4.24.13. Overview of Excise Fuel Compliance Program

(1) The Fuel Compliance Program enforces the laws and regulations pertaining to the following:

1. Proper sale and use of dyed fuel.

2. Sulfur content of taxed, undyed diesel fuel.

3. Requirement to dye fuel by means of a mechanical dye injection system.

4. Reporting requirements for the bulk distribution of fuel through pipeline or barge.

5. Reporting requirements for the distribution of fuel below the terminal rack.

(2) Employees conduct fuel inspections throughout the fuel distribution system without prior notice to the taxpayer. The employee starts the workday from their residence, post of duty (POD) station or other designated parking location, and travels to a site to conduct an inspection. During an inspection, interviews and tours are conducted, records are reviewed, and fuel samples are obtained. The fuel samples are obtained from fuel storage tanks and the propulsion tanks of highway vehicles. The fuel samples are shipped to and tested by the Excise Forensic Lab (EFL) under an interagency agreement with the IRS.

(3) Purpose - It is essential for senior-level officials, managers, and employees to understand the procedures described in this section. This section includes general information, as well as procedures pertaining to the following:

• Overview of fuel tax inspection

• Work planning

• Issue Management System (IMS)

• Time reporting

• Taxpayer outreach and education

• Referrals

• Fed/State agreements

• Third party contacts

• Fraud referrals

• Bribery awareness

(4) Audience - The intended audience of this section includes the Chief, Estate & Gift/Excise Tax Exam, TMs, GMs, FCOs and FCAs.

(5) Policy Owner - Director, Examination - Specialty Policy, owns the policies contained herein.

(6) Program Owner - Program Manager, Excise Tax Policy, is responsible for the administration, procedures, and updates related to the Fuel Compliance Program.

(7) Primary Stakeholders - Other areas that are affected by these policies and procedures include Excise Case Selection (ECS), Joint Operations Center (JOC), Workload Selection and Delivery (WSD), Counsel, and Disclosure.

(1) This subsection discusses basic procedures, guidelines, and requirements for use by employees and GMs in administering Fuel Compliance Program operations.

(2) The Fuel Compliance Program is involved with the following compliance activities:

1. Inspections pertaining to dyed fuel

2. Inspections pertaining to other taxable fuels

3. Inspections related to alternative fuels

4. Educational outreach to industry groups and taxpayers

(3) Employees use a variety of tools and techniques to ensure taxable fuel in the fuel distribution system is properly taxed and dyed. Employees are directly responsible for penalties when non-compliance is identified.

(4) Employees are responsible for supporting excise fuel tax compliance. For more detailed guidance refer to:

• IRM 4.24.2, Form 637 Excise Tax Registrations

• IRM 4.24.6, Technical Guidance and Information Processing for Excise Tax Examination Issues

• IRM 4.24.23, Operational Procedures and Responsibilities for Form 637 Excise Tax Registrations and Secure Airport Terminals (SATs)

• IRM 4.24.24, Form 637 Registration Files: Administrative Procedures for Initial Applications and Case Reviews

(5) Program compliance activities are structured around the annual Excise Program fiscal year work plan.

(1) Responsibility for the delivery of the Excise Fuel Compliance Program is as follows:

1. Workload delivery is the responsibility of the Director, Exam Case Selection.

2. Policies, guidance, and procedures are the responsibility of the Director, Examination - Specialty Policy.

3. Field examination delivery is the responsibility of the Director, Specialty Examination.

(2) Employee duties include conducting inspections and outreach to promote compliance with the fuel tax laws. Inspections may result in the assertion of penalties if non-compliance is identified. The employee also assists with the enforcement activities by other personnel within Excise Tax Examination. Assistance includes, but is not limited to, identifying potential excise tax issues and obtaining fuel samples.

(1) An Excise Work Plan is developed to meet organizational planning needs and strategic objectives. The Excise Work Plan is the basis for most work assignments.

