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

(1) The Internal Revenue Code (IRC) requires each person who engages in certain activities subject to federal excise tax (FET) to be registered by the IRS as a taxpayer who engages in these activities. The taxpayer must register with the IRS before undertaking the activity. In other situations, a person must register with the IRS as a taxpayer who conducts certain activities to receive an excise tax benefit that may come with such activity, such as, buying or selling an article tax-free or filing a claim for refund or credit. For specified activities, the taxpayer must use Form 637 to apply for registration under:

• IRC 4101, Registration and bond (related to certain fuel taxes and credits)

• IRC 4222, Registration (related to IRC 4221 tax-free sales)

• IRC 4662, Definitions and special rules (related to certain tax-free sales of intermediate hydrocarbon streams or tax-free inventory exchanges of taxable chemicals)

• IRC 4682, Definitions and special rules (relating to ozone-depleting chemicals)

(2) Form 637 includes a listing of activities for which registration is required or allowed. Refer to the tables found in IRM 4.24.2.3, Applications Under IRC 4101, and IRM 4.24.2.4, Applications Other Than Under IRC 4101, that list all applicable activity letters.

(3) Letter 3689, Approval of Excise Tax Registration, is issued when an application is approved. A copy of the Form 637 application is not considered proof of registration. Letter 3689 should be retained as proof of registration.

(4) Letter 3689 does not constitute a determination letter. For example, an approval of a Form 637 Registration with activity letters AB, NB, or SA does not mean all future product produced unequivocally qualifies for the biodiesel/renewable diesel mixture credit or sustainable aviation fuel credit. In addition, an approval of a Form 637 Registration with activity letters AL or AM does not mean all future product produced unequivocally qualifies for the alternative fuel/alternative fuel mixture credit.

(5) If an application for registration is denied or an approved registration is revoked, then the applicant or registrant will be notified in writing and the reason for the denial or revocation will be provided.

(6) An approved registration remains valid until revoked. Registration status can be found at Confirm Online Form 637 Registration Status.

(7) All Form 637 Registration numbers issued after February 1, 2004, are comprised of 10 digits. For registration numbers issued prior to the preceding date:

1. The non-UV/UP registration number has eight digits.

2. The activity letters UP and UV registration numbers are comprised of nine digits.

(1) Form 637 Registrations are processed under the following authorities:

• IRC 4101 - Registration and bond with respect to the tax imposed by IRC 4041(a)(1) or IRC 4081 , every person producing or importing biodiesel (as defined in IRC 40A(d)(1)), including renewable diesel (as defined in IRC 40A(f)(3)), or alcohol (as defined in IRC 6426(b)(4)(A)), every person producing or importing sustainable aviation fuel (SAF) (as defined in IRC 40B), and every person producing second generation biofuel (as defined in IRC 40(b)(6)(E))

  Note: The IRS will treat the producer or importer of a SAF synthetic blending component and the United States producer of a SAF co-processed qualified mixture as the persons required to register under IRC 4101.

• Treas. Reg. 48.4082-5 - Registration relating to diesel fuel or kerosene removed, entered, or sold in Alaska for ultimate sale or use in an exempt area of Alaska

• IRC 4222 - Registration for certain tax-free sales under IRC 4221

• IRC 4662(b)(10)(C) - Registrations for intermediate hydrocarbon streams containing one or more organic taxable chemicals

• IRC 4662(c)(2)(B) - Registrations for inventory exchanges of taxable chemicals

• Treas. Reg. 52.4682-5(d) - Exports of ozone-depleting chemicals (ODCs)

(2) Notice 2016-15, Treatment of Kerosene for Use in Aviation, provides guidance regarding the criteria for designation of a terminal located within a secure area of an airport as a SAT for purposes of IRC 4081 and IRC 4082.

(3) Delegation Order SBSE 1-23-7 (formerly SBSE DO 4.36, Rev. 3), Approval, Denial, Suspension or Revocation of Form 637, Application for Registration (for Certain Excise Tax Activities), delegates the authorities for approving, denying, revoking, and/or suspending Form 637 Registrations.

(4) Delegation Order 4-6 (Rev. 1), Taxable Fuel Bond, delegates the authority to make the final determination as to the amount of bond required to be given by an applicant or existing registrant, to satisfy certain registration requirements under IRC 4101 with respect to the tax imposed by IRC 4041(a)(1) or IRC 4081. This delegation order also delegates the authority to require the posting of a bond to satisfy certain registration requirements under IRC 4101 for Form 637 Registration and to set the value of such bond.

