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Part 4. Examining Process

Chapter 24. Excise Tax

Section 2. Form 637 Excise Tax Registrations (Cont. 1)

4.24.2  Form 637 Excise Tax Registrations (Cont. 1)

4.24.2.7 
Registration Review Process

4.24.2.7.5 
Applications for Qualified Retailers in Alaska

4.24.2.7.5.1  (08-13-2008)
Description of Activities Covered

  1. Treas. Reg. §48.4082-5 provides a special rule relating to diesel fuel and kerosene taxes in Alaska. This rule applies to diesel fuel or kerosene removed, entered, or sold in Alaska for ultimate sale or use in an exempt area of Alaska.

  2. This rule, generally allows a qualified dealer to buy undyed diesel fuel and undyed kerosene tax-free for resale. Under the regulations, a qualified dealer is any person (generally a wholesale distributor) that holds a qualified dealer license from the state of Alaska or has been registered by the IRS as a qualified retailer.

4.24.2.7.5.2  (08-13-2008)
Visiting Applicants

  1. Field visits are not required. All 637 applications and registrants are managed and administrated by the Portland excise tax office.

4.24.2.7.5.3  (08-13-2008)
Registration Tests

  1. Treas. Reg. Section 48.4082-5(b) provides that the Chief, Excise Tax Program or his delegate will register a person as a qualified retailer only if the following requirements are met:

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

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

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

4.24.2.7.5.4  (08-13-2008)
Bonds

  1. Qualified Retailers in Alaska are not subject to bonding.

4.24.2.8  (08-13-2008)
Action on the Application

  1. After an Excise Tax Examiner reviews an application for registration and makes an on-site visit (if necessary), they must then recommend approval or denial of the application.

4.24.2.8.1  (08-13-2008)
Approval

  1. When the Excise Tax Examiner reviewing the file has determined that the applicant meets the appropriate registration tests, a written narrative summarizing the facts will be made and kept in the file. If a bond is required, and a surety bond is used, a registration will not be issued before receipt of a letter from the surety company certifying a bond has been issued to the applicant.

  2. When it is determined by the Excise Tax Group Manager that the application should be approved, the Excise Tax Group Manager will issue a Letter of Registration. A copy of the approval letter will be kept in the registration file.

  3. One National registration number with approved activity letters will be issued to each registrant. Multiple registration numbers will not be issued. The Excise Tax Examiner must inform the registrant to use the new National registration number and discontinue the use of any previously assigned registration number(s).

  4. If a person later qualifies for registration for activities not covered by its current Letter of Registration, an additional activity letter will be added to the end of the registration number. An updated registration letter will be issued to reflect the additional activity letter. The activity letters that designate the excise tax registration activities are listed in the Form 637 instructions at http://publish.no.irs.gov/FORMS/PUBLIC/PDF/49952J06.PDF.

  5. Each business unit that has, or is required to have a separate EIN is treated as a separate person. A person is registered only if the Excise Tax Group Manager has issued a registration to the person and the registration has not been revoked or suspended. Registrations remain valid until revoked or suspended.

  6. The person who receives a Letter of Registration and a registration number is considered to be registered for the activity letters issued with the number. The effective date of the registration will be no earlier than the date on which the letter is signed by the Excise Tax Group Manager.

  7. Form 637 indicators must be input on Master File for all approved registrations. Form 2363 Master File Entity Change must be completed and input by the person issuing the registration number. If this command is not in the IDRS profile of the person issuing the registration number, the Form 2363 is to be forwarded to CEO for input. The 637 file will be documented that this procedure was completed.

4.24.2.8.2  (08-13-2008)
Denial

  1. If the Excise Tax Examiner determines that an applicant does not meet one or more of the applicable registration tests, the Excise Tax Group Manager will review the file and determine if they are in agreement with the Excise Tax Examiner’s determination. If the Excise Tax Group Manager agrees, the applicant will be notified in writing notating the basis for the denial. The Excise Group Manager is authorized to sign the denial letter.

  2. Reasons for denial:

    1. The applicant has not responded within thirty (30) calendar days to a request for additional information relating to its application,

    2. Activity test not met. The applicant is not engaged in the appropriate trade or business to receive the registration for the activity letter which the applicant applied,

    3. Adequate security test not met, the acceptable risk test not met, not having an acceptable filing, deposit, or payment history of all federal taxes.

  3. Non-contested denials are denials where the applicant does not object to our determination.

  4. Contested denials are denials where the applicant objects in writing to the determination. For contested denial procedures:

    1. The Chief, Excise Tax Program is authorized to sign the denial letter.

    2. The Excise Tax Examiner will write up the case file in an unagreed format (facts, law and argument, applicant position, and conclusion) after approval by the Excise Tax Group Manager.

    3. The case file will be forwarded to the Excise Tax Territory Manager for their review and comments.

    4. The case file will be forwarded to the 637 Program Manager for review, prior to review by the Chief, Excise Tax Program.

    5. If the Chief, Excise Tax Program determines that the application should be denied, the Chief, Excise Tax Program will return the case file to the 637 Program Manager for issuance of a denial letter to the applicant and documentation of the case file. The case file will be routed back to the appropriate excise tax group through the same channels.

    6. If the Chief, Excise Tax Program determines the registration should be issued, the case file will be sent to the 637 Program Manager who will notate the case file and forward the case file back to the excise tax group through the same channels so a Letter of Registration can be issued.

  5. The 637 Program Manager will maintain a list of all applicants that contest the revocation or suspension.

  6. In both non-contested and contested revocations and suspensions, Form 2363, Master File Entity Change, will be used to remove the 637 registration indicator from Master File. The case must be documented that this procedure was performed.

4.24.2.9  (08-13-2008)
Follow-up Actions After Approval

  1. After an applicant has been registered, the Excise Tax Group Manager must ensure the registrant is using the registration properly and is complying with the terms and conditions of its registration including all filing, payment, and deposit requirements.

    1. See Treas. Reg. Section 48.4101-1(h) for the terms and conditions of registrants for activities K, M, S, UV, UP, W, X, Y, AL, AM, AB, NB and AL. See IRM 4.24.2.7. for registration tests.

    2. Registration activities A, B, C, D, E, F, I, Q and BC are governed by IRC 4222 and Treas. Reg. Section 48.4222(a)-1, 48.4222(b)-1, and 48.4222(c)-1.

    3. Registration for activity V is governed by Treas. Reg. Section 52.4682-5. See IRM 4.24.2.7.4.3. for registration test.

  2. The Excise Tax Manager will be responsible in seeing all sample Form 637 compliance reviews are completed by fiscal year end. The 637 Program Manager randomly selects sample reviews each year.

  3. Each sample review may require an on-site visitation including reviewing the registrants historical case file. The Excise Tax Examiner must review IDRS research, CBRS research, and all other internal documents. The Excise Tax Examiner must follow the IRM procedures found in IRM 4.24.2.7. Excise Tax Examiners will inspect exemption certificates to ensure compliance is being met for the purpose of the registrant maintaining their registration.

