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Part 4. Examining Process

Chapter 24. Excise Tax

Section 13. Fuel Compliance Officer Technical Guidance

4.24.13  Fuel Compliance Officer Technical Guidance

4.24.13.1  (11-09-2007)
Introduction

  1. This section discusses basic procedures, guidelines and requirements for use by Fuel Compliance Officers (FCO) and FCO Managers in administering compliance operations. References are made to other sections of IRM throughout this section that provide additional guidance.

  2. FCOs and FCO managers are responsible for thoroughly understanding the procedures and information contained in this IRM and applicable procedures contained in other IRM chapters, especially those referenced in this chapter.

  3. Copies of forms and letters referenced in this chapter are generally not included as exhibits because the latest versions should always be used and will be available in electronic format on the Multi-Media Website.

4.24.13.2  (11-09-2007)
Overview of Fuel Compliance Officer Program

  1. FCOs are organizationally placed to administer laws and regulations that pertain to fuel distribution in the United States. To ensure voluntary compliance with fuel tax laws, FCOs make a variety of taxpayer contacts.

  2. The Fuel Compliance Officer Program follows a three pronged approach to compliance activities.

    • Activities Pertaining to Dyed Diesel Fuel

    • Activities Pertaining to Other Taxable Fuels

    • Activities Pertaining to Taxpayer Education and Outreach

  3. FCOs use a variety of tools and techniques to ensure taxable fuel in the fuel distribution system is properly taxed and dyed. FCOs are directly responsible for assertion of penalties, when instances of non-compliance are identified. FCOs are also responsible for supporting excise fuel tax compliance by considering excise tax registration and excise fuel tax in every taxpayer contact.

  4. All compliance activities are structured around the Annual FCO work plan. Accomplishment of the work plan goals and strategies generally require three critical functional steps:

    1. Advanced planning and review of FCO work activities

    2. Completing taxpayer contacts as required by the advanced planning

    3. Recording business results

4.24.13.3  (11-09-2007)
Organizational Structure and Responsibilities

  1. The Chief, Excise Tax Operations has overall responsibility for directing and controlling all aspects of excise tax compliance. Fuel taxes are included in the overall program responsibilities.

  2. The Chief, Fuel Policy reports directly to the Chief, Excise Tax Operations and has responsibility for development of FCO Program policies, guidance, and procedures. The Chief, Fuel Policy is also responsible for development of the annual FCO work plan..

  3. The FCO Territory Manager reports directly to the Chief, Excise Tax Operations and is responsible for administering all FCO Program field operations throughout the United States

  4. The FCO Group Managers report directly to the FCO Territory Manager. FCO Group Managers are responsible for FCO Program compliance operations within specific geographic areas of the United States. Responsibilities include directing and reviewing the activities of all FCOs in the group and controlling all day to day operations within the assigned group area.

  5. FCOs report to a specific FCO Group Manager. FCO duties are described in the FCO position description and the related performance critical elements, the Internal Revenue Manual, including this section, and other official guidance and direction.

4.24.13.4  (11-09-2007)
A Safe Working Environment

  1. There are safety concerns inherent in locations where inspections are performed and taxable fuel samples are collected.

  2. FCOs are trained to understand that all taxable fuels are dangerous to smell, touch, or ingest and that the vapors of all taxable fuels will ignite when exposed to an open flame.

  3. FCOs are trained, equipped, and certified to safely sample all taxable fuels

    1. Periodically, all personnel certified to obtain samples will be recertified to perform those duties

    2. The certification process is conducted by a Certified Fuel Instructor (CFI) in conjunction with Fuel Policy personnel and management.

    3. Successful completion of the certification includes, but is not limited to, demonstrating the ability to safely sample fuel products using the prescribed methods and climbing a transport to obtain a sample.

    4. Anyone unable to successfully complete the certification process will be prohibited from obtaining samples.

  4. FCOs and FCO managers are responsible for implementing provisions contained in IRM 1.14.5, the Occupational Safety and Health Program. This includes knowing responsibilities for identifying, preventing and reporting unsafe or unhealthy working conditions. Various internal systems exist to assist managers in meeting the requirements of the IRM, see the Employee Resource Center website for further information.

4.24.13.4.1  (11-09-2007)
Fuel Compliance Officer Hazard Communication Program

  1. The IRS established the Fuel Compliance Officer Hazard Communication Program (FCO HCP) to comply with the Department of Labor, Occupational Safety and Health Administration (OSHA) Hazard Communication Standard, 29 CFR 1910.1200, and Basic Program Elements for Federal Employee Occupational Safety and Health Programs and Related Matters, 29 CFR 1960.

  2. An FCO HCP Coordinator is a member of the staff that reports to the Chief, Excise Tax Operations and Policy.

  3. The duties of the FCO HCP coordinator include:

    1. Advising the Chief, Excise Tax Operations and essential staff on matters concerning FCO HCP, workplace hazards, and safety.

    2. Reviewing and updating the program as necessary.

    3. Maintaining a list of all hazardous chemicals with which FCOs may come in contact during the course of their duties.

    4. Updating the list when new chemicals are introduced into the FCO operation.

    5. Obtaining and maintaining a representative copy of each Material Safety Data Sheet (MSDS) for each substance on the hazardous chemical list.

    6. Ensuring that containers and fuel cans the FCOs use are properly marked, labelled and placarded. For instance, the kerosene can and the "slop" can carried by FCOs must be identified with the appropriate warning labels.

    7. Ensuring the FCOs receive initial training on the Hazard Communications Standard.

    8. Providing for additional training whenever a new hazard is disclosed or introduced.

    9. Reviewing the training program and keeping the Chief, Excise Tax Operations and Policy and essential staff up-to-date on training requirements.

