24.6.9.1 Examples of SFR Action on Non-Filer Cases Relevant content moved to 4.24.10 since related to case processing procedures.
4.24.6.10 Substitute for Return (SFR) No Examination Action Taken Relevant content moved to 4.24.10 since related to case processing procedures. Retitled to Establishing SFR Controls on Non-Filer Cases. Content from 4.24.6.9 moved here and updated.
4.24.6.11 Delinquent Return No-Examination Action Taken No Changes made.
4.24.6.11.1 Processing of Excise Delinquent Returns Secured by Compliance Examination Relevant content moved to 4.24.10 since related to case processing procedures.
4.24.6.12 Procedures for Securing Memorandums of Understanding (MOU) for Joint Audits Between IRS and State Taxing Agencies Content moved to 4.24.6.14. Section retitled to Reopening a Disposal Code 36 Case. Content added relating to reopening criteria for SFR cases.
4.24.6.13 Requesting Excise Subject Matter Expert (SME) Assistance Content moved to 4.24.6.15. Section retitled to Excise Program Memorandums of Understanding (MOU) and new content added relating to MOU with Excise Program. Deleted mailing address information as all MOU to be submitted via e-mail.
4.24.6.13.1 Coordinated Excise Issues Content moved to 4.24.6.15.1.
4.24.6.13.2 Coordination of Excise Technical Advice and Guidance Content moved to 4.24.6.15.2.
4.24.6.13.3 Excise Technical Advise Memorandum Procedures Content moved to 4.24.6.15.3.
NEW 4.24.6.16 Executive Order Prohibiting Texting While Driving New content added.
Exhibit 4.24.6-1 Statute of Limitations Chart Updated note relating to Form 2290 due date and statute.

Effect on Other Documents

This material supersedes IRM 4.24.6, dated 10-07-2011. This updated IRM section includes procedural guidance found in the following Interim Guidance Memos; SBSE 04-1213-0098, Reissue Interim Guidance on Group Manager Concurrence Meeting (GMCM) Requirements dated 12-18-2013. Please note this is an SBSE Exam wide memo and should remain in force until the Exam IRM is updated. This updated IRM section includes procedural guidance found in SBSE 04-0813-0071, Excise Field Exam Procedural Guidance Relating to Doubt as to Liability, Offer in Compromise Cases, dated 8-23-2013. This guidance was originally scheduled to be incorporated into IRM 4.24.10. Due to the nature of the guidance, this memo is incorporated into this IRM section. Guidance relating to the Excise Lead Feedback Form has been removed from this IRM section and as a result Interim Guidance Memo SBSE 04-0813-0070, Completion of Excise Lead Feedback Form is no longer necessary. Procedural guidance found in the following Interim Guidance Memos, SBSE 04-1013-0085, Reissue Interim Guidance Procedures for Closing No Liability Substitute for Return (SFR) Non-Filer Cases dated 10-21-2013 and SBSE 04-1013-0086, Reissue Additional Interim Guidance Procedures for Closing No Liability Substitute for Return (SFR) Non-Filer Cases dated 10-21-2013 that originally indicated would be incorporated in to this IRM section will now be incorporated into IRM 4.24.10.

Audience

This section is for SBSE Excise Managers, Excise Tax Examiners, and Specialists.

Effective Date

(08-05-2014)



/s/ John H Imhoff Jr.
Director, Specialty Programs
Small Business/Self Employed

Overview of Excise Examiner Responsibilities

  1. This section provides general excise tax examination procedural guidance and examination procedures specific to certain types of excise examinations.

  2. The procedures found in IRM 4.10 Examination of Returns shall apply to excise examiners (referred throughout this IRM to include both excise revenue agents and excise fuel compliance agents) and their managers unless otherwise noted in IRM 4.24 Excise Tax.

  3. See IRM 4.24.4, Excise Fuel Taxes Workload, Policies and Procedures for fuel related examination procedures.

  4. See IRM 4.24.8, Examination Guidance for Excise Claims for Refund or Abatement for claim procedures.

  5. See IRM 4.24.17, Excise Summary Terminal Activity Reporting System (ExSTARS) Compliance Examination Procedures for ExSTARS procedures.

  6. The Excise Issues and Procedures section on the Examining Excise Taxes web page located at http://mysbse.web.irs.gov/Specialty/excise/issues/default.aspx contains guidance, procedures, law and regulations on a wide variety of excise related audit issues.

Excise Issue Management System (IMS)

  1. Issue Management System (IMS) is a computer-based system that is used to manage the excise examiner’s workload and complete timekeeping for all excise tax case workload. IMS is designed to retain examination information in a centralized location on the IMS Server.

  2. Excise examiners are required to utilize IMS and the Notebook Job Aid, which contains a standard library of excise tax forms, letters, lead sheets and templates, many which will pre-populate with the text entered. The Notebook Job Aid is used to generate lead sheets, workpapers, reports, letters, and some closing forms (if not generated by IMS), which are organized in a logical manner for import to IMS into the applicable Entity issue being worked.

    Note:

    Excise examiners will be required to periodically update their Notebook Job Aid when new or updated library information becomes available.

  3. Job Aids and other IMS related guidance may be found at the IMS Team web page on the Examining Excise Taxes website at http://mysbse.web.irs.gov/Specialty/excise/prog/imsnotebook/default.aspx

  4. Refer to IRM 4.24 sections 13 through 16 for specific IMS guidance relating to fuel compliance inspections.

  5. Information is uploaded to the IMS Server through synchronizations. See IRM 4.24.6.2.9 for synchronization procedures.

  6. IMS is an issue driven system that consist of three parts:

    • The IMS Client (application resides on the excise examiners laptop or desktop computer)

    • IMS Team Web site

    • Issue Based Management Information System (IBMIS) which is the reporting component used by management.

  7. The IMS Client will be used by the excise examiner to:

    • Set up and perform their duties from an ordered checklist.

    • Complete and store case results and workpapers for various taxpayers.

    • Scan in documents received while in the field.

    • Account for their direct and indirect time.

  8. Excise employees should use the Activity Code that Policy has specified when problems using IMS and/or Notebook result in a loss in productivity caused by time spent on non-case related activities. The following requirements must be met before charging time to report this activity.

    1. A help ticket has been submitted and remains open.

    2. The excise examiner is actively engaged in fixing the problem or issue.

    3. The help ticket number is annotated in the Comments section of the Activity Record for the time charge.

Creating a Case in IMS Client

  1. A new case can be created in IMS through the Examination Returns Control System (ERCS) Case Inventory or through a manual case entry.

  2. IMS has features that allow the user to customize the information that is displayed on several of the screens. Once the screen is customized, IMS will show the information for all cases in that format. Refer to the IMS Job Aid User Guide, Customizing Grids in IMS, section for more information.

IMS Case Menu at the Team Website
  1. The IMS case menu consists of the following:

    1. Case Attributes- enter Team Manager, Cycle, Begin Year, and Cycle End Year information.

    2. Case Entities- contain the case and period. May add additional quarters/returns, etc. to get those returns on IMS before they are established on ERCS.

    3. Team Members- input contact information which will self-populate forms and letters.

    4. Issues- create administrative and case issue and where all mandatory administrative forms and case workpapers are maintained.

    5. Feedback Forms- where case feed back information is entered.

    6. Useful Links -links to internet websites for research.

Case Level Activities Requirements
  1. Excise managers and support staff (for example Form 637 Registration Group personnel) shall document case actions on Case Level Activities.

    Note:

    For all IMS cases except 637 cases, the group manager may use the Case Comments feature of the IMS Timesheet, found in the IMS Client.

IMS Case Documents Menu at IMS Team Web Site
  1. IMS case documents consist of:

    1. Information Document Requests (IDR Documents)

    2. Workpaper Documents

    3. Form 5344 Documents

    4. Form 5351 Documents

    5. Form 8278 Documents

IMS Client Entities – Related Returns

  1. The Entities section of the case is used to show the returns in the case.

    1. By default in IMS, this screen will initially show returns without an Actual Closed Date on the return.

    2. The Entities Screen is where the excise examiner can add additional quarters/returns to the IMS case file, create ERCS update forms, and export taxpayer data from IMS into the Notebook to be used to set up workpapers and prepare reports.

  2. The Return section of the case is used to view all returns in a case.

    1. This screen shows all related returns in a case – even those with an Actual Closed Date.

    2. From this screen the examiner will generate the closing documents for each return included in the IMS case.

IMS Client Team Members and Taxpayer Contacts

  1. The IRS Team Members screen is used to add, edit, and remove Team Members from the case. While IRS Team Members can be added here, Team Coordinator permissions are not automatically given to IRS Team Members. These permissions may be granted to each Team Member as appropriate. Team Coordinator Permissions are managed from the Case Attributes screen. These permissions may be granted to each Team Member as appropriate, by either the Primary Team Coordinator or the Team Manager.

  2. The Taxpayer Contacts portion of IMS is where authorized company personnel and taxpayer representatives (POA) contact information is added. The contact information will be displayed on the Form 9984, Examining Officer’s Activity Record. Only one contact can be listed on the Form 9984 as the taxpayer and the taxpayer’s Power of Attorney.

Administrative Issue Subfolders in the IMS Client Record

  1. IMS automatically creates an excise administrative issue labeled EX080 for every excise IMS case. Within the administrative issue folder there are five additional folders:

    1. Tax Return Data: Limited to return information such as scanned returns.

    2. Admin Forms: Mandatory Forms and Lead Sheets, Correspondence, other Examination Workpapers, and Documents and Information provided by the taxpayer. This also would include forms that relate to disputed or unagreed issues.

      Note:

      All lead sheets and workpapers from Notebook should be uploaded to IMS at the beginning of the examination and worked on in IMS.

    3. Closing Data: Upload all Notebook closing documents and report forms, and any other case closing data files as appropriate. See the Notebook folder "Deployed Form/TP/Report Forms" .

    4. Correspondence: Sent to and received from the taxpayer.

    5. 637 Data: Contains information relating to Form 637 registrations if applicable.

    Note:

    An existing administrative file from outside IMS such as an .xls, doc., or pdf. file can be uploaded into EX080 administrative issue folder.

Notebook Job Aid

  1. The Notebook Job Aid is used by excise examiners to generate mandatory administrative forms , lead sheets, reports, letters, and closing forms.

  2. The Notebook Job Aid which is to be utilized in all excise case work contains a standard library of:

    • excise tax forms

    • letters

    • mandatory and discretionary administrative forms

    • lead sheets

    • templates

    and pre-populates many of the headers and footers with the text entered. These documents are also organized in a logical manner so that they can easily be imported in IMS into the applicable Entity issue being worked by the excise examiner.

  3. Forms and letters found in the Notebook will be updated quarterly or as needed. Excise examiners need to open the Notebook Update Manager and select on the Update Forms Library, Update Notebook Front End, the Update Administrative Features and then select on Perform Notebook Updates. Once update is complete the excise examiner needs to open the Notebook and verify Notebook version number is correct.

Standard Audit Index Number (SAIN) Codes

  1. Issues identified in the "Entity/Returns Issues" are classified in two ways:

    • Administrative Issue (EX080), and

    • Entity/Return Issues (Classified Issues for Issue Tracking and Feedback Form purposes). Time is only charged to the one Entity/Return established SAIN based issue.

  2. Generally, the SAIN relates to how an issue is reported on a return. Each Excise SAIN issue begins with EX and represents the IRS number or CRN listed on excise tax forms such as the Form 720.

  3. All returns must have an Administrative Issue (EX080) which is created automatically as a case issue created for the return.

  4. Administrative and Entity/Return Issues will be established for the Team Coordinator and/or assigned to other team members. From the Add Issue screen, select the team member to be assigned to the issue from the drop-down list. IMS defaults to the user adding the issue and can be changed by clicking the drop-down list and selecting and assigning a different Team Member on the case.

Establishing Issue Open and Close Dates in IMS Client

  1. A case may have multiple entities and each entity or return can close at a different time. There are two types of "Actual Closed Dates" -one date for the case and another date for each entity on the case. For the return that has been closed, the excise examiner will close the Entity/Return on the “Edit Entity” screen.

  2. A Form 5344 is required to be generated before most excise tax cases can be closed. Refer to the current excise IMS Job Aids for more information.

    Note:

    Depending on the MFT on the Entity/Return, different types of closing forms may be required to be completed before the status of an IMS case file can be changed to Closed.

Time Sheet and Form 9984 Examining Officer’s Activity Record in IMS Client

  1. The Time Sheet window allows the IMS user to enter the various categories of time applied. Time may be entered as direct examination time or below the line time.

    Note:

    Time can be in increments of 0.3 = 15 minutes, 0.5 = 30 minutes 0.7 = 45 minutes, or in hourly increments.

  2. The Form 9984 is used to document each action taken on the Entity/Return issues. Documentation should include the date, location, time charged, and an explanation of each activity or contact. The activity record should provide a complete and concise case history. Recordation of events should be made by examiners or other employees responsible for activity on the case as warranted (e.g., group managers, engineers, clerical staff, team members, actions taken by group secretaries, etc.)

    Note:

    Entries on Form 9984 should not be so brief as to be meaningless such as "worked on case" .

  3. The excise examiner should include information recorded on Form 9984 such as but not limited to:

    • All substantive actions taken on the issues. Meaningful action should occur at least every 45 days.

    • Reason for all delays and time gaps.

    • The examination start date.

    • The appointment letter mailing date.

      Note:

      Group manager approval is required in order to schedule an initial interview appointment beyond 45 days of first action.