(5) Delegation Order SBSE 1-23-47, Approval or Denial / Revocation of Secure Airport Terminal (SAT) Designations, delegates the authorities for approving, denying, and revoking SAT designations.

(6) This section is tailored for the operational roles, responsibilities, and procedures for Form 637 Registrations and SATs. Refer to IRM 4.24.2 for a general overview of Form 637 Registrations, including applications under IRC 4101, IRC 4222, IRC 4662, and IRC 4682, as well as for general guidance. Refer to IRM 4.24.24, Form 637 Registration Files: Administrative Procedures for Initial Applications and Case Reviews, for guidance regarding Form 637 initial applications and case reviews.

(1) Director, Examination - Specialty Policy is responsible for the procedures and policies addressed in this section.

(2) Program Manager, Excise Tax Policy is responsible for ensuring the procedures are accurate and updated regularly as needed.

(3) The Chief, Estate & Gift/Excise Tax Exam is responsible for ensuring the procedures within this section are adhered to by employees in Excise Tax Examination.

(4) Form 637 Registration case work and SAT designations are processed by the following areas:

• Centralized Specialty Tax Operations (CSTO)- All initial Form 637 applications and SAT Designation requests are received by the Cincinnati IRS Center (CIRSC), date stamped and forwarded to CSTO for initial processing. Refer to IRM 4.24.23.5 and IRM 4.24.23.12.1. All Form 637 Registration case files are processed and maintained electronically in the Issue Management System (IMS). Hereinafter referred to as "IMS case files" throughout this section.

• Excise Case Selection (ECS) and Workload Selection and Delivery (WSD)- The selection of sample review cases and monitoring the Annual Form 637 Registration Workplan is conducted by ECS/WSD. Refer to IRM 4.24.23.4.

• Registration Group - The registration group administers and maintains Form 637 Registrations. The registration group consists of Lead Technicians (LTs), Tax Examiners (TEs), an Exam Technician and a Management and Program Assistant. Refer to IRM 4.24.23.6.

• Excise Groups - Form 637 compliance reviews (hereinafter referred to as "compliance reviews") assigned to excise tax groups are conducted by examiners. Group managers are responsible for concurring with the examiner's compliance review recommendation and approving penalty determinations, if applicable. Refer to IRM 4.24.23.7.

• IRS ExSTARS Coordinator - The IRS ExSTARS Coordinator is responsible for updating Terminal Control Number (TCN) files and the SAT list on the Facility Control Number (FCN) location directory. Refer to IRM 4.24.23.12.9.

(1) Program Reports - Information regarding the reporting of program objectives are included on, but not limited to the following:

• Examination Headquarters Monthly Briefings

• Program Manager Monthly Briefings

• SB/SE Examination Operational Reviews and Business Performance Reviews

(2) Program Effectiveness - Excise Embedded Quality Performance Reports measure whether quality attributes are applied uniformly and consistently.

(3) Annual Review - Program Manager, Excise Tax Policy, is responsible for reviewing the information in this section annually to ensure accuracy and promote consistent tax administration.

(1) Below are the acronyms and their definitions used throughout this section.

(1) Refer to IRM 4.24.23.1.2 for the most significant statutes and regulations affecting Form 637 Registrations.

(2) Refer to Notice 2016-15 for guidance regarding the criteria for designation of a terminal located within a secure area of an airport as a SAT for purposes of IRC 4081 and IRC 4082.

(3) Refer to IRM 4.24.1, Introduction to Excise Taxes, for general framework describing basic examiner responsibilities, excise IRC sections, excise IRM sections, excise tax abstracts, and Excise Tax Program returns and claims.

(4) For further guidance and procedures on a wide variety of excise issues, refer to the Excise Tax Knowledge Base Homepage accessed via the Virtual Library on IRS Source - Home.

(5) The Taxpayer Bill of Rights (TBOR) lists rights that already existed in the tax code, putting them in simple language and grouping them into 10 fundamental rights. Employees are responsible for being familiar with and acting in accordance with taxpayer rights. For additional information, refer to IRC 7803(a)(3) and Taxpayer Bill of Rights.

(6) For information relating to identity theft, refer to IRM 25.23, Identity Protection and Victim Assistance.