    10. Annually soliciting feedback from the FCOs on training received.

    11. Coordinating initial and bi-annual physical examinations of FCOs and ensuring the examinations are completed timely.

    12. Maintain an active liaison with the IRS Safety and Health organization.

  4. Initial and recurring HCP training shall include:

    1. An overview of the Hazard Communication Standard and the written IRS FCO Hazard Communication Program;

    2. An overview of the safety and health program specific to FCO operations.

    3. Chemical and physical properties of the hazardous materials in taxable fuels (gasoline, diesel fuel, and kerosene) and methods that can be used to detect their presence or release;

    4. Health hazards, including signs and symptoms of exposure to the taxable fuels;

    5. Any medical condition known to be aggravated by exposure to the taxable fuels;

    6. Procedures to mitigate the hazards associated with taxable fuels, e.g., care and required use of personal protective equipment , approved work practices or methods to ensure proper use and handling of taxable fuels, safe climbing techniques, bonding procedures and emergency procedures; and

    7. How to read and interpret the information on labels and MSDSs and how to obtain additional hazard information.

4.24.13.4.2  (11-09-2007)
Minimum Safety Requirements

  1. The following are the minimum safety requirements that apply to all FCOs:

    1. FCOs should ask what their responsibilities are under the Terminal’s Emergency Procedure Plan, for instance, where to evacuate to, what is the recommended route, whom to report to, etc.?

    2. Always wear appropriate personal protective equipment.

    3. Do not ignite a flame or smoke.

    4. Never obtain a fuel sample when there is a threat of lightning.

    5. Do not let fuel come into contact with any unprotected skin area.

    6. Avoid prolonged inhalation of fuel vapors.

    7. Never enter confined spaces such as trenches and storage tanks. Storage tanks that have a floating roof are considered a confined space.

    8. Avoid any possibility of ingesting fuel. Do not eat, drink or smoke in fuel sampling areas. Wash hands thoroughly with soap and water after working around fuel

    9. Do not use drugs or alcohol.

    10. Always use three-point contact when climbing and descending ladders. Always face the ladder when ascending or descending. Have one hand and both feet, or both hands and one foot in contact with the ladder at all times.

    11. Always check for ice, petroleum products, or other slick materials on ladders, catwalks, or other areas to be walked upon, including but not limited to, transport trucks, trailers, terminal racks, and driveways leading up to and away from racks and bulk storage tanks.

    12. Always check for overhead pipes or equipment while walking in a facility or on a transport.

    13. Always "bond" as taught, to equalize any static electricity charge between the FCO, the container, and the fuel product. See IRM 4.24.13.4.5.

    14. Always release the pressure in the transport compartments by opening the hatch lid to the first stop before opening the lid completely.

    15. Ensure that any electrical equipment, such as flashlights, used in a terminal or on a transport is approved for use in combustible atmospheres.

  2. Physical Examinations for FCOs

    1. The successful completion of a physical examination is required prior to entry on duty as an FCO.

    2. The successful completion of a bi-annual physical examination is required to remain in the occupational field.

    3. The physical examination will be conducted by a Federal Occupational Health (FOH) physician

    4. A physical examination will be conducted when an FCO retires or otherwise leaves the position

    5. The FCO HCP Coordinator will plan the physical examinations. See IRM 4.24.13.4.1.

4.24.13.4.3  (11-09-2007)
Material Safety Data Sheets (MSDS)

  1. FCOs must carry in their trucks the current MSDS for each type of taxable fuel common to their area of operation:

    1. all grades of gasoline,

    2. diesel fuel,

    3. dyed diesel fuel,

    4. kerosene,

    5. dyed kerosene,

    6. jet fuel,

    7. the dye used to dye diesel and kerosene, and

    8. any other fuel product or hazardous material commonly encountered in their area.

  2. Current MSDSs are available on the internet at the web-sites for the major oil companies.

4.24.13.4.4  (11-09-2007)
Personal Protective Equipment

  1. This sub-section describes items of personal protective equipment issued for use by FCOs to mitigate occupational hazards.

4.24.13.4.4.1  (11-09-2007)
Eye Protection

  1. All eye protectors, both the lenses and the frames, must be clearly labelled as meeting the American National Standard Practice for Occupational and Educational Eye and Face Protection Devices, ANSI Z87.1-2003 Impact Standard.

  2. FCOs must wear eye protection while working with and around fuel. FCOs may choose to use either safety glasses with side shields or safety goggles.

    Note:

    OSHA requires the use of safety goggles when working with fuel that is under pressure. FCOs are not trained to work with pressurized fuel.

  3. FCOs who wear prescription lenses must wear ANSI approved eye protectors over the prescription lenses without disturbing the proper position of either the prescription or the protective lenses.

  4. Contact lenses ARE NOT a substitute for safe protective equipment for the eyes. Safety glasses with side shields or safety goggles must be worn over contact lenses.

  5. Daily inspection and cleaning of the eye protection is recommended. Pitted, dirty lenses may reduce vision. Replace eye protectors if the lenses are pitted or can not be cleaned.

4.24.13.4.4.2  (11-09-2007)
Nitrile Gloves

  1. Nitrile gloves provide protection against skin contact with fuel products. The gloves must meetANSI standard 105-2005, American National Standard for Hand Protection Selection Criteria

  2. Nitrile gloves must be worn any time an FCO may have contact with fuel products.

  3. Gloves should be inspected before each use for pinholes and cracks. Do not wear jewelry that may puncture the gloves. Do not wear gloves when climbing truck ladders.

4.24.13.4.4.3  (11-09-2007)
Safety Helmet-Hard Hat

  1. The protective helmet, or hard hat, specified for use by FCOs must meet the ANSI Z89.1–2003, American National Standard for Industrial Head Protection Protective Headgear for Industrial Workers Requirements,

  2. The FCO's hard hat must be marked with certification that it complies with that ANSI standard.

  3. The hard hat consists of a shell and suspension. The minimum distance between the shell and the suspension must be at least 1 1/4 inches. Prior to each use, the suspension should be checked for cracks and other defects. No stickers or paint should be placed on the hat since it may cover defects.

  4. The hard hat must be worn when working in an areas where there is a potential for injury to the head from falling objects.

  5. The hard must also be worn when working in any situation where the potential for injury to the head exists from the FCO falling off an object. This includes but is not limited to:

    • Climbing a truck or tank

    • Working on top of the truck or tank

4.24.13.4.4.4  (11-09-2007)
Nomex Clothing

  1. Nomex clothing is flame-resistant not fireproof.

  2. Nomex clothing is designed to provide protection from flash-burns and to enable the wearer a small amount of additional time to escape a fire.

  3. Nomex clothing may be one piece coveralls or two-piece top and bottom separates.

  4. The Nomex clothing must be worn when it is required by the safety policy of the facility being inspected. FCOs may also wear the clothing at other inspection sites when they have safety concerns.

