4.24.16 Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures

Manual Transmittal

December 20, 2016

Purpose

(1) Updated IRM 4.24.16, Excise Tax, Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures.

Background

The September 12, 2013 IRM 4.24.16 is updated to reflect the changes listed in the table below. This section provides guidance pertaining to report writing, case processing and Appeals procedures.

Material Changes

(1) Updated 4.24.16 material changes listed below:

IRM Description
4.24.16 Excise Tax, Excise Fuel Compliance Report Writing, Case Processing and Appeals Procedures Minimum cosmetic edits made throughout this IRM section.
4.24.16.1 (9) Report Writing and Case Processing Overview Removed “if warranted”, when directing employees to complete Form 5346, Examination Information Report referrals for proposed penalties.
4.24.16.1.3 (2) Penalty Case Processing Procedures Multiple penalties on one taxpayer can now be created in one IMS case file. For assistance, note added stating input a IMS help ticket.
4.24.16.1.3 (3) Penalty Case Processing Procedures Removed tracking code 9997, Failure to display tax registration on vessels and multiple violations for such, due to the fact that Notice 2005-4 and Notice 2005-2 and Internal Revenue Bulletin 289, provides at section 6 that no penalty will be imposed until after the IRS provides guidance on the identification device and the manner of its display.
4.24.16.1.3 (4) Penalty Case Processing Procedures Removed Uniform Issue List (UIL) code 06718.00-00, due to the fact that Notice 2005-4 and Notice 2005-2 and Internal Revenue Bulletin 289, provides at section 6 that no penalty will be imposed until after the IRS provides guidance on the identification device and the manner of its display.
4.24.16.1.3 (15) Penalty Case Processing Procedures New content added stating once the 30 day letter is issued and mailed to taxpayer, the employee will keep the IMS case file in open inventory until the group manager notifies the employee of how the case will be disposed and which disposal code to enter into IMS.
4.24.16.1.3 (15) Penalty Case Processing Procedures Note added to merge IMS case file with ERCS prior to closing.
4.24.16.1.4.1 Instructions for Completing Form 5345-D for Penalty Proposals Added new alpha list (d) indicating to check Control Non-Aims DET Item on Form 5345-D, Examination Request - ERCS (Examination Returns Control System) Users.
4.24.16.1.4.2 (1) (e) Instructions for Completing Form 8278 for Penalty Proposals Edited paragraph to indicate the use of an electronic ink signature file to sign Form 8278 in IMS.
4.24.16.1.4.3 (2) Instructions for Completing Form 3198 for Penalty Proposals Note added to refer readers to IRM 4.24.16.1.11 (3), Case Processing-Managerial Responsibility, for additional disposal code guidance.
4.24.16.1.9 (11) Case File Assembly for Penalty Inspection Cases Added a reference to IRM 10.2.13.4.4.1, Shipping Personally Identifiable Information (PII), for procedures on shipping penalty inspection cases.
4,24,16,1,9,1 Indexing and Naming Convention for IMS Penalty Case Forms and Work Papers New section added to incorporate interim guidance SBSE 04-0916-0037, Interim Guidance for Indexing Work-Papers in IMS for Inspection Penalties.
4.24.16.1.11 (2) Case Processing-Managerial Responsibilities Added requirement to update electronic copy of administrative forms residing in IMS, (i.e. Form 3198, Special Handling Notice for Examination Case Processing and Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, based on the disposition of the case.
4.24.16.1.11 (3) Case Processing-Managerial Responsibilities New requirement to have manager notify employee to enter a disposal code in IMS based on how the case was disposed and to direct the employee to close and synchronize the case on IMS once the disposal code has been entered. Added language indicated the manager should update the disposal code on Form 3198.
4.24.16.1.11 (5) Case Processing-Managerial Responsibilities New requirement to have manager update Manager Concurrence in IMS to "yes" for all cases established on ERCS, regardless on how they were disposed.
4.24.16.2 Administrative Appeal of Fuel Penalty Reference to Rev. Proc. 2001-33 was removed, as it does not give the taxpayer the right to Appeal. Rev. Proc. 2001-33 only informs taxpayers how to request an administrative appeal of the penalties.
4.24.16.2.1 Appeals Case Routing Procedures for Penalty Cases New content regarding how dyed fuel penalty cases are forwarded to Appeals. Also note added requiring the group manager to complete Form 12009, Request for an Informal Conference and Appeals Review. Includes inclusion of SBSE Interim Guidance SBSE-04-1215-0057, Appeals Case Routing Procedures - Dyed Fuel Penalty Cases, Appeals Settlement Procedures.
4.24.16.2.2 Final Disposition of the Penalty Case File after the Appeal New content regarding how dyed fuel penalty cases are handled by Appeals after the determination has been made. Includes inclusion of SBSE Interim Guidance SBSE-04-1215-0057.