    • Document when the taxpayer was provided Pub 1, Your Rights As A Taxpayer, and Notice 609, Privacy Act and Paperwork Reduction Act Notice upon initial contact. The excise examiner should also document discussions with the taxpayer regarding their rights.

    • Work performed prior to, during, and subsequent to taxpayer contact.

    • Outline all research activities conducted.

    • Significant travel time to and from audit location.

    • If a tour or site visit of the taxpayers business or real property was conducted.

    • Brief summaries of telephone conversations. However, lengthy telephone conversation notes need to be documented as a case workpaper and imported.

    • All contacts with taxpayers, representatives, and third parties.

    • Causes for any delays by the Service (training, details, etc.), the taxpayer, and/or representative. Excise examiners must ensure that they have notated and explained any delays, causes of delays, and whether or not delays were communicated to any of the affected parties (explain any lack of communication).

    • When collateral requests and referrals are made, accepted, when work begins, and when progress reports are received.

    • All actions with respect to the statute of limitations (e.g., verification, steps to protect the statute of limitation, Form 895 completion date(s), and consents to extend) should be fully documented in the Form 9984.

    • Date the report was issued and the signed report received date. Confirm a Pub 3498, The Examination Process was issued if required in order to close the case.

    • Date when the excise examiner notified the taxpayer of their recommendation to close the examination as a No Change, when appropriate.

    • Dates the examination was closed to the group manager.

  4. Documentation of group manager involvement such as but not limited to:

    • Formal and informal discussions,

    • in-process case reviews,

    • on-the-job visitations and workload reviews,

    • plan to close meetings,

    • fraud awareness discussions,

    • approval regarding penalty assessments/abatements, etc.)

    • date case closed by the group manager and or group secretary.

    Note:

    Group managers may use the Case Level Activities feature under the Case Menu at the left on the IMS Team Website. For all IMS cases except 637 cases, the group manager may also use the Case Comments feature of the Timesheet, found in the IMS Client, which will be posted on the Managers Examining Officers Activity Record. the group manager should be consistent and use one method or the other for each case.

  5. The Team Coordinator may view copies of other team members' (other examiners assigned to the case, etc.) Forms 9984, at the IMS Team Website.

Uploading Documents

  1. In IMS, workpapers are issue specific and can be created in IMS or they can be uploaded from previously created files.

  2. Workpapers can also be added to either an open or closed case file at the team website.

  3. For additional workpaper upload and sorting instructions refer to the IMS Job Aid User Guide located on IMS web page of Examining Excise taxes website.

IMS Synchronizations

  1. Synchronization is the process of transferring specific material to/from the excise examiner’s computer and the IMS Server. Once the synchronization is complete, any material synchronized on the excise examiner’s computer will be identical to the material on the IMS Server. There are five types of synchronizations performed in IMS:

    • Summary,

    • Examination Returns Control System (ERCS),

      Note:

      This may be changing in the future because this sync is now performed automatically when the user opens IMS and connects to the server.

    • Case,

    • Timesheet, and

    • Reminder.

  2. Summary − A Summary Synchronization downloads basic case information for all cases for which the user is a team member or manager.

  3. ERCS − An ERCS Synchronization will download return data assigned to the user in ERCS. IMS receives a download from ERCS nightly.

    1. ERCS changes made in IMS will not appear in ERCS. If information from ERCS is incorrect, the excise examiner should complete Form 5348, AIMS/ERCS Update, to change the data on ERCS. A new ERCS record will then be created and will be downloaded through ERCS synchronization.

    2. If the recorded Taxpayer Identification Number (TIN) is incorrect in ERCS, the excise examiner must complete Form 5351, Examination Non-Examined Closings, to dispose of the wrong record on ERCS. Excise examiners can also establish a new record on ERCS with the correct TIN using Form 5345-D, Examination Request − ERCS (Examination Return Control System Users).

  4. Case - Case Synchronization allows the excise examiner to ensure that all uploaded work is saved to the IMS Server in the event of computer failure. Case specific information includes

    • Issues,

    • Information Document Requests (IDRs),

    • Workpapers

    • Case returns

    • Case closing records such as Form 5344, 5351, and/or 8278

    • Team members (both IRS and taxpayer contacts

    and should be uploaded and downloaded using the Case Synchronization process.

  5. Timesheet − The IMS timekeeping system will track time charged to an issue, miscellaneous direct examination time (MDET), and below-the-line (BTL) time. To input time on a return, the excise examiner must have created issues for the return. All direct examination time applied on IMS is by Standard Audit Index Number (SAIN).

    1. The time needs to be on the IMS Server by Thursday at 8:00 PM EST.

    2. The excise examiner user must synchronize their timesheet at least once a week (usually Thursday).

    3. The need to synchronize time more than once a cycle will be at the discretion of management.

    Note:

    Time entered in IMS and not entered in ERCS will transfer. Corrected time does not transfer from IMS to ERCS after time for that period has been synched and transferred. The excise examiner must communicate any timesheet correction made to a time charge in IMS that has transferred to ERCS with their timekeeper.

  6. Reminder-The Reminder Synchronization menu is located on the IMS Toolbar. Users may view, edit, add, delete, activate, or deactivate reminders. Others cannot view the excise examiner's reminders. IMS also generates system reminders. The excise examiner should run a Reminder Synchronization to view the IMS generated reminders.

Mandatory Administrative Forms

  1. Mandatory Administrative Forms are generated in the Notebook by the excise examiner and then imported into IMS as workpapers.

  2. These Administrative Forms will have information pre-populated with the common fields captured during the setup of a Taxpayer and User Details in the Notebook.

  3. The following table lists the excise examination Mandatory Administrative Forms deployed by the Notebook.

    Index Number Check Sheet Title IRM Cite
    A105 Administrative 4.24.6.3.1
    A110 Excise Tax Plan to Close 4.24.6.3.2
    A115 Group Manager Concurrence Meeting 4.24.6.3.3
    A120 Initial Appointment 4.24.6.3.4
    A125 Initial Interview Questions and Notes (including tour of business notes) 4.24.6.3.5
    B200-1 Multi Period and Related Returns 4.24.6.3.6
    B200-2 FET Checksheet 4.24.6.3.6
    C300 Books to Returns Reconciliation 4.24.6.3.7
    C305 Internal Controls 4.24.6.3.8
    C310 Fraud Awareness 4.24.6.3.9
    D400 Initial Taxpayer Contact Check Sheet 4.24.6.3.10
    E500 Penalty Check Sheet 4.24.6.3.11

    Note:

    Check boxes are found on several of these forms which serve many purposes such as a reminder or an action(s) completion list. Checking a box does not necessarily mean comments and workpapers are not required.

  4. There are additional Mandatory Administrative Forms required for use in other case workload types. Refer to the table below for more information:

    Workload Type IRM Section
    Fuel Compliance Officer Inspections 4.24.13 through 16
    Coordinated Industry Examinations 4.24.5, Large Business and International (LB& I) Examination Program Procedures for Excise Employees
    Form 637 Registration Cases 4.24.2, Form 637 Excise Tax Registrations
    ExSTARS Compliance Examinations 4.24.17, Excise Summary Terminal Activity Reporting System (ExSTARS) Compliance Examination Procedures

A105 Administrative Check Sheet

  1. The purpose of the A105 is to provide a set of administrative guidelines for tasks that may arise during the examination. The examiner will complete the following portions of the A105 by addressing the following areas:

    1. Pre-Audit Issues, including Collectibility. See IRM 4.10.2, Examination of Returns, Pre-contact Responsibilities and IRM 4.24.6.3.1.2 .

    2. 637 Registration information if applicable. See IRM 4.24.2.

    3. Power of Attorney. See IRM 4.24.6.3.1.1.

    4. Initial taxpayer contact. See IRM 4.24.6.3.10.

    5. Initial appointment. See IRM 4.24.6.3.4.

    6. Referrals. See IRM 4.24.6.3.6.1.

    7. Statute of limitations. See IRM 4.24.6.3.12.

    8. Issue resolution and risk analysis. See IRM 4.24.6.3.8.1.

    9. Payment. See IRM 4.24.10.6 and IRM 4.20.3 for the tiered interview and levy procedures.

    10. Additional procedural items including Third Party Contacts, Inadequate Records Notice, and conversion of QuickBook accounting software. See IRM 4.24.6.5, 4.24.6.6, and 4.24.6.7.

  2. Excise examiners need to be aware of the Potentially Dangerous Taxpayer (PDT) and Caution Upon Contact (CAU) programs. Refer to IRM 25.4, Employee Protection for more information regarding PDT and CAU.

Processing Power of Attorney (POA)
  1. The excise examiner should check Centralized Authorization File Inquiry Command Code CFINK to determine if a Power of Attorney (POA) exists for the taxpayer and for which periods. The box should be checked on the A105 and noted on Form 9984.

  2. The excise examiner will process the Form 2848, Power of Attorney and Declaration of Representative within five (5) days of receipt. Any delays should be documented. If the POA is not properly executed it must be returned to the taxpayer for corrections.

  3. The excise examiner will check CFINK to make sure the POA was processed.

  4. See IRM 4.11.55.1.8.2 for additional procedural guidance.

Pre-Audit Issues- Collectibility
  1. Collectibility factors are utilized by Excise Planning and Special Projects Workload Identification and Classification (PSPWIC) to determine if a case should be selected for examination. Cases selected for field examination that have known collectibility issues will be identified on the Classification Checksheet included in the case file. The Classification Checksheet will also document how the collectibility problem was overcome (with PSPWIC Management support) to justify case selection for field examination.

  2. To lessen the size of unpaid assessments and increase the quality of assessments, excise examiners should consider collectibility when setting the scope of an examination. Collectibility will be based on today’s financial condition and not the tax return (which reflects the taxpayer’s past financial condition). Excise examiners are required to document their evaluation of collectibility during the preplanning phase of the examination using 105, Administrative Check Sheet.

  3. See IRM 4.20.2.2, General Collectibility Considerations, for a listing and definition of collectibility indicators, and steps to take when evaluating collectibility potential during the pre-planning phase.

  4. The excise examiner should request an Audit Information Management System (AIMS) Command Code AMDIS with definer A print which will display collectibility indicators such as:

    • BANKRUPTCY – Taxpayer is currently in bankruptcy or bankruptcy discharge in a prior period,

    • CURNOTCOLL - Prior period was closed as Currently Not Collectible,

    • COLLSTCD26 - Open Collection status (i.e. assigned to Revenue Officer, Automated Collection, or is in Collection queue),

    • Offer-In-Compromise (OIC)Pending.

  5. If collectibility indicators are present or there are reasons to believe that the taxpayer has liabilities outstanding for other tax periods, Integrated Data Retrieval System (IDRS) Command Codes SUMRY, IMFOLI or BMFOLI should be obtained. This will provide a list of any previous tax periods with account balances. A IDRS Command Code TXMOD can then be obtained on those years to determine account activity. If Transaction Code 480 is present on any of the modules, an Offer in Compromise is under consideration. The group and employee number of the revenue officer charged with the account will also be reflected on the TXMOD.

  6. Not all taxpayers lacking the means to satisfy additional tax liabilities will be identified. Excise examiners should be alert for indications in the file that collectibility may be a factor to consider; i.e., the taxpayer is deceased or the taxpayer is a defunct corporation and the issue of transferee liability is not present. Form 9439, Collectibility Evaluation Form may be used to help document collectibility.

  7. If collectibility is an issue in an assigned case, the group manager should be alerted as soon as the issue is discovered. Managers will make the final determination whether to survey the return or to limit the scope/depth of an examination. A tax return may be surveyed due to an absolutely uncollectible assessment or subjected to a limited scope examination where there is lack of collectibility.

  8. It should be emphasized, however, that returns should not be surveyed based solely on collectibility when a limited examination has the potential for developing leads to other non-compliant taxpayers or for cases involving fraud or special cases referred by Counsel.

A110 Excise Tax Plan to Close Check Sheet

  1. The excise examiner will use the A110 as a guide for the exam planning phase. The A110 is a summary sheet of reminders to complete as part of the entire audit process.

  2. The A110 ensures the excise examiner:

    • Is focused on a plan to close.

    • Is organized.

    • Know the next steps that need to be completed.

    • Completes each step before proceeding to the next one.

    • Is prepared to go to the next step.

  3. The A110 consists of the following steps:

    • Review the case built file.

    • Develop the audit plan.

    • Establish initial taxpayer contact.

    • Import, prepare, and mail approved taxpayer appointment letter and initial IDR.

      Note:

      Generally when a call back appointment letter is used on a field examination case, the IDR should not be mailed until the appointment confirmation letter is sent to the taxpayer. See IRM 4.10.2.7.4.2(3). See IRM 4.24.6.3.4(5) for exception for International excise examination cases.

    • Conduct the initial appointment within 45 business days of initial contact.

    • Obtain GM audit plan concurrence within 30 business days after initial appointment if case not closed.

A115 Group Manager Concurrence Meeting (GMCM) Check Sheet

  1. Within thirty (30) business days after the initial meeting with the taxpayer or the first receipt of information from the taxpayer in correspondence cases, the excise examiner and their manager will hold a discussion covering the following:

    • The initial appointment meeting with the taxpayer and reasonableness of the Mutual Commitment Date (MCD) established.

    • Accomplishments and planned actions for completing the case.

    • Issues currently identified.

    • Location of the audit work.

    • Concerns or barriers to closing the case.