  5. Nomex coveralls shall always be worn as the outer-most garment. Coats, jackets, and sweaters, if worn, must be worn under the Nomex clothing.

  6. Never sew, pin, or otherwise attach any item to Nomex clothing. Doing any of those actions to a Nomex garment compromises its flame-resistance and the wearer will not be protected at the point the alteration was made.

  7. Nomex coveralls should be washed and dried separately from other clothing in accordance with the clothing manufacturer's instructions.

4.24.13.4.4.5  (11-09-2007)
Safety Shoes

  1. Safety shoes as part of the FCO uniform, shall be worn whenever the uniform is required to be worn. See IRM 4.24.13.5.

  2. In order to be approve for use by FCOs, the safety shoes must meet the ASTM Standards F2412-05 Standard Test Method for Food Protection and F2413-05, Standard Specification for Performance Requirements for Foot Protection.

  3. Approved safety shoes must have:

    1. Slip-resistant soles and a

    2. Notched heel for safe climbing. The depth of the notch may not exceed 1 inch.

  4. Approved safety shoes may not:

    1. Be made of canvas material,

    2. Have leather soles, or

    3. Have exposed nails.

4.24.13.4.4.6  (11-09-2007)
High-Visibility Safety Vest

  1. The high-visibility safety vest is an outer garment designed to make the wearer more visible by standing out against the surroundings or background.

    Note:

    Do not wear the high visibility vest over Nomex clothing. The Nomex will offer no protection for the parts of the body the vest is covering.

  2. The high-visibility safety vest must meet ANSI/ISEA 107-2004, American National Standard for High-Visibility Safety Apparel and Headwear. The safety vests must be Class 2, orange vests.

  3. All employees, including but not limited to FCOs and Managers, must wear the high-visibility vest when working:

    1. Around or near vehicular traffic,

    2. Around or near moving equipment,

    3. Within 10 feet of the edge of a traveled public highway,

    4. On a construction site adjacent to the public highway, and

    5. In any other situation where safety is improved by increased visibility of the workers.

4.24.13.4.4.7  (11-09-2007)
Portable Fire Extinguishers

  1. Two (2) portable ABC fire extinguishers are provided in each FCO truck.

    1. A small portable ABC fire extinguisher is carried in the cab of the truck, and

    2. A larger portable ABC fire extinguisher is carried in the truck bed.

  2. It is the FCO's responsibility to ensure they have unexpired, working extinguishers at all times.

  3. These units are designed for, and intended to, combat small fires.

  4. Use the "PASS" procedure: P - pull the pin or other seal, A - aim the nozzle at the base of the fire, S - squeeze the lever, S - sweep from side to side.

4.24.13.4.4.8  (11-09-2007)
Spill Clean Up Kit

  1. FCOs are supplied with an emergency spill kit and 5 pounds of absorbent clay (cat litter) used to clean up small spills of taxable fuels.

  2. It is the FCO's responsibility to make sure the spill kit is in the truck, intact, and quickly available.

  3. FCOs are required to wear eye protection while cleaning up a spill. See IRM 4.24.13.4.4.1.

  4. The absorbent sock (or pig) is used to contain or control a spill. A spill can be contained or kept from migrating by proper placement of the absorbent sock.

  5. The absorbent pad is used to absorb and wipe up the spill.

  6. When finished cleaning up the spill, dispose of liquid and absorbent material wastes in accordance with local, state, and federal regulations.

4.24.13.4.5  (11-09-2007)
Bonding

  1. For the safety of the FCO and to protect the safety and property of others, the FCO must bond each time he or she screens or collects a sample of fuel.

  2. Bonding equalizes the electrical charge (potential) between the FCO, the pipette/hand-pump, the container, and the fuel product.

    Note:

    The act of pumping taxable fuel across a rack into a transport tank compartment or rail car creates a strong electrostatic charge in the product. FCOs are instructed to allow the load to "rest" for 15 minutes before collecting a sample. This resting period plus proper bonding allows safe sampling of the fuel.

  3. Take care to maintain the bond. If the bond is lost, the bonding procedure must be followed again.

4.24.13.4.6  (11-09-2007)
Incident Reporting

  1. FCOs are responsible for reporting all job-related injuries, no matter how slight, to the Group Manager. This protects the employee's rights under the Federal Employee Compensation Act (FECA.)

  2. For detailed information on reporting job-related injuries, see IRS Document 9669, Employee Personnel Resource Guide.

  3. For information on Worker's Compensation, see IRS Document 9669, Employee Personnel Resource Guide. See the Employee Resource Center website for the latest version of the IRS Document 9669.

4.24.13.5  (11-09-2007)
Required Uniforms

  1. The FCO territory and group manager are responsible for ensuring the FCOs are properly attired in the required uniform.

    1. During every face to face interaction with an FCO, the manager will evaluate whether the uniform is being worn as stipulated in this section

    2. If the uniform is not being worn as required, the FCO will be sent home and placed on leave

    3. The manager does not have any discretion in this matter.

  2. The required FCO uniform consists of:

    • Navy blue headgear appropriate for the environment, with official IRS patch

    • Khaki colored shirt with collar with official IRS patch, American flag patch and name tag

    • Navy blue trousers with belt

    • Brown or black steel toed boots

    • Navy blue jacket/parka/windbreaker (seasonal) with official IRS patch, American flag patch and name tag

  3. The FCO uniform serves several purposes:

    1. Provides a nationwide standard professional appearance for IRS Fuel Compliance Officers.

    2. Enables FCOs to be readily identified as an officer of the Federal Government

    3. Provides FCOs some protection when working in environments containing potential hazards; and

  4. FCOs must wear the required uniform while they are in official duty status and/or when operating the government controlled truck. The only exceptions are when:

    1. The FCO expects to be engaged in administrative duties at a post of duty for the entire workday.

    2. The FCO is working at home

    3. The FCO is traveling during the workday by private vehicle or commercial means to attend a meeting or training session.

    4. The FCO is travelling to or attending a meeting or training session for the entire workday.

      Note:

      The manager may require the uniform to be worn during a group meeting or training session if part of the purpose of the meeting is to enable the manager to inspect each FCO's uniform.