(1) The registration group manager is responsible for:

1. Overseeing the Form 637 Registration program and workflow process.

2. Making the final determination in IMS for applications that have been denied or revoked by the registration group.

3. Ensuring the Form 637 indicator is added to the Business Master File (BMF) account in IDRS for registrations that are approved, as well as removed from the BMF account for revoked registrations.

   Note: To ensure the Form 637 indicator is accurately set on the BMF account in IDRS, the group manager must conduct an annual statistically valid sample review of registrations.

4. Releasing authorized registration information to update the Form 637 Portal.

5. Resolving issues with applications which cannot be processed by CSTO.

6. Addressing correspondence from Form 637 registrants who raise questions or concerns relating to the Form 637 Registration program.

7. Addressing issues, concerns or questions raised by CSTO and senior leadership.

8. Conducting reviews of cases processed by LTs.

9. Conferring with the Chief, Estate & Gift/Excise Tax Exam about contested denials and revocations.

10. Ensuring appropriate actions are taken on information generated by a CP 241 notice. Refer to IRM 4.24.24.5.2, CP 241, Notice - 637 Registrant, Procedures.

(1) The registration group LT is responsible for maintaining the IMS case files in their assigned territory. However, due to workflow of applications and registrations, the LT may also assist other territories.

(2) The LT is responsible for:

1. Assigning registration group cases to TEs.

2. Creating discretionary or sample reviews in IMS.

3. Adding new applications received from examiners to IMS and creating the applicable IMS case file.

4. Uploading historical data into the IMS case file.

5. Requesting ERCS controls on sample reviews assigned to examiners.

6. Reviewing registration group cases completed by TEs and making the final determination in IMS to approve or continue the registration.

7. Preparing and issuing Form 637 Registration letters.

8. Processing IMS case files after group manager closures.

9. Updating IMS case files to reflect changes such as, name, ownership, address, etc.

10. Ensuring the Form 637 indicator is input on the BMF account in IDRS for initial applications that are approved for registration.

(1) The TE in the registration group is responsible for:

1. Performing Integrated Data Retrieval System (IDRS) research on all initial applications in Status 20.

2. Performing Accurint searches on all initial applications in Status 20.

3. Performing correspondence compliance reviews.

4. Making recommendations on registration group cases to approve, deny, continue, or revoke a registration.

5. Preparing Form 637 Registration letters.

6. Preparing and mailing Letter 3681 to all initial applicants assigned to the TE within 10 calendar days from the assignment of the IMS case file.

(1) Based on the needs of the Excise Tax Program, various activity letters will be worked as correspondence compliance reviews by the registration group.

(2) An Annual Form 637 Registration Workplan will be distributed to the registration group before the beginning of the fiscal year. Correspondence compliance reviews will be started on a pro-rata basis based on the Annual Form 637 Registration Workplan to ensure timely completion of the reviews by fiscal year end.

(3) Approved registrants under the Large Corporate Compliance Program will not be selected for correspondence compliance reviews and will be referred to the excise groups.

(4) Correspondence compliance reviews that cannot be resolved by the registration group will be sent to the appropriate excise group for completion.

(5) Refer to IRM 4.24.24.4.3, Status 20 Compliance Check - Overview Initial Application and Sample Reviews Conducted by Form 637 Registration Group TE, for additional information.

(1) The group manager is responsible for:

1. Assigning IMS case files to examiners from the "GM Assignment Queue" and updating the IMS case file to Status 50 in IMS.

   Note: The "GM Assignment Queue" is IMS’s queue name for the Group Manager Case Assignment Queue within IMS and has certain administrative permissions for processing IMS case files. The "GM Assignment Queue" is assigned to Excise Tax Examination with oversight by the group managers.

2. Offering to confer with the applicant or registrant about unagreed issues when there is non-concurrence with a denial or revocation recommendation.

3. Documenting the Case Level Activity Record in IMS to record all observations about the case review and whether there is concurrence with the examiner's recommendation.

4. Making the final determination to approve, continue, deny or revoke a registration and documenting that decision using IMS.

5. Signing and issuing the appropriate registration letter to the applicant or registrant based on the examiner's recommendation.

   Note: The registration group manager does not issue letters for excise group cases unless the determination is contested.

6. Preparing and issuing Letter 5023, Change in Form 637 Registration Number, when applicable.

7. Confirming the examiner prepared and faxed Form 2363, Master File Entity Change, to Centralized Case Processing on approved, as well as revoked registrations.