    Note:

    In situations where it takes more that one meeting with the taxpayer to complete the planning tasks, the GMCM should be scheduled 30 business days after the completion of those tasks, which may not necessarily be after the initial meeting with the taxpayer.

  2. GMCM are required for all excise examiners GS-12 and below.

  3. GS-13 excise examiners are encouraged to utilize a GMCM process in order to provide updates on cases and obtain guidance from managers.

  4. In situations where the thirty (30) business day requirement cannot be met, reasons for the delay must be documented. Only in rare circumstances should the meeting occur prior to the initial meeting with the taxpayer or the initial receipt of information from the taxpayer.

  5. Group managers are to acknowledge completion of the GMCM by initialing and dating the A115.

  6. See IRM 1.4.40.7.6 Group Manager Concurrence Meeting (GMCM) for Field Examination for more information.

    Note:

    If the case is closed to the manager within 30 business days of the initial appointment, a GMCM is not required.

A120 Initial Appointment Check Sheet

  1. The A120 provides guidance in conducting the initial contact with the taxpayer.

  2. Initial contact procedures found in IRM 4.10.2.7 Initial Contact: Overview apply.

  3. When the initial contact is made by telephone, the excise examiner will immediately identify themselves, provide their identification number, state the purpose of the call, and provide their telephone number.

  4. Generally, initial appointments for field examinations should be scheduled using telephone contact and a confirmation letter. This will allow the excise examiner to schedule the initial appointment at an appropriate time, which is agreeable to the taxpayer/POA and reduce the number of rescheduled appointments.

  5. Initial contact by telephone may be impractical for excise International examinations due to time zone, language and culture in foreign countries. The excise examiner may issue Letter 2205-A Initial Contact Letter, and IDR where warranted.

  6. During the initial contact by telephone or in person, the excise examiner will explain/discuss the taxpayers rights as outlined in Pub 1,Your Rights as a Taxpayer and answer any questions the taxpayer may have concerning their rights.

  7. The excise examiner must explain to the taxpayer what records should be available for the examination during the initial contact. If the taxpayer volunteers information during this initial contact concerning audit issues, the excise examiner should document the discussion.

  8. When the initial appointment is made by telephone, a follow-up Letter 3253, Taxpayer Appointment Confirmation Letter, and/or Letter 3254, Representative Appointment Confirmation Letter, will be mailed to the taxpayer/POA confirming the time/place of the examination and the records which are to be available and include the following enclosures:

    • Pub 1

    • Notice 609, Privacy Act Notice

    • Form 4564, Information Document Request

  9. When the excise examiner has been assigned an International excise examination or is unable to make initial contact by due to factors outside of their control, Letter 2205-A, Initial Contact Letter, is used to request the taxpayer call and schedule an appointment.

  10. If the taxpayer fails to respond to Letter 2205-A, the excise examiner must determine why the taxpayer is not responding and will reissue the appointment letter as registered return receipt requested. Refer to IRM 4.10.2.7.2.1Undeliverable Initial Contact Letters for additional guidance.

  11. The excise examiner will develop and document a Mutual Commitment Date (MCD)with the taxpayer during the first appointment.

    Note:

    If date is later changed by more than 30 days, the excise examiner must discuss new date with the group manager and the taxpayer.

A125 Initial Interview Questions and Notes

  1. Interviews provide information about the taxpayers financial history, business operations, and books and records that are not available from other sources. Interview questions are planned to address items specific to the taxpayer under examination. The type of return and relevant facts and circumstances need to be considered in the interview plan.

  2. Interviews should be documented in sufficient depth to give a clear understanding of the taxpayer and the taxpayer's operations and in sufficient detail so that no unanswered questions remain.

  3. Interviews should obtain information needed to make informed judgments about the scope and depth of the examination and correctly resolve issues.

  4. Interviews will be documented on A125. Questions that are specific to the abstracts should be incorporated into the A125. Complete abstract questionnaires can be found in the Notebook Job Aid forms library.

    Note:

    The completion of the A125 does not necessarily constitute a complete interview.

  5. Appropriate follow up questions should be asked. The person interviewed should have sufficient knowledge to answer questions.

  6. Adequate narrative and specific abstract commentary is essential. Excise examiners need to follow the interview guidance contained in IRM 4.10.3.2, Interviews: Authority and Purpose for more information.

Tour of Business
  1. Tours of business sites should be conducted during examinations of all business entities. Generally, the principal location, and any locations acquired during the period under examination, should be visited. However, consideration should be given to the cost effectiveness and practicality of conducting the tour. When appropriate, alternatives should be considered. Touring the business as part of the initial interview process helps the excise examiner obtain a better understanding of the taxpayer's operations and business flow. The excise examiner needs to document all findings and conclusions on the A125.

  2. Treasury Regulation 301.7605-1(d) (3) (iii) states; "regardless of where an examination takes place, the service may visit the taxpayer’s place of business to establish facts that can only be established by direct visit."

  3. See IRM 4.10.3.3, Tours of Business Sites, for more information.

Required Filing Checks (RFC)

  1. Required Filing Checks (RFC) are necessary to ensure voluntary compliance. The following IMS workpapers are utilized by the excise examiner for RFC:

    • B200-1 Multi Period and Related Returns Checksheet

    • B200-2 FET Checksheet

  2. Excise examiners should perform taxpayer filing verification checks to determine that taxpayers are in compliance with all federal tax return filing requirements and that all returns reflect the substantially correct tax. See IRM 4.10.5, Required Filing Checks for more information on RFC.

  3. The excise examiner will:

    1. identify all prior, subsequent and related returns,

    2. include a summary of the analysis performed,

    3. document the conclusions reached.

  4. The excise examiner will indicate why a prior or subsequent return is not being picked up when an adjustment is being proposed in the current year.

  5. The excise examiner needs to support decision to either expand the examination to that return, or that the return does not warrant examination.

  6. RFC include the analysis of prior, subsequent and related returns and when warranted, the expansion of the examination to include additional returns. The analysis and pick up of prior, subsequent and related returns, when warranted, is an excise examiner’s primary responsibility in every examination.

  7. Limited scope examinations do not eliminate the need to perform RFC.

  8. The inspection of a return is essentially the same as classifying a return for examination potential. No records should be examined as part of this process. The excise examiner may question the taxpayer concerning items on the return in an attempt to understand how or why they occurred. The inspection of a return is not an examination. Examiner may not request documentation concerning items on the return. If documentation is requested, an examination has been opened.

  9. Whenever possible, excise examiners should use internal sources of information, e.g., Corporate Files on Line (CFOL), Modernized e-File (MeF), and Compliance Data Environment (CDE), to complete RFC. Filing should be verified for prior and subsequent year returns, related returns, information returns, employment tax returns, gift tax returns, other excise tax returns, pension plan returns, etc.

  10. Documentation in the case file should include key or summary documents secured from CFOL system used to verify filing such as:

    1. BMFOLI

    2. BMFOLT

    3. SUMRY

  11. MeF is a web-based system that allows electronic filing of corporate, individual, partnership and other returns through the Internet. The MeF system provides the excise examiner original transmitted tax return data in various formats, including a Form View, which resembles a tax return. If a return was filed using MeF, an excise examiner can access the Employee User Portal (EUP) to view the return. For additional information on EUP go to http://mysbse.web.irs.gov/exam/mis/data/25671.aspx

Examination Information Reports
  1. Form 5346, Examination Information Report, shall be prepared whenever information is received containing sufficient compliance value that would warrant another compliance action. Examples of when Form 5346 should be completed for:

    • related or non-related taxpayers who have similar audit issues present,

    • a referral of the taxpayer for non-excise related issues.

  2. Form 5346 should be submitted to the manager for approval and then sent to the Excise Operations Support (EOS) e-mail box at "*SBSE Excise EOS." See IRM 4.24.18.4 for more information.

C300 Books to Returns Reconciliation Check Sheet

  1. C300 will be used to document the excise examiner's analysis and consideration of the entire operation and activities of the taxpayer to determine the proper scope and audit path.

  2. In the course of examining the Form 720, Quarterly Federal Excise Tax Return, it is often necessary for the excise examiner to verify the taxpayer’s total sales of relevant products for a tax period.

  3. The excise examiner will often review the total sales for a year shown on a taxpayer’s income tax return, look at any relevant adjustments to this total, and inquire into the purpose of an adjustment. This information helps establish the accuracy of all Form 720 returns filed during the taxable year.

  4. Conducting a books to return analysis is especially important when the taxpayer has not filed an excise tax return. Even if the taxpayer has not filed an excise tax return and there is no amount on the excise return to reconcile to, the excise examiner must still perform a books to return analysis and document the conclusions reached that address what sales/revenue should have been reflected on the non filed return.

    Note:

    The inspection of the year-end books and records to determine year-end adjustments and total sales for the year for excise purposes and tying the year end books and records to the reported sales on the income tax return, are categorized as part of an excise tax examination. There is no legal requirement to treat a thorough review of the annual sales receipts as well as any documents related to adjustments as reported on the annual return as a separate income tax examination. When the period under examination is the third quarter, the review of the year-end books and records for sales and adjusting entries does not constitute an examination of the fourth quarter Form 720 return.

  5. An examination is started whenever actual books and records of sales are requested and examined for a period that a return has been filed or is due to have been filed.

  6. The excise examiner will reconcile all sales/revenues that are shown on the excise tax return with those on the income tax return. The excise examiner will document the justification for any differences between the two amounts. In other words all sales and revenue (and sometimes use) are subject to excise tax until verified and proven otherwise. The excise examination should account for all revenue and sales (and sometimes use) and then through the examination process, verify and eliminate those sales and income that are not subject to excise tax. Any and all remaining items after the fact are then taxable.

    Note:

    Excise examiners who only verify the accuracy of the taxpayer prepared worksheets are not really considering all income and sales and uses that the taxpayers did not include on those schedules.

  7. The excise examiner will document any adjustments made by the taxpayer to the amounts shown for sales/revenue on the books of the taxpayer.

  8. An in-depth job aid covering books to return reconciliation may be found on the Examining Excise Taxes web site athttp://mysbse.web.irs.gov/Specialty/excise/default.aspx.

C305 Internal Controls

  1. The C305 will be used to document the analysis of internal controls and assess the level of control risk.

  2. It is important to obtain sufficient competent evidence to determine the accuracy of the taxpayer’s return. The excise examiner must determine the appropriate amount of evidence to accumulate and establish the proper depth of the examination. This decision is a matter of judgment and important because of the prohibitive cost of examining and evaluating all available evidence. Factors to consider when establishing the depth of the examination include:

    1. The risk that the taxpayer has made errors that are individually or collectively material.

    2. The risk that the audit tests will fail to uncover material errors e.g. the examination techniques used, the nature of the errors (intentional or unintentional) and the reliability of available evidence.

  3. The excise examiner should either flowchart a step by step process of key business operations or document, in narrative form, sufficient detail which provides information comparable to that shown by flowcharting the process.

Risk Analysis
  1. Excise examiners should compare the potential benefits to be derived from examining a return to the resources required to perform the examination.

  2. Excise examiners are expected to effectively manage their workload by prioritizing the issues so that the issues with higher audit potential are examined over those with lower potential. Issues with little or no audit potential should not be selected for examination.

  3. Excise examiners are expected to use their professional judgment to determine if it is in the government’s best interest to continue the examination and to document the excise examiner's risk based decisions with regard to depth and scope of their examination.

  4. At the mid point of the examination, using risk analysis, the excise examiner should determine whether the remaining classified/identified issues should be examined. This decision should be based on the facts and circumstances, evaluation of internal controls (see IRM 4.24.6.3.7.1) and the excise examiner’s judgment. For example, the resulting additional tax is not expected to be material, or the time to develop additional issues is not justified based on the potential for more tax.

  5. See IRM 4.10.2.4 Evaluation of Audit Potential for more information.

C310 Fraud Awareness Check Sheet

  1. Excise examiners should familiarize themselves with the Fraud Handbook IRM 25.1.1 through 25.1.6 when developing a fraud case.

  2. IRM 25.1.7, Failure to File, discusses the various procedures concerning fraud in failure to file cases.

  3. To assist in the timely development of fraud cases, the excise examiner, with manager concurrence, should contact a Fraud Technical Advisor (FTA) and the Excise Fraud Analyst when the initial indicators of fraud are uncovered. A plan of action should be developed jointly to document firm indications of fraud. An integral part of the plan is establishing that sufficient affirmative acts exist to confirm fraud. The plan should be a joint effort of the excise examiner, the group manager, the FTA, and the Excise Fraud Analyst.

  4. The FTA and the Fraud Analyst will serve as a consultant during the development of the case.

  5. If a case is referred to Criminal Investigation (CI) and is accepted for a criminal investigation, the group manager will continue to monitor status code 18 cases through the use of the quarterly four-way conferences with CI.

  6. The excise examiner will use the C310 to document this action.

  7. The excise examiner will complete Form 11661, Fraud Development Recommendation, when they suspect fraud. The completed form should be electronically forwarded to the Fraud Technical Advisor (FTA) through the group manager for approval to place a case in fraud development status. Case should be updated to Status Code 17 (Fraud Development Status) and Status Code 18 (Accepted by CI).

  8. When the excise examiner, group manager, and FTA have agreed that the case contains sufficient evidence to prove the existence of firm indicators of fraud, the excise examiner (with the help of the FTA, if needed) should prepare Form 2797, Referral Report of Potential Criminal Fraud Cases to refer the case to CI. The excise examiner will route Form 2797 via e-mail to their manager, who will in turn send it to the FTA via e-mail.