    5. The FCO is in travel status after duty hours to obtain meals.

    6. This list is not all inclusive, any other exceptions must be pre-approved by the manager.

      Note:

      It is the responsibility of the FCO to have the prescribed uniform readily available in the event that an administrative duty, meeting, or training session is either interrupted or concludes early and non-excepted duties are to be performed by the FCO. If the clothing is not readily available, the FCO is expected to take leave for the remainder of the scheduled workday or take leave to retrieve the clothing and then complete the scheduled workday.

  5. Each FCO is authorized the following required uniform items purchased through approved vendors:

    1. One (1) winter-weight parka with zip-out liner and detachable hood,

    2. One (1) light-weight windbreaker,

    3. Ten (10) short sleeve shirts, tan or khaki colored,

    4. Ten (10) long sleeve shirts, tan or khaki colored,

    5. Ten (10) pairs trousers, navy blue, various styles are permitted,

    6. One (1) black or brown belt,

    7. Two (2) ball caps, navy blue,

    8. Two (2) knit caps, navy blue,

    9. One (1) pair of black or brown safety shoes, See IRM 4.24.13.4.4.5.

    Note:

    Clothing must be cotton or cotton blend for safety purposes

  6. FCOs are responsible to ensure the uniform is worn properly (ie: shirt tail tucked in, buttons buttoned, etc.) and that all items are complete, clean, and in good order.

    1. FCOs must have the uniform professionally cleaned and pressed.

    2. Frayed, torn or stained uniforms must be replaced.

    3. The group manager’s small purchase credit card is used to pay for the cleaner’s services.

  7. The Treasury seal patch is an integral part of the required uniform worn by FCOs.

    1. Each patch is an individually numbered, controlled item.

    2. FCOs must sign a custody receipt to acknowledge receiving the patches.

    3. Managers and FCOs are held accountable for the security of the patches.

    4. Patches that can not be accounted for must be reported to the FCO Manager immediately. See IRM 1.16.4

    5. FCOs must surrender the patches when they leave the job position.

    6. The patches may not be swapped or exchanged with law enforcement officers.

    7. The patch is sewn on shirts and jackets centered over the left breast pocket, if any

    8. The patch is sewn centered on the front panel of the ball cap.

  8. The American flag patch is worn on the FCO shirts, coats and jackets. It is placed centered on the left shoulder, approximately 2 inches below the shoulder seam.

  9. The name tag, in the format of first initial, last name, is worn on the outermost garment above the breast pocket, if any, on the right hand side of the chest

  10. Initial issue and subsequent replacement of authorized uniform items and personal protective equipment is the responsibility of the group manager

  11. The group manager’s small purchase credit card is used to purchase the authorized uniform and protective equipment.

4.24.13.6  (11-09-2007)
Annual FCO Work Plan and Required FCO Work Planning

  1. FCOs have very broad authority within IRC Section 4083 and the related Treasury regulations with 48.4083-1. This authority includes the ability to make unannounced inspections of taxpayer operations within the fuel distribution system. To support this authority, the IRC provides an assessable penalty under IRC 6717. Various court decisions support and define the extent and limits of the statutory/regulatory authority.

  2. To meet broad organizational plans and objectives, the Chief, Fuel Policy, develops an annual plan based on a variety of factors. Some of the factors considered are areas of potential non-compliance, introduction of new excise tax laws and regulations, and available or planned staffing. The annual FCO Work Plan supports strategic objectives and is part of the overall Excise Compliance Work Plan. The annual FCO Work Plan is the basis for most compliance activities that will be conducted by FCOs. The FCO compliance program also must consider circumstances that arise during the operational work year.

  3. A balance must be maintained between workload requirements and available staffing to maximize business results. Sound work planning is the basis of achieving this balance.

  4. Planning can effectively reduce taxpayer burden by reducing the time necessary to complete required taxpayer contacts and inspections.

4.24.13.6.1  (11-09-2007)
Annual FCO Work Plan

  1. The annual FCO Work Plan is distributed to the FCO Territory Manager to be used to develop operational plans for each group. FCO program goals include items such as: plans for geographic coverage by county, numbers of inspections by inspection activity code, and the number of BTR projects to be completed in a particular period. The FCO Territory Manager will share the plan goals with FCO Managers.

4.24.13.6.2  (11-09-2007)
FCO Manager Work Assignment Responsibilities

  1. FCO Managers are required to direct compliance activities and make assignments to FCOs that support the annual FCO work plan and that meet any "ad hoc" needs that arise during the day to day operations. FCO Managers will use a variety of methods of assigning work and assisting the FCO in work planning, such as:

    • Assignment of specific geographic counties/parishes to particular FCOs within the group

    • Assignment of taxpayer specific locations to be inspected, such as known terminals, wholesalers, retailers, end users or others within the fuel distribution system

    • Assignment of specific dates and locations for BTR activities and/or other special projects

    • Requiring specific dates for conducting assignments

    • Requiring use of "Anchor Points" (see below)

  2. The FCO Manager’s primary role in the work planning process is making work assignments and approving individual work plans for FCOs within the group in advance of the work being performed.

4.24.13.6.3  (11-09-2007)
FCO Work Planning Responsibilities

  1. A cornerstone of the FCO program is inclusion of FCO identified inspections, designated inspection site operations, joint operations with state officers and taxpayer education and outreach activities in the regular work plan of the FCO

  2. FCOs and FCO Managers should work jointly to ensure that there is a balance between the assigned work and FCO identified work that supports the annual work plan goals and maximizes compliance efforts.

  3. FCOs are required to prepare and maintain written work plans for efficient completion of managerial assignments and FCO identified inspections including, inspection sites to be visited, trips to complete geographic coverage, specific terminal inspections, vehicle maintenance, and participation in traditional BTR activities and special projects. See the position description and related critical job elements.

  4. FCOs and FCO Managers are required to use the "anchor points" concept to achieve a balance between assigned work and work that may be identified in the field by the FCO.

  5. The FCO work plan will be recorded in ExFON for review by the FCO Manager. Other supplemental written planning items may also be submitted to the FCO Manager for review and approval, but do not replace the need for using ExFON as the basic planning tool

  6. FCO work plans should reflect the following basic components at a minimum:

    • Prompt scheduling of all FCO manager assigned work

    • Balancing of all work assignment types in accordance with the annual plan

    • Balancing of geographic coverage within assigned areas

    • Integration of FCO identified work into the schedule of other assignments

    • A minimum of two weeks of planned actions, updated weekly, including planned travel, specific inspection sites, truck maintenance, leave, or any other pertinent planned information

    Note:

    The planning tool is not used as a journal to record past actions

4.24.13.6.4  (11-09-2007)
Anchor Point Concept

  1. This section describes a method of planning that incorporates efficient scheduling of assignments, managerial review and approval of work plans, and also permits an FCO maximum latitude to identify potential inspection sites while conducting other work in the field.

