The majority of excise related penalties are listed below. This section contains a brief overview of these Excise Tax related penalties and their processing procedures. For the FCO related penalties ( IRC 6715) see IRM 4.24.13.23 and Exhibit 4.24.9-3.

IRC 4103 provides that where there is a willful failure to pay fuel taxes under IRC 4041(a)(1), or 4081 (effective for fuel sold after December 31, 2004) each person:

shall be jointly and severally liable with the taxpayer for the tax to which such failure relates.

When IRC 4103 is applicable, Excise Tax Examiners should review Form 4180 Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Tax.See IRM 11.3.40.5.2.2.

Excise Tax Examiners will include appropriate remarks in their work papers and include a copy of the completed referral memorandum in the case file.

For those cases where the Excise Tax Examiner determines that IRC 4103 does not apply, Excise Tax Examiners will comment in the work papers that referral was considered but not made and include the reasons for not making a referral to Collection function.

The assessment statute for IRC 4103 is identical to the limitations period for the IRC 4041(a)(1) or 4081 (effective for fuel sold after December 31, 2004) taxpayer: For example, three years from the actual Form 720 filing date (not the presumptive date). If no return was filed or if a fraudulent return with intent to evade the tax was filed, there is no assessment statute.

This section provides guidance for Excise Tax Examiners with respect to delinquent returns.

In such cases the Excise Tax Examiner will, after considering the statement of the taxpayer, recommend assertion or non-assertion of the delinquency penalty in the examination report. Any appropriate comments as to the recommendation for assertion or non-assertion of the penalty will be incorporated in the report.

IRC 6672 provides for a penalty for the willful failure to collect, truthfully account for, and pay over tax when required. This penalty is used solely as a collection device against collecting agents and their responsible officers. For excise tax purposes, the IRC 6672 penalty applies only to the communications tax imposed by IRC 4251 and the air transportation taxes imposed by IRC 4261 and 4271.

The IRC 6672 penalty case developed by the Excise Tax Examiner is referred to the area office collection function for final determinations to be made and the penalty collected.

A consent extending the period of limitation for assessment under IRC 4251, 4261, or 4271 does not extend the period for making a separate assessment against the collector or responsible person under IRC 7501 or 6672 . See IRM 25.6.22.6.10.3.

If a collecting agent has collected tax from its customers, but failed to pay the tax to the Government, the following procedures will apply:

If a collecting agent has failed to collect tax from its customers, the tax, by law, cannot be assessed against the collecting agent except in IRC 4261 cases after October 1,1997 where IRC 4263(c) applies. However, if there was willful failure on the part of collecting agent or its employees to collect the tax, the IRC 6672 penalty is applicable and should be assessed.

If the collecting agent and one or more responsible persons willfully failed to collect or pay the tax, separate assessments of the penalty can be made against each responsible person with respect to the same tax.

However, the full unpaid trust fund amount will be collected only once in each case, whether it is collected from the collecting agent, from one or more of its responsible person or a combination of the collecting agent and one or more of the responsible persons. Where more than one penalty has been assessed with respect to the same tax, any outstanding assessments will be adjusted accordingly once the tax has been paid.

In cases involving partnerships, the penalty will not be assessed against the partners because an assessment against the partnership makes the partners individually liable.

IRC 6675 provides an assessable penalty against a person making an excessive claim with respect to:

See IRM 20.1.10.7 for more information.

The Excise Tax Examiner who finds that a claim of this type is excessive should recommend assertion of the penalty provided by IRC 6675, unless the claimant can show to the Excise Tax Examiner's satisfaction that the claim for the excessive amount was due to a reasonable cause.

The determination as to whether the penalty provided by IRC 6675 should be imposed will be made by the Compliance examination function in the same manner as on other issues, subject to the established quality review and appeals procedure.

Section 8246 of the Small Business and Work Opportunity Tax Act of 2007 amended the return preparer penalties statute section of IRC 6694. This provision allows preparer penalties for various returns, amended returns, and refund claims due on or after May 26, 2007.