  4. All Form 637 case files must be documented thoroughly and meet the standardized case file criteria including, but not limited to, internal controls, business diagrams, financial analysis, questionnaires, etc. See item 14 of See IRM 4.24.2.7. for the requirement of using a standard Form 637 compliance review case file assembly. See Exhibit 4.24.2-5. Form 637 Case File Assembly.

    1. Each compliance review will be maintained in an appropriate filing system with an activity record.

    2. The activity record will include all registrant contacts and will be documented sufficiently to show what was done during the review.

    3. The Excise Tax Examiner performing the review will document the follow-up actions and their determination.

  5. The Territory Manager and/or Excise Tax Group Manager may select other 637 reviews as needed other than those activities deemed to be correspondence compliance reviews by the 637 Compliance Team. If facts and circumstances warrant, reviews may be performed more frequently or as determined by management.

  6. It is mandated that the Excise Tax Examiner conducting the sample compliance review receive and review the original 637 case file.

  7. The registrant will receive a written letter (Deficiency/No Deficiency) summarizing the compliance review. A copy of the notice will be kept in the case file.

  8. A 637 review is considered complete when the written letter is issued to the applicant.

4.24.2.10  (08-13-2008)
Examinations Resulting from Compliance Reviews

  1. When substantial noncompliance is found during a compliance review, the Excise Tax Examiner will expand the scope into an examination after receiving approval from their Manager. The Excise Tax Examiner will submit a Form 5345-D Examination Request-ERCS (Examination Returns Control System) Users to establish an examination case on the ERCS within three (3) business days.

  2. If a registrant is examined (other than as a result of a compliance review), a compliance review will be performed in conjunction with the examination. The Excise Tax Examiner should consider the date of the last 637 visitation and discuss with their Manager before proceeding. The Excise Tax Examiner will forward a written narrative of their audit results, including any information uncovered that may affect the registrant’s registration to the 637 Territory Coordinator. The Excise Tax Examiner will also include a copy of the RAR if applicable.

  3. It is the responsibility of the Excise Tax Examiner and the Field Group Manager to evaluate the examination information and determine whether the registration should be updated, revoked or if a bond will be required. The 637 Territory Coordinator will update the registration file and ExTRAS.

  4. As part of a Form 720 examination, the 637 registration status of the registrant must be considered. A comment must be made in the examination file documenting what was done to check the status. A summary of what was done in the 637 compliance review will be documented in the examination case file, including, but not limited to the registration tests, financial analysis, etc.

4.24.2.11  (08-13-2008)
Maintaining and Updating Registration Files

  1. Control and maintenance of the 637 case files will be located in the Excise Tax Group where the 637 Territory Coordinator is located to ensure the information is readily available when needed.

  2. All telephone contacts with registrants during the course of a review will be documented in the case file. All telephone contacts with registrants between compliance reviews will be documented in a memo and forwarded to the 637 Territory Coordinator for association with the 637 case file and documented in the activity record.

  3. Upon completion of any review or an examination of a 637 registrant, a national registration number will be issued to those registrants who do not have a national number. The examiner will inform the registrant that a new national registration number will be issued to them. The examiner will include this information their recommendation.

  4. When it is learned that a registrant has moved to another territory, the Territory 637 Coordinator will notify the new Territory 637 Coordinator of the registrant’s relocation. The 637 case file will be forwarded to the new Territory Coordinator within thirty (30) days via 3210. The new 637 Territory Coordinator will input a help ticket to the ExTRAS Database Administrator (DBA) at CCSC to have the record transferred on ExTRAS from the old Excise office to the new Excise office.

4.24.2.12  (08-13-2008)
Overview of Actions, Including Adverse Actions, Relating to Registrants

  1. The delegation of authority and the procedures to follow for revocation and suspensions of registration are the same as the denial of registration. Wherever the word "denial" is used in IRM 4.24.2.8.2, substitute the word "revocation" or "suspension " . Wherever "applicant" is used substitute "registrant" .

  2. If registrant disagrees, refer to IRM 4.24.2.8.2(3).

4.24.2.12.1  (08-13-2008)
Mandatory Revocation or Suspension - Activities K, M, R, S, W, UV, UP, AB, AF, AL, AM, CC, NB, UA, UB, UP, UV, X and Y

  1. The Excise Group Manager must revoke or suspend the registration of any person registered for activities above if it is determined that the registrant, at any time:

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

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

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

    4. Has sold, leased, or otherwise allowed another person to use its registration, or

    5. Fails to follow corrective actions for CP 241 notices. See IRM 4.24.2.16.3.

  2. The Excise Group Manager must revoke or suspend the registration of any person registered for activities AB and/or NB if it is determined that the results of biodiesel samples obtained by FCOs during a compliance review is not positive and doesn’t meet the requirements of IRC 40A (d)(1) which defines biodiesel.

4.24.2.12.2  (08-13-2008)
Mandatory Revocation or Suspension - Activities A, B, C, D, E, F, I, Q, and V, and BC

  1. The Excise Group Manager may revoke or suspend a registration under activities above if it is determined that:

    1. The registrant no longer operates a business for which registration is allowed or required;

    2. For A, B, C, D, E, F, I , Q, and BC registrants, the registrant has failed to comply with the requirement of Treas. Reg. Section 48.4221-1(c)(1) (relating to evidence to support tax-free sales);

    3. For V registrants, failed to comply with Section 52.4682-5(d) and (e);

    4. The registrant has used its registration to avoid payment of excise tax or to postpone or, in any manner, to interfere with the collection of any such tax; or

    5. Such revocation or suspension is necessary to protect the revenue.

4.24.2.13  (08-13-2008)
Mandatory Revocation/Suspension Rules Applicable to All Registrants

  1. If the Excise Tax Examiner determines that a registrant does not meet one or more of the applicable registration tests, the registrant’s registration may be revoked or suspended. The Excise Tax Group Manager will review the file and determine if they are in agreement with the Excise Tax Examiner’s determination. If the Excise Group Manager agrees, the applicant will be notified in writing notating the basis for the revocation or suspension. The Excise Group Manager is authorized to sign the revocation or suspension letter.

  2. Reasons for revocation or suspension:

    1. The applicant has not responded within thirty (30) calendar days to a request for additional information relating to its application,

    2. Activity test not met. The applicant is not engaged in the appropriate trade or business to receive the registration for the activity letter which the applicant applied, or

    3. Adequate security test not met, the acceptable risk test not met, not having an acceptable filing, deposit, or payment history of all federal taxes.

  3. Non-contested revocation or suspensions are revocation or suspensions where the applicant does not object to our determination.

  4. Contested revocation or suspensions are revocation or suspensions where the applicant objects in writing to the determination. For contested revocation or suspensions procedures:

    1. The Chief, Excise Tax Program is authorized to sign the revocation or suspension letter.

    2. The Excise Tax Examiner will write up the case file in an unagreed format (facts, law and argument, registrant position, and conclusion) after approval by the Group Manager.

    3. The case file will be forwarded to the Excise Tax Territory Manager for their review and comments.

    4. The case file will be forwarded to the 637 Program Manager for review, prior to review by the Chief, Excise Tax Program.

    5. If the Chief, Excise Tax Program determines that the application should be denied, the Chief, Excise Tax Program will return the case file to the 637 Program Manager for issuance of a revocation or suspension letter to the applicant and documentation of the case file. The case file will be routed back to the appropriate group through the same channels.