Effect on Other Documents

This material supersedes IRM 4.24.16, dated 9-12-2013. This IRM section contains procedural guidance found in the interim guidance memorandum: SBSE-04-1215-0057, Appeals Case Routing Procedures- Dyed Fuel Penalty Cases, Appeals Settlement Procedures, dated 12-30-2015 and interim guidance memorandum: SBSE-04-0916-0037, Interim Guidance for Indexing Work-Papers in IMS for Inspection Penalties, dated 9-26-2016.

Audience

This section provides direction to Excise Fuel Territory Managers, Supervisory Fuel Compliance Officers, Fuel Group Managers, Fuel Compliance Officers, and Fuel Compliance Agents. Information in this section may also support coordination with SBSE excise groups.

Effective Date

(12-20-2016)


/s/Alfredo Valdespino
Acting Director, Examination - Specialty Policy
Small Business/Self Employed

Report Writing and Case Processing Overview

  1. Fuel Compliance Officers (FCOs) and Fuel Compliance Agents (FCAs) (referred throughout this IRM section collectively as employees, and individually as employee) conduct inspections and obtain fuel samples to ensure taxable fuel in the fuel distribution system is properly dyed and taxed. These inspections may result in the employee asserting penalties if non-compliance is identified.

  2. Employees record the following types of inspection cases on the Information Management System (IMS):

    • No Adverse Action (sometimes referred to as a no-change case)

    • An IRC 6715 violation

    • An IRC 6715A violation

    • An IRC 6717 violation

    • An IRC 6720A violation

      Note:

      See table in IRM 4.24.16.1.3(4) for definitions of the violations.

  3. Employees must record all inspections and taxpayer contacts in IMS. See IRM 4.24.13,Overview of Excise Fuel Compliance Program.

  4. For fuel sampling procedures, see IRM 4.24.15, Excise Fuel Compliance Inspection, Sampling and Shipping.

  5. Employees must record the inspection in IMS within four business days after the date of the inspection, unless:

    1. The group manager gives the employee specific permission to delay recording the inspection

    2. The employee is participating in a Blitz activity - See IRM 4.24.15.7,Blitz Inspection Procedures.

    3. Computer malfunctions preclude input (however, employee must record the inspection promptly after the computer problem is resolved)

      Note:

      Employees should notify the Help Desk and their group manager of a computer malfunction as soon as possible after a problem is encountered.

  6. Employees must record any delays in the case history.

  7. If the employee does not receive sample results within 10 business days after shipment, the employee should inform their group manager, who may inquire about the status of the sample.

  8. Employees are responsible for building the hard copy penalty case files.

  9. Employees will forward the hard copy of the case file along with a referral Form 5346, Examination Information Report, to their group manager. See IRM 4.24.13.8, Referrals.

  10. If the taxpayer has a representative has a valid power of attorney authorizing receipt of correspondence, then the employee must send all correspondence to both the taxpayer and the representative. See IRM 4.11.55,Power of Attorney Rights and Responsibilities.

State Penalty Case Processing

  1. Employees who receive samples from state officers must document receipt of samples and upload state narratives in IMS.

  2. A state penalty does not automatically result in a federal penalty assessment. Information received from a state is considered along with all the other facts and circumstances. Each case is evaluated to determine if a federal penalty is warranted. In particular, the employee must carefully consider factors that affect the validity of the sample (i.e., contamination of the sample) and the protection of the taxpayer’s rights. Employees may need to contact the taxpayer and obtain additional samples to determine if a federal penalty is warranted.

    1. If the employee pursues a penalty for a federal violation, processing the federal case should not be delayed pending the outcome of the state case nor for any appeals related to that state case. The federal penalty case should be fully developed and stand on its own merits.

    2. If the employee does not pursue a penalty for a federal violation, the employee must input the case information and narrative in IMS, but will treat the inspection as a no adverse action case.

Inspections Resulting in No Adverse Action

  1. When creating a "no adverse action" case (also referred to as a "no-change" case) in IMS, use Uniform Issue List (UIL) Code 04081.00-00, Gasoline and Diesel Fuel.

  2. For non-terminal inspections that do not result in adverse action, the employee should issue Letter 3143, Non-violation IRC 6715 Inspection Letter, and close the case in IMS by the end of the next business day after the inspection has been input in IMS and the determination is made. If the taxpayer identification number (TIN) is not known, the employee may provide Letter 3143 to the taxpayer without a TIN, if the letter is issued at the inspection site on the date of the inspection.

  3. For terminal inspections, the employee should issue Letter 3144,Dyed Fuel Terminal Inspection Letter, and close the case in IMS by the end of the next business day after the inspection is input in IMS and the determination is made.

Penalty Case Processing Procedures

  1. Within four days of finding a potential penalty, the employee must notify their group manager and create a case (with all necessary work papers) in IMS.

  2. If multiple penalties (e.g., IRC 6715(a)(1) and IRC 6717) are assessed on the same taxpayer, the employee creates one IMS case file, and includes the multiple penalties as separate entities within that one IMS case file and all appropriate closing forms (see below, IRM 4.24.16.1.4,Case Closing Procedures for Penalty Proposals).