  2. An anchor point is defined as any location or work assignment that can be preplanned as an inspection site within a specific geographic area.

  3. The anchor point concept recognizes a basic FCO program compliance goal of "visibility" and maximizing geographic coverage within the assigned FCO group territory

  4. To use the anchor point concept:

    • The FCO will begin by identifying a specific geographic area where inspections need to be conducted. Selection of the geographic area should illustrate consideration of effectively covering the assigned territory

    • From all known assignments made by the FCO manager or self identified by the FCO, select as many specific sites as practical to conduct inspections.

    • The FCO will plan travel routes to the anchor point sites to maximize the potential to identify other sites that warrant inspection

    • Determine other elements of the plan such as whether overnight travel will be required to efficiently complete assignments and still permit inclusion of FCO identified sites.

4.24.13.7  (11-09-2007)
Authority to Inspect

  1. Through Section 4083(d) and Treas. Regs. Section 48.4083-1, FCOs are authorized to conduct warrantless searches.

  2. The FCO must present his/her credentials and provide Notice 916 (Eng/Sp) to each taxpayer prior to an inspection to explain the authority to inspect

  3. Publication 1 is provided to every taxpayer except at designated inspection sites

  4. This authority may be divided into three broad categories:

    1. Designated inspection site inspections

    2. Pervasively regulated industry inspections, where fuel is stored or may be stored, and

    3. Other inspections where consent is granted by the taxpayer

4.24.13.7.1  (11-09-2007)
Designated Inspection Sites

  1. Designated inspection sites are any State highway inspection station, weigh station, agricultural inspection station, mobile station, or other location designated by the Commissioner to be used as a fuel inspection site. A designated inspection site will be identified as a fuel inspection site. By IRS policy, these sites will be designated with a free standing and/or magnetized vehicle sign displaying "IRS DYED FUEL INSPECTION SITE"

  2. A designated inspection site is typically controlled by one agency and has vehicles from multiple entities moving through

  3. If the site is a State highway inspection station, weigh station, agricultural inspection station, or mobile station, the FCO must coordinate the inspection activity with local or state law enforcement.

  4. "Other locations designated by the Commissioner to be used as inspection sites" include, but are not limited to, construction sites, parks, rest areas, or any point on a public highway.

4.24.13.7.2  (11-09-2007)
Pervasively Regulated Industry Inspections

  1. Pervasively regulated industry sites include refineries, terminals, wholesalers, retailers, certain end users, and any other location where fuel is or may be produced or stored. The presence of fuel production or storage authorizes an FCO to conduct inspections. Fuel in the propulsion tank of a vehicle is not considered "fuel storage" for purposes of IRC 4083(d).

  2. The FCO will first seek consent from the owner of the property or an employee empowered to grant consent to conduct the inspection.

  3. If permission is granted, the FCO may proceed with the inspection.

  4. If permission to inspect is refused or revoked:

    1. Immediately stop the inspection.

    2. Advise the taxpayer that a refusal penalty will be asserted and that a writ of entry may be obtained and

    3. If the taxpayer still refuses, assert the refusal penalty under IRC section 6717 and consult with the FCO group manager about obtaining a writ of entry.

    4. See IRM 4.24.13.7.4. for information on writs of entry.

4.24.13.7.3  (11-09-2007)
Other Inspections Where Consent is Sought

  1. This category pertains to end user sites where fuel is neither produced nor stored and consent has been sought.

  2. The FCO will first seek consent from the owner of the property or an employee empowered to grant consent to conduct the inspection.

  3. If permission is granted, the FCO may proceed with the inspection.

  4. If permission to inspect is refused or revoked

    1. Immediately stop the inspection.

    2. Advise the taxpayer that a writ of entry may be obtained.

    3. If the taxpayer still refuses, discuss obtaining a writ of entry with the group manager.

    4. See IRM 4.24.13.7.4. for information on writs of entry.

    Note:

    The refusal penalty does not apply at these sites.

4.24.13.7.4  (11-09-2007)
Obtaining a Writ of Entry

  1. An FCO must to discuss with their group manager whether to obtain a writ of entry to complete an inspection any time consent is denied or revoked regardless of whether a refusal penalty was applied. The group manager will remain closely involved throughout the writ process.

  2. The FCO shall prepare a request for writ and an affidavit that details why the government needs to inspect and, if applicable, why a consent to enter and inspect was refused.

    Note:

    It is very important that the affidavit be fully detailed and factual. Do not expect the U.S. Magistrate or District Court Judge to fill in any missing information by asking any questions or otherwise seeking clarification when the application documents come before him or her.

  3. The FCO and Manager must submit the request for writ and the related affidavit to the local IRS Counsel.

  4. Local IRS Counsel will make any necessary changes and prepare a package for presentation to the Assistant U.S. Attorney (AUSA) having jurisdiction.

  5. The AUSA will present the package to the U.S. Magistrate or District Court Judge for consideration.

  6. If the package is approved, the U.S. Magistrate or District Court Judge will issue a Writ of Entry specific to the circumstances presented in the application package.

  7. The Writ of Entry will be served on the taxpayer by the FCO. The FCO should address any concerns with the group manager.

  8. If the taxpayer still refuses to allow the inspection under the writ, it is a refusal of a Court Order which may lead to a contempt of court citation and enforcement by the U.S. Marshall Service. In conjunction with the group manager, the FCO will refer the matter to IRS Counsel.

4.24.13.8  (11-09-2007)
Law and Regulations

  1. Imposition of federal excise tax on taxable fuel, see Internal Revenue Code (IRC) sections 4041 and 4081 and the Treasury Regulations (Treas. Regs.) sections thereunder.