    6. If the Chief, Excise Tax Program determines the registration should be issued, the case file will be sent to the 637 Program Manager who will notate the case file and forward the case file back to the group through the same channels so a Letter of Registration can be issued.

  5. The 637 Program Manager will maintain a list of all applicants that contest the revocation or suspension.

  6. In both non-contested and contested revocations and suspensions, Form 2363, Master File Entity Change, will be used to remove the 637 registration indicator from Master File. The case must be documented that this procedure was performed.

4.24.2.14  (08-13-2008)
Excise Tax Registration Authentication System (ExTRAS)

  1. ExTRAS is a database for maintaining and monitoring nationwide Form 637 registration information. The System Administrator maintains the database at Cincinnati Compliance Service Center.

  2. ExTRAS allows users ( See IRM 4.24.2.14.4. ) to cross-reference registration information. Validation checks may be performed to more effectively determine registered versus non registered parties. Revoked registrants are easily identified, permitting Excise Tax Offices to monitor activity unusual to specific companies, thus reducing the incidence of fraud.

4.24.2.14.1  (08-13-2008)
System Access

  1. The System Administrator Modernization & Information Technology Services (MITS) grants or deletes user access via Form 5081 Information System User Registration/Change Request.

4.24.2.14.2  (08-13-2008)
ExTRAS Users

  1. ExTRAS permits user access as described below:

    1. 637 Coordinators or their delegate - may enter data, revise information, create user profiles and generate reports for their specific group. They can read, but not modify, information in any other Excise group.

    2. Excise Group Managers - may enter data, revise information, create user profiles and generate reports for their specific group. They can read, but not modify, information in any other Excise group.

    3. National Office - can generate reports and read, but not modify, information relating to any Excise group or Territory.

    4. Territory Managers - can read information and generate reports for their specific territory. They can read, but not modify, information in any other Excise Territory.

    5. System and Database Administrators - maintain the ExTRAS database and grant or delete user access. The System and Database Administrators can read information, revise data, modify user profiles and generate reports relating to any Excise group.

4.24.2.14.3  (08-13-2008)
ExTRAS Guidelines

  1. For specific guidelines for entering data into ExTRAS See Exhibit 4.24.2-6.

4.24.2.15  (08-13-2008)
Recording Time Charged to the 637 Registration Program

  1. Time spent reviewing registrants and new applicants should be charged to Compliance Activity Code 588. AIMS control is not appropriate on these cases since there is no tax return involved. The Examination Returns Control System (ERCS) must be used to control applicants and registrants using MFT B0 and the appropriate mandatory tracking codes to be used for monitoring purposes.

  2. The Tracking Codes are:

    • 7640 - Initial Review

    • 7641 - Sample Review

    • 7642 - Discretionary Review

  3. If a compliance review results in an examination, the time recorded once the examination begins will be charged to the examination abstract. Project Code 637 will be used on all appropriate forms when establishing controls and closing the returns.

4.24.2.16  (08-13-2008)
Form 637 Indicator on Business Master File (BMF)

  1. IDRS capability has been created to mark the Business Master File (BMF) with a 637 indicator for taxpayers who are registered.

4.24.2.16.1  (08-13-2008)
Purpose of the 637 Indicator

  1. The purpose of the 637 indicator is to aid in monitoring 637 registrants for compliance with registration requirements. Eleven conditions have been defined and are used to monitor registrants. See IRM 4.24.2.16.3(2) for a list of these conditions. When any of these conditions are met, a notice indicating the registrant may no longer meet the registration requirements is generated. However, this monitoring system does not override the requirement for periodic reviews.

    Note:

    For example, registrants not required to file a Form 720 will not have an Excise Tax Form 720 filing and payment requirement.

4.24.2.16.2  (08-13-2008)
Procedures to Post or Delete 637 Indicator on BMF

  1. As each applicant is registered, or as a registrant is to be deleted from the system, the following process is used to change the indicator on the BMF:

    1. The Excise Group Manager (or designee) will verify the accuracy of the TIN, applicant/registrant name, and name control. The Manager will ensure that the registrant is added to the Master File using "1" to turn the 637 indicator on or removed from Master File using " 9" to turn the indicator off. If the Manager (or designee) has the IDRS Command Codes in their profile this can be accomplished without preparing Form 2363. Otherwise, Form 2363, Master File Entity Change, must be prepared to effect the addition or removal of the 637 indicator.

    2. Form 2363 is forwarded to Centralized Case Processing Unit or authorized person for input.

    3. IDRS will be updated with the Form 2363 information using Command Codes: BNCHG and ENREQ.

    4. The 637 Territory Coordinator (or designee) will use Command Codes: ENMOD or BMFOLE to verify BMF is updated with the Form 2363 information.

    5. The 637 Territory Coordinator (or designee) will document the 637 file with the BMF information.

4.24.2.16.3  (08-13-2008)
Use of Notice CP 241 by the Excise Tax Group

  1. Notice CP 241 is generated at CCSC and mailed to the 637 Territory Coordinator. Notice CP 241 provides for monitoring of all activities on BMF concerning 637 registrants on the system. The Notice CP 241 is generated weekly and only when one of the eleven conditions below is met. The condition printed on the notice identifies the reason the notice was generated. The notice must be reviewed by the 637 Territory Coordinator or a person with knowledge of the Form 637 program. The 637 Territory Coordinator will take the appropriate action as detailed 4.24.2.16.3(3) below.

  2. Eleven (11) conditions are used to indicate field involvement may be required:

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

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

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

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

    5. FINAL RETURN. Form 720 is filed noting "final return" .

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

    7. DUPLICATE REGISTRATION. The registrant has either attempted to obtain, or has obtained, a second registration using the same EIN.

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

    9. FORM 720 NOT FILED. Eight months after the date the 637 indicator was input to BMF, a Form 720 was not filed by the registrant.

    10. BANKRUPTCY. The registrant has filed for bankruptcy.

    11. CID FREEZE. A CID freeze code has been posted.

  3. When a notice is received from CCSC, the 637 Territory Coordinator (or designee) must take the following actions:

    1. Review all notices and sort by priority using the indicator phrases discussed above.

    2. Action is required on conditions 1, 2, 3, 4, 6, 8, 9, and 10.

    3. Review the registrant's 637 file and note any prior activity.

    4. Order and review a transcript for all delinquency and non-filer cases to ensure all tax modules requiring attention are known.

    5. If CID freeze code is indicated, contact CID to determine reason for their involvement. Obtain CID’s approval before making contact with the registrant.

    6. Contact the registrant and discuss the problem that was indicated on the CP 241, if conditions 1, 2, 3, 4, 6, 8, and 9 are indicated. The registrant will be notified that the condition must be addressed within 30 days.

    7. Document all contacts in the registrant's file.

    8. If the conditions 1, 2, 3, 4, 6, 8, and 9 are not addressed in a satisfactory matter within 30 days of contact (see (f) above), action must be started to revoke or suspend the registration until the condition is corrected.