During examination of excise tax returns that result in tax due and were prepared by a paid preparer, consideration should be given to preparer penalties. The Excise Tax Examiner should comment in the work papers that preparer penalties were considered and the determination made. See http://sbse.web.irs.gov/EPD/PSP/ReturnPreparerPenaltyProgram.htm for Return Preparer Penalty Program procedures for preparer penalty cases.

See IRM 20.1.6.3 Preparer Conduct Penalties for more information.

To aid in the enforcement of the fuel tax laws, the Internal Revenue Code provides penalties for refusing to allow entry to premises, failing to register (e.g., by terminal operators and vessel operators), failing to display a registration, and failing to file reports with the IRS.

IRC 7272 provides for a penalty for failing to register under IRC 4101.

See IRM 20.1.10.17.3 for more information.

Tickets for airline passenger transportation must show the total of the tax and the transportation charge. IRC 7275(a) and (c) provides that any person who violates the provisions of this section is guilty of a misdemeanor for each violation and upon conviction shall be fined not more than $100.

See IRM 20.1.10.17.23 for more information.

IRC 7606 provides that the IRS may enter any building or place where any articles subject to tax are made, produced, or kept so far as may be necessary for the purpose of examining the articles.

IRC 7342 provides for a $500 penalty against a person who refuses to admit any officer or employee of the Treasury Department, or refuses to permit him to examine such article or articles.

See IRM 20.1.10.17.1 for more information.

An entity’s liability for the penalties listed above may be identified through:

For penalties resulting from compliance reviews or information received from internal and external sources, the Excise Tax Examiner may determine an entity’s penalty liability without opening an examination. The assessment of these penalties does not constitute an examination for IRC 7605(b) purposes, and will not prevent the subsequent opening of an examination or closure of any on-going examination of other penalties and tax liability.

All penalty review cases should be established on ERCS using penalty MFT P9 and should be charged to the appropriate Tracking Code and reference numbers. See IRM 4.24.9.17. for more information.

The periods established on ERCS with respect to both the IRC 6719 and 6725 penalties should be those periods for which violations are identified.

The Excise Tax Examiner must check ERCS to determine if there is any concurrent exam or compliance activity. The Excise Tax Examiner should also inquire if there is any FCO program concurrent activity. FCO activity cannot be determined through ERCS inquiry therefore; the Excise Tax Manger should contact the FCO Manager to determine FCO activity. If there is FCO activity, Management will determine who will work the issue involved.

The ExSTARS Compliance Manager will assign all penalty review cases to Excise Files Information System (ExFIRS) Compliance Team members. To ensure fair and equitable treatment across all taxpayers, Fuel Territory management must notify the ExSTARS Compliance Manager of any potential penalty reviews to be conducted. ExFIRS Compliance will then provide the filing history and available information relating to any existing penalty review of the taxpayer to the field Excise Tax Examiner.

Excise Tax Examiners will receive case related data and add the information to the work papers. Select portions of this information should be attached to any taxpayer correspondence to show the number of periods involved and provide information relative to receipt dates for the late filed returns.

Listed below are the forms/work papers that should be included for each penalty review case.

The Excise Tax Examiner will obtain contact information from Excise Tax Registration Authentication System(ExTRAS) or from another source if available such as the ExSTARS Compliance Database.

The Excise Tax Examiner will contact the TO/CS via telephone and inform the TO/CS that "My records indicate that you are not current with the Form 720-TO/CS monthly filing requirements for the following ... and I'm calling to discuss this matter with you" .

Follow-up the first phone call with the appropriate first contact letter. See IRM 4.24.9.15. for list of the current contact letters. A subsequent letter granting an additional 15 days is sent after 30 days if there is no taxpayer response.

The Excise Tax Examiner will provide the TO/CS with the name of his/her manager, his/her name, badge number, and office contact numbers on the contact letters.