  2. Exemptions from federal excise tax on taxable fuels, see IRC section 4082 and Treas. Regs. sections thereunder.

  3. Dyeing requirements, see Treas. Regs. section 48.4082-1.

  4. Notice requirement for dyed fuel, including required language, see Treas. Regs. section 48.4082-2.

  5. Back-up tax on diesel fuel and kerosene, see Treas. Regs. section 48.4082-4.

  6. Definition of taxable fuel, see IRC section 4083(a).

  7. Administrative authority, see IRC section 4083(d) and Treas. Regs. section 48.4083-1 which include:

    1. Authority to inspect,

    2. Reasonableness,

    3. Place of inspection,

    4. Scope of inspection, and

    5. Penalty for refusal of entry or refusal to submit to inspection.

  8. Registration, see IRC section 4101 and Treas. Regs. section 48.4101-1.

  9. Penalty on dyed fuel sold for use or used in taxable use, see IRC section 6715(a)(1)&(2) and Treas. Regs. section 48.6715-1.

  10. Penalty for the willful alteration of dye in dyed fuel, see IRC section 6715(a)(3).

  11. Penalty for selling or holding for sale altered dyed fuel, see IRC section 6715(a)(4).

  12. Assessable penalty for refusal of entry or refusal to submit to inspection (effective after October 22, 2004), see IRC section 6717.

  13. Tampering with or failing to maintain security requirements for mechanical dye injections systems. See IRC Section 6715A.

  14. Definition of dyed fuel, see IRC section 6715(c)(1).

  15. Penalty with respect to certain adulterated fuels, see IRC section 6720A

  16. Penalty for the failure to display tax registration on vessels, see IRC section 6718

4.24.13.9  (11-09-2007)
Inspection Types and Procedures

  1. There are a number of inspection types including, but not limited to the following:

    • Terminals,

    • Wholesalers,

    • Retailers,

    • Designated Inspection Sites,

    • End Users,

    • Below the Rack Initiatives and Sweeps, and

    • Special Projects

  2. Specific procedures for each type of inspection are listed below

4.24.13.9.1  (11-09-2007)
Designated Inspection Site Inspections

  1. Designated inspection site inspections are conducted to

    1. Ensure on road diesel vehicles do not have dyed, untaxed fuel in the propulsion tanks,

    2. Ensure fuel carried by fuel transport trucks matches the shipping papers, and

    3. Educate drivers of diesel vehicles about dyed fuel laws.

  2. When working sites such as state highway inspection stations and weigh stations coordinate with state/local law enforcement personnel.

  3. The FCO must record the inspections in ExFON using the data capture device and forms See IRM 4.24.13.16. and IRM 4.24.13.23 for guidance.

4.24.13.9.1.1  (11-09-2007)
Designated Inspection Site Procedures

  1. Secure permission from the person or agency that controls the site to establish an inspection site.

  2. Defer to the person or agency in control on traffic flow and safety issues.

  3. The FCO must identify the site as an IRS fuel inspection site with the official sign provided to each FCO.

  4. The FCO must convey his/her identity and contact information, and provide a Notice 916 to every driver prior to conducting the inspection.

  5. If the driver refuses the inspection, see IRM 4.24.13.18.4

  6. If the vehicle is a transport

    1. Review BOL,

    2. If BOL indicates dyed middle distillate fuel, screen the fuel in the storage tank(s) to confirm the BOL,

    3. If the screening confirms the BOL, continue with the screening of propulsion tank, and

    4. If the screening does not confirm BOL, obtain a fuel sample and, if possible, a copy of BOL. If a copy is not possible, document the BOL number and source of fuel. Immediate referral to Fuel Territory is required. See IRM 4.24.13.23.1.

  7. Screen the fuel in the propulsion tank

  8. If no dyed fuel is present, the FCO will secure only the tag and state information and release the driver.

  9. If dyed fuel is present or the contents of the fuel are suspicious (e.g. the fuel is dark), the FCO will inform the driver and secure a sample. The FCO will obtain the following information:

    • Name of driver,

    • Name of company/owner,

    • Address of driver and company,

    • Social Security Number and/or Federal Employer Identification Number,

    • Phone number of driver and company,

    • Position of the driver with the company,

    • Driver's license number,

    • Description of vehicle,

    • Size of propulsion tank(s),

    • Location of any fuel storage tanks on the vehicle,

    • VIN,

    • License plate number, and

    • Date of registration

  10. The FCO should obtain information to establish who is responsible for the presence of dyed fuel in the on road vehicle such as the following:

    • Who fueled the vehicle,

    • When the truck was fueled last,

    • Where the fuel was obtained,

    • The usual source of the fuel,

    • Whether the company has fuel tanks at the yard,

    • The location of the company’s yard,

    • How many trucks the company operates, and

    • Other information that would establish culpability

  11. The FCO will "follow the fuel" and conduct follow up inspections as required to determine the extent of the non-compliance. If geographically necessary, the FCO will notify their manager to have the information referred to an FCO in the appropriate area for follow up.

  12. At a minimum required the case history must document the following:

    • Delivery of Publication 1 and Notice 916

    • See paragraph 9 above

  13. For case processing procedures, See IRM 4.24.13.18.

4.24.13.9.2  (11-09-2007)
Terminal Inspections

  1. Terminal inspections are conducted to,

    • Verify that dyed fuel crossing the rack is dyed to the specifications in Treas. Regs. section 48.4082-1(b),

    • Verify that a tamper resistant mechanical dye injection system is used to dye the fuel crossing the rack,

    • Determine if the mechanical dye injection system has been tampered with and if the security requirements have been met,

    • Verify that required records are maintained on site for one year. See Treas. Regs section 48.4101-1(h)(3),

    • Ensure that the appropriate dyed fuel notice "DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE" or "DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE" , is on the bill of lading. See Treas. Regs. section 48.4101-1(h)(3)(ii).

    • Provide reference samples for BTR Compliance Initiatives,

    • Provide compliance samples for BTR Sweeps,

    • Verify that the sulfur content for highway fuel is within prescribed ranges, and

    • Educate taxpayers concerning fuel tax laws

    Note:

    Terminal inspections are conducted per the authority granted in IRC section 4083(d)

4.24.13.9.2.1  (11-09-2007)
Terminal Inspection Procedure

  1. Inspections for the purpose of determining a terminal’s compliance with the laws and regulations will be conducted per the schedule provided by Fuel Policy.

  2. The procedures to be followed at each terminal facility will differ depending on

    • The terminal's safety procedures,

    • The products stored and sold, and

    • The fuel dyeing method.