    Note:

    Form 2797 is not required for civil fraud referrals

  9. CI has 10 working days after receipt of the referral to make contact with the excise examiner, group manager and FTA and set up a meeting to discuss the case. At the 10 day meeting, the excise examiner will provide CI with their entire case file and discuss the issues.

  10. For additional information regarding fraud see the Fraud Resources web page located at http://sbseservicewide.web.irs.gov/Fraud/ExamFraud/ExamFraudRes/default.aspx

Suspicious Activity Reports (SAR)
  1. Excise Tax Policy Analyst has authority to electronically access SAR information or receive SAR data in connection with active and assigned cases, including those assigned to case-building functions within PSPWIC. SAR information may be helpful in examination and case building activities when:

    1. Excise examiner has exhausted routine means of locating banking information.

    2. Excise examiner has noted potential fraud indicators.

    3. Taxpayer appears to be utilizing cash transactions to avoid reporting of income.

    4. Taxpayer has made a voluntary disclosure and/or offshore bank accounts are suspected.

    5. Excise examiner is investigating a Whistleblower case involving unreported income, offshore bank accounts or activities.

    6. The WebCurrency and Banking Retrieval System (WebCBRS) reflects a Currency Transaction Report (CTR). A CTR is filed when a transaction occurs which involves currency exceeding $10,000.

  2. Refer to IRM 4.26.15, Bank Secrecy Act - General Program, for more information regarding SAR procedures.

D400 Initial Taxpayer Contact Sheet

  1. The D400 contains action items to consider when making initial contact. It is used to document that the excise examiner:

    • Advised taxpayer that tax return has been selected for examination.

    • Discussed the audit process.

    • Discussed taxpayer rights.

    • Scheduled the initial appointment.

    • Addressed any questions or concerns of the taxpayer.

E500 Penalty Issues Check Sheet and Managerial Approval for Penalty Assessments

  1. The E500 is used by excise examiners and managers to document the assertion or non-assertion of penalties.

  2. IRC 6751(b)(1) states that in general, no penalty under the Code shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.

  3. Notwithstanding the exception noted in paragraph 4 below, this approval requirement will also apply to the imposition of any fraud penalty including fraudulent failure to file penalty under IRC 6651(f).

  4. IRC 6751(b)(2) provides an exception to the managerial approval requirement for penalties calculated through electronic means. This exception applies to the following penalties:

    1. IRC 6651, Failure to File Tax Return or to Pay Tax,

    2. IRC 6656, Failure to Deposit, and

    3. any other penalties automatically calculated through electronic means.

    Note:

    Penalty automatically calculated through electronic means, is something more than merely an electronic device is used to perform arithmetic functions to determine the amount of a penalty. Instead, the assessment of a penalty qualifies as one calculated through electronic means if the penalty is assessed free of any independent determination by an IRS employee as to whether the penalty should be imposed against a taxpayer.

  5. For purposes of this section, the term "penalty" includes any addition to tax or any additional amount. See IRC 6751(c) and IRM 20.1.1.1.13.

  6. The manager must perform a meaningful review of the excise examiner's penalty determination prior to assessment. The manager should verify that the penalty impositions are accurate and the excise examiner properly documents the conclusions regarding assertion or non-assertion of penalties in the file. The manager must document the review and approval on the 300, when warranted. See IRM 20.1.5.1.6, Managerial Approval of Penalties.

  7. See IRM 4.10.6, Penalty Considerations for additional support/documentation for the assertion and non-assertion of penalties.

  8. See Penalty Handbook IRM 20.1.1.3 , Criteria for Relief from Penalties, for penalty relief based on reasonable cause.

  9. See IRM 4.24.9, Excise Penalty Procedures, and IRM 20.1.11, Excise Tax and Estate and Gift Tax Penalties, for more information.

Extending the Period of Limitations for Assessment of Excise Tax

  1. The Internal Revenue Code limits the time in which the government may make an assessment of tax. Excise examiners have the primary responsibility for identifying and protecting the period of limitations for returns in their custody. IRM 25.6.1, Statute of Limitations Processes and Procedures, provides guidance for verifying statute dates. Failure to protect the period of limitations can result in disciplinary action.

  2. Form 895, Notice of Statute Expiration, is used to provide information, notification and statute update approval for statute of limitations for tax returns. Refer to the Form 895 Job Aid located on the Job Aids page of the Examining Excise Tax web site at http://mysbse.web.irs.gov/Specialty/excise/examcase/job/21187.aspx

  3. If the period of limitations for assessment of tax is due to expire, or if it has already expired on the assigned return, the return should be immediately brought to the group manager to determine the return’s disposal.

  4. A period of limitation to assess certain excise taxes can generally be extended with the taxpayer’s consent. Excise examiners must obtain the approval of the group manager before requesting a taxpayer to execute a consent. The need for a consent should be clearly identified before it is solicited and the group manager’s approval documented in the IMS case file. See IRM 25.6.22.2.1 (2), Assessment, for a listing of some of the conditions that allow for an extension of limitation to assess certain excise taxes.

    Note:

    An excise examiner cannot initiate an examination on any return with less than 12 months remaining on the period of limitations for assessment, without prior managerial approval.

  5. Form 872-B, Consent to Extend the Time to Assess Miscellaneous Excise Taxes, is used to extend the statutory period of limitation on assessment of the excise taxes reported on:

    • Form 720, Quarterly Federal Excise Tax Return,

    • Form 2290, Heavy Highway Vehicle Use Tax Return,

    • Form 730, Monthly Tax Return for Wagers,

    • Form 11-C, Occupational Tax and Registration Return for Wagering,

  6. Form 872-EX, Consent to Extend the Time on Assessment of Information Report Penalty, is used to extend the statutory period of limitation on assessment of civil penalties relating to information reported on:

    • Form 720-TO, Terminal Operator Information Report,

    • Form 720-CS, Carrier Summary Information Report.

    See IRM 4.24.17.4, ExSTARS Statute Controls and Extensions, for detailed procedures.

  7. The consent agreement is signed by the taxpayer(s) and an IRS representative to extend, to a mutually agreed upon (new) specified date, the Assessment Statute Expiration Date (ASED) on assessment of excise taxes.

  8. Instructions for proper completion of Form 872-B are found in IRM 25.6.22.6.11, Excise Tax.Form 872-B may be signed on behalf of the Director of Specialty Programs by excise field group managers as specified in Delegation Order 25-2. See IRM 1.2.52.3 for more information.

    Note:

    When consent agreements are executed by excise field group managers, the name of the Director of Specialty Programs will be written, typed, or stamped on the signature line of the form. The excise field group managers will sign their own name and indicate their title and date on the line immediately below.

  9. Claims for refund of excise taxes filed on Form 8849, Claim for Refund of Excise Taxes and/or amended Form 720 returns present unique statute situations. Refer to IRM 4.24.8, Examination Guidance for Excise Claims for Refund or Abatement, for more information.

  10. See Exhibit 4.24.6-1. for a summary of the statutory period of limitations for excise returns.

  11. For additional information refer to the Form 872 and Form 895 Job Aids at http://mysbse.web.irs.gov/Specialty/excise/examcase/job/default.aspx.

Extending the Period of Limitations to Assess Air Transportation Taxes
  1. With collected taxes, special care is needed to ensure that all aspects of the period of limitations for filed returns are protected. The forms and wording needed to accomplish this task depends upon the type of entity under audit. Special language must be written on the Form 872-B and depends on the function that the taxpayer plays (i.e. collector, taxpayer, or air carrier).

    Note:

    The entity being audited may be providing more than one function and period extensions for each function must be secured.

  2. In cases where the collector has failed to charge and collect tax from their customers, a 100% Trust Fund Recovery Penalty can be asserted against the collector to recoup non-collected taxes. The Form 2750, Waver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, is used to extend the period of limitations for this penalty.

  3. For more information see IRM 4.24.9.5, IRC 6672, Trust Fund Recovery Penalty.

  4. For Collectors, the following forms are to be secured:

    1. Form 2750 is to be secured for each tax period under audit. The form can be prepared for the entity or for each responsible official depending upon the facts and circumstances of the case. This form will protect the period of limitations for the imposition of IRC 4261 and 4271 Taxable Transportation by Air excise taxes and the Trust Fund Recovery Penalty under IRC 6672.

    2. Form 872-B is to be secured to protect the collectibility for the collected taxes under IRC 7501. The wording to be used depends upon the type of tax being protected. The underlined items below are the entries which must be entered onto the form:

    • For the transportation of persons by air tax, the Form 872-B is to specify the amount of liability for collecting/ remitting IRC 4261 Taxable Transportation by Air tax, imposed on the taxpayer(s) by section 7501 and 4291 of the Internal Revenue Code.

    • For the transportation of property by air tax, the Form 872-B is to specify the amount of liability for collecting/remitting IRC 4271 Taxable Transportation by Air tax, imposed on the taxpayer(s) by section 7501 and 4291 of the Internal Revenue Code.

  5. For Taxpayers, the following forms are to be secured:

    1. Form 872-B is to be secured to protect the collectibility for the taxes imposed under IRC 4261 and 4271. The wording to be used depends upon the type of tax being protected. The underlined items below are the entries which must be entered onto the form:

    • For the transportation of persons by air tax, the Form 872-B is to specify the amount of liability for Taxable Transportation of Persons by Air tax, imposed on the taxpayer(s) by section 4261 of the Internal Revenue Code.

    • For the transportation of property by air tax, the Form 872-B is to specify the amount of liability for Taxable Transportation of Property by Air tax, imposed on the taxpayer(s) by section 4271 of the Internal Revenue Code.

  6. For Air Carriers, the following forms are to be secured:

    1. Form 872-B is to be secured to protect the collectibility for the tax imposed on the air carrier under IRC 4263. The underlined items are the entries which must be entered onto the form:

    • The amount of liability for IRC 4261 taxes not paid or collected under any other provision tax, imposed on the taxpayer(s) by section 4263 of the Internal Revenue Code.

Extending the Period of Limitations to Assess Communications Taxes
  1. Special language on the Form 872-B is needed and is dependent upon the function that the taxpayer plays (i.e. collector/communication provider, or taxpayer).

  2. In cases where the collector has failed to charge and collect tax from their customers, a 100% Trust Fund Recovery Penalty can be asserted against the collector to recoup non-collected taxes. Form 2750 is used to extend the period of limitations for this penalty.

  3. Extension information for a Collector:

    1. Form 2750 for IRC 4251 taxes.

    2. Form 872-B is to specify the amount of liability for collecting/remitting IRC 4251 Communication tax, imposed on the taxpayer(s) by section 7501 and 4291 of the Internal Revenue Code.

  4. Extension information for a Taxpayer:

    1. Form 872-B specifying the type of tax and code sections. For example, "The amount of liability for Communication Tax imposed on the taxpayer(s) by section 4251 of the Internal Revenue Code."

Six Year Period of Assessment under IRC 6501(e)(3) for Substantial Omissions of Excise Taxes
  1. If an excise tax return omits an amount of tax properly includible that exceeds 25% of the amount of tax reported on that return, the Service has additional time to assess (up to six years) the additional tax from the date the return was filed.

  2. For example, where a Form 720 is filed including the word" None" or "0" in the abstract’s tax column, a return has been filed in accordance with IRC 6501(b)(4) and any omission of tax from that return would trigger the 6 year period for assessment provided by IRC 6501(e)(3) since the omission would be in excess of 25% of the tax reported on that return.

  3. Since BRTVU and BMFOLR will not always reflect what is recorded on the actual tax return, the original return should be solicited to confirm the amount of tax reported.

  4. Update statute on Form 895 as required.

Specialist Referral System (SRS)

  1. SRS is an online automated system that allows for all submissions and approvals for specialist assistance. It automates the referral request process for LB & I, SBSE, and W & I field specialists. See IRM 4.10.2.6.5.2.1, Specialist Referral System (SRS) and IRM 4.24.5.3 for additional guidance.

  2. See IRM 4.24.6.15 regarding submissions and approvals for assistance or advice of an Excise Subject Matter Expert (SME) or Excise Issue Specialist (EIS).

Third Party Contacts

  1. The Third Party Contact (TPC) statute IRC 7602(c) imposes three duties on the excise examiner:

    1. Give reasonable notice to the taxpayer in advance via Pub 1, Your Rights as a Taxpayer.

    2. Record the third party contact made using Form 12175, Third Party Contact Report Form.

    3. Report a listing of the third party contact to the taxpayer upon request.

  2. The intent of third-party procedures is to prevent the Service from disclosing to third- parties (persons other than the taxpayer) that the taxpayer is the subject of a Service action without first providing reasonable notice to the taxpayer and allowing the taxpayer an opportunity to provide the information and resolve the matter themselves.

  3. A third-party contact is a communication which:

    1. Is initiated by an IRS employee

    2. Is made to a person other than the taxpayer

    3. Is made with respect to the determination or collection of the tax liability of such taxpayer

    4. Discloses the identity of the taxpayer being investigated, and

    5. Discloses the association of the IRS employee with the IRS

    Note:

    Any contact with any person who is not the taxpayer by an excise examiner is a third-party contact when the excise examiner discloses their identity and anything that can link the requested information to the taxpayer.

  4. Prior to making any third party contact, the excise examiner must notify the taxpayer in writing that third-parties may be contacted with respect to the determination of their tax liability.