8. Inputting, as warranted, the appropriate date for the IMS case file follow-up compliance review.

9. Updating the IMS case file to Status 90 in IMS for approved, continued, denied, or revoked registrations.

10. Updating the IMS case file to Status 70 in IMS when a change in ownership occurs or when a contested denial or revocation case is appealed, and the examiner recommends denying the appeal.

(2) The group manager is also responsible for ensuring that:

1. Initial application reviews are completed on ERCS within 60 calendar days of assignment from the LT.

2. Sample reviews are completed on a pro-rata basis during the fiscal year.

3. Excise group compliance reviews are closed off ERCS.

4. Examiner's recommendation to approve, continue, deny or revoke a registration is adequately supported.

(3) If the initial application contains a combination of recommendations, then the group manager will sign and issue all appropriate letters.

(4) If the group manager elects to use an electronic signature, then a graphic digital signature must be used.

(1) The examiner must utilize IMS and the appropriate Form 637 mandatory administrative forms, activity letter job aids and Form 637 Registration letters currently found in the Notebook Job Aid. Refer to IRM 4.24.23.11 for more detailed guidance.

(2) Form 637 reviews completed by the examiner must include a complete analysis of the applicant's or registrant’s business operations. Refer to Exhibit 4.24.23-1 for more information regarding business operations and transactions flow. At a minimum, the review must consist of:

1. A plan on what to inspect.

2. How the inspection will be conducted.

3. The actual inspection, complete with applicant or registrant interview, business review and review of necessary books and records.

4. A recommendation whether the application or registration should be approved, continued, denied, or revoked and the reason for the recommendation.

(3) All IMS case files must include documentation for the appropriate registration tests for each activity letter for which the applicant applied and/or for which the registrant is registered. Refer to IRM 4.24.2.3.1, Registration Tests for IRC 4101 Activities, and/or IRM 4.24.2.4.1, Registration Tests for Activities Other Than Under IRC 4101, for more detailed guidance about registration tests.

(4) The examiner must also review transcripts, other IDRS research, Accurint, Currency and Banking Retrieval System (WebCBRS) research and any other internal IRS documents to determine compliance with registration tests (e.g., the satisfactory tax history test).

(5) Prior to recommending a registration be approved or continued, the examiner must resolve all deficiencies and/or delinquencies. This includes items notated on the 637 Recommendation Sheet prepared by the registration group.

(6) The examiner must explain to the new registrant:

• The purpose of the registration and how to use it.

• The requirement to comply with the terms and conditions of registration described in Publication 5039, Terms and Conditions of Registration for Form 637.

  Note: Noncompliance may result in revocation of the registration. Refer to IRM 4.24.2.3.3, Mandatory Revocation Rules (IRC 4101 activities), and IRM 4.24.2.4.3, Mandatory Revocation Rules (IRC 4222, IRC 4662, and IRC 4682 activities), for more detailed guidance.

• The requirement to use and maintain exemption certificates, if applicable.

  Note: Exemption certificates must be accepted in good faith and secured prior to the transaction occurring and/or filing a claim. Noncompliance may result in taxation or disallowance.

• The format of the exemption certificate must include all information required by the pertinent sections of the applicable tax law.

• Examples of exemption certificate(s) may be found in the Treasury Regulations, IRS Notices, and Publication 510.

(7) The examiner must explain to the new registrant the filing, payment, and deposit requirements for the following, when applicable:

• Form 720, Quarterly Federal Excise Tax Return

• Form 8849, Claim for Refund of Excise Taxes

• Form 4136, Credit for Federal Tax Paid on Fuels

• Form 720-TO, Terminal Operator Report

• Form 720-CS, Carrier Summary Report

• Form 2290, Heavy Highway Vehicle Use Tax Return

(8) The examiner must explain to the new applicant or registrant a compliance review may be conducted in the future to verify compliance with the registration tests. A compliance review includes, but is not limited to:

1. Inspecting exemption certificates.

2. Inspecting filed returns.

3. Analyzing internal controls, if applicable.

4. Performing a current financial analysis, if applicable.

5. Obtaining and/or reviewing other pertinent information related to the business and its operations.

(9) The examiner must direct the applicant or registrant to the IRS website for obtaining a copy of Publication 510 and discuss the applicable section(s), including any excise tax law updates that apply. The examiner shall fully answer any relevant questions posed by the applicant or registrant.