    Note:

    This situation occurs rarely. For assistance, input an IMS help ticket.

  3. Select the appropriate Tracking Code when creating the case. The chart below provides the applicable fuel Tracking Codes and corresponding penalty code sections.

    Select Tracking Code If you have a....
    9992 IRC 6715(a)(1) Penalty - Dyed fuel held for sale or sold
    9994 IRC 6715(a)(2) Penalty - Dyed fuel held for use or used
    9994 IRC 6715(a)(3) Penalty - Willful alteration of the strength or composition of any dyed fuel
    9994 IRC 6715(a)(4) Penalty - Has knowledge that dyed fuel has been altered and sells or holds for sale such fuel for any use which the person knows or has reason to know is not a nontaxable use of such fuel
    9995 IRC 6715A(a)(1) and IRC 6715A(a)(2) Penalty - Mechanical dye tampering and failure to maintain security requirements
    9996 IRC 6717 Penalty - Refusal of entry
    9998 IRC 6720A(a) &(b) Penalty - Penalty with respect to certain adulterated fuels
  4. Select the appropriate UIL Code when creating the case. The chart below provides the applicable UIL Codes and corresponding penalty code sections.

    UIL Code Description Penalty Type
    06715.00-00 Dyed fuel sold for use or used in a taxable manner For IRC 6715(a)(1), (2), (3) & (4) penalty proposals
    06715A.00-00 Tampering with or failing to maintain security requirements for mechanical dye injection systems For IRC 6715A penalty proposals
    06717.00-00 Refusal of entry For IRC 6717 penalty proposals
    06720A.00-00 Penalty with respect to certain adulterated fuels For IRC 6720A penalty proposals
  5. Once the lab results are received, the employee completes Form 5345-D,Examination Request - ERCS (Examination Returns Control System) Users, in the IMS case management system and submits the form electronically to the group manager for approval. Form 5345-D is used to establish the case on ERCS. See IRM 4.24.16.1.4,Instructions for Completing Form 5345-D for Penalty Proposals.

  6. When preparing the package, the employee must research the Integrated Data Retrieval System (IDRS) to determine if any violations were assessed previously against the taxpayer. Employee must record the dates, IRC sections and total number of prior penalties for each IRC section in the IMS case file.

  7. The employees should review the following IDRS command codes for taxpayers with Employee Identification Numbers (EINs):

    • SUMRY

    • TXMODA

    • BMFOLI

    • BMFOLT

  8. Employees should review the following IDRS command codes for taxpayers with Social Security Numbers (SSNs):

    • SUMRY

    • TXMODA

    • IMFOLI

    • IMFOLT

    Note:

    TXMOD shows adjustments pending to posting to Master File. IMFOLT and BMFOLT display transactions that are posted to Master File.

  9. When determining the penalty assessment amount and whether there are any limitations of the taxpayer’s appeal rights, the employee must review carefully the IDRS transcripts for a Transaction Code 240, Assessment of Miscellaneous Civil Penalty, and a Transaction Code 290, Additional tax Assessment, with the applicable penalty reference code (e.g., 656). If the assessment amounts shown in IDRS is zero, then IRC 6715(b)(2) and IRC 6715(e) do not apply.

  10. The group manager reviews the case in IMS prior to approving the penalty proposal.

  11. The group manager notifies the employee via secure e-mail or by telephone that the penalty proposal is either approved or not approved.

  12. After approval from the group manager, the employee issues Letter 3145, Dyed Fuel Penalty 30 day Letter, to the taxpayer and the penalty package. See IRM 4.24.16.1.5,Inspections Resulting in a Potential IRC 6715 Violation, through IRM 4.24.16.1.8,Inspections Resulting in a Potential IRC 6720A Violation, for guidance on what items are included in the penalty package.

  13. The group manager, after approving the proposed penalty, directs the group secretary to establish the case on ERCS and to place the case in ERCS status 12 within two business days.

  14. The employee mails the case file to the group manager at the same time that the 30 day letter is issued.

  15. Once the 30 day letter has been issued, the case remains in the employee’s open case inventory on IMS until the group manager notifies the employee of the disposal code to enter into IMS. Following input of the appropriate disposal code has been entered into IMS, the case must be closed and synchronized.

    Note:

    All primary manual returns must be merged with ERCS to create a primary ERCS return before the case is finalized and closed.

Case Closing Procedures for Penalty Proposals

  1. Employees must complete the following forms for every penalty case:

    • Form 5345-D

    • Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties

    • Form 3198, Special Handling Notice for Examination Case Processing

  2. the employees completes Form 2363, Master File Entity Change when an account needs to be established on Master File or when changes to the entity record are required (i.e., the taxpayer's name and/or address has changed). The employee completes Form 2363 and forwards via secure e-mail to the group secretary for processing. The group secretary must forward the completed form to the Centralized Case Processing (CCP) either by E-fax at 1-855-386-5123 or by mailing the form to: CCP, 201 W. Rivercenter Blvd, Stop 8412-G, Covington, KY 41011 via Form 3210, Document Transmittal. The group secretary annotates the facsimile cover sheet or Form 3210 with required actions (i.e., transaction code and purpose selected by the FCO/FCA on the completed Form 2363 ). The group secretary annotates the date the form was either E-faxed or mailed to CCP on Form 3198, in the section directly below the "Taxpayer Name and Address" section, and on the copy of Form 2363.