  3. Prior to conducting the terminal inspection, the FCO should query ExFON for prior inspections and review the history.

  4. The FCO must record the inspection on ExFON. See IRM 4.24.13.16. for guidance.

  5. The FCO must present credentials, provide the terminal operator or other responsible party with a Notice 916 and Publication 1 prior to conducting the inspection and explain what fuel samples are needed.

  6. The FCO should obtain information regarding the operation of the terminal including but not limited to the terminal's

    • Emergency plan,

    • Hours of operation,

    • Layout including location of tanks and racks,

    • Modes of fuel delivery and disbursement,

    • Types of fuel stored and/or sold at this location,

    • Dyeing method,

    • Fuel supplier, and

    • Types of records maintained at the terminal.

  7. The FCO should tour of the facility,

  8. The FCO must inspect the Shipping Documents to

    • Ensure Bills of Lading contain the required notice. See Treasury Regs. Section 48.4101-1(h)(3)(ii)(A),

    • Ensure 12- month record retention requirements are met,

    • Identify unusual sales of dyed fuel, which may indicate improper use of dyed fuel downstream.

    Note:

    Submit referral if items are unusual or not in compliance. See IRM 4.24.13.23.

  9. The FCO will inspect the mechanical dye injection system and will verify that the security measures are adequate to prevent and uncover system tampering.

    1. Tampering with the mechanical dye injection system is a violation of IRC 6715A(a)(1)

    2. Failure to maintain the security standards of the system is a violation of IRC 6715A(a)(2)

  10. To ensure the dye concentration requirement under Treasury Regs. 48.4082-1(b) is met, the FCO will obtain a sample of dyed fuel using the following procedure:

    1. Observe a transport loading with dyed fuel

    2. Introduce himself or herself and present credentials, a Notice 916 (ENG/SP), and a Publication 1 to the transport driver,

    3. Explain the purpose and the method of securing a sample,

    4. If necessary, ask the driver to relocate the vehicle out of the normal traffic flow before obtaining sample,

    5. Record the name of trucking company and license number,

    6. Ask the driver which compartments contain dyed fuel,

    7. Ask the driver about prior cargo,

    8. Wait at least 15 minutes for fuel to settle and the dye to mix,

    9. Use the Sampling Pump method described in IRM 4.24.13.10 to obtain the sample, and

    10. Secure a copy of the Bill of Lading (BOL) for the load from which each sample is taken.

  11. Some terminal owners require terminal employees to draw the samples. In that instance, the FCO must observe the sampling process to ensure a sample is properly obtained.

  12. At a minimum, the case history must document the following:

    • Identification of individual that authorized the inspection,

    • Delivery of Publication 1 and Notice 916,

    • Comments on fuel storage,

    • Method of fuel receipt and delivery (pipeline, barge or transport),

    • Comments on distribution of transmix,

    • Comments on review of records and sale of dyed products,

    • Review of BOLs for notice requirement,

    • Statement that required records are maintained on site for one year,

    • Comments on the mechanical dye injection system and security measures,

    • Comments on necessary corrective actions discussed with taxpayer,

    • Results of the screening of company vehicles and fueling practices,

    • Samples taken and sampling procedures,

    • Date samples results received and closing letter issued, and

    • Statement as to whether samples met minimum requirement,

  13. Follow the procedure in IRM 4.24.13.18 to close the inspection.

  14. Refer to the applicable IRM section if the terminal also engages in business activities that would classify it as a fuel wholesaler ( See IRM 4.24.13.9.3.), retailer ( See IRM 4.24.13.9.4.) and/or an end-user ( See IRM 4.24.13.9.5.).

4.24.13.9.2.2  (11-09-2007)
Procedures for Addressing an Under-Dyed Fuel Sample obtained from a Terminal

  1. If the dye concentration results from the EFL indicate a possible infraction, the FCO group manager will ensure that the FCO followed the procedures below within 5 business days

    1. Provide the sample results and a copy of Letter 4227 to the terminal operator (The Letter 4227 informs the terminal that the fuel is taxable and instructs the terminal to include the fuel on the Form 720 and Form 720-TO).

    2. Obtain from the terminal the position holder's name, EIN and Form 637 registration number.

    3. Generate a referral to the appropriate Excise Fuel Territory Group through the PSP function at the Centralized Excise Processing, CCSC. Include a copy of the BOL or the BOL number with the referral. The BOL information is required for the Planning and Special Procedures (PSP) Function at Centralized Excise Processing, CCSC, and the revenue agent to verify that the underdyed load was included on the Form 720-TO and to determine if it was included on a Form 720. See IRM 4.24.13.23.1. for instructions on referring potential fuel tax issues.

    4. Conduct a follow-up inspection at the terminal.

    5. Collect a second sample of dyed fuel from the same source where the original underdyed sample was taken, e.g., loading rack arm, etc.

    6. Mark the samples distinctively so the EFL can identify them for priority handling (The labels should be marked as usual for terminal concentration samples except enter the words "SECOND" or "THIRD" (as appropriate) in the blank to the right of "Other" on the sample bottle label).

      Note:

      Use words and not numerals to reduce confusion over fuel types, etc.

    7. After entering the "TCN" enter the original sample number from the underdyed sample.

  2. If the lab result from the follow-up sample indicates the concentration of dye in the fuel is still not in compliance, the FCO will repeat the procedure outlined above. The referral to excise should reference the previous referral to ensure the agent is aware of the extent of the issue.

4.24.13.9.3  (11-09-2007)
Wholesaler Inspections

  1. Fuel Wholesalers

    • Sell fuel to other wholesalers, retailers, and end-users,

    • May have storage tanks or may pick up fuel for delivery at terminals or other wholesalers,

    • May operate a retail fuel outlet at the location, and

    • May operate diesel powered trucks (thus are also end-users of diesel fuel).

  2. Wholesaler inspections are conducted to

    • Ensure the strength or composition of dye has not been altered,

    • Review the wholesaler’s records of sales of dyed fuel,

    • Ensure diesel trucks operated by the wholesaler do not have dyed fuel in the propulsion tanks,

    • Inspect retail pumps operated by the wholesaler,

    • Determine the sulfur concentration of diesel fuel intended for use in a diesel-powered train or highway vehicle,

    • Determine if gasoline has been adulterated, and

    • Educate taxpayers concerning fuel tax laws,

  3. The FCO must record the inspection on ExFON.

4.24.13.9.3.1  (11-09-2007)
Wholesaler Inspection Procedure

  1. Prior to conducting the inspection, the FCO should, if possible, query ExFON for prior inspections and review the history.