    9. The registrant will be notified of the final determination.

    10. All decisions or actions will be documented on the Form 9984 Activity Record in the registrants case file.

Exhibit 4.24.2-1  (08-13-2008)
Form 637 Suffix Guidelines

SUFFIX DESCRIPTION FIELD OR 637 COMPLIANCE TEAM REQUIRED VISIT REGISTRATION TESTS BONDING REQUIRED IRM CITE
A Manufacturer of gas guzzler automobiles, sport fishing equipment (including fishing rods and fishing poles), fishing tackle boxes, bows, quivers, broadheads, points, arrow shafts, taxable tires, or vaccines. FIELD OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.4
B Buyer of sport fishing equipment (including fishing rods and fishing poles), fishing tackle boxes, gas guzzler automobiles, bows, quivers, broadheads, points, or vaccines for further manufacture or for resale to a buyer for further manufacture. FIELD OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.4
C Buyer of taxable tires for use on or in connection with the sale of another article the buyer manufactures and sells (1) for export, (2) to state and local governments, (3) to nonprofit educational organizations, or (4) as supplies for vessels or aircraft 637 Compliance Team OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.4
D Buyer with a place of business in the United States purchasing vaccines, gas guzzler automobiles, taxable tires, sport fishing equipment (including fishing rods and fishing poles), fishing tackle boxes, bows, quivers, broadheads, points, or arrow shafts for export or for resale to a second purchaser for export. 637 Compliance Team NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.4
E Buyer (other than state or local government) of gas guzzler automobiles for ambulance, law enforcement, or fire fighting. 637 Compliance Team NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.4
F Nonprofit educational organization, other than a public school, buying taxable tires, certain heavy vehicles, sport fishing equipment (including fishing rods and fishing poles), fishing tackle boxes, bows, quivers, broadheads, points, or arrow shafts for its exclusive use. 637 Compliance Team NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.4
I Buyer (other than nonprofit educational organization or state or local government) of taxable tires for use on certain intercity, local, or school buses. 637 Compliance Team NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.4
K Buyer of kerosene for a feedstock purpose. FIELD YES Activity Acceptable Risk Adequate Security YES 4.24.2.7.1.
M Blender of gasoline, diesel fuel (including a diesel-water fuel emulsion), or kerosene, producing a taxable fuel outside the bulk transfer/terminal system, including blenders of alcohol fuel mixtures, biodiesel mixtures, and renewable diesel mixtures. FIELD YES Activity Acceptable Risk Adequate Security YES 4.24.2.7.1.
Q First retail seller of certain heavy vehicles. FIELD OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.4
S Enterer, position holder, refiner, terminal operator, or throughputter of gasoline, diesel fuel (including a diesel-water fuel emulsion), or kerosene, or industrial user of gasoline. FIELD YES Activity Acceptable Risk Adequate Security YES 4.24.2.7.1.
V Manufacturer, importer, or buyer of ozone-depleting chemicals (ODCs)for export. FIELD OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.4
W Operator (other than state or local government) of a diesel-powered train. FIELD YES Activity Acceptable Risk Adequate Security YES 4.24.2.7.1.
X Pipeline operator or vessel operator (including certain deep-draft vessels) within the bulk transfer/terminal system. FIELD OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
Y Buyer of kerosene for its use in commercial aviation (other than foreign trade). FIELD OPTIONAL Activity Satisfactory Filing, Deposit and Payment History YES 4.24.2.7.3
AB Producers and importers of agri-biodiesel. FIELD SEE NOTE 4 OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
AF Producers and importers of alcohol FIELD OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
AL Alternative fueler that sells for use or uses alternative fuel as a fuel in a motor vehicle or motorboat. FIELD OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
AM Alternative fueler that produces an alternative fuel mixture that is sold for use or used in the alternative fuelers trade or business. FIELD OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
BC Qualified blood collector organization buying taxable fuel, taxable tires, and certain heavy vehicles; claiming exemption from the communications tax and heavy highway vehicle use tax; or to claim a credit or payment of certain excise taxes, for its exclusive use in the collection, storage, or transportation of blood. FIELD NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
CC Credit card issuer that issues credit cards for sales of taxable fuel to a state or local government for its exclusive use or for sales of gasoline to a nonprofit educational organization for its exclusive use. 637 Compliance Team NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
NB Producers and importers of biodiesel (other than agri-biodiesel) and renewable diesel. FIELD SEE NOTE 4 OPTIONAL Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
UA Ultimate vendor that sells kerosene for use in aviation. 637 Compliance Team NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
UB Ultimate vendor that sells undyed diesel fuel or undyed kerosene for use in certain intercity and local buses. 637 Compliance Team NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
UP Ultimate vendor that sells kerosene from a blocked pump. 637 Compliance Team NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
UV Ultimate vendor that sells (a)undyed diesel fuel or undyed kerosene to a state or local government for its exclusive use, or(b) gasoline (including aviation gasoline) to a state or local government for its exclusive use or to a nonprofit educational organization for its exclusive use. 637 Compliance Team NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.2
  Qualified Retailers in Alaska SEE NOTE 3 NO Activity Satisfactory Filing, Deposit and Payment History NO 4.24.2.7.5

Note:

1. Internal controls must be analyzed and documented to show the effectiveness and efficiency of the business operations, as well as the strengths, weakness, and reliability of the applicant’s financial reporting. The Excise Tax Examiner must verify that the applicant has adequate resources and proper internal controls to ensure the collection of and payment of tax. This can be documented by either flowcharting a step by step process of key business operations or documenting, in narrative form, sufficient detail that provides information comparable to that shown by flowcharting the process. See Exhibit 4.24.2-3. It is important to identify the name and title of each person making decisions or taking actions that affect the financial and tax position of the applicant during the process being analyzed. In addition, the name and type of documents that flow through the process should be identified.

Note:

2. A decision on the financial analysis of the applicant/registrant cannot be made independently from the analysis of internal controls. The Excise Tax Examiner must consider at a minimum the applicant/registrant’s past payment history for tax liabilities Special attention should be given to the applicant/registrant’s (and related person’s) past treatment of employment tax liabilities. In no situation should an applicant/registrant with outstanding non-addressed Federal Tax liabilities of any kind be granted a new registration or continuation of an existing registration.

Note:

3. Portland Oregon office administers these registrations. Treas. Reg. §48.4101-1 does not address qualified retailers. Treas. Reg. §48.4082-5(f) provides that for each person that has been registered as a qualified retailer, the rules of §48.4101-1(g), (h), and (i) apply.

Note:

4: Applicant must meet the requirements of IRC 40A (d)(1) which defines biodiesel. Fuel Compliance Officers (FCO’s) must be used in to obtain biodiesel samples from the biodiesel producer/importer applicant during the initial registration process.

Exhibit 4.24.2-2  (08-13-2008)
637 Compliance Team Processing Procedures

Initial Application Processing:

Clerical Procedures:

  1. Date stamp the original applications received from CEO, make a copy of each application and place in the initial applications binder.

Processing Technician Procedures:

  1. Check ExTRAS to determine if the information on ExTRAS matches the information on the application. If the application is not on ExTRAS and/or when changes are necessary, send a secure e-mail to the ExTRAS technician to correct the ExTRAS database if necessary.

  2. Enter the following information on the 637 Tracking Record Spreadsheet:

    1. Application Receipt Date (date faxed copy is received).

    2. Excise Office Number.

    3. Name of the Applicant.

    4. Employer Identification Number (EIN) of the Applicant.

    5. Activity Letter(s) applied for.

    6. Additional comments as necessary including missing ExTRAS information.

  3. Make the initial contact with the applicant by preparing and mailing the 20 Day Contact Letter.

  4. Assign cases to reviewers on ExTRAS and the 637 Tracking Record Spreadsheet.

  5. Document the Form 9984 with the actions performed.

  6. Forward the application, the contact letter, and the Form 9984 to the case building clerk.

Case Building Clerk Procedures:

  1. Prepare a label with the applicant’s name on the first line and EIN on the second line. Place the label on the file folder.

  2. Staple the case routing sheet on the front cover of the case file and input the date received for case file assembly.

  3. Ensure that the following information is in the case file folder:

    1. Form 9984 Activity Record.

    2. The original Form 637 Application.

    3. Contact letter to applicant.

  4. Input on the routing sheet the date that the case is completed and forwarded to the case reviewer.

  5. Forward the case file to the case reviewer identified on the Form 9984.

COMPLIANCE REVIEW PROCEDURES

Case Reviewer Procedures for Field Cases:

  1. Complete the following Activity Letters within 5 days of receipt: A, B, K, M, Q, S, V, W, X, Y, AB, AF, AM, and NB.

    1. Contact the applicant to secure any additional information needed to complete the review. Delinquent returns and/or payments from the applicant and/or any related person are to be requested by telephone.

    2. If delinquent returns are secured, the returns are to be forwarded to the appropriate Service Center for processing. A copy of any delinquent return secured will be maintained in the 637 case file and the word " copy" notated of the face of the return(s). If there are any delinquent excise tax returns, the Case Reviewer will notate in the 637 recommendation form for the excise tax group to secure returns. If necessary, a non-filer referral for other Federal taxes (Income, Employment, etc.) will be prepared and forwarded to the appropriate business office.

    3. If any payments are received, a Form 3244-A, Payment Posting Voucher, is to be prepared and forwarded to the teller unit via Form 3210.

    4. Conduct a follow-up review within (2) days if the applicant fails to respond.

    5. Secure IDRS prints needed to complete the review.

    6. Complete the 637 Application Recommendation, the 637 Job Aid, and the transcript analysis form(s) with the filing requirements and payment histories for the applicant and any related person(s) or entity(s) for the prior two years.

    7. Forward the 637 application to the field group if the applicant and any related person(s) or entity(s) have a satisfactory filing and payment history for the preceding two years.

    8. Recommend the denial of any application if:

      • the applicant or any related person(s) or entity(s) does not have a satisfactory filing and payment history for the preceding two years; or

      • the applicant does not provide information requested within the five day time frame.

    9. Place 2 copies of the 637 Application Recommendation in the case files for processing.

    10. Record all activity on the Form 9984.

    11. Assemble the 637 case file in accordance with established guidelines.

    12. Forward the 637 case file to the processing technician for closure.

Case Reviewer Procedures for Group Cases:

  1. Complete the following activity letters within 5 days of receipt: C, D, E, F, I, AL*, CC, UA, UB, UP, UV and BC. However, if there are compliance issues, the review can be completed within 10 days of receipt by the Case Reviewer.

    1. Contact the applicant to secure any additional information that is required to complete the compliance review. Solicit delinquent returns and/or payments from the applicant, and/or any related person by telephone.

    2. If delinquent returns are secured, the returns are to be forwarded to the appropriate Service Center. Information reports will be prepared and forwarded to appropriated excise tax group on all delinquent excise tax returns secured. If necessary, a non-filer referral for other Federal taxes (Income, Employment, etc.) will be prepared and forwarded to the appropriate business office.

    3. If any payments are received, a Form 3244-A is to be prepared and forwarded to the teller unit via Form 3210.

    4. Conduct a follow-up review within (2) days, if no response contact the applicant a third time via telephone.

    5. Secure IDRS and internet information that is necessary to complete the case review.

    6. Complete the 637 Job Aid(s) for the activity letter(s) applied for to determine if the applicant is engaged in the business associated with the activity letter that they have applied for or are likely to be engaged in activity in the near future.

    7. Complete the 637 Application Recommendation Form and the transcript analysis form(s) with the filing requirements and payment histories for the applicant and any related person(s) or entity(s) for the prior two years.

    8. Recommend the approval of any application if the applicant or any related person(s) or entity(s) has a satisfactory filing and payment history for the preceding two years and meet the activity test.

    9. Recommend the denial of any application if:

      • the applicant or any related person(s) or entity(s) does not have a satisfactory filing and payment history for the preceding two years;

      • the applicant does not meet the activity test; or

      • the applicant does not provide information requested within the ten day time frame.

    10. Place two copies of the 637 Application Recommendations in the case file for processing.

    11. Record all activity on the Form 9984.

    12. Assemble the 637 case file in accordance with established guidelines.

    13. Forward the 637 case file to the processing technician for closure.

    (*) An "AL" applicant that sells and uses alternative fuel will be forwarded to the field group for approval.

QUALITY REVIEW

Quality Reviewer Procedures:

  1. Review the case file to determine if the quality reviewer is in agreement with the Case Reviewer’s recommendation.

  2. If the Quality Reviewer is not in agreement with the Case Reviewer’s recommendation or the case needs correction(s), the Quality Reviewer will return the case to the Case Reviewer for correction(s).

  3. If the Quality Reviewer agrees with the Case Reviewer’s recommendation, the case file will be forwarded to the Processing Technician for closure.

Recommendations For Registration

Processing Procedures:

  1. Activity letters C, D, E, F, I, CC, AL, UA, UB, UP, UV and BC will be issued a National Registration Number by the 637 Compliance Group.

  2. Perform the following steps:

    1. Issue a National Registration Number to the applicant.

    2. Update ExTRAS with registrant’s correct office number and ExTRAS return date.

    3. Prepare and mail the approved application to the applicant along with the Terms and Conditions.

    4. Place a copy of the approval letter in the case file and a copy in the initial registration binder.

    5. Update the 637 Tracking Record Spreadsheet to show the date the registration number was issued and the date the file is given to the clerk to mail to the appropriate 637 Coordinator.

    6. Prepare Form 2363 and forward to the authorized person for input.

    7. Update the Form 9984 to record the case activity. Forward the case file to the clerk to mail to the appropriate 637 Coordinator.

RECOMMENDATIONS FOR DENIAL

Denial Procedures:

  1. If the Quality Reviewer concurs with the denial, prepare and mail the denial letter to the applicant.

  2. Deny the application on ExTRAS and update to the appropriate office number.

  3. Update the 637 Tracking Record Spreadsheet to show the date that the application was denied.

  4. Record all activity on the Form 9984.

  5. Forward the case file to the clerk for filing. The case will be filed for a minimum of 30 days before being forwarded to the appropriate 637 Coordinator.

  6. After 30 days, if an appeal has not been received the clerk will forward the case file to the appropriate 637 Coordinator.