Instructions for Completing Form 5345-D for Penalty Proposals
  1. The employee completes Form 5345-D. Pertinent sections on the form are detailed below. All other sections are self-explanatory.

    1. Applicable inspection activity code (see table below)

    2. Appropriate MFT that corresponds to the inspection activity code (see table below)

      Activity Code MFT
      515 Terminal Inspections D5
      516 Wholesaler and Retailer Inspections D6
      517 Designated Inspection Site Screening and Inspections D7
      518 End User Inspections D8
    3. "EE" statute date, which is recorded using the month of the penalty+ "EE" + the year: "MMEEYYYY"

      Note:

      A penalty identified in February 2011 is recorded as "02EE2011" .

    4. Check the appropriate box on Form 5345D that indicates “Control Non-Aims Direct Examination Time (DET) Item.

Instructions for Completing Form 8278 for Penalty Proposals
  1. The employee must complete Form 8278.

    1. Do not enter the penalty amount unless the taxpayer has agreed to the assessment or paid in full. The group manager determines the penalty amount and records the amount on the form after administrative appeal (if any) is complete.

    2. The "EE" statute date is recorded using the month of the penalty + "EE" + the year: "MMEEYYYY" .

    3. Section G - the number of penalties, always enter "1" .

    4. The three-digit penalty reason code entered in column (f) is the same as the penalty reference number listed in column (b).

      Note:

      Exceptions: Use penalty reason code 665T for a penalty assessed under IRC 6715A(a)(1), and use penalty reason code 665S for a penalty assessed under IRC 6715A(a)(2)

      .

    5. The employee and group manager must sign Form 8278, electronically in IMS. This is accomplished by the user utilizing an electronic ink signature file created in advance for the purpose of signing applicable forms in IMS.

    6. CCP returns the case to the originating field group if the Form 8278 is not signed by both the employee and the group manager.

Instructions for Completing Form 3198 for Penalty Proposals
  1. The employees must properly complete all applicable sections on Form 3198. These include:

    • Business Unit

    • Employee Preparing Form

    • Taxpayer Name

    • Forms Enclosed, (if applicable)

    • Expedite Processing, (if applicable)

    • Special Features, (if applicable)

    • Forward to CCP

    • Tax Period and all applicable line items

  2. The employee must complete Form 3198 with disposal code 12 for all dyed fuel penalty proposals.

    Note:

    If the manager holds an informal conference and determines the case will be forwarded to Appeals or the penalty will not be assessed, see IRM 4.24.16.1.11 (3), Case Processing-Managerial Responsibilities, for additional disposal code guidance

    .

Instructions for Completing Form 2363
  1. Form 2363, is a multi-purpose form, divided into two sections entitled "From " and "To" . The "From" section is used to record old information and the "To" section is used to record new information. The most common actions are requesting establishment of the entity on Master File or changes to the entity’s name and/or address.

  2. The employee must check the appropriate transaction codes (listed below are the most common transaction codes) in the "From" section when requesting entity-related actions:

    • Transaction code "000" to request establishment on Master File/IDRS

    • Transaction code "013" to request a name change

    • Transaction code "014" to request an address change

    • Transaction code "015" to request a zip code change

    • Any other transaction code listed in the "From" transaction code column, if changes are applicable

  3. Employee must complete all applicable fields in the "To" section that pertain to either establishing the entity on master file or changes to the existing taxpayer entity record on master file.

Inspections Resulting in a Potential IRC 6715 Violation

  1. The employee must issue (or hand deliver)Form 886-A,Explanation of Items, at the time of the inspection or by the next business day after a potential IRC 6715 violation is found.

    Note:

    If the potential violation is found by a state, the employee does not issue Form 886-A to the taxpayer for that violation. Rather, the employee will include Notice 1416, State Penalty Notice, with the penalty package. This notice explains that the IRS is assessing a penalty for a violation based on information provided to the IRS from a state with an information sharing Memorandum of Understanding (MOU).

  2. The penalty package for an IRC 6715 dyed fuel violation is the written notification informing the taxpayer of the proposed penalty. The employee issues the penalty package immediately after the group manager notifies the employee of the approved penalty assessment.

  3. The penalty package for IRC 6715 penalties includes:

    1. Letter 3145

    2. Two (2) copies of Form 12010, Report of Proposed Penalty - IRC 6715

    3. Form 12009, Request for an Informal Conference and Appeal Review

    4. Notice 1215, What to Do if You Disagree with the Fuel Penalty

    5. Publication 1, Your Rights as a Taxpayer

    6. Notice 1416 (if applicable to the case)

  4. The employee must conduct a follow-up inspection within 60 days of the issuance of the penalty package to verify whether the taxpayer is complying with the law, in particular, that the violations previously cited are not recurring. The follow-up inspection is a separate inspection and a violation found during that follow-up inspection is treated as subsequent penalty for purposes of IRC 6715(b)(2) .

Inspections Resulting in a Potential IRC 6715A Violation

  1. The penalty package for an IRC 6715A violation is the written notification informing the taxpayer of the proposed penalty. The employee issues the penalty package immediately after the employees group manager notifies the employee of the approved penalty assessment.

  2. The penalty package for IRC 6715A penalties includes:

    1. Letter 3145

    2. Two (2) copies of Form 12012,Report of Proposed Penalty - IRC 6715A

    3. Form 12009

    4. Notice 1215

    5. Publication 1

  3. The employee must conduct a follow-up inspection within 60 days of the issuance of the penalty package to verify whether the taxpayer is complying with the law, in particular, that the violations previously cited are not recurring. The follow-up inspection is a separate inspection and the employee should create a separate case file in IMS for each inspection.

Inspections Resulting in a Potential IRC 6717 Violation

  1. The penalty package for an IRC 6717 violation is the written notification informing the taxpayer of the proposed refusal penalty. The employee issues the penalty package immediately after the group manager notifies the employee of the approved penalty assessment.

  2. The penalty package for IRC 6717 penalties includes:

    1. Letter 3057,Refusal Letter Under IRC 4083(d)

    2. Two (2) copies Form 12011,Report of Proposed Penalty - IRC 6717

    3. Form 12009

    4. Notice 1215

    5. Publication 1

Inspections Resulting in a Potential IRC 6720A Violation

  1. The penalty package for an IRC 6720A violation is the written notification informing the taxpayer of the proposed adulterated fuel penalty. The employee issues the penalty package immediately after the group manager notifies the employee of the approved penalty assessment.

  2. The penalty package for IRC 6720A includes:

    1. Letter 3145

    2. Two (2) copies Form 12013,Report of Proposed Penalty - IRC 6720A

    3. Form 12009

    4. Notice 1215

    5. Publication 1

  3. The employee must conduct a follow-up inspection within 60 days of the issuance of the penalty package to verify whether the taxpayer is complying with the law, in particular, that the violations previously cited are not recurring. The follow-up inspection is a separate inspection and the employee should create a separate case file in IMS for each inspection.

Case File Assembly for Penalty Inspection Cases

  1. Employees must follow the procedures outlined in this section for all penalty inspection case files.

  2. Proper assembly of a case file minimizes delays, administrative problems, and procedural errors.

  3. Each penalty case file is placed in a separate folder.

  4. All related cases are submitted together with the controlling case on top. The files must be bound securely together with a rubber band or strap to ensure they are not separated in error.

  5. If more than one folder is submitted, the folders should be numbered (i.e., Folder 1 of 2, Folder 2 of 2, etc), to easily identify if a portion of submission is missing.

  6. All pertinent work papers from each IMS case file must be printed and included in the case file(s).

  7. Affix Form 3210 and Form 3198, in order, to the outside of the folder.

  8. Affix the following to the inside, left side of the folder in the order prescribed (top to bottom) below:

    1. Form 5346, (if applicable)

    2. Form 2363, (if applicable)

    3. IDRS research

  9. Affix the following to the inside, right side of the folder in the order prescribed (top to bottom)below:

    1. Copy of approved Form 5345-D. The case should already be established on ERCS. The original Form 5345-D is maintained at the group level and is not forwarded with the case file to CCP.

    2. Form 8278

    3. Copy of the penalty package mailed/provided to the taxpayer.

      Note:

      The closing letter is on top, followed by the report of proposed penalty, the Form 12009 and Form 886-A.

    4. Copy of Form 3244-A, Payment Posting Voucher, (if applicable)

    5. Form 433-D, Installment Agreement, ( if applicable)

      Note:

      Form 3198 should indicate whether Form 433-D is included in the file. See IRM 4.24.16.4, Fuel Compliance Collection Duties, for guidance on installment agreements.

    6. Form 2848, Power of Attorney and Declaration of Representative, (if applicable)

      Note:

      Form 3198 should indicate whether Form 2848 is included

      .

    7. Form 12175,Third Party Contact Form, (if applicable)

    8. Form 12180,Third Party Contact Authorization Form, (if applicable)

    9. Case file history documentation (comments/inspection summary) or Form 9984, Examining Officer’s Activity Record

    10. Copy of lab results

    11. Case file portion of Form 9667,Sample Bottle Seals and Identification Labels, affixed to a case file work paper (i.e., blank sheet of paper or inspection case history work paper)

    12. All supporting documents/photographs

    13. All research materials, i.e., Accurint, (if applicable)

      Note:

      Do not include extraneous forms or documents.

  10. The completed penalty case file is forwarded to the group manager in a confidential envelope that states "to be opened by addressee only" . Notify the group manager by a secured e-mail message when the case file is sent.