  2. The FCO must present his/her credentials as well as provide the wholesaler with a Notice 916 and Publication 1 prior to conducting the inspection.

  3. The FCO should tour the facility and obtain information from the wholesaler that will help the FCO understand the operation of the business, including but not limited to the following information:

    • Emergency plan, if any,

    • Hours of operation,

    • Location of tanks and racks,

    • Types of fuel stored and/or sold at this location,

    • Identity of the fuel supplier,

    • Types of records kept of sales and deliveries,

    • Sale of dyed product to end-users,

    • Presence of retail pumps,

    • Source of the fuel in the propulsion tanks of the wholesaler's trucks, and

    • Verification of correct Form 637 registrations related to the known and observed business operations

  4. The FCO will use the appropriate method described in IRM 4.24.13.5 to sample fuel.

    • Obtain a field concentration sample to determine whether the strength or composition of the dye has been altered.

    • Obtain a sample of clear distillates for sulfur analysis.

    Note:

    If the FCO cannot obtain a sample independently using approved sampling methods, the FCO may observe an employee obtaining a sample from the storage tank by valve or fuel thief.

  5. See IRM 4.24.13.13.1.for labeling instructions if a field concentration sample is obtained.

  6. Refer to the applicable IRM section if the wholesaler also engages in business activity that would classify it as a retailer ( See IRM 4.24.13.9.4.) and/or an end-user ( See IRM 4.24.13.9.5.).

  7. The wholesaler may be subject to penalties if any of the following is found:

    If the lab confirms Then ...
    The dye concentration of the sample has been altered A violation under IRC section 6715(a)(3) or 6715(a)(4) may be applicable. See IRM 20.1.10.15.1.3 for information regarding when a dye alteration penalty is applicable.
    The presence of dye in a sample from a retail pump not labeled with the required notice A notice violation under IRC section 6715(a)(1) may be applicable
    The presence of dye in a sample from the propulsion tank of the transport truck A violation under IRC section 6715(a)(2) will be applicable.
    The sulfur content of diesel fuel transferred for resale, sold for resale, or held out for resale for use in a diesel-powered train or highway vehicle exceeds the allowable level established by the EPA regulations An IRC section 6720A penalty may be applicable. See IRM 4.24.13.18.5. for guidance.

  8. FCOs are expected to "follow the fuel" back to its source or to its destination.

  9. At a minimum, case history documentation must include

    • Identification of individual that authorized the inspection,

    • Verification of delivery of Publication 1 and Notice 916,

    • Comments on fuel storage,

    • Identity of fuel supplier(s),

    • Comments on review of records and sale of dyed products to end users,

    • Comments on presence of retail pumps and required notice,

    • Results of the screening of company vehicles and fueling practices,

    • Samples taken and sampling procedures,

    • Comment on registration verification,

    • Comment on necessary corrective actions discussed with taxpayer, and

    • Date samples results received and closing letter issued

  10. Follow the procedures in IRM 4.24.13.18 to close the inspection.

  11. For procedures relating to a BTR inspection, See IRM 4.24.13.9.6.

4.24.13.9.3.1.1  (11-09-2007)
Documentation Procedures for Samples obtained for Sulfur or Biodiesel Content Testing

  1. Diesel samples obtained as part of a BTR project, an investigative issue, or as a routine compliance inspection may be sent to the EFL for sulfur or biodiesel content testing.

  2. The samples are obtained using the methods prescribed in IRM 4.24.13.5.

  3. EPA Regulations require pumps dispensing diesel

    • with a maximum of 15 ppm sulfur to be labeled "ULTRA-LOW SULFUR HIGHWAY DIESEL FUEL (15 PPM SULFUR MAXIMUM)" .

    • with a maximum of 500 ppm sulfur to be labeled "LOW SULFUR HIGHWAY DIESEL FUEL (500 PPM SULFUR MAXIMUM)" .

    Note:

    It is not within the FCOs authority to enforce this EPA notice requirement.

  4. The FCO will

    • Record the notice in the ExFON narrative,

    • Record on the chain of custody document, next to the sample number, either "ULSD" to indicate the pump was labeled ultra low sulfur diesel or "LSD" to indicate the pump was labeled low sulfur diesel, and

    • If a sulfur notice was not on the pump, record on the chain of custody document "No sulfur notice" .

  5. FCOs will obtain the following information from the delivery tickets and bills of lading for each of the last three shipments of diesel fuel:

    • Name and address of the supplier,

    • Date of shipment,

    • The gallons received, and

    • The sulfur notice and, if applicable, the biodiesel blend percentage.

  6. FCOs will record the percentage of the biodiesel blend (i.e. B5, B20), on the chain of custody document.

  7. Only lab results that indicate possible sulfur concentration violations or a discrepancy in the biodiesel percentage will be forwarded. If a lab result is not received within fifteen (15) days from the date the sample was shipped, the FCO may assume the sulfur concentration was within the allowable level and the biodiesel percentage agreed with the declared percentage.

  8. Lab results will be reported to the FCO group manager in the same manner as BTR lab results are communicated

4.24.13.9.3.1.2  (11-09-2007)
Procedures for Developing an IRC 6720A Penalty

  1. It is the burden of the government to establish that a wholesaler, reseller or retailer knowingly sold or held out for sale a liquid for use in a diesel powered train or highway vehicle that violated the applicable EPA regulations pertaining to sulfur content.

  2. Because there are no visual indicators of sulfur content, the information listed in IRM Section 4.24.13.9.3.1 should be obtained and recorded at the time of the inspection. This information is in addition to the information normally recorded on the Samples screen of ExFON.

  3. If lab results indicate a potential violation, the FCO must conduct an inspection of each taxpayer identified as a source of the fuel. For each inspection, the FCO will obtain diesel samples and record the following:

    • The source(s) of the fuel,

    • The statement on the shipping documents that indicate the sulfur content, and

    • Whether the location has additional products on site that would account for the increased sulfur content. A sample of the product(s) should also be obtained.

  4. If additional sources of fuel are identified, the FCO will obtain samples and continue to develop the issue to determine who knowingly transferred for resale, held for resale, or sold for resale the liquid in question.


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