The Excise Tax Examiner will request an explanation from the TO/CS regarding their filing compliance to determine if the taxpayer has a basis for reasonable cause abatement. The Excise Tax Examiner will determine if the TO/CS is already working with the ExSTARS Penalty Compliance Team to correct the delinquent filing situation and if they have a pending penalty case.

The Excise Tax Examiner will cover the following areas with the TO/CS:

The Excise Tax Examiner must document all contacts on Form 9984 and associate it with the case file. Excise Tax Examiners must notify their manager when all the initial contacts have been completed.

The case should be closed unagreed if the taxpayer fails to respond in the agreed to time frames.

For every penalty review case, the Excise Tax Examiner must document in the case file all relevant facts developed such as:

The Excise Tax Examiner will use specific letters tailored to each situation. The table below lists the appropriate letters to issue:

The Excise Tax Examiner should make first contact, and then follow-up after 30 days with a second letter granting an additional 15 days if no response is received or if the TO/CS requests additional time to comply. If there has been no response after the 15 day extension time frame has passed, the Excise Tax Examiner will close the penalty review case based on the information received.

If, after contact with the TO/CS, a penalty is to be proposed, the Excise Tax Examiner will provide the TO/CS with a copy of:

If the TO/CS does not agree with the Excise Tax Examiners findings, the Excise Tax Examiner may offer the TO/CS a managerial conference. Prior to the conference, the Excise Tax Examiner needs to provide the group manager copies of appropriate work papers outlining the issue(s) and the analysis and recommendation to resolve the case at this time.

The Excise Tax Examiner should document the penalty recommendation including whether the taxpayers request for reasonable cause should be granted or denied.

The Excise Tax Examiner should include previous contact information documented in the Terminal Control Number (TCN) database in the history section of the work papers.

Reasonable cause for late or non-filed periods may be considered in these cases. Please refer to IRM 20.1.1.3.1 for a complete description of the varied circumstances qualifying for abatement due to reasonable cause. The Excise Tax Examiner should request written documentation from the TO/CS substantiating the request and submit all requests for abatement along with the pertinent copies of the case file to the ExSTARS Compliance Manager for concurrence. Use Form 3210 to mail the case to:

The ExSTARS Compliance Manager will review the request along with the designated Appeals Officer and recommend a settlement position. This will be transmitted back to the Excise Tax Examiner who will present the offer to the taxpayer. If the taxpayer agrees with the settlement offer, the Excise Tax Examiner will prepare a Form 870-AD along with other change case closing forms and have the taxpayer sign and return these to the Excise Tax Examiner. If the taxpayer rejects the settlement offer, the Excise Tax Examiner will process the case with all penalty periods determined after examination and proceed to close the case. Regular appeal rights are available and may be requested by the taxpayer; or the case can close and the taxpayer can petition Tax Court for a hearing after payment of all or a portion of the penalty.

For all TO/CS penalty reviews, the Excise Tax Examiner will verify that ERCS controls for the case are established using Activity Code 506, NMFT P9 and the following Tracking Codes:

.

Penalty review cases will not be established on the Audit Inventory Management System (AIMS).

All TO/CS penalty reviews will be controlled on ERCS by preparing Form 5345-D as follows:

For No-Change cases, include the following documents in the penalty case file:

Form 5385 should contain the TO/CS name and controlling EIN. In column (1) Period Ended, list all periods for which penalties were considered but not applied. Enter "none " for columns (7) and (8), Penalties and Total, respectively.

Form 3198 will be prepared, including the TO/CS name and controlling EIN along with the Excise Tax Examiner’s contact information. In the Case Closing Information, input the period(s), time applied, NAICS code 424700G and Disposal Code 02.