  5. Providing Pub 1 to the taxpayer and/or his or her representative meets the notification requirement. If contact is made by phone, Pub 1 is to be mailed with the appointment letter. If contact is made by mail, Pub 1 is to be included in the mailing.

  6. If Pub 1 is mailed domestically, the third-party contact is not to be made before the passage of 10 calendar days in order to provide a reasonable period of time for the taxpayer to receive Pub 1.

  7. The excise examiner must document the IMS Form 9984 with the date and the fact of mailing or personal delivery of the Pub 1 to the taxpayer.

  8. Certain contacts are not considered third party contacts under IRC 7602(c) and, therefore, do not require prior notice or reporting on Form 12175 . The following are not considered third party contacts:

    1. Contacts with other IRS employees who are acting within the scope of their official duties.

    2. Contacts relating to a matter and issue being litigated.

    3. Obtaining information from a computer database provided the IRS employee conducts the research.

    4. Contacts with employees of the taxpayer who are acting within the scope of their employment during normal business hours on business premises. It is best to allow the taxpayer to identify employees authorized to speak on behalf of the taxpayer. The remaining employees are treated as third party contacts.

    5. Contacts made with any government officials, except where the contact concerns the taxpayer’s business with the government office, such as the taxpayer’s contracts with the government office.

    6. Contacts made as part of an information-gathering project where specific taxpayers have not yet been identified or singled-out for further investigation.

    7. Contacts made with a third party when the third party initiated the contact.

  9. The Third Party Contacts web page is located at http://mysbse.web.irs.gov/exam/tip/3rdparty/default.aspx

  10. See IRM 25.27.1, Third Party Contact - Third Party Contact Procedures, for additional procedural guidance.

Inadequate Records Notice

  1. For a discussion of Inadequate Taxpayer Records and for appropriate procedures, see IRM 4.10.8.16, Inadequate Records Notices: Overview. The excise examiner will use 105, Administrative Check Sheet, to document and address inadequate records notice.

Conversion of QuickBooks Accounting Software

  1. When QuickBook data is received from the taxpayer, the excise examiner will:

    1. forward the data to the QuickBooks user in their group, or

    2. to one of the designated Non-Group Users.

  2. QuickBooks users will covert the data to an Excel spreadsheet and return it in that format to the excise examiner.

  3. Refer to the QuickBooks records web page athttp://mysbse.web.irs.gov/exam/tip/quickbooks/default.aspx

Source Codes, Examination Activity Codes, Project and Tracking Codes

  1. Consistent and accurate coding used for application of time and for case data allows the Excise Program to measure and plan workload with confidence.

  2. The Excise Program uses exam data to:

    • capture business results,

    • develop the Excise Work Plan, and

    • answer questions posed by various internal and external stakeholders about resource application and results.

  3. It is the responsibility of the excise examiner to confirm the accuracy of the source code, activity code, project and tracking codes on every case assigned to them. The excise examiner will correct these codes if warranted before case is updated to Status 12.

  4. When the excise examiner expands the examination to other tax periods or entities the appropriate codes should be updated and/or corrected if appropriate:

    • In most cases, the project/tracking codes of the primary return should be carried over to all related returns.

    • Normally, there will be only one period with a primary source code on ERCS and on AIMS.

    • The related and multiple year periods should have a pickup source code.

    • Exceptions are each cycle of a CIC case which stands alone.

    • Claims can have more than one return with a primary source code.

  5. See Document 6209, IRS Processing Codes and Information, and IRM Exhibit 4.9.1-2 for a list of all direct examination activity codes.

  6. Aging reason code 62 (Excise Tax FCA) will be used when establishing/closing all cases assigned to Fuel Compliance Agents.

  7. Additional guidance may be found in the Source Code Job Aid, located on the AIMS/ERCS web page at http://mysbse.web.irs.gov/exam/mis/data/25840.aspx.

Use of Excise Project and Tracking Codes

  1. A project code is a four digit number indicating that a case belongs to a special program which allows monitoring of the program by project code. A project code should be used for large broad based excise exam actions that cannot be monitored via activity codes alone.

  2. A tracking code is a four digit code used to identify specific categories of excise projects or specific excise exam issues or strategies.

  3. Excise PSPWIC coordinates the assignment of project and tracking codes to case work in order to gauge whether the work being sent for examination is productive. Most case work sent to the field for examination will include a project and/or tracking code. Excise PSPWIC is also responsible for all requests for new project and tracking codes or to discontinue use of a code. A listing of current Project and Tracking Codes used by the Excise Program is located on the PSPWIC web page at http://mysbse.web.irs.gov/Specialty/excise/initiating/psp/default.aspx.

  4. Managers and excise examiners must review case inventory to verify that the correct project/tracking codes have been input on ERCS/AIMS and to confirm that the codes are recorded on Form 5345-D for any examination pick-ups.

  5. The accurate use of these codes will allow for meaningful data analysis regarding the success of each project and provide excise management critical information regarding resource allocation.

  6. All Affordable Care Act (ACA) case work is required to have a project code assigned. The excise examiner must verify the accuracy of the project code for these cases.

Procedural Guidance for Certain Types of Excise Examinations

  1. This section covers unique procedural guidance relating to excise examinations involving:

    • International Issues

    • Federal Agencies

    • Wagering Issue

    • Facilities and Services Taxes under IRC 4251, 4261, and 4271

    • Examinations of an Air Collector for taxes imposed under IRC 4261

    • Direct assessment procedures under IRC 4251, 4261, and 4271

    • Structured Settlement Factoring Transactions

    • Testing procedures for Ozone Depleting Chemicals

    • Executing blanket export exemption certificates

    • Jeopardy assessments transferor and transferee cases

Excise Examinations with International Issues

  1. Excise examiners are responsible for conducting excise tax examinations of international taxpayers, especially in the area of air transportation, foreign insurance, Ozone Depleting Chemicals (ODC), and fuel. Taxpayers who import ODCs frequently have foreign parents and transfer pricing and other issues frequently emerge.

International Case Referrals for Foreign Insurance Excise Tax
  1. When an excise examiner encounters a case with a foreign captive insurance entity, the following information is to be secured and forwarded via secure e-mail to the Excise Eastern Territory Manager and to the group manager in charge of international excise examinations through their group manager:

    1. Name and Employee identification Number (EIN) of parent company (or entity currently under audit),

    2. full name and EIN of the captive subsidiary,

    3. location or country of domicile of the captive subsidiary,

    4. amount of premiums insured with the captive subsidiary,

    5. amount of premiums reinsured by the captive subsidiary to reinsurance companies (if known), and

    6. indicate whether the captive subsidiary has a IRC 953(d) election (if known).

  2. The information will be reviewed to determine if the captive subsidiary is to be examined by an international excise examiner. This determination will be made and communicated back to the field group manager and the excise examiner within 10 days of receipt.

  3. If the examination of the foreign subsidiary is to be conducted by an international excise examiner, the international excise examiner will coordinate all actions with the excise examiner assigned to the parent/related entity case, as well as with the CIC Coordinator assigned to the parent/related entity case, if applicable. The international excise examiner will input Tracking Code 7705 on the 5345-D for all quarters opened with the examination of the foreign subsidiary.

  4. See http://mysbse.web.irs.gov/Specialty/excise/contacts/eastern/28333.aspx for Eastern Territory international contact listing.

Excise Examinations of Federal Agencies

  1. Agencies of the United States government in general are not exempt from excise taxes.

  2. Special procedures should be followed in cases involving federal agencies. At the beginning of an examination of a federal agency, the excise examiner should notify the appropriate Federal, State and Local Governments office (FSLG) which has primary responsibility for examination of tax returns filed by Federal agencies.

  3. FSLG is responsible for ensuring federal tax compliance by federal, quasi-governmental and state agencies; city, county and other units of local government; and American Samoa, Guam, Puerto Rico and the U.S. Virgin Islands. The office coordinates activities with other IRS offices such as Customer Account Services, Counsel, Government Liaison & Disclosure, Employee Plans and Excise Tax Program.

  4. See IRM 4.90, Federal, State, and Local Governments (FSLG) for additional guidance and information.

Excise Examinations with Wagering Issues

  1. One of the factors to be taken into account during the examination of a wagering case is the potential collectibility of the proposed excise tax liability.

  2. For any wagering case where the excise tax liability is $75,000 or greater, the excise examiner must contact the Collection Abusive Tax Avoidance Transactions (ATAT) Coordinator covering the state where the taxpayer resides for assistance in determining collectibility.

  3. A listing of Collection ATAT Coordinators may be found on the ATAT web page at http://mysbse.web.irs.gov/Collection/toolsprocesses/CollATAT/default.aspx

  4. The excise examiner should provide the Collection ATAT Coordinator with the taxpayer's:

    1. name,

    2. address,

    3. TIN, and

    4. complete a Form SS-4, Application for Employer Identification Number, and include the taxpayer's Social Security Number (SSN) on the form so this can be associated with the taxpayer's Employer Identification Number (EIN).

  5. The Collection ATAT Coordinator will assign an ATAT Revenue Officer to assist the excise examiner.

  6. The excise examiner should contact the assigned revenue officer to provide any pertinent financial information that has been secured.

  7. Upon completion of the investigation, the revenue officer will provide the excise examiner with a summary addressing the collectibility of the proposed tax assessment. This collection determination should be taken into account by the excise examiner and excise manager in the further examination of the case.

Excise Examinations Relating to Facilities and Services Taxes Under IRC 4251, 4261 and 4271

  1. For procedures for examinations including an air carrier for imposition of tax under IRC 4261, refer to IRM 4.24.6.9.5.

  2. For general guidelines, see Treas. Reg. Section 49.4291-1.

  3. Determine whether the collector (the entity that files the Form 720 and deposits taxes collected from the actual taxpayers) has provided an "uncollected tax report" described in section 49.4291-1 of the regulations. If the collector has not provided the report, and an examination reveals that the collector failed to collect taxes due on past transactions, the excise examiner should request that the collector:

    1. Attempt to collect the back taxes from the actual taxpayers.

    2. Report the taxes on Form 720X, Amended Quarterly Federal Excise Tax Return, for the period during which the taxes should have been collected.

    3. Provide a list of back taxes collected showing each person's name and address, the amount of tax collected, the date the tax was incurred, and the date the tax was collected.

    4. Provide a list of uncollected back taxes, showing each person's name and address, the amount of tax due, and the date the tax was incurred.

  4. If the collector agrees to follow the procedures in the preceding paragraph, the examination will be held open for a reasonable amount of time to allow the agent to collect the back taxes.

  5. The excise examiner should also follow the procedures below:

    1. If the collector filed Form 720, the prior periods covered by the examination should be established on AIMS using regular Master File procedures.

    2. The substitute for return procedures will be followed if the collector did not file Form 720. See IRM 4.24.6.10.

    3. Copies of current Form 720 filed by the collector to report tax collected on past transactions will be secured and made a part of the examination work papers. The work papers will also include the lists described in (3) (c) and (d) above.

    4. Where the collector is unable to collect back taxes and the failure to collect was not willful, as defined for purposes of IRC 6672, Non-Masterfile assessments will be made directly against the actual taxpayers using the correspondence examination procedures. For example, the failure is not willful if the collector timely provided the "uncollected tax report" . See IRM 4.24.6.9.6 Direct Assessments, for detailed procedures.

    5. In that case, the examination of the collector should be closed as a "no change" case. An assessment of additional tax should not be proposed for the prior periods.

  6. If the collector refuses to collect the taxes it failed to collect on past transactions, the following procedures will apply:

    1. All prior periods covered by the examination should be established on AIMS.

    2. The Trust Fund Recovery Penalty under IRC 6672 will be considered if the collector's failure to collect and remit the tax was willful. See IRM 5.7.3.3.2 for a discussion of willfulness. See IRM 4.24.9 for procedures to assert the Trust Fund Recovery Penalty.

    3. If the IRC 6672 penalty is not applicable, the back taxes will be assessed directly against the actual taxpayers using correspondence examination procedures found in IRM 4.24.6.9.6.

    4. In that case, the examination of the collector should be closed as a "no change" case. The work papers will reflect the back taxes which were not collected by the collector.

  7. If the collector volunteers to pay an amount equal to the back taxes from its own funds, the procedures in IRS Policy Statement 4-104 allow for acceptance of the payment by the collector in lieu of asserting tax against the taxpayers or asserting the IRC 6672 100% Trust Fund Penalty. As a condition to the acceptance of such payments, the collector will be required to execute a waiver of its rights to claim any refund on the grounds of failure to collect the tax. An example of a waiver template may be found at: http://mysbse.web.irs.gov/Specialty/excise/issues/pen/assespen/default.aspx

    Note:

    The waiver language should read as follows; "It is agreed that (Corporation) waives its right to claim a refund with respect to any portion of this voluntary payment. No penalties will be assessed in connection with these tax assessments. "

  8. The excise examiner should make the assessments directly on the collectors Form 720 using normal agreed report writing procedures. Attach the signed waver to the examination report..

  9. Rev. Rul. 58-300, 1958–1 C.B.454, provides guidelines on the assessment of interest in collected tax cases. Interest assessments will be made against the actual taxpayers when warranted.

  10. There is no basis for assertion of a delinquent filing penalty against the actual taxpayer.

  11. For information regarding extending the statute of limitation period see IRM 4.24.6.3.21.2.

Excise Examinations of an Air Collector for Taxes Imposed Under IRC 4261

  1. If an examination of a collector, who is also an air carrier, for taxes imposed under IRC 4261, (including the transportation of persons by air excise tax, the segment excise tax, and the use of international facilities excise tax), reveals that the collector/air carrier failed to collect one or more of these taxes due on past transactions, the excise examiner should follow the procedures below.

    1. Determine if the air carrier under exam provided the initial segment of taxable transportation. IRC 4263(c) provides that where any tax imposed by IRC 4261 is not paid at the time payment for transportation is made, then such tax shall be paid by the air carrier providing the initial segment of such transportation which begins or ends in the United States. Normally this will be the carrier/collector who sold the transportation to the Taxpayer but it could be another carrier.

    2. If the excise examiner does not have the air carrier that provided the initial segment under examination then an examination request is to be forwarded to PSPWIC to initiate an examination on that air carrier. If the air carrier the excise examiner currently has under examination is the air carrier who provided the initial segment of transportation beginning or ending in the U.S., then the prior and subsequent periods should be established on AIMS using regular Master File procedures.

    3. The substitute for return procedures will be followed if the air carrier who provided the initial domestic segment of air transportation did not file Form 720.

    4. The excise examiner should prepare detailed work papers to support taxes being assessed under IRC 4263(c). For example, date of ticket sold, ticket number, amount of uncollected taxes now being assessed, and whether taxes are IRC 4261(a), (b) or (c) taxes.

    5. Ensure all components of the taxes imposed under IRC 4261 are properly included in the amount of back taxes due. The work papers will include computations of the tax and a review of all unreported flights.

    6. Prepare an assessment of the uncollected tax against the air carrier utilizing the forms used in an agreed or unagreed case, whichever is applicable.

    7. If statute of limitation period extensions are necessary, be sure to extend the statute for an air carrier under IRC 4263(c) as the applicable taxing authority. For information regarding statute of limitations see IRM 4.24.6.3.21.2.

  2. These procedures are limited to taxes imposed under IRC 4261 and may not be utilized for IRC 4271 taxes which an air carrier failed to collect. See IRM 4.24.6.9.4.

Direct Assessment Procedures Under IRC 4251, 4261, and 4271

  1. Under IRC 4251, 4261, and 4271, the taxes imposed are "collected taxes" . Therefore, the person who is making the payment for the service provided is liable for the tax. The collector of the payment for the service is the entity which is required to file Form 720 and remit the collected tax to the Government. The tax attaches at the time the payment is made for the air transportation service. The Form 720 filed by the collector is to include all amounts collected for the period for which the Form 720 is filed. There is no tax period involved nor is there a requirement for a return to be filed by the actual taxpayer, i.e., the person paying for the service provided. Treas. Reg. Section 40.6011(a)-1(a) (3) provides that the person required to collect a collected tax, and not the person incurring liability for the tax, must file the Form 720.

  2. Direct Assessments are to be controlled on Non-Masterfile

  3. In collected tax cases where a case already has Masterfile controls and a Non-Masterfile Direct Assessment is identified, either as the only issue or in addition to a Masterfile assessment, it is important to understand that ERCS has limitations that do not allow both Masterfile and Non-Masterfile controls to be established at the same time. Since all cases come to the field with Masterfile controls, it is impossible to establish controls on ERCS for the Non-Masterfile Direct Assessment case.

  4. In such instances it is necessary to establish Non-Masterfile controls on AIMS with the assistance of the local AIMS/ERCS Analyst. This is done by the excise examiner submitting Form 5354, Examination Request Non-Master File, to their manager.

    1. Each separate period must be controlled.

    2. The Non-Masterfile controls should be established on AIMS, concurrently with the Masterfile controls established on ERCS.

  5. AIMS has the ability to control both a Masterfile and a Non-Masterfile record at the same time. A record controlled only on AIMS does not allow the excise examiner to charge time to the case, and IMS can not be utilized for the AIMS controlled case. The time spent working the Non-Masterfile case should be charged to the Masterfile record controlled on ERCS.

    Note:

    If the Non-Masterfile Direct Assessment issue is only present in subsequent periods for which no controls are established on ERCS and the excise examiner can be sure no Master File Assessments will be needed, the case controls can be established on ERCS using Non-Masterfile 45 controls.

  6. Have each tax period controlled where a collector or collectors have failed to collect tax on transactions arising in different quarters.

  7. A Statute of Limitation date must be entered. Even though the taxpayer is not required to file a return, the taxpayer’s statute is started by the filing of Form 720 by the collector that should have collected the tax. See IRC 6501(a). The Form 720 looked to for statute control is the one that includes the date the purchasing taxpayer paid the service provider. If there are transactions involving more than one quarter, all statutes must be individually protected and Form 895, prepared as necessary. Update the statute of limitation information as needed for statute extensions secured from the taxpayer. Statute extensions executed by the entity that should have collected tax on the transaction (the collector) do not extend the statute for assessments against the taxpayer.

  8. Letter 898,30 Day Letter-Statement of Proposed Adjustments, is designed to be utilized when making direct assessment of a "collected" tax against an actual taxpayer where the collector has failed to collect taxes due on past transactions. Items to consider when preparing Letter 898 as listed below:

    1. The period covered by the examination should be shown on Letter 898 as an inclusive period from the date of the first transaction for which tax was not collected to the date of the last transaction for which tax was not collected.

    2. By completing the reverse side of Letter 898, the need for an accompanying report is eliminated. If a separate report is necessary as in the case of claim adjustments, Letter 898 should be used to transmit the report and should be notated "See Attached Report" on the reverse side.

    3. Form 886-A, Explanation of Items should be attached to explain the proposed assessment.

  9. Letter 898 offers the recipient taxpayer three options. The taxpayer can:

    1. Sign and return the agreement form,

    2. Request an appointment to discuss the case with the originator, or

    3. within 30 days, request consideration of the case by Appeals.

  10. If the taxpayer agrees to the proposed assessment, the Letter 898 becomes the "return" for processing and a Form 5344 and Form 5734, Non-Master File Assessment Voucher, are to be completed before forwarding the case to the group manager for closure. When preparing Form 5734, the excise examiner needs to be careful to utilize:

    1. NMF 46, even though the case is controlled on NMF 45, and

    2. Tax Class 6.

  11. If the taxpayer has not responded to the Letter 898 after 30 days, the case will be processed as agreed and the procedures in IRM 4.24.6.9.6 (10) above are to be followed. The initialed copy of the letter, along with Form 5344 and Form 5734 are sufficient for assessment of the tax.

  12. If the taxpayer does not agree and responds to the Letter 898 requesting an Appeals hearing, standard procedures for unagreed cases are to be followed.

  13. It is important to remember no penalties apply in direct assessments as the taxpayer was not required to file a return or to make deposits. See Rev. Rul. 58-300, 1958-1 CB 454. Additionally, because the tax attaches at the time the taxpayer/customer pays the seller/collector for the taxable services, interest is due from the time the taxable services were paid for until the time the tax is paid, either to the collector or the Service. See Rev. Rul. 58-300; Rev. Rul 59-306; 1959-2 CB 422; and IRM 20.2.10.3.11. In order for the interest to be calculated by Centralized Case Processing (CCP), the excise examiner must include a list of the transaction dates and amount of tax due for each transaction in the case file at closing.

  14. Once the Non-Masterfile Direct Assessment case established on AIMS is ready to close it will have to be updated to Status 51, by the local AIMS/ERCS Analyst. The case should be closed to CCP with a note on the Form 3210, Document Transmittal indicating that, "This case is NMF and is controlled on AIMS ONLY and must be closed accordingly. As such no time has been applied. The case has been put in Status 51 by the AIMS/ERCS Analyst prior to it closing to CCP."

Excise Examinations Relating to Structured Settlement Factoring Transactions

  1. Form 8876, Excise Tax on Structured Settlement Factoring Transactions, can be filed multiple times during the year and does not have a due date tied to a specific tax period. Any taxpayer filings of this form are posted for assessment to Non-Master File using Abstract Code 234.

  2. Leads for Excise Tax on Structured Settlement Factoring Transactions will be sent to the field from PSPWIC and controlled on AIMS and ERCS on Non-Masterfile as non-filer leads using MFT 27, Abstract Code 034.

  3. If during the course of the examination it is determined that the taxpayer is liable for filing a prior or subsequent period Form 8876, the excise examiner will submit Form 5345-D, and request Non Master File controls.

  4. Refer to AIMS web page at for more information regarding closing procedures http://mysbse.web.irs.gov/exam/tip/CloseaCase/default.aspx.

  5. If the excise examiner is reviewing records for multiple months, complete the Form 5345-D for each month/year being reviewed.

  6. The statute will be the alpha statute EE.

  7. If the case is agreed, the excise examiner will update the statute to 3 years from the date the signed Form 5384, Excise Tax Examination Changes and Consent to Assessment and Collection is received. The excise examiner need not submit a substitute for return for processing.

Examples of Closing Procedures for Excise Tax on Structured Settlement Factoring Transactions
  1. In February 2014 the group manager receives a non-filer lead for a company that may be liable for the Excise Tax on Structured Settlement Factoring Transactions from Centralized Specialty Tax Operations. The case controls are established on NMF under MFT 27, abstract code 034 for the 201212 period. The case is assigned to an excise examiner for examination who examines the taxpayer’s books and records for the month of December 2012. The excise examiner determines the taxpayer is not liable for the tax for this month, but through discussions with the taxpayer the excise examiner decides to examine the books and records for October and November 2012. The excise examiner submits Form 5345-D requesting Non-Master File case controls for the 201210 and 201211 periods. The excise examiner determines the taxpayer is liable for the excise tax on structured settlement factoring transactions for the 201210 and 201211 periods. The excise examiner solicits and receives a signed agreement on March 15, 2014. At this point the excise examiner will:

    1. Issue Letter 930, Non-filer No Liability SFR Transmittal for the 201212 period,

    2. update the statute for the 201210 and 201211 periods to 03/15/2014, and

    3. prepare the case file for closure using disposal code 02 for the 201212 period and disposal code 03 for the 201210 and 201211 periods on Form 5344.

  2. Assume the same facts as in IRM 4.24.6.9.7.1(1) except that upon arrival for the initial appointment on March 8, 2014, the taxpayer gives the excise examiner delinquent Form 8876 for the 201210, 201211 and 201212 periods. The excise examiner will examine the taxpayer’s books and records to determine whether the submitted delinquent forms are substantially accurate. As a result, the excise examiner will:

    1. Not forward the delinquent forms to the Service Center for processing,

    2. ask the taxpayer to make an advanced payment on the deficiency, which will ensure the taxpayer isn’t charged any undue interest, and

    3. submit Form 5345-D requesting Non-Master File case controls for the 201210 and 201211 periods.

  3. If, after review of the taxpayer’s books and records, it is determined that the delinquent forms will be accepted as filed, the excise examiner will:

    1. Incorporate the amounts shown on the delinquent form into the final examination report,

    2. attach the delinquent form to the examination report and obtain the taxpayer’s signature on the examination report which will suffice as agreement to the tax liability represented on the examination report,

    3. update the statute for the periods to 03/08/2014, and

    4. close the case using disposal code 08.

  4. If, after review of the taxpayers books and records, it is determined the delinquent forms will not be accepted as filed, the excise examiner will

    1. Process the delinquent form(s) as a partial assessment by incorporating the amounts shown on the delinquent form(s) into an appropriately completed examination report,

    2. prepare Form 3198, Special Handling Notice for Examination Case Processing

    3. complete line 12 of Form 5344,

    4. submit the partial agreement package to Centralized Case Processing for a NMF assessment and indicate on Form 3198"NMF - Partial Assessment " ,

    5. complete the examination,

    6. on the final examination report completed following the exam, use the tax liability reported on the processed delinquent form as a starting point, and

    7. close the case using disposal code 03 (DC 07 if appealed).

Disposal Codes for Excise Tax Cases on Structured Settlement Factoring Transactions
  1. The following examined disposal codes are available for closing these cases:

    • Disposal Code 01 – No change with adjustment

    • Disposal Code 02- No change

    • Disposal Code 03 – Agreed before issuance of Letter 950-E, 30-Day Letter - Straight Deficiency or Over-Assessment for Excise Tax Examination Cases

    • Disposal Code 04 – Agreed after issuance of Letter 950-E

    • Disposal Code 07 – Appealed

    • Disposal Code 08 – Other, use when taxpayer did not sign report

  2. The above listed disposal codes all require a completed:

    • Form 3198

    • Form 5384

    • Form 5344

  3. All agreed, no change, and surveyed cases are to be closed to the Cincinnati Campus, Centralized Case Processing (CCP) following normal case routing procedures.

  4. All cases closing to Appeals (DC 07) will be updated to status 21 and sent to the local Area Technical Services office following normal excise case routing procedures found in IRM 4.24.10.7.

  5. The following non-examined disposal codes are available for closing these cases:

    1. Disposal Codes 31/32 – If after due consideration, it is determined that an examination of the taxpayer is not necessary, the case file should be surveyed. Use either disposal code 31, Survey Before Assignment, or disposal code 32, Survey After Assignment.

    2. Disposal Code 33 – Error accounts with no returns. This disposal code is used to remove records from the AIMS database that were established in error.

    3. Disposal Code 40 – No return, taxpayer unable to locate.

Product Testing Procedures for Ozone Depleting Chemicals (ODCs)

  1. Excise examiners often find that taxpayers who import taxable electronic products claim to be exempt from tax on the basis that ODCs were not used in the manufacture of the imported product. A letter is usually provided to the taxpayer from the manufacturer of the product that outlines the process that is used to manufacture the goods. This would include a statement as to when they stopped using ODCs and what process replaced the previous process. If this letter does not contain sufficient and reliable information or contains vague and generic statements from the foreign manufacturer of the product, the excise examiner should consider having the product tested for the presence of ODC's.