    Note:

    When the group manager directs sending the completed penalty case file to the group secretary, the employee should send the secured e-mail notification to both the group manager and group secretary.

  11. The case file should be mailed to the group manager utilizing current mailing procedures. See IRM 10.2.13.4.4.1, Shipping Personally Identifiable Information (PII).

Indexing and Naming Convention for IMS Penalty Case Forms and Work Papers
  1. IMS penalty case work-papers are created using a standardized naming and indexing convention. The conventions for inspection penalties will assist IMS Team Website users in locating IMS case file documents. The indexing and naming convention below addresses all referenced forms/documents contained in IRM 4.24.16.1.9, Case File Assembly for Penalty Inspection Cases. The naming protocol consists of a letter and number followed by a description of the document.

  2. The majority of the penalty case documents and related work-papers are in the "Workpaper Documents" repository within IMS, with the exception of those created and housed in the Return Documents repository. The naming conventions specified in this section are not required for:

    1. Form 3198

    2. Form 5345D

    3. Form 8278

  3. Indexing convention - "A" includes:

    1. Form 3210 - Work-paper name: A1 - Form 3210

  4. Indexing convention - "B" includes:

    1. Form 5346 - Work-paper name: B1 - Form 5346

    2. Form 2363 - Work-paper name: B2 - Form 2363

      Note:

      Annotate the copy of Form 2363 and Form 3198 with the date the Form 2363 was processed (i.e. date original form faxed to CCP), which should occur prior to forwarding case to CCP.

      .

    3. IDRS research - Work-paper name: B3 - IDRS Research

  5. Indexing convention - "C" contains the remaining forms and work-papers by naming convention, if applicable. Each workpaper segment has a sequential numbering system (e.g., C1, C1-1, C1-2, etc) and includes the following naming conventions for:

    • C1 work-papers consists of all work-papers, included in the penalty package mailed to the taxpayer including:

    1. Letter 3145 - Work-paper name: C1 - Letter 3145

    2. Form 12010, Form 12012, Form 12013 or Form 12014 - Work-paper name: C1-1 - Form 12xxx

    3. Penalty Calculation - Work-paper name: C1-2 - Penalty Calculation

    4. Form 12009 - Work-paper name: C1-3 -Form 12009

    5. Form 886A - Work-paper name: C1-4 -Form 886A

    6. Notice 1215 - Work-paper name: C1-5 -Notice 1215

    7. Pub 1 - Work-paper name: C1-6 - Pub 1

    8. Notice 1416 - Work-paper name: C1-7 - Notice 1416

    • C2 consists of procedural forms, including:

    1. Form 3244A - Work-paper name: C2 - Form 3244A

    2. Form 433-D - Work-paper name: C2-1 - Form 433-D

    3. Form 12175 - Work-paper name: C2-2 - Form 12175

    4. Form 12180 - Work-paper name: C2-3 - Form 12180

    • C3 consists of case documentation and supporting case comments, including:

    1. Inspection Compliance Form, Inspection Sheet, or any inspection work-paper created - Work-paper name: C3 - Inspection Compliance Form

    2. Case Comments, Form 9984, or any history documentation created - Work-paper name: C3-1

    • C4 consists of copies of the laboratory testing results, including:

    1. Copy of lab results - Work-paper name: C4 - Sample #NNNNNNN dye results. If there are multiple lab results, the second and third lab results will have a naming convention as follows: C4-1 and C4-2.

    • C5 consists of any additional case documentation associated with shipping the samples, including:

    1. Form 9667 - Work-paper name: C5 - Form 9667

    2. Form 13926 - Work-paper name: C5-1 - Form 13926

    3. Form 13927 - Work-paper name: C5-2 - Form 13927

    • C6 consists of photographs and additional supporting documentation secured from the taxpayer, including:

    1. Truck 1 Photograph - Work-paper name: C6 - Truck 1 Photograph. If there are multiple photos of trucks, pumps or tanks, the second and third photo will have a naming convention as follows: C6-1 and C6-2

    2. Company Fuel Records or other documentation received - Work-paper name: C6-3. The naming convention C6-3 is based on the premise that there were three (3) photographs named C6, C6-1 and C6-2.

    • C7 consists of Accurint research:

    1. Accurint Research - Work-paper name: C7 - Accurint Research

Centralized Case Processing (CCP)

  1. All proposed penalty case files are processed through CCP, including cases that result in a penalty assessment and cases in which the group manager determines that a penalty does not apply (no-change).

  2. CCP:

    1. Receives all penalty case files (forwarded via Form 3210)

    2. Processes all closed penalty case files and updates to status 90 on ERCS

      Note:

      If problems arise regarding ERCS/Audit Information Management System (AIMS), the group secretaries should contact their local ERCS/AIMS analyst for resolution.