(1) If an examiner conducts an examination on a current Form 637 registrant, then the Form 637 Registration must be given due consideration, regardless of when the last compliance review was conducted.

(2) The examiner must select the appropriate box on the A105, Administrative Check Sheet, and comment on the actions taken at the conclusion of the examination to verify the registration status.

(3) If the examination results in a no-change or a refund, then the examiner must, at a minimum, conduct a limited scope discretionary review. The examiner must ensure the registration status should be "Continued" if all registration criteria is met. If a limited scope discretionary review is conducted, then the examiner must follow the procedures in (6) thru (11) below.

(4) If the examination results in a change, then the examiner must conduct a discretionary review. Refer to IRM 4.24.23.7.5 for detailed guidance on compliance review procedures. The examiner must discuss initiating the discretionary review with the group manager, secure approval before proceeding and document all actions taken in the Examining Officer’s Activity Record.

(5) If a discretionary review is approved, then the group manager will establish ERCS controls and request the LT assign the IMS case file to the group. If a discretionary review is not approved, then a limited scope discretionary review will be conducted.

(6) If a limited scope discretionary review is conducted, then the examiner must document the A105 under the "Consideration of Form 637 Registration Status" section and summarize actions taken to ensure a "Continued" 637 registration status.

(7) If the registration should be continued, then the examiner must prepare Letter 3696, Form 637 Compliance Review Summary, for issuance by the group manager upon case closure. Examiner contact information should be included. Include the letter in the examination IMS case file and paper file.

(8) If the registration should be revoked, then the procedures in IRM 4.24.23.9 apply.

(9) If the registrant has a registration number that was issued prior to February 1, 2004, then the procedures in IRM 4.24.23.7.4(10)(a) apply.

(10) Upon completion, review, and acceptance of the examination case file by the group manager, they will sign, date and mail Letter 3696. In addition, the group manager will forward, via secure e-mail, to the LT the following documents so that the case file can be updated:

1. A copy of the A105

2. A copy of the signed Letter 3696

3. Registrant’s concurrence to revocation, if applicable

4. A copy of the Examining Officer’s Activity Record or the Case Level Activity Record in IMS that documents all actions taken in the examination case file by the examiner and the group manager

(11) The LT must:

1. Create a discretionary review in IMS.

2. Upload attachments in the secure e-mail into IMS case file, i.e., the A105 and the signed copy of Letter 3696, etc.

3. Continue the registration in IMS.

4. Prepare and issue Letter 5023, Notification of Change in Form 637 Registration Number, with Publication 5039, for the national registration number and then upload a signed copy into the IMS case file, if applicable.

5. Update the IMS case file to Status 65 in IMS if the registration is to be revoked.

6. Forward the request to have the Form 637 indicator removed from the BMF account in IDRS, if applicable.

7. Document all actions taken on the Case Level Activity Record in IMS.

(12) Form 637 compliance reviews, including limited scope discretionary reviews documented on the A105, are subject to EQ reviews.

(1) The examiner must review an initial application for registration, make an on-site visit, if necessary, and then recommend approval or denial of the application. Mandatory Administrative Forms must be completed to support the recommendation and uploaded into the IMS case file.

(2) Initial contacts with an applicant must be made by mail using the appropriate initial contact letter. The examiner must not make initial contact by telephone.

(3) Examiners must use Letter 5708 to notify the applicant of their initial application review. Refer to IRM 4.24.23.3 for additional information.

(4) Following the initial telephone conversation with the applicant and scheduling the appointment, the examiner must prepare and issue Letter 3686, Appointment Scheduled - Form 637 Reviews, to confirm the initial appointment. A copy of the signed Letter 3686 must be uploaded into the IMS case file.

(5) If the applicant fails to respond to the initial contact letter after 14 calendar days, and it was not returned as "undeliverable," then the examiner must determine why the applicant is not responding. Follow-up attempts must be made to contact the applicant, including telephone inquiries. Refer to IRM 4.10.2.8.3, No Response/No Show Procedures, for additional information.

(6) If follow-up attempts are unsuccessful and the examiner exhausted all available avenues to locate the applicant to conduct the review, e.g., Accurint, IDRS, WebCBRS and telephone directories, then the examiner should recommend denying the application. Refer to IRM 4.24.23.9 for additional information.