  2. The excise examiner must have discussed and secured agreement from the taxpayer for testing of their products for ODCs.

  3. The excise examiner must complete the Laboratory Test Request Form before any items that are to be tested by the laboratory are to be obtained. The Laboratory Test Request Form template may be found in appendix of the ODC Audit Techniques Guide located at http://mysbse.web.irs.gov/Specialty/excise/library/atg/19022.aspx

  4. Laboratory Test Request Form needs to be approved by:

    1. Excise examiner group manager

    2. ODC Analyst

    3. Excise Policy Senior Manager

    4. Chief, Excise Tax Program

  5. Once approved for testing the samples are to be secured, maintaining strict chain of custody rules on the sampled items. Only persons trained in chain of custody procedures may obtain sampled items. Once at the lab, the samples will be taken apart for testing and will not be able to be returned to the taxpayer.

  6. How the tested items are obtained will be determined on a case-by-case basis. If the taxpayer offers to provide samples of the product, this will be discussed with the ODC Analyst before agreeing to accepting samples that are in the taxpayer's control.

  7. The test does not destroy the item and multiple tests may be performed on a single sample item. The test confirms whether ODCs are present and what ODCs were used in the manufacture of the product. The test does not quantify the ODCs present or used.

  8. For more information regarding ODC refer to the Environmental web page located at http://mysbse.web.irs.gov/Specialty/excise/issues/enviro/default.aspx.

Executing Blanket Export Exemption Certificates

  1. Form 1363, Export Exemption Certificate, is used to support exemption under IRC 4272(b)(2) from the excise tax on the transportation of property by air, where property is being transported by two or more methods of transportation in the course of exportation. For general guidelines see section 49.4271-1(d) of the regulations.

  2. Form 1363 may be prepared by the shipper for each payment or, if the shipper expects to make payments for numerous export shipments over a definite or an indefinite period of time, it may be used as a blanket exemption with the permission of the Chief, Excise Tax Program.

  3. Written requests for permission to execute a blanket exemption certificate will be reviewed by the Air Transportation Analyst and if necessary will be assigned to an excise tax group. Requests will be reviewed for completeness, and additional information will be secured from the shipper when necessary to make a determination. The determination, if made by the excise tax group, will be forwarded to the Air Transportation Analyst who will make the final determination of granting the permission.

  4. Permission will be granted where the shipper can demonstrate that it is impractical to execute a separate Form 1363 for each payment.

  5. Written notice of permission to issue a certificate is to be prepared by the Air Transportation Analyst and is to be signed by or for the Chief, Excise Tax Program. There is no standard form to be used for the shipper's request or for the Chief, Excise Tax Program's permission.

  6. If the permission is for an indefinite time or an extended period time, the status of shippers who receive permission to execute blanket exemption certificates should be reviewed within six months after permission is granted, and every two years thereafter, to determine if the shipper still qualifies to execute the certificates.

  7. If denial of permission to execute a blanket exemption certificate is recommended, and agreement with the shipper cannot be reached at the group manager level, the shipper can appeal to the Chief, Excise Tax Program. Written notice to the shipper that they are not entitled to execute a blanket exemption certificate will be prepared by the Air Transportation Analyst for signature of the Chief, Excise Tax Program.

  8. For indefinite or extended periods of time for the blanket exemption, a copy of the written requests and all notices of permission and denial are sent to the affected excise tax group and are to be maintained in a file by the group. Permission to execute a blanket certificate shall remain in force until withdrawn or until the date noted in the permission.

Jeopardy Assessment Transferor/Transferee Cases

  1. Under IRC 6901(a)(2) assessment may be made of the liability of a transferee for excise taxes incurred if the transferee liability arises from the liquidation of a partnership or a corporation or a reorganization within the meaning of IRC 368 (a).

  2. In such a case, if the transferee agrees to pay the excise tax due, the excise examiner will prepare a supplemental return for the taxpayer or collecting agency involved. The transferee will evidence his or her agreement by signing the return as transferee under IRC 6901(a)(2).

  3. See IRM 4.4.17, AIMS Procedures and Processing Instructions, Jeopardy Assessments/Termination Assessments/Transferor-Transferee Assessments, for additional processing Instructions.

Procedural Guidance Relating to Doubt as to Liability (DATL), Offer in Compromise Cases

  1. A DATL exists where there is a genuine dispute as to the existence or amount of the correct tax debt under the law. Taxpayers, who have a legitimate doubt that they owe part or all of a tax debt, may file an OIC under the DATL basis.

  2. The Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005 established legislation requiring the Service to render a decision and notify the taxpayer on all OIC within 24 months of the date the Service received the offer, or the offer will be considered to be accepted (IRC 7122 (f)). Currently there is no systemic method (AIMS, IDRS) for monitoring the 24 month requirement.

  3. Per IRM 4.8.8.8 the Examination function is responsible for processing and investigating offers submitted based on DATL. DATL offers, except offers with a Trust Fund Recovery Penalty issue, are forwarded to the centralized DATL processing unit located at the Brookhaven Campus for screening and processing.

  4. DATL Tax Examiner will make a determination if the OIC DATL is valid and can be processed. If the offer can be processed, the DATL Tax Examiner will:

    1. Send taxpayer an Automated Offer In Compromise (AOIC) transfer letter informing the taxpayer that their case is being transferred to the Excise PSPWIC OIC Coordinator for field consideration.

    2. Print and attach copy of the Exam/Specialty Tech Independent Administrative Review Checklist (IAR/Tech) to the inside cover of the case file.

    3. Ensure any deposit received is reflected on the checklist.

    4. Document AOIC and Accounts Management Services (AMS) to reflect case disposition and update AOIC assignment number to reflect Excise Tax.

    5. Send a secured e-mail to Excise PSPWIC OIC Coordinator, that case is posted to AOIC and is being sent via Form 3210 for assignment to an excise field group.

  5. Referral Criteria for SBSE Excise Tax:

    1. Taxpayers BOD code is either SBSE or LB &I

    2. Tax period involves an audit assessment previously made by Area 214 Excise Tax (TC300 or TC308) or,

    3. Tax period involves an assessment from an original filed excise tax return (Form 720, 730, 11-C, 2290, etc.) that has not had an audit assessment made from another area.

  6. The PSPWIC OIC Coordinator conducting the initial screening of case will:

    1. Verify the TIPRA date to identify if the TIPRA date will expire in less than 12 months.

    2. Review the offer to determine if it is appropriate for assignment to an excise field group.

    3. If the offer is not acceptable, return to the centralized DATL processing unit. These determinations will be made within 10 days of receipt.

    4. Update the AOIC assignment number to 1901165901 for all case returned to the centralized DATL processing unit.

    5. Enter information in the AOIC remarks section regarding the reason the case was returned.

  7. If the case belongs in Excise, the PSPWIC OIC Coordinator will:

    1. Request case controls on all quarters involved (those with a TC480) using Source Code 73 and Tracking Code 6506.

    2. Request the original case file work papers.

    3. Notify the excise group manager via e-mail that an OIC DATL case has been assigned to their group and forward case file via Form 3210 to group manager.

    4. Update AOIC remarks section to reflect the appropriate Employee Group Code (EGC) and a contact point.

  8. Excise examiners will take the following actions upon receipt of the case from PSPWIC OIC Coordinator:

    1. Work the case using procedures similar to an audit reconsideration case, except do not issue a report to the taxpayer.

    2. Accept the DATL offer. See IRM 5.19.7.2.16, DATL Acceptances, for procedural guidance on accepting a DATL offer.

    3. Discuss the audit findings with the taxpayer, and solicit an OIC withdrawal of the offer. Examples of OIC withdrawal letters can be found in IRM 4.18 and should be written and signed by the taxpayer (faxed signatures are acceptable). The excise examiner will ensure taxpayer understands that by withdrawing the offer all Appeal rights have been forfeited. In situations where adjustments are needed prior to an Offer Withdrawal, the adjustments must be made prior to issuance of the Withdrawal Letter to the taxpayer.

      Note:

      To request an adjustment, complete Form 3870, Request for Adjustment. Submit to CCP via EFax. CCP EFax number may be found at http://mysbse.web.irs.gov/AboutSBSE/aboutccs/ccsprog/casepro/cp/pro/21596.aspx. Due to the open AIMS controls, these adjustments are considered to be partial assessments input with a TC300 via Form 5344 by CCP.

    4. If the taxpayer agrees to withdraw the offer, the IAR/Tech Checklist must be updated to reflect the legal date of withdrawal as well as the date the offer was withdrawn.

    5. If the taxpayer will not withdraw the offer, the excise examiner will inform the taxpayer that their offer will be rejected and that the original audit findings are processed. Upon receipt of the reject letter (issued by PSPWIC OIC Coordinator), the taxpayer will have the right to request an Appeals hearing.

    6. If the taxpayer does not respond to the excise examiner’s contact and/or does not provide information requested, the case will be closed as a “returned offer” The excise examiner must fully document their reasons for closing the offer as “returned” and show all attempts made to gain taxpayer cooperation. The taxpayer will not have any appeal rights for a returned offer.

    7. Complete Form 1271, Rejection or Withdrawal Memorandum, to include in the case file.

    8. Forward case along with Form 1271 and IAR/Tech Checklist back to PSPWIC OIC Coordinator via Form 3210.

  9. IRC 7122(e), Compromises, requires the Service to provide for independent administrative review of all proposed rejections of an OIC prior to the rejection being communicated to the taxpayer. For Excise Program cases, this review will be performed by an Excise Policy Subject Matter Expert (SME). The SME cannot be anyone who worked on the case or is a part of the initial rejection or acceptance decision. The SME will review the proposed rejection of OIC prior to any indication or notification of such action being given to the taxpayer. The purpose of the review is to evaluate the case and determine if rejection is the correct decision.

  10. PSPWIC OIC Coordinator will forward case via Form 3210 to the Excise Policy SME for independent review. Refer to the SBSE Examining Excise Taxes SME contact web page for list of SME contacts.

  11. The SME will have 15 days to review the excise examiner recommendations. If the SME does not agree with the excise examiners recommendation the case will be returned to the excise examiner for further development. If the SME agrees with the recommendation, the case will be forwarded to PSPWIC OIC Coordinator via Form 3210 for final processing.

  12. Upon receipt of case from the SME (for rejected offers) or the excise examiner (for withdrawal offers) the PSPWIC OIC Coordinator will:

    1. Generate and issue the AOIC rejection letter and add any remarks. See the exhibits found in IRM 4.8.8 for OIC DATL letter templates.

    2. For rejected offers, suspend case for 45 days to allow taxpayer time to request Appeals consideration.

    3. If the taxpayer requests Appeals consideration, update case assignment on AOIC and forward case to the appropriate Appeals field office following normal case routing procedures.

    4. Complete AOIC offer closing actions based on information on the IAR/Tech Checklist.

    5. Close the case to CCP for final closure if agreed or no Appeals request received.

    6. For accepted offer, a separate file containing a copy of Form 7249 and sanitized MFTRA for all periods compromised will be maintained for public inspection. This file is maintained for one year after which they may be destroyed. For additional information see IRM 5.8.8.

    7. Complete the IAR/Tech Checklist and fax or scan the sheet to the centralized DATL processing unit.

  13. PSPWIC OIC Coordinator will monitor the AOIC database and TIPRA statute date monthly to ensure all cases assigned to the Excise Program are being worked. Cases received via Form 3210 will be documented by the PSPWIC OIC Coordinator in AOIC.

    Note:

    Cases on the AOIC system that have no documentation by the PSPWIC OIC Coordinator will be researched to determine if the signed Form 3210 and attachments were received from the centralized DATL processing unit. If over 30 days old (based on AOIC information) the PSPWIC OIC Coordinator will work with the centralized DATL processing unit to determine the location of the offer case.

Establishing Substitute for Return (SFR) Controls on Non-Filer Cases

  1. Push Code 036 will be used to establish a TC 150 (Master File Entity Created) on MFT 03 for all Non-Filer Form 720 cases sent to the field for examination. The MFT 03 Master File account will be controlled on AIMS.

    Note:

    No filing requirement is established through this process.

  2. Push Code 051 will be used to establish a TC 150 on MFT 03, Form 720, Substitute for Returns (SFR)'s requested for all paid claim cases (Source Code 31). See IRM 4.24.8 for more information.

  3. If during the course of the examination it is determined that a taxpayer is liable for filing prior/subsequent period excise tax returns, the excise examiner will establish SFR controls for the periods in question.

  4. The excise examiner will request information necessary from the taxpayer to determine a substantially correct tax liability. If the taxpayer provides the excise examiner with delinquent returns, the excise examiner will review the books and records of the taxpayer to determine the accuracy of the delinquent returns received.

  5. The controlling IRM for SFR actions is IRM 4.4.9, AIMS Processing - Delinquent and Substitute for Return Processing.

  6. The excise examiner needs to properly consider the assertion or non-assertion of penalties.

  7. See IRM 4.24.9.4 for more information on SFR penalties.

  8. See IRM 4.24.10 for detailed report writing and case closing procedures for SFR non filer cases.

  9. Additional information regarding the Delinquent Return and SFR processes can be found at http://mysbse.web.irs.gov/Specialty/excise/initiating/establish/del/default.aspx.