Case Processing-Managerial Responsibilities

  1. The group manager is responsible for ensuring the following case actions:

    1. Review all proposed penalty cases in IMS

    2. If agreeing with the proposed penalty, approve Form 5345-D and notify the employees that the penalty is approved

    3. Establish all penalty proposals on ERCS and update to status 12 within two (2) business days after determining to pursue a penalty

    4. Monitor the expiration of the 30 day statutory period for penalty cases

    5. Record the appropriate penalty amount on Form 8278 prior to sending the penalty case file to CCP, if a penalty is applies

    6. If the penalty is not approved or will not be applied, Form 3198 will be updated to reflect disposal code 02 (no-change) and the case will be updated to disposal code 02, prior to closing

    7. Update the case to status 51 and close to CCP, after the 30 day statutory period expires if the taxpayer has not responded to the notice

    8. Record in IMS all contacts with the taxpayer and results of the case review

  2. If, as a result of the managerial conference or other reason, the group manager determines not to assert a penalty, the group manager will enter zero dollar amounts on Form 8278 and Form 3198. The electronic versions of Form 8278 and Form 3198 , included in the IMS case file, must be updated to reflect changes made to these forms.

  3. Once the disposition of the case is determined (i.e., no-change, penalty assessed or case being forwarded to Appeals), the group manager must notify the employee to enter the appropriate disposal code in IMS and to close the case in IMS.

    • Disposal Code 02 - No adverse action (no-change)

    • Disposal Code 12 - Proposed penalty will be closed to CCP and assessed

    • Disposal Code 07 - Unagreed to Appeals

      Note:

      The group manager must update both the electronic and paper copy versions of Form 3198 with the appropriate disposal code after the employee has updated it in IMS.

  4. For a case forwarded to Appeals, the group manager must follow IRM 4.24.16.2.1, Appeals Case Processing Procedures for Penalty Cases.

  5. Once the disposition of the case has been determined and all required actions taken, the group manager must set the “Manager Concurrence” to YES in IMS for all cases that are established on ERCS, regardless of how the case closed.

Administrative Appeal of Fuel Penalty

  1. Taxpayers have the right to an administrative pre-assessment appeal of a proposed IRC 6715, IRC 6715A, IRC 6720A, and/or IRC 6717 penalty.

  2. If the taxpayer requests an appeal of the penalty after the 30 day period ends, the taxpayer must pay the penalty and then file a claim for refund of the penalty paid.

    Note:

    If the penalty is paid in full, then the request is considered a claim for refund. An abatement request applies only to unpaid assessments or portions of assessments.

    See IRM 4.24.16.3,Claims for Refund of Fuel Compliance Penalties.

  3. Although the taxpayer may contact the group manager to discuss the inspection at any time prior to its completion, the administrative appeals process does not begin until the penalty package is issued.

  4. The penalty package includes penalty appeal instructions to the taxpayer. The taxpayer must complete Form 12009 and send it to the group manager within 30 days of receipt of the penalty package for an informal conference. During the informal conference with the group manager, if the taxpayer requests forwarding of the case to Appeals, the group manager will annotate Form 12009 with the date of the taxpayer’s request.

  5. Under IRC 6715(e), a person's right to appeal an IRC 6715 violation is limited if that person was penalized under that section at least twice previously, after October 22, 2004. The person may file an appeal, only if the grounds for the appeal are:

    1. Fraud or a mistake in the chemical analysis

    2. A mathematical calculation of the amount of the penalty

  6. The group manager will record in IMS all taxpayer contacts, including those related to a penalty determination, and the taxpayer's position, based on discussions or information received.

  7. The table below contains administrative appeal procedures.

    If ... Then ...
    The taxpayer disagrees with the penalty and wants an appeal The taxpayer must complete Form 12009 and send it to the group manager within 30 days of receipt of the proposed penalty package.
    The taxpayer submits the Form 12009, requesting an informal conference The group manager will attempt to resolve the dispute issue(s). If the taxpayer has been penalized twice previously under IRC 6715 after October 22, 2004, the group manager will inform the taxpayer of the limited grounds for an appeal under IRC 6715(e).
    The informal conference results in an agreement The group manager issues Letter 3165,Results of Dyed Fuel or Refusal Penalty Informal Conference, and two copies of Form 12010 (if a penalty will be assessed). The taxpayer has 30 days to respond.
    The taxpayer does not respond to the Letter 3165 within 30 days The group manager will direct the group secretary to update the case to status 51 and close the case to CCP on ERCS and the penalty will be assessed. Penalty amounts will be entered on both Form 3198 and Form 8278.
    The informal conference does not result in an agreement The group manager will either close the case unagreed to CCP, or if the taxpayer requests, the case will be forwarded to Appeals, Letter 3142, Dyed Fuel Penalty Case to Appeals, will be issued advising the taxpayer of the decision and the actions to follow. The group manager will advise the employee to enter disposal code 07 in IMS. See IRM 4.24.16.2.1,Appeals Case Routing Procedures for Penalty Cases.
    The informal conference results in the penalty no longer being proposed The group manager issues Letter 3165. The case is updated to status 51 and closed to CCP on ERCS. Disposal code 02 is used on ERCS to reflect a no change penalty case.