(2) Work planning focuses on:

1. Conducting fuel inspections in accordance with the plan.

2. Conducting inspections in support of excise tax examinations and registration reviews.

3. Supporting information-sharing agreements between the IRS and various states. See IRM 4.24.13.10.

4. Performing taxpayer education and outreach activities. See IRM 4.24.13.8.

(3) Work planning responsibilities involve:

1. JOC, a group within ECS,

2. Fuel compliance GMs, and

3. Employees.

(4) The Fuel Inspection Data Gathering and Analysis Project (FIDGAP), which is administered by the JOC, selects potential inspection sites in accordance with the annual fuel compliance plan and managerial direction.

1. Sites are selected for each employee based on the employee’s starting location (i.e., Post of Duty (POD) or designated parking location).

2. Sites are also selected for blitzes set in specific geographic locations.

3. The database is updated based on feedback received from the field groups and new data.

(1) IMS provides automated support for the Fuel Compliance Program.

(2) Employees and GMs should refer to the IMS guidance for specific instructional information pertaining to the use of IMS.

(3) See IRM 4.24.16 for specific requirements on inputting inspections on IMS.

(1) SAINs (Activity Code variation with suffixes) are used in IMS to differentiate the types of inspection activities. Numerical suffixes are used with certain SAINs to further distinguish the type of inspection.

(2) SAIN 515 is used to record all terminal inspections.

(3) SAIN 516 is used to record all wholesaler and retailer inspections. When selecting and entering the inspection issue into IMS, the following list of alpha suffixes must be used to identify the type of inspection:

1. "R" - to record a retailer inspection (including truck stops).

2. "W" - to record a wholesaler inspection.

3. "Z" - to record an inspection received from a state employee as part of a fed-state agreement.

(4) SAIN 517 is used to record all designated inspection site screenings and inspections. When selecting and entering the inspection issue into IMS, the following list of alpha suffixes must be used to identify the type of screening or inspection:

1. "H"- to record fuel compliance inspections and screenings at any state highway inspection station, weigh station, mobile station, or other location designated by the IRS Commissioner to be used as a designated inspection site.

2. "O"- to record all inspections and screenings at sale barns, livestock auctions, construction sites, and similar situations where vehicles operated by various entities are inspected at a single site and law enforcement officers are not needed to direct the vehicles.

3. "Z" - to record an inspection received from a state employee as part of a fed-state agreement, if the state sample was secured because of an on-road inspection (designated inspection site).

(5) SAIN 518 is used to record all end-user inspections. If the state sample was secured because of an end-user inspection (business/company inspection), use the alpha suffix "Z" to record inspections received from a state employee as part of a fed-state agreement.

(1) All time (direct and indirect) must be entered into the IMS time sheet.

(2) Inspection time is entered in the IMS Timesheet section "Misc. Direct Exam Time." For more detailed guidance, see IRM 4.24.13.7(9).

(3) Fuel inspections, not resulting in a penalty, will not have time applied to the IMS case file. Time for these inspections will be reported under Activity Codes 515, 516, 517, and 518.

(4) Activity Code 515 is used to report time related to terminal inspections and biofuels producers.

(5) Activity Code 516 is used to report time related to wholesaler, retailer, and biofuels blender inspections.

(6) Activity Code 517 is used to report time related to designated inspection site inspections.

(7) Activity Code 518 is used to report time related to end-user inspections.

(8) For inspection time entered under Activity Codes 515, 516, 517, and 518, the activity comment field in the IMS Timesheet must be completed and include the following:

1. Inspection Sites Visited - List of taxpayer names or IMS Case IDs for each inspection site visited that corresponds to the respective Activity Codes. If visits were attempted, but did not result in reportable inspections, list the county or town and the number of invalid inspection sites that correspond to the respective Activity Codes.

2. Cases Established in IMS - List of taxpayer names or IMS Case IDs for each case established in IMS during the day that corresponds to the respective Activity Codes.

3. Cases Closed in IMS - List of taxpayer names or IMS Case IDs for each case closed from IMS during the day that corresponds to the respective Activity Codes.