(7) If the initial contact letter is returned "undeliverable," then the examiner must take steps to determine if a more current address or contact information can be obtained, as well as document the actions taken in the IMS case file. Refer to IRM 4.10.2.8.4, Undeliverable Initial Contact Letters, for additional information about obtaining a current address. If the applicant cannot be located, then the examiner must scan and upload a copy of the returned envelope into the IMS case file, complete Form 13499-C, 637 Recommendation, and recommend denying the registration. Refer to IRM 4.24.23.9 for additional information.

(8) If an applicant meets all the applicable registration tests, then the examiner and group manager must follow the procedures in IRM 4.24.23.8, Procedures Relating to Approvals and Continuations of Registrations.

(9) If an applicant does not meet all the applicable registration tests, then the examiner and group manager must follow the procedures in IRM 4.24.23.9, Procedures Relating to Denials or Revocations of Registrations.

(10) A national registration number with approved activity letter(s) will be issued to each registrant. Multiple registration numbers will not be issued if:

1. The applicant is already registered for other activities and has a registration number issued prior to February 1, 2004, then the examiner must inform the registrant that a new national registration number will be issued. The examiner must inform the registrant to discontinue the use of any previously "approved" registration number(s) once the national registration number is received. The group manager will prepare and issue the registrant Letter 3689 and Letter 5023 with Publication 5039, Terms and Conditions of Registration for Form 637.

2. A registrant already has a national registration number, then any additional activity letter(s) approved will be added to the end of the approved national registration number.

3. The registrant has two valid registration numbers, i.e., an old registration number, as well as a national registration number, then IMS will look to the oldest "approved" status date for both numbers and may generate a new national registration number. If this occurs, then a HELP ticket must be created to remove the newly issued national registration number. The group manager will issue the letter of registration using the existing national registration number and approved activity letter(s). The group manager will document the Case Level Activity Record in IMS with all actions taken.

(11) If a registrant later qualifies for registration for activities not covered by the current approved registration number, then a Form 637 application must be submitted with the additional activity letter(s) for approval. An updated Letter 3689 must be issued to reflect the additional activity letter(s).

(12) If a determination is made that an applicant did not apply for the correct activity letter, but qualifies for a different activity letter listed on the Form 637 application, then the examiner must:

1. Secure a signed Form 637 application with the correct activity letter and scan it into the IMS case file.

2. Obtain a withdrawal statement from the applicant regarding the incorrect activity letter.

3. Forward the new application to the designated registration group LT via secure e-mail. The LT must upload the application and add the correct activity letter into the IMS case file. Once the IMS case file is updated with the correct activity letter, the examiner must close the case.

(1) Excise Tax Examination, is responsible for ensuring the registrant is:

1. Using the registration properly.

2. Meeting all the applicable registration tests.

   Note: Refer to IRM 4.24.2.3.1, Registration Tests for IRC 4101 Activities, and IRM 4.24.2.4.1, Registration Tests for Activities Other Than Under IRC 4101, for more information.

3. Complying with the terms and conditions of the registration.

(2) Terms and conditions for registrants may be found at:

• Treas. Reg. 48.4101-1(h), Taxable fuel; registration, for registrants for activities governed by IRC 4101.

• Treas. Reg. 48.4222(a)-1, Treas. Reg. 48.4222(b)-1, and Treas. Reg. 48.4222(c)-1, Tax free sale of articles to be used for, or resold for further manufacture, for registrants for activities that are governed by IRC 4222.

• IRC 4662(b)(10)(C) - Registrations for intermediate hydrocarbon streams containing one or more organic taxable chemicals.

• IRC 4662(c)(2)(B) - Registrations for inventory exchanges of taxable chemicals.

• Treas. Reg. 52.4682-5(d) for activities that are governed under IRC 4681 relating to exports of ODCs.

(3) The group manager is responsible for ensuring all sample compliance reviews are completed by fiscal year end.

(4) The territory manager and/or group manager may request a discretionary review on a Form 637 registrant derived from a lead, if facts and circumstances warrant.

(5) If a registrant is selected for a discretionary review, then the group manager will request the LT update the IMS case file to the excise group. The excise group must establish ERCS controls for all discretionary reviews.

(6) A compliance review may require a field visit.

(7) All initial contacts with a registrant on a sample or discretionary review must be made by mail. Refer to IRM 4.24.23.3 for additional information.