Appeals Case Routing Procedures for Penalty Cases

  1. The group manager must notify the employee to enter disposal code "07" in IMS, once it is determined that the case will be forwarded to Appeals. Once the disposal code is entered, the case must be closed and synchronized on IMS.

  2. Appealed cases will be closed on ERCS to Technical Services. The case must be updated to status 21, and disposal code 07, and the appropriate Technical Services Code (TSC) entered for the Technical Services group in your area.

    Note:

    TSC area and group codes, mailing addresses and points of contact can be found at:http://mysbse.web.irs.gov/examination/examorg/aboutfieldexam/technicalservices/contact/14354.aspx

  3. Appealed cases will be mailed to the appropriate Technical Services address based on the TSC code.

  4. Form 3198 must be completed as follows:

    1. Check the "Unagreed to Appeals" box in the "Forward to Technical Services" section.

    2. Check the "other" box in the "Forward to Technical Services" section. In this section, the following statement should be included: Please forward this case to the appropriate Appeals Account and Processing Support office for assignment to a specially trained Excise Appeals Officer.

  5. Form 3210, should include a statement that the case should be carded in and assigned to an Appeals Excise Cadre member.

  6. Technical Services will send the case to the Appeals Account and Processing Support (APS) office based upon the state the taxpayer resides in.

  7. Cases must include the following:

    1. Complete inspection file with statements regarding all facts made by the employee, taxpayer and group manager.

    2. Relevant work papers indicating fuel tank measurement procedures, location of additional dyed fuel tanks, and confirmation of responsible party

    3. Computation of the penalty

    4. Results of the laboratory and field testing

    5. Record of all taxpayer contacts, including results of the informal appeal

    6. Prior inspections, both violation and non-violation, if available

    7. Results of the informal appeal conference with the group manager

      Note:

      The group managers must ensure completion of Form 12009, Request for an Informal Conference and Appeals Review, including the bottom portion (i.e., "Date of Taxpayer Request for Appeals Review" and "Supervisor Date and Initial" ).

Final Disposition of the Penalty Case File after the Appeal

  1. APS will take all closing actions after a decision is reached by the Appeals Officer.

  2. IMS will generate an e-mail notification to the SB/SE Centralized Feedback mailbox. SB/SE will retrieve a copy of the Form 5402 and Appeals Case Memorandum (ACM) from IMS.

  3. Fuel Policy will monitor the Excise mailbox for all settlements of dyed fuel cases.

  4. Fuel Policy will upload ACMs sent directly to the Excise mailbox into the IMS case file and will provide copies of the ACM to the Chief, Excise Examination for dissemination to the territories/groups.

Claim for Refund of Fuel Compliance Penalties

  1. The taxpayer may dispute a penalty that has been paid in full by filing Form 843, Claim For Refund and Request for Abatement.

  2. Dyed fuel claims are processed through the Cincinnati Compliance Service Center (CCSC) and forwarded directly to the appropriate fuel territory manager.

  3. The fuel territory manager must forward the claim to the appropriate group manager via Form 3210.

  4. The group manager must consider the facts and documentation accompanying the claim to make a determination. The group manager may disallow the claim in full, partially allow the claim or fully allow the claim.

  5. Once the group manager makes a determination regarding whether to pay the claim, the group manager must complete and issue, Letter 5008, Fuel Penalty Claim, to the taxpayer.

  6. The group manager must send the completed claim file back to the CCSC via Form 3210 .

  7. These claims are not controlled on ERCS.

  8. See IRM 4.24.8, Claims for Refund or Abatement.

Fuel Compliance Collection Duties

  1. Letter 3145, included in the penalty package, instructs the taxpayer to send the payment to the address of record for the originating employee.

  2. If the taxpayer contacts the employee regarding payment of the penalty, employee should first solicit full payment.

  3. Employee may not accept cash for the payment of the penalty.

  4. If a check or money order is received as payment for the penalty, the following actions must be taken:

    1. Complete Form 3244-A

      Note:

      See IRM 3.8.45.5,Payment Perfection Procedures for Manual Processing, for instructions on how to complete Form 3244-A.

    2. Update IMS case history to reflect the receipt/collection of funds

  5. If the taxpayer cannot pay in full, the employee will refer the taxpayer to Form 9465,Installment Agreement Request, or to the IRS website to request an online payment agreement.

  6. If employee receives a "completed" Form 9465 from the taxpayer, the employee will:

    1. Complete Form 3177, Notice of Action for Entry on Master File. In the "other (specify)" box record "TC 971/AC 43" , and record the MFT(s) and tax period(s) that apply.

    2. Fax the completed Form 3177 to General Case Processing within 24 hours of receipt from the taxpayer, using fax number (267) 941-1515.

    3. Place the installment agreement in the case file. The installment agreement should be sent with the completed case file to CCP. Form 3198 must be marked accordingly to indicate that the completed installment agreement is enclosed in the file.