Delinquent Return No-Examination Action Taken

  1. If a delinquent return is received through no direct or indirect action by the excise examiner:

    1. If Taxpayer Assistance Center services are available in the excise examiner's post-of-duty, accept the delinquent returns and deliver them for processing to the Customer Service – Tax Assistance Center.

    2. If Taxpayer Assistance Center services are not available in the excise examiner's post-of-duty, accept the returns, date stamp them received, and mail them to IRS Center, Cincinnati, OH 45999-0009.

  2. The excise examiner will not process these delinquent returns as delinquent returns secured in the field, or obtain controls via SFR procedures as if they were secured during the course of an examination.

Reopening a Disposal Code 36 Case

  1. Disposal Code 36, No Return Filed, cases are usually Substitute for Return Non-filer cases where the excise examiner has determined there is no excise liability present.

  2. Under IRC 7605(b)(5), taxpayers are not subject to unnecessary examinations and generally only one examination of a their books and records is made for any taxable year. When a reopening is considered, the criteria of Policy Statement 4-36 must be met. Revenue Procedure 2005-327 provides guidance in defining a closed case and when certain inspections of taxpayer records are not considered an examination.

  3. If a closed case meets the reopening criteria, the excise examiner must prepare Form 4505, Reopening Memorandum, for the approval of the group manager and territory manager. Once approved, Letter 939, Reopening Letter, signed by the territory manager, (if re-examination of records is required) is mailed to notify the taxpayer of the pending additional review of the return, books and records.

    Note:

    These procedures should not be confused with audit reconsideration situations which are based on the taxpayer’s request for reopening.

Excise Program Memorandums of Understanding (MOU)

  1. The Excise Program has approved MOU's with the following:

    • SB/SE Excise Tax Program – TE/GE MOU dated October 18, 2011. TE/GE has agreed to make mandatory referrals via the Specialist Referral System (SRS) to SB/SE - Excise for all of their examinations of Team Examination Program (TEP) taxpayers, Hospital taxpayers, and University taxpayers. Clarifies control of statutes, time applied and periods examined by excise tax specialists.

    • SB/SE Excise Tax Program-Large Business and International (LB & I) MOU covering the period 10/1/2012 through 9/30/2015. LB & I has agreed that on each coordinated industry case worked by LB & I, a mandatory referral will be made using the Specialist Referral System to Excise Tax PSPWIC. The MOU contains details regarding control of statutes, time applied and periods examined. For more information regarding case coordination with LB & I see IRM 4.24.5.

  2. MOU may be found on the Excise Program technical guidance web page located at http://mysbse.web.irs.gov/Specialty/excise/library/techguidance/Default.aspx.

Procedures for Securing Memorandums of Understanding (MOU) for Joint Audits Between IRS and State Taxing Agencies

  1. Memorandums of Understanding are required to exchange data or conduct joint audits/investigations with state agencies. The procedures listed below must be followed to ensure consistent and accurate MOU's are completed.

  2. The Excise Program Joint Operations Center (JOC) is responsible for seeking and maintaining MOUs with state taxing agencies.

  3. Excise Tax Policy is responsible for MOUs relating to application of heavy vehicle use tax in coordination with state highway agencies.

  4. All MOU procedures are subject to oversight and guidance by HQ Governmental Liaison (GL), who advise all federal-federal and federal-state relationships.

  5. Prior to entering any agreements, coordination with the following offices must take place:

    1. Excise Policy – to ensure the work meets established policies.

    2. Excise PSPWIC – to solicit agreement that the audits meet the work plan and that results monitoring will be conducted. This may be accomplished via a project or tracking code.

    3. HQ Governmental Liaison (GL).

    4. Local GL – to ensure appropriate communications with the state agency. The local GL can provide the status of the state agency’s Implementing and Basic Agreements and Safeguards Procedure Report (SPR) certification which is required prior to completing an MOU.

    5. Local Disclosure – to ensure appropriate disclosure policies are adhered to. The local GL may be able to complete this step.

  6. Upon approval from the coordinating offices and with the assistance of the local GL, complete the MOU using the approved GL template (available from the HQ GL Analyst). Ensure all sections are completed including:

    • Exhibit A, List of Authorized Agents, and

    • Exhibit B, List of Joint Examination.

  7. Pursuant to the GL securing the state agency’s authorized signature on the MOU (two copies should be signed), complete the following information package as an attachment to the Form 13893, Note to Reviewer, to secure Chief, Excise Tax Program approval for the MOU:

    1. A detailed explanation of how the MOU was originated including the requesting and receiving office or agency (who contacted who).

    2. A detailed explanation of why the MOU is being requested. It is not sufficient to indicate that tax evasion or fraud is suspected, an explanation of why fraud is suspected is necessary.

    3. A statement of benefits to the IRS for conducting the joint audits, e.g., as the expected tax increase, data acquisition, etc.

    4. Form 13839.

    5. Form 14074, Action Routing Sheet.

  8. Provide the entire package to the local GL for submission to the Chief, Excise Tax Program. The GL will secure e-mail the package including the two signed copies of the MOUs to the Chief, Excise Tax Program, for signature processing.

  9. The GL will e-mail the HQ GL Analyst that the MOU has been forwarded to the Chief, Excise Tax Program and will forward the SPR certification to the Office of Safeguards.

  10. Upon approval by the Chief, Excise Tax Program, return the MOU to the local GL and provide a copy to the excise territory manager. The GL office will input the MOU to their GLD shared site with the standard naming convention and provide a copy to the state agency.

Requesting Excise Subject Matter Expert (SME) Assistance

  1. When an excise examiner needs the assistance or advice of an Excise Subject Matter Expert (SME), the excise examiner must first discuss the need for assistance with their group manager. If the manager agrees that SME assistance or advice is needed, the excise examiner will complete a Guidance Request Memorandum (GRM) and submit it to the group manager for review and approval. Additional information about the GRM is found on the EIS web page at http://mysbse.web.irs.gov/Specialty/excise/issues/eis/default.aspx

  2. If the group manager approves the request for advice or assistance, the GRM will be e-mailed to the territory manager for review and approval.

  3. Upon review and approval, the territory manager will e-mail the GRM to the Excise Policy Manager for review and assignment to the appropriate SME.

  4. The Excise Policy Manager will monitor requests to ensure they are handled expeditiously and that responses are consistent with current policy.

  5. Within 10 business days after receiving the GRM, the SME will provide a written response to the GRM. In the event the SME is unable to provide a written response within 10 business days, they will notify the excise examiner, the group manager, and the Excise Policy Manager of the time within which the advice will be provided.

  6. All requests for Counsel opinions, guidance, and any other type of legal assistance are to be routed through the excise territory managers, to the Excise Policy Manager, who will forward the request to the SME for technical review before final approval by the Chief, Excise Tax Program.

  7. Upon the Chief, Excise Tax Program approval, the request will be routed either to the Associate Chief Counsel, Passthroughs and Special Industries (PSI Branch 7), or to the Division Counsel SBSE assigned to excise tax matters.

  8. There will not be any technical advice requests, opinion, guidance, or assistance going directly to local Counsel offices, even on an informal or draft basis.

Coordinated Excise Issues

  1. Coordinated Excise Issues may be proposed by the Excise Policy Manager or SME to ensure key excise issues within a particular abstract are raised, developed and resolved on a consistent basis. The purpose of Coordinated Excise Issues is to provide excise examiners with guidance on significant national issues that are not being resolved consistently.

  2. Coordinated Excise Issues establish uniform positions within the excise tax abstract or issue area. Excise examiners cannot deviate from such positions without the concurrence of the Excise Policy Manager.

Coordination of Excise Technical Advice and Guidance

  1. The following are the duties and responsibilities of excise management with regard to technical advice and guidance:

    1. Ensure that the policies and procedures instituted by the Excise Tax Program for uniform and consistent excise tax administration are followed.

    2. Ensure that Excise Coordinated Issues are considered during the examination process.

    3. Ensure that excise examiners consult with the SME as warranted whenever the excise examination involves an abstract/issue within the SME area of expertise.

    4. Ensure that excise examiners consult SME in preparing requests for Technical Advice whenever the request involves an excise issue. Requests should be made as early as possible in the examination process. A copy of each request should be sent to the appropriate SME in accordance with the yearly Technical Advice Request Revenue Procedure. The SME should be involved in every step in the process leading to the release of the Technical Advice Memorandum including Chief Counsel requests for additional information, conferences, discussions of tentative conclusions, etc.

    5. Ensure that the SME is involved on all excise issues selected for the LB & I Pre-Filing Program, Industry Issue Resolution Program, or Fast Track Mediation Program.

Excise Technical Advice Memorandum Procedures

  1. An Excise Technical Advice Memorandum (TAM) is furnished as a means of assisting personnel in closing cases and establishing and maintaining uniformity in the treatment of Excise Program issues. The Office of Associate Chief Counsel issues TAM’s. The procedures to request a TAM are found each year in Rev Proc 20XX-2. The excise examiner must:

    1. Follow the requirements of the yearly Technical Advice Request Revenue Procedure.

    2. Request assistance of the SME assigned to the specific abstract involved.

    3. Forward the completed request immediately to the Excise Policy Manager.

    4. Notify the Excise Tax LB & I Program Analyst if the request for Technical Advice Memorandum originates from a Coordinated Industry Case (CIC) in LB & I.

  2. The Excise Policy Manager will forward the Request for Technical Advice to the Office of Associate Chief Counsel.

  3. Other Technical Requests, such as Coordinated Issues, and issues resulting from the Compliance Assurance Process (CAP) program ( see IRM 4.51.8) will involve the following procedures:

    1. Forward the request immediately upon receipt to the Excise Policy Manager.

    2. Notify the Excise Tax LB & I Program Analyst if the request originates from a Coordinated Industry Case.

    3. Obtain the involvement of the SME for the excise issue abstract if needed.

  4. Coordination of Technical Excise Issues with other divisions:

    1. All Technical Excise Issues will include involvement by the Chief, Excise Tax Program through the Excise Policy Manager.

    2. All Technical Excise Issues originating from a Coordinated Industry Case will include involvement by the Excise Program Manager through the Excise Tax LB & I Program Analyst.

    3. The Excise Policy Manager will work jointly with the LB & I Technical Advisors to resolve Excise issues in the case, but the resolution of the excise issue is the responsibility of the Excise Tax Program.

Executive Order Prohibiting Texting While Driving

  1. Excise examiners who are required to drive government leased/owned, rental vehicles, or personal vehicles as part of their regular or occasional job duties, or where an excise examiner's manager determines that the excise examiner, who is a holder of a government Blackberry or travel car may need to drive for travel/official business must adhere to Treasury in Treasury Directive 74-01 implementing the Executive Order (EO) 13513 (Federal Leadership in Reducing Texting While Driving).

  2. Excise examiners shall not engage in text messaging when:

    1. driving a government owned vehicle, or

    2. when driving a personal owned vehicle on official Government business, or

    3. when using electronic equipment supplied by the Government while driving.

Statute of Limitations Chart

  1. The IRM controlling Statutes of Limitation issues is IRM 25.6, Statute of Limitations Handbook.

  2. Statute Controls-Due Dates and Statutory Period of Limitations. See the current Document 6209, ADP and IDRS Information .

  3. Due dates, statutory period of limitations, and statute extension procedures for excise claims for refund or abatement are found in IRM 4.24.8.

  4. IRM Citations for Statute of Limitations.

    1. Extensions: Use Form 872-B, or 872-EX See IRM 25.6.22.4.3.

    2. Preparation of Consent Forms: See IRM 25.6.22.6.11, Preparation of Consents for Specific Entities and Taxes-Excise Tax.

    3. Statute Controls: All statute controls outlined in IRM 1.4.40.4.3 SB/SE Compliance Field Examination Group Manager Resource Guide must be followed.

    4. Form 895 procedures: See IRM 25.6.23 Statute of Limitations - Examination Process - Assessment Statute of Limitations Controls.

    5. Alpha Codes: See IRM Exhibit 25.6.23-3.

    1. MFT Code Form No Type of Return Period Covered Due Date Statutory Period of Limitations
      03 720 Excise Tax Quarter Last day of the month following the end of the quarter (April 30, July 31 Oct 30, Jan 31.) 3 years after due date of return or 3 years after the date return was actually filed, whichever is later. 6 year assessment period may also apply. See IRM 4.24.6.3.21.1
      64 730 Wagering Tax Month Last day of the month following the month in which the wagers are accepted. 3 years after due date of return or 3 years after the date return was actually filed, whichever is later.
      60 2290 See Note Below Heavy Highway Vehicle Use Tax Year August 31, if in use in July, or last day of the month following the month first used in a period 3 years after due date of return or 3 years after the date return was actually filed, whichever is later.
      63 11-C Occupational Tax on Wagering And Registration Return For Wagering Year Register prior to accepting first wager, then renew by July 1 each year. 3 years after due date of return or 3 years after the date return was actually filed, whichever is later.
      NA 720TO/CS Terminal Operator Report and Carrier Summary Report Returns Monthly Last day of the month following the month 3 years after due date of return or 3 years after the date return was actually filed, whichever is later

      Note:

      The IRS has issued a temporary regulation to extend the due date of Form 2290 to 11/30/2011 for returns due 08/31/2011 due the possibility of the expiration of this tax. The tax was subsequently extended thru September 30, 2017. As a result normal due dates and statute of limitations periods apply for all subsequent tax periods.