MAIL PROCESS

Clerical Duties:

  1. Date stamp the original applications received from CEO, make a copy of each application and place in the initial applications binder.

  2. Prepare a Form 3210 for each off-site Case Reviewer assigned a case and overnight the case file and any other miscellaneous information in the drop file along with the Form 3210 by UPS to the offsite Case Reviewers.

  3. Prepare a Form 3210 and mail the completed 637 application case file with the Form 3210 to the respective 637 Coordinator.

  4. Give the processing technician of the day the Form 3210 to update the 637 Tracking Record with the date the case file were mailed to the 637 Coordinator.

  5. Prepare separate binders for incoming and outgoing Form 3210’s. File all Form 3210’s in dated chronological order.

OTHER SPECIFIC DUTIES

Appealed Denials:

  1. The comment field on ExTRAS will be updated with the appeal information and notate any 637 application(s) that are received with a timely appeal letter. However, if an untimely appeal letter is received with a 637 application attached, the application will be input on ExTRAS. The 637 Tracking Record Spreadsheet will be updated with the appeal information via e-mail to the processing technician.

  2. Associate the original appeal letter and other documentation received from the applicant with the 637 case file and record all activity on Form 9984. Forward the 637 case file to the Quality Reviewer.

  3. The Quality Reviewer will either assign the case for review or determine if the applicant has met the requirements for registration.

  4. The review of the appeal is to be completed within 10 days of receipt.

  5. Upon conclusion of the appeal review, the case file will be returned to the processing technician unless the appeal is denied. The case will then be closed to the denial technician.

  6. The appropriate action is to be taken and the Form 9984 will be updated with all activity and a copy maintained in the appeals binder.

Applicant Currently Registered:

  1. The 637 Compliance Group will not process applications that are already approved on ExTRAS. A "Currently Registered Letter" will be prepared and forwarded to the applicant. The processing technician will place the application and a copy of the "Currently Registered Letter" in the Initial Application Binder for reference.

  2. However, currently registered applicants who do not have a National Registration Number will require the approval of the 637 Program Manager prior to drafting the "Currently Registered Letter" . The 637 Program Manager may request a compliance review of the applicant prior to issuance of a National Registration Number.

CASE FILE ASSEMBLY

All 637 case files will be assembled as follows:

Right Side of Case file:

  1. Form 637 and attachments

  2. Letter of Registration

  3. 637 Notification Letter

  4. 637 Recommendation Form

  5. Form 9984

  6. Job Aid(s) and Internet Research

  7. Transcript Analysis Forms

  8. IDRS Research

  9. Correspondence

  10. Copies of Returns and Other Information

Exhibit 4.24.2-3  (08-13-2008)
Business Operations and Transaction Flow

  1. Purpose of a Diagram of the Business Operations:

    1. Allows Excise Tax Examiner to visualize business operations to easily identify specific areas of concern and develop examination techniques.

    2. Allows quick analysis of various points of taxation.

    3. Provides a concise view of the business so anyone reviewing the examination/637 file has a clear understanding of the business operations.

  2. Purpose of a Diagram of the Business Transaction Flow:

    1. Allows analysis of processes so Excise Tax Examiner can follow business transaction flow. This facilitates easy identification of specific areas warranting further consideration.

    2. Expedites research of appropriate answers to Excise Tax Examiner’s questions and helps to formulate audit techniques. A record of the name and telephone number of the person who prepared the report is helpful.

    3. Lists the names of the reports and attached sample of the document to the flow chart. This gives the Excise Tax Examiner and reviewers a better understanding of documents that are specific to that business and prevents any misinterpretation by the Excise Tax Examiner and applicant/registrant regarding these records.

    4. Promotes efficiency of audit process by allowing the Excise Tax Examiner to identify the individual directly responsible for the report.

Exhibit 4.24.2-4  (08-13-2008)
Financial Analysis Techniques

A financial analysis is mandatory and must be completed for all Form 637 visitations where the Excise Tax Examiner determines the applicant/registrant poses a risk to revenue by not paying a tax liability or by filing claims.

Note:

This technique is useful, but not mandatory, when conducting an examination. If the applicant/registrant is having financial difficulty, the Excise Tax Examiner should protect the government’s interest by ensuring the applicant/registrant is not using Federal Excise Tax (FET) deposits to pay other liabilities and, is not filing false claims to increase cash flow.

The minimum steps required for a financial analysis are:

1. What is the expected excise tax liability the applicant will have?

  1. Each week;

  2. Each month;

  3. Each quarter.

2. What is the applicant's available cash position for each of the past 12 months?

3. What is the profit margin on the sale of the taxable product before consideration of the excise tax?

  1. What is the profit margin after deducting all applicable direct expenses?

  2. What is the profit margin after deducting the applicable excise tax?

4. What other expenses does the applicant have that will compete with the applicants ability to pay the excise tax?

  1. Interest payments.

  2. Salaries.

  3. Equipment purchases.

  4. Debt.

  5. Any personal expenses that may be paid by the business.

5. From the sale of the taxable product, how much money will be left to pay the tax if the expenses in (4) are paid first?

If a financial analysis reveals poor financial status of the applicant/registrant, the Excise Tax Examiner should consider securing a bond (for fuel registrants other than ultimate vendors, pipeline operators, and vessel operators) to satisfy the adequate financial resources part of the adequate security test. For all other applicants/registrants, the Excise Tax Examiner should consult with their Group Manager to determine whether examination of Form 720 (or claim) is appropriate.

The Excise Tax Examiner may conduct one or more of the following analysis to determine the financial condition of an applicant/registrant. Though other methods may be used, work papers must be documented regardless of analysis performed:

  1. Quick Ratio (Current Assets-Inventory/Current Liabilities This may be applied when the Excise Tax Examiner determines that inventory held by applicant/registrant must be sold to meet its short-term liabilities. If the quick ratio of applicant/registrant is 1.0 or greater, it indicates that applicant/registrant should be able to meet its short-term liabilities. This check is more advantageous when reviewing applicants/registrants where the inventory might be hard to liquidate.

  2. Current Ratio (Current Assets/Current Liabilities If the Excise Tax Examiner determines that inventory should be easy to liquidate, the current ratio should be considered. Fuel is normally a very liquid asset. The Excise Tax Examiner may review listings of current ratios for several industries in the excise field in a book published by Robert Morris & Associates (RMA Annual Statement Studies). For most fuel dealers, if the current ratio drops below 1:1, Excise Tax Examiner should discuss bonding or monitoring options with their Group Manager.

  3. Retained EarningsRetained Earnings should be positive. Per IRC 537, a limit is placed on the amount of retained earnings that may be held by the company. The greater the amount of retained earnings, the better the financial solvency of the company. Negative retained earnings indicate possible financial problems (i.e., .the company may be using loans or shareholder equity to operate). However, if the company is new or does not maintain a balance sheet (Example: Schedule C operation), the company will not have retained earnings. If there are no retained earnings, other tests should be considered.

  4. Cash FlowCash Flow (Income-Expenses, not including depreciation and amortization) should be positive. If the applicant/registrant is an existing company, prior year tax returns should be reviewed for losses. This may be difficult if the applicant is new and has not started business. The Excise Tax Examiner should view existing contracts with suppliers and customers to determine projected income and expense items. This review and a thorough investigation of potential suppliers, customers and other income and expenses items will provide an indication of applicant/registrants potential cash flow.

  5. Bankruptcy The following techniques may be used to identify bankruptcy issues:

    1. Reviewing information from bankruptcy courts in the states where the company or related member has lived or operated businesses.

    2. Researching Choice Point to determine if the company or related member has declared bankruptcy anywhere in the country.

    3. Researching IDRS (Command code UNCLER) to determine whether a Trust Fund Recovery Penalty has been assessed against the company or related member.

  6. Failure to Deposit or Pay Penalties The financial status of the applicant/registrant should be reviewed. While occasional or de minims failure to pay or failure to deposit penalties may not indicate poor financial condition, repeated or substantial penalties may mean the applicant/registrant is experiencing financial problems.

Example:

XYZ Oil Company applied for S registration. The balance sheet of the company is below. A review of the tax returns for the past two years indicates that the applicant/registrant has had losses of $13,827 in 2004 and $18,764 in 2005, after adding back depreciation expense.

Assets   Liabilities  
Cash $34,302 Accounts Pay. $75,968
Accounts Receivables $13,859 Current Notes Pay. $70,207
Inventories $97,019 Current taxes Pay. $29,875
Building 7 Equip. $175,000 Accrued Expenses $2,471
Less Depreciation ($25,000) Long Term Loans $85,000
    Loans from Stockholders $50,000
    Common Stock $500
    Retained Earnings ($18,841)
Total Assets $295,180 Total Liability & Equity $295,180

Financial Analysis:

Current Ratio: Current Assets ($145,180) / Current Liabilities ($178,521) = .08/1.

Retained Earnings: ($18,841) = Applicant/registrant has negative retained earnings.

Cash Flow: Taxpayer has negative cash flow for the past two years.

Conclusion:

The Excise Tax Examiner reviewed applicant’s income tax return for the calendar years 2004 and 2005 and found losses in both years. Excise Tax Examiner researched IDRS and identified failure to deposit penalties were assessed for five quarters in the past two years. Excise Tax Examiner checked Choice Point and found no record of bankruptcy for the company or any related person. The controller informed the Excise Tax Examiner that the company experienced financial difficulty during the past several years and, it was decided to operate above the rack in hopes of creating profitability. Excise Tax Examiner discussed findings with Group Manager and a decision was made to bond the applicant/registrantr.

Exhibit 4.24.2-5  (08-13-2008)
Form 637 Case file Assembly

To ensure consistency among all Excise Tax Groups across the country, the following are minimum requirements for case file assembly. All standardized forms, questionnaires and lead sheets discussed below may be found on the Excise web page at http://sbse.web.irs.gov/EX/Org/RA/Reengineering/Reengineering.htm The 637 case file will be assembled in a Manila Folder as follows:

Left Side of Case File:

  1. Form 13499-A 637 Review History
    All visitations are noted on this sheet to allow quick reference. If applicable, multiple Form 13499-A Visitation History Sheets may be prepared.

  2. Form 13499 637 Registration History

  3. Form 13499-B 637 Permanent Record
    The Form 13499-B 637 History includes all non-visitation letters and work papers in the order listed on the sheet. Additional sections may be added, if necessary.

  4. Form 637

  5. Form 13499-C 637 Recommendation

  6. Letters sent to applicant/registrant- (registration, denial, etc) and final letters prepared by the 637 Coordinator

Right Side of Case File:

  1. Form 637 Filing Index

  2. Form 9984

  3. Forms A605 thru A625-Workpapers and/or 637 Job Aids

  4. Work papers B700 thru B705

  5. Work paper C800

  6. Work papers D900

  7. Any other information, such as, case building, correspondence, IDRS

Exhibit 4.24.2-6  (08-13-2008)
Guidelines for the Excise Tax Registration Authentication System (ExTRAS)

  1. ExTRAS does not accept duplicate EINs. Only one EIN may be assigned to each registrant or applicant.

  2. A registrant will have one registration number with multiple activity letters.

  3. When creating a new record, all blue fields are mandatory and must be completed before the record can be saved to the database. White fields are optional. Yellow fields are read only.

  4. In query mode, yellow fields are read only.

  5. All text fields should be of normal mixed case, as used in correspondence (Example: Jones Warehouse).

  6. Automatic formatting is applied to all numeric fields (i.e., ZIP code, registration, telephone, etc.). The system will populate numeric fields with dashes (-) in the appropriate position.

  7. Date fields have a pop-up calendar that is activated with a single left mouse click. The calendar should be used to ensure proper formatting. Manual entry of dates (i.e., via keyboard) must be entered in the following format: DD-MON-YYYY (Example: 01-JAN-1999).

  8. Information in the NAME field is used for all letters and reports.

  9. Up to four (4) addresses may be entered in ExTRAS . STREET and MAILING address fields are mandatory, and may be the same. BUSINESS and RECORDS address fields are optional. (Note: If the Business or Records address is entered, the same mandatory fields apply as with STREET and MAILING.)

  10. The STATE field is populated with a two (2) character state code only.

  11. The TELEPHONE and FAX number fields are numeric. Information is entered in the following format: 999-999-9999.

  12. Activity letters are displayed and entered separately in the fields provided.

  13. The RETURN DATE field must be completed prior to updating a record with a change in status (i.e., Approved, Denied, Revoked.)

  14. Please refer to the ExTRAS user manual located at http://sbse.web.irs.gov/learning/Specialty/excise.htm for more information.

Exhibit 4.24.2-7  (08-13-2008)
ERCS Control of Form 637 Review

  1. Immediately upon assignment of a 637 review, the 637 file is controlled on ERCS. The case is established using the following criteria:

    1. Logon to ERCS

    2. At "Requested Return" menu, select " Control Non-AIMS Item"

    3. MFT: B0

    4. Tax Period: The tax period is the month and year in which the review is assigned (For example: The tax period for a review assigned October, 2006 is "200610" .)

  2. Tracking codes will be used for all cases established on ERCS. The Tracking codes used are:

    1. 7640 - Initial Review

    2. 7641 - sample Review

    3. 7642 - Discretionary Review

  3. The Group Manager should include 637's assigned to an Excise Tax Examiner as part of any documented Embedded Quality review. Time applied to 637 reviews is charged to Activity Code 588. Case time analysis may be performed via the manager’s menu on ERCS.

Exhibit 4.24.2-8  (08-13-2008)
Form 720 Filing, Deposit, and Payment Requirements

  1. The Excise Examiner should explain to applicant/registrant their filing, deposit and payment requirements for Form 720 Quarterly Federal Excise Tax Return. Form 720 is to be used by the applicant/registrant to report their excise tax liability. The Excise Examiner should point ou to the applicant/registrant to:

    1. Complete the top portion of the Form 720 return with Name, Address, City, State, etc.

    2. File the Form 720 each calendar quarter until you file a final return.

    3. File on the line for the abstract (IRS No.) that you are reporting tax.

    4. If you are not reporting tax on that abstract that you normally report, enter zero on the line for that tax.

    5. Be sure to sign the return. An unsigned return is considered not to have been filed.

    6. The filing due dates for the Form 720 is the last day of the month following the end of the calendar quarter for which it is due; that is:

      • Jan, Feb, Mar. - due April 30

      • Apr, May, Jun. - due July 31

      • Jul, Aug, Sept. - due October 31

      • Oct, Nov, Dec. - due Jan. 31

  2. The Excise Examiner should explain to applicant/registrant that Form 720X Amended Quarterly Federal Excise Tax Return is used to make adjustments to tax liability reported for previous quarters.