(8) Following the initial telephone conversation with the registrant and scheduling of the appointment, the examiner must prepare and issue Letter 3686 to confirm the initial appointment.

(9) If the registrant fails to respond to the initial contact letter after 14 calendar days and it is not returned as "undeliverable," then the examiner must follow the procedures in IRM 4.24.23.7.4(5) and (6).

(10) If the initial contact letter is returned "undeliverable" and the address in IMS matches the address on IDRS, then no further actions will be taken to locate the registrant. Refer to IRM 4.24.2.7, Changes in the Information Submitted in Connection with Application for Registration, and Publication 5039 for additional information. The examiner must scan and upload a copy of the returned envelope into the IMS case file and recommend revoking the registration.

(11) The IMS case file will be documented sufficiently to establish what was done during the review. Refer to IRM 4.24.23.11 for information on mandatory workpapers.

(12) The examiner must review the IMS case file, perform Accurint, IDRS and WebCBRS research, as well as review any other relevant internal documents. Exemption certificates, if applicable, must be inspected to ensure the registrant is compliant with the registration requirements.

(13) At the conclusion of the review, the examiner must make a recommendation to approve, continue, deny, or revoke the registration.

(14) At the conclusion of the sample or discretionary review, the examiner must prepare Letter 3696, Form 637 Compliance Review Summary, using their contact information and indicate if problems were identified.

(15) If no problems were identified, then the examiner must make a recommendation to continue the registration and close the IMS case file to the group manager. Refer to IRM 4.24.23.8 for additional information on continuing a registration.

(16) If problems were identified and the recommendation is not to revoke the registration, then the examiner must clearly and concisely document deficiencies in the body of Letter 3696. The description should be specific to the registrant's situation. Examples of deficiency statements include, but are not limited to, the following:

• You failed to make timely Federal Tax Deposits on your Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, and Form 941, Employer's Quarterly Federal Tax Return.

• You failed to secure and maintain exemption certificates for your exempt sales to state and local governments.

• You failed to properly report your Federal Excise Taxes for the following periods (list periods).

(17) The examiner must include a follow-up date on Letter 3696 by which time the registrant must correct the stated deficiencies.

(18) The examiner must upload Letter 3696 and all mandatory workpapers into the IMS case file, recommend continuation of the registration and close the IMS case file to the group manager.

(19) On the follow-up date indicated on Letter 3696, the examiner is to request the IMS case file as a discretionary review from the group manager.

(20) If after the follow-up review the registrant has corrected the deficiencies, then a new Letter 3696 must be prepared, and the registration continued. Refer to IRM 4.24.23.8 for information on continuing a registration.

(21) If after the follow-up review the registrant has not corrected the deficiencies, then the examiner must discuss the revocation with their group manager and take the appropriate actions. Refer to IRM 4.24.23.9 for information on revoking a registration.

(1) IMS Notebook files contain general language for new applicants and follow up reviews for registrants to assist with completing Form 4564, Information Document Request.

(1) The purpose of the A605 is to provide a set of administrative guidelines for tasks that may arise during the compliance review. It is similar in nature to the A105 employed for excise examinations.

(2) Form 2848 or Form 8821 that reflects Form 637 representation only cannot be forwarded to the CAF unit as there is no master file for Form 637. Form 2848 or Form 8821 must be scanned and uploaded into the IMS case file. However, if Form 2848 or Form 8821 representation contains tax returns, (e.g., a Form 720, Form 1120, etc.), then it must be forwarded to the CAF unit for processing. For additional information regarding a power of attorney, refer to IRM 4.11.55, Power of Attorney Rights and Responsibilities.

(1) The A610 is a guide for planning the Form 637 compliance review. It is similar in nature to the A110 employed for excise examinations.

(1) The A615 provides guidance for conducting the initial contact with the applicant or registrant. It is similar in nature to the A120 employed for excise examinations.

(1) Interviews will be documented using the A625. It is similar in nature to the A125 employed for excise examinations.

(2) Completion of A625 does not constitute a comprehensive interview. Additional questions should be tailored to the activity letter, which the applicant is seeking, or the registrant is registered.

(1) The purpose of the B700 is to document the tax history of the applicant or registrant, owners, officers, and any related entities. It is similar in nature to the B200-1 and B200-2 employed for excise examinations.