The Excise Tax Examiner will forward the case to the group manager for review and shipment to the ExSTARS Compliance Manager. The group clerk will update the case on ERCS to status 19. Use Form 3210 to mail the case to:

For change cases, include the following documents, if appropriate, in the penalty case file:

Form 3645 should be completed indicating the taxpayer’s name and year(s) involved. This form is provided to the taxpayer if a penalty is to be asserted.

A Form 8278 must be prepared for each monthly period containing a penalty assessment. If there are multiple penalties for a month (e.g. 10 IRC 6725 penalties for 10 terminals filing late in one month) aggregate the penalties for the entity month by month. If you apply different penalties to the same monthly period (e.g. a IRC 6725 penalty and a IRC 6719penalty for 200701), you must prepare 2 Forms 8278; one for each different penalty. The controlling entity’s name, address, EIN and tax year are input in the top section of the form. Leave the statute date blank, indicate a BMF 13 module in the MFT area, "X" the block for no ASED, and check the block indicating your function (e.g. SB/SE). Attach a copy of the report ( Form 5384 only) to each Form 8278 prepared.

Form 3198 will be prepared, including the TO/CS name and controlling EIN along with the Excise Tax Examiner’s contact information. In the Case Closing Information, input the period(s), MFT 13, time applied, NAICS code 424700 G, Disposal Code 8, Tax Deficiency, Penalty Code Section (6725 and/or 6719), Penalty Amount, Adjustment Amount, Agreement Date and Payment Y/N. In the column containing the Penalty Code Section, indicate the appropriate Penalty Reference Number as a guide for Centralized Case Processing (CCP). As an example, the line for a late filing penalty for a Form 720-TO would show "6725-ref # 667."

Please refer to IRM 4.4.12.4.19.6.3 Form 3177 Code and Edit for how to establish the MFT 13 controls.

Place the Form 3198 on the case file. In the "Special Features/Restricted Interest Features" section of page 2, check the box for "Other Instructions" and include the following language: "IRC 6725 (or 6719) Penalty Case File –Assess using reference code 667 (or 670) for month’s mm/yy through mm/yy."

The Excise Tax Examiner will forward the case to the group manager for written approval of the E-500 Penalty Check Sheet of the imposition of the penalty. If approved, the manager records and dates the approval in the file and return the case to the Excise Tax Examiner for closure. If the penalty is not approved, the manager will return the case to the Excise Tax Examiner for further development or other action.

If the TO/CS agrees with the assessment, the completed case will be sent to Centralized Case Processing (CCP) at the Cincinnati Compliance Service Center (CCSC). The group clerk will update the controlling TIN MFT P9 penalty module case on ERCS to status 51. Use Form 3210 to mail the case to:

Additional remedies for the taxpayer include the following:

Penalty cases may require abatement if additional information which supports removal of any previously assessed penalty is documented and received by the Excise Tax Examiner and approved by the ExSTARS Compliance Manager. Package such information and send it using the above mentioned procedures for review of reasonable cause requests at IRM 4.24.9.16(6) and IRM 4.24.9.19.1(6). If the ExSTARS Compliance Manager approves the abatement request, use the procedures below for processing.

For abatement cases, include the following documents, if appropriate, in the abatement case file:

Form 5385 should be completed indicating the controlling taxpayer’s name, EIN and period(s) involved. This form is provided to the taxpayer if a penalty is to be abated.

A Form 8278 must be prepared for each monthly period containing a penalty abatement. If there are multiple penalties for a month (e.g. 10 IRC 6725 penalties for 10 terminals filing late in one month), aggregate the penalties for the entity month by month. If you apply different penalty abatements to the same monthly period (e.g. a IRC 6725 penalty and a IRC 6719 penalty for 200701), you must prepare 2 Forms 8278; one for each different abatement. The controlling entity’s name, address, EIN and tax year are input in the top section of the form. Leave the statute date blank, indicate a BMF 13 module in the MFT area, " X" the block for no ASED, and check the block indicating your function (e.g. SB/SE). Attach a copy of the report (Form 5385 only) and appropriate IDRS research identifying the periods containing penalty assessments to be abated to each Form 8278 prepared.