  3. The Excise Examiner should explain to applicant/registrant about the payments and deposit requirements for Form 720 that:

    1. If you have to file a quarterly excise tax return on Form 720, you may have to make deposits of your excise taxes before the return is due.

    2. If you are not required to make deposits, you pay the tax when you file the return. No deposits are required if the tax liability is under $2,500, for the quarter.

    3. If you need to make a payment when you file your quarterly return, complete Form 720-V Payment Voucher.

    4. Payments can be made by check or money orders to the United States Treasury.

    5. Ozone Depleting Chemical (ODC) floor stocks tax (held Jan. 1) must be deposited by June 30 of that year.

    6. If you do not make your deposits electronically they must be accompanied by a Form 8109 Federal Tax Deposit Coupon.

    7. You must use the Electronic Federal Tax Payment System ( EFTPS) to make deposits in excess of $200,000.

    8. No deposits are required for the following taxes - inland waterways, fuel use, sport fishing equipment, electric outboard motors and sonar devices, bows, arrows components, certain gasohol removals from refineries, one-time filings, and floor stock tax on ozone depleting chemicals.

    9. Generally deposits must be at least 95% of the net tax liability incurred during the semi-monthly period.

  4. The deposit of tax for a semi-monthly period is due by the fourteenth day following this period. Generally, this is the 29th day of the month for the first semi-monthly period and the fourteenth day of the following month for the second semi-monthly period.

    1. Except for deposits of communication and air transportation taxes the deposit period may be based on amounts billed or tickets sold during a semimonthly period instead of on taxes actually collected during the period. Under the alternative method, the tax included in amounts billed or tickets sold during a semimonthly period is considered collected during the first 7 days of the second semimonthly period. The deposit of tax is due by the 3rd banking day after the 7th day of the period.

      Example:

      The tax included in amounts billed or tickets sold for the period June 16-30, 2007, is considered collected from July 16-22, 2007, and must be deposited by July 25, 2007.

    2. To use the alternative method, the applicant/registrant must keep a separate account of the tax included in amounts billed or tickets sold during the month and report on Form 720 the amount of tax that is actually collected.

      Example:

      Amounts billed in December, January, and February are considered collected during January, February, and March and are reported on Form 720 as the tax for the first quarter of the calendar year

Exhibit 4.24.2-9  (08-13-2008)
Terms and Conditions of Registration for Registrations Issued under IRC Section 4101:

  1. The Excise Examiner should explain to all fuel applicant/registrants that they must:

    1. Make deposits, file returns, and pay taxes required by the Internal Revenue Code and the regulations;

    2. Keep records sufficient to show their tax liability under IRC 4041(a)(1) and 4081 and payments or deposits of such liability;

    3. Make all information reports required under IRC 4101(d) ;

    4. Make available for inspection on demand by the Internal Revenue Service during normal business hours records relevant to a determination of tax liability under IRC 4041(a)(1) and 4081; and

    5. Notify the Territory 637 Coordinator of any change (such as a change in ownership) in the information submitted in connection with your application for registration, or previously submitted under paragraph (h)(1)(v) of Reg. Section 48.4101, within 10 days after the change occurs.

  2. The Excise Examiner should also explain that the fuel applicant/registrants may not:

    1. Sell, lease or otherwise allow another person to use their registration;

    2. Make any false statement in connection with a submission under paragraph (h)(1) or (h)(3) of Reg. Section 48.4101;

    3. Make any false statement on, or violate the terms of, any certificate given to another person to support an exemption from, or a reduced rate of, the tax imposed by IRC 4081 ; or

    4. In the case of an ultimate vendor (blocked pump), deliver kerosene (or allow kerosene to be delivered) into the fuel supply tank of a diesel-powered highway vehicle or diesel-powered train from a blocked pump.

  3. Terminal Operators have additional requirements. For terminal operators, The Excise Examiner should explain the following additional information:

    1. Explain the notice required with respect to dyed diesel fuel and dyed kerosene. A legible and conspicuous notice stating "DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE" must be provided by each Terminal Operator to any person that receives dyed diesel fuel at a terminal rack of that operator. A legible and conspicuous notice stating "DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE" must be provided by each Terminal Operator to any person that receives dyed kerosene at a terminal rack of that operator. These notices must be provided by the time of the removal and must appear on all shipping papers, bills of lading, and similar documents that are provided by the Terminal Operator to accompany the removal of the fuel.

    2. Explain the type of records to be maintained relating to removals of diesel fuel or kerosene. Each Terminal Operator must keep the following information with respect to each rack removal of diesel fuel or kerosene at each terminal it operates:

      • The bill of lading or other shipping document.

      • The record of whether the fuel was dyed and marked in accordance with Regs. Section§ 48.4082-1.

      • The volume and date of the removal.

      • The identity of the person, such as a common carrier, that physically received the fuel.

      • Any other information required by the Commissioner.

    3. Explain the type of records to be maintained relating to dye. With respect to each of its terminals, a Terminal Operator must keep records relating to dye inventories and usage.

    4. Explain the records retention requirements. In addition to any other requirement relating to the retention of records, the Terminal Operator must:

      • Maintain the information described in paragraph b) above at the terminal from which the removal occurred for at least 3 months after the removal to which it relates; and

      • Maintain the information described in paragraph c) above at the terminal where the dye was received for at least 3 months after the receipt.

    5. Explain the prohibition on providing incorrect information. In connection with the removal of diesel fuel or kerosene that is not dyed and marked in accordance with Regs. Section 48.4082-1, a Terminal Operator may not provide any person (including the position holder with respect to the fuel) with any bill of lading, shipping paper, or similar document indicating that the diesel fuel or kerosene is dyed and marked in accordance with Regs. Section 48.4082-1.

Exhibit 4.24.2-10  (08-13-2008)
Terms and Conditions of Registration for Registrations Issued under IRC Section 4222:

  1. Explain to all other applicant/registrants that :

    1. They must make deposits, file returns, and pay taxes required by the Internal Revenue Code and the regulations;

    2. Keep records sufficient to show the registrant’s tax liability under applicable sections of the Internal Revenue Code and of payment or deposits of the tax; and

    3. Notify the Territory Coordinator of any change (such as a change in ownership) in the information the registrant gave in applying for registration, within 10 days after the change occurs.

  2. And that they must not:

    1. Use the registration to avoid the payment of any tax, or to postpone or in any manner to interfere with the collection of any such tax, or

    2. Fail to secure the documentation on the exempt purpose for which the article or articles are being purchased tax-free and the registration number, if required, of the purchaser. Such information must be in writing and may be noted on the purchase order or other document furnished by the purchaser to the seller in connection with each sale.


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