(9) The following are examples of entries into the activity comment field in the IMS Timesheet for a corresponding Activity Code

(10) For all penalty cases, time must be entered into the IMS Timesheet in the "Direct Exam Time" section once ERCS controls are established. The activity comment field in the IMS Timesheet must be completed to document all penalty case actions in a clear and concise manner. Time applied to a penalty case must correspond to the specific case in which the penalty is being asserted. An issue must be added within the IMS case file to charge time directly to a penalty case. For applicable SAIN codes, see IRM 4.24.13.6, IMS Standard Audit Index Numbers (SAIN) for Inspections. For applicable UIL Codes, see IRM 4.24.16.2.3(4), Penalty Case Processing Procedures.

(11) Activity Codes 610 and 730 in the IMS Timesheet are used to report indirect and administrative time, respectively. These are located in the "Below The Line Time" section of the IMS Timesheet.

1. Activity Code 610 – Indirect time spent on technical duties that cannot be charged to a specific case or activity. Generally, this includes attending group meetings, reading procedural/technical material, preparing and attending technical/procedural conferences, completing forms, working on committees, managing records, preparing time reports/travel vouchers, general housekeeping (e.g., moving, ordering supplies and surveying space), vehicle maintenance, and e-mail/voice messaging system.

2. Activity Code 730 - Administrative time reported under this Activity Code include duties such as Combined Federal Campaign, physical examinations, Commissioner Representative duties, participation in attitude surveys (survey and meetings), NTEU (bank and official which includes time spent by designated union representatives as provided for in the union contract), Special Emphasis Program Time, mandatory briefings (e.g., Unauthorized Access (UNAX), Privacy Information Protection and Disclosure, etc.), and performance discussions with GM (e.g., time and workload reviews, etc.). Activity Code 730IT is used to record computer breakdowns and when the employee experiences problems with hardware or software that results in a loss of productivity.

(12) When experiencing computer, hardware, or software issues, both requirements below must be satisfied to charge time to Activity Code 730IT:

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

2. The employee is actively engaged in the fix. This includes troubleshooting with someone to fix the system, resolving equipment and software problems, server time-outs or outages, computer problems, and participating in phone testing.

(1) Customer service includes appropriate educational and outreach efforts. This supports an overall strategy to promote voluntary compliance.

(2) Employees shall engage in various outreach activities such as, but not limited to:

1. Formal meetings with trade organizations and associations,

2. Participation in trade shows,

3. Meetings with state fuel inspection employees, and

4. One-on-one discussions during inspections.

(3) Employees need to ensure that the GM has approved the first three activities listed in (2) above.

(4) When the outreach occurs as part of an inspection, the employee must record the actions in IMS.

(5) At the conclusion of the outreach effort the GM should be notified. The notification must include the following:

1. How the outreach was identified

2. Audience

3. Topics discussed

4. Date that it occurred

5. Location

6. Length of time

(6) Time associated with educational/outreach activities should be recorded in the IMS Timesheet in the "Misc. Direct Exam Time" section under Activity Code 521 unless it was done at the time of the inspection.

(7) The GM should monitor Activity Code 521 time and obtain explanations and details, as warranted.

(1) Employees are exposed to a variety of situations where direct penalty enforcement is not the only issue. Significant fuel tax issues, other excise tax issues, or other tax issues may be apparent or develop during an inspection. It is the responsibility of employees to recognize situations that potentially require a referral to other IRS operations, and promptly prepare and submit written referrals.

(1) A variety of written agreements may be developed to coordinate tax administration with other federal or state agencies. Development of these agreements is a responsibility of Excise Tax Policy in collaboration with Privacy, Government Liaison and Disclosure (PGLD).

(2) Fuel sampling agreements are established with taxing and non-taxing agencies. IRS receives and tests fuel samples secured by state agencies, which perform fuel compliance activities.

(3) IRC 6103(d) only permits IRS to share the sample results from the samples the state agency sent to IRS. IRS employees are not permitted to share federal sample results or penalty information with state agencies.

(4) Responsibilities for meeting the administrative provisions of the agreements are shared by Excise Tax Examination and WSD.

(5) The TM will appoint a GM as the point of contact to address issues that may arise. As the point of contact, the GM will work with state officials, WSD, Excise Tax Policy, and PGLD.

(6) As the point of contact, the GM must:

1. Obtain copies of all current written agreements between any federal and state agencies within the geographically assigned territory.

2. Review and familiarize themselves with all the provisions of the written agreements within their assigned geographic territory.

3. Meet the IRS obligations stated in existing agreements and work with their state counterparts to ensure the state fulfills its obligations.

4. Make authorized disclosures of IRC 4041 and IRC 4081 federal tax information as provided in the written agreements. Penalties authorized by IRC 6715 associated with these secured samples, may not be disclosed to state agencies under IRC 6103(d). See IRM 4.24.13.10.1, Record keeping and Accounting for Authorized State Disclosures, for descriptions of the information disclosed to the states.

5. Provide copies of the current agreements between any federal and state agency to the employee assigned that geographical territory.

6. Monitor employees' compliance with authorized disclosure and contract provisions of the agreements.

7. Notify Excise Tax Policy when a state shows interest in entering into a fed/state agreement or when an existing agreement needs updating.

(7) If a GM has questions about a particular agreement or experiences problems with a state, the GM should contact Excise Tax Policy. An analyst will work with the GM and PGLD to answer questions and resolve issues.

(8) WSD will receive case information from states and lab testing results from the EFL. WSD will:

1. Associate the case information with the testing results.

2. Ensure cases are input on ERCS and IMS and assigned to the appropriate field group.

3. Ensure disclosure reporting documents are completed.

(9) Employees will work directly with federal and state officials. Maintaining a balance between making only authorized disclosures to those state officials and maintaining a solid working relationship is essential. Employees must at a minimum:

1. Obtain copies of all current agreements between any federal and state agency within their geographically assigned territory.

2. Review and familiarize themselves with all provisions of the written agreements, including the limitations of authorized disclosures.

3. Elevate to the GM any issues or changes that should be considered.

4. Promptly process samples received from state officers.

5. Work cooperatively with federal and state officials within the parameters of written agreements.

(1) Employees must be alert to indicators of fuel tax evasion. See IRM 25.1, Fraud Handbook, for guidance on recognizing and developing a fraud case.

(2) Tax fraud is an intentional wrongdoing on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owed. Tax fraud requires both a tax due and owing, along with fraudulent intent. See IRM 25.1.1.3, Definition of Fraud.

(3) When employees encounter behavior or indicators of fraud, they shall immediately consult with their GM to determine the proper course of action.

(4) The employee and GM will ensure jointly that they have sufficiently documented the appropriate fraud factors or information and consult with a Fraud Enforcement Advisor and the Excise Tax Policy Fraud Coordinator.

(5) Based on these consultations and any development of a plan of action, the employee and GM will determine whether to recommend a referral to Criminal Investigation (CI).

(6) If the referral to CI is initiated, further participation by the employee may still be required. The CI request for employee assistance is made through the GM.

(7) The GM should ensure the employee's participation and that feedback is shared on the outcome of the referral.

(1) The Treasury Inspector General for Tax Administration (TIGTA) is primarily responsible for investigating all attempted bribery cases. See IRM 4.10.1.4.7, Reporting Bribery Attempts.

(1) Employees must contact ITG through the Specialist Referral System (SRS) system prior to visiting Indian Tribal Reservations for any protocol guidance (e.g., approval before entering tribal lands).

(2) There are situations when sufficient time may not always exist to contact ITG through the SRS system, especially if a matter requires expediency or is impromptu. In those instances, employees must make their best efforts to contact ITG employees. For more detailed guidance, refer to "Related Forms and Documents" at SLA Office of ITG and SBSE Excise 2022 prior to contacting the tribal entity.

(3) ITG employees will make their best efforts to respond to fuel compliance employees immediately with any background about a tribe that might be helpful. Excise Fuel Compliance Program will also notify and coordinate with ITG when follow-up compliance activity is warranted.

(4) Refer to IRM 4.46.3.2.6, Specialist Referral System (SRS), for more detailed guidance.

(1) Definitions of terms common to the Fuel Compliance Program are included below. For more definitions of terms related to alternative fuels and the taxable fuels, see Treas. Reg. 48.4041-8 and Treas. Reg. 48.4081-1.