(2) Examiners must consider and evaluate the applicant’s or registrant’s (and any related person or persons) past payment history for all tax liabilities with special attention to past treatment of excise and employment tax liabilities.

(3) Approval of an application or continuation of a registration must not be allowed if there are outstanding federal tax liabilities, which are unaddressed.

(4) Compliance issues including, but not limited to the CP 241 notice and items noted on the 637 Recommendation Sheet, completed by the TE in the registration group should be addressed, if applicable. Refer to IRM 4.24.24.5.2, CP 241, Notice - 637 Registrant, Procedures, for additional information.

(1) The C800 is only required for applicants or registrants that are subject to the adequate security test and acceptable risk test.

(2) The C800 documents a financial analysis of the applicant or registrant. A financial analysis is a picture of the business in dollars and cents. It shows levels of risk, measures business performance and enables the examiner to make informed decisions about the health of the business.

(3) Examiners may select financial ratios they feel best demonstrate financial health of the business and document the methods employed. Refer to Exhibit 4.24.23-2 for Financial Analysis Techniques.

(4) Examiners must consider an analysis of internal controls when completing a financial analysis. Refer to IRM 4.24.23.11.8 for additional information on Internal Controls.

(5) If the applicant or registrant is experiencing financial difficulty, then the examiner should protect the government’s interests by ensuring the applicant or registrant is not using FET deposits to pay other liabilities or is filing excise tax claims to increase cash flow.

(6) In certain instances, a financial analysis should be utilized in determining if taxpayer will be required to post a bond to meet the adequate security test. For additional information on bonding, refer to IRM 4.24.2.5, Bonding.

(1) The C805 is only required for applicants or registrants that are subject to the adequate security test and acceptable risk test.

(2) The C805 documents the analysis of internal controls and the business operations of the applicant or registrant. It is similar in nature to the C305 employed for excise examinations.

(3) Internal controls must be analyzed and documented to demonstrate:

• The effectiveness and efficiency of the business operations.

• The strengths, weaknesses, and reliability of the applicant or registrant’s financial reporting.

(4) The examiner must verify the applicant or registrant has adequate resources and internal controls to ensure the collection and payment of tax. This can be documented by:

1. Flowcharting key business operations.

2. Documenting in narrative form.

   Note: Identify the name and title of each person making decisions or taking actions that affect the financial and tax position of the applicant or registrant. The names and types of documents that support the key business operations process should also be identified.

(1) The D900 contains action items to consider at the time initial contact occurs. It is similar in nature to the D400 employed for excise examinations. The D900 documents that the examiner:

1. Provided identification and contact information.

2. Discussed compliance review process.

3. Discussed applicant’s or registrant's role in the compliance review.

4. Addressed any questions with the applicant or registrant.

(1) Form 13499-C and Form 13499-E are summary sheets that document all the following:

• Recommendation and letter to be issued

• Reason for the recommendation

  Note: For a Form 637 Registrations this must include summary of the registration tests performed (refer to IRM 4.24.2.3.1, Registration Tests for IRC 4101 Activities, and IRM 4.24.2.4.1, Registration Tests for Activities Other Than Under IRC 4101, for more detailed guidance)

  Note: For more information on SAT Designations refer to IRM 4.24.23.12.

• Any follow up actions required

(1) CSTO is comprised of the Excise Operations Unit, the Classification Team, and the Audit Information Management System/Examination Returns Control System (AIMS/ERCS) Team, which are independent of one another.

(2) Upon receipt of a SAT Designation request, the Excise Operations Unit date-stamps the SAT Designation request and expeditiously routes it to the Classification Team.

(3) Upon receipt, the Classification Team ensures the request is complete. If not complete, then the requestor should be contacted for any missing information. Required information includes the following:

• Name of the entity making the request

• Employer identification number

• Mailing address

• Terminal Control Number (TCN)

• Contact person

(4) The Classification Team conducts research to determine if an open compliance activity is in process for the designated requestor. Research should include both AIMS and ERCS review (i.e., MFT - B0, PH, P9, etc.).

(5) If an open compliance activity applies to the designated requestor, then the Classification Team scans the original request letter and forwards it to the appropriate excise group.

(6) If an open compliance activity does not apply to the designated requestor, then the Classification Team must prepare a classification check sheet, which includes the following:

• Case Action = I-ERCS & IMS

• Form Number = Form 637

• Abstract = 588 Registration and Exemptions