Form 3198 will be prepared, including the TO/CS name and controlling EIN along with the Excise Tax Examiner’s contact information. In the Case Closing Information, input the period(s) abated, MFT P9, time applied, NAICS code 424700 G, Disposal Code 8, Tax Deficiency, Penalty Code Section (6725 and/or 6719), Penalty Abatement Amount, Adjustment Amount, Agreement Date and Payment Y/N. In the column containing the Penalty Code Section, indicate the appropriate Penalty Reference Number as a guide for CCP. As an example, the line for abatement of a late filing penalty for a Form 720-TO would show "6725-ref #667."

Place the Form Form 3198 on the case file. In the"Special/Restricted Interest Features" section of page 2, check the box for"Other Instructions" and include the following language: "IRC 6725 (or 6719) Penalty Case File –Abate using reference code 667 (or 670) for month’s mm/yy through mm/yy."

The completed case will be sent to Centralized Case Processing (CCP) at the Cincinnati Compliance Service Center (CCSC). The group clerk will update the controlling TIN MFT P9 penalty module on ERCS to status 51. Use Form 3210 to mail the case to:

Form 8278 found at http://core.publish.no.irs.gov/forms/internal/pdf/62278h07.pdf , is an input sheet for penalties not subject to deficiency procedures and is the source document used by CCP to make penalty assessments. This form may also be used to abate previously assessed penalties.

A separate Form 8278 is required for each tax period and eachpenalty code section. One Form 8278 cannot be used to assess penalties under different code sections, even if all penalties are to be assessed against the same tax period.

Multiple assessments of penalties with the same reference number for the same entity and period must be consolidated as a single assessment.

Instructions for completion of the Form 8278 are attached to the Form.

Form 2859 may be found at http://core.publish.no.irs.gov/forms/internal/pdf/22030a07.pdf

A Master File transcript or Command Code TXMOD must always be obtained and used when preparing this form. Attach a copy of the TXMOD to the Form 2859 when forwarding to CCP.

Reason for request: check the box labeled Quick.

Check the box 130-134 Exam.

Complete the following information in Part A – Taxpayer Information:

Complete the following in Part B - Requester (Excise Tax Examiner) Information:

Complete the following in Part C – Assessment Information:

Complete the following in Part D – Account Adjustment Information:

IRC 4081 imposes a tax on diesel fuel and kerosene when they are removed from a terminal at the terminal rack. If the fuels are dyed in accordance with 48.4082-1.

An excise tax is imposed on fuels used in transportation. The tax on diesel fuel and kerosene is collected at the producer (refinery) level rather than retail level (since the Tax Reform Act of 1986), IRC 4081. For example, the tax may be collected upon removal at a terminal rack, non-bulk entries into the United States, or removals or sales by blenders.

Tax is not imposed if:

IRC 6715 imposes an assessable penalty on the four types of misuse of dyed fuel as described below.

"Dyed Fuel" means any dyed diesel fuel or kerosene, whether or not the fuel was dyed pursuant to IRC 4082. The penalty was enacted in the Omnibus Budget Reconciliation Act) of 1993 (OBRA). The Fuel Inspection Program is a direct outgrowth of the penalty that was needed to deal with presence of dyed fuel in the market.

The penalty is imposed if any dyed fuel is sold or held for sale by any person for any use that such person knows or has reason to know is not a nontaxable use of such fuel.

Nontaxable Use has the meaning given to the term by IRC 4082(b), Nontaxable use.

The penalty is imposed if any dyed fuel is held for use or used by any person for a use other than a nontaxable use and such person knew, or had reason to know that such fuel was so dyed.

The penalty is imposed if any person willfully alters, or attempts to alter, the strength or composition of any dye or marking done pursuant to IRC 4082 in any dyed fuel.

This penalty does not apply in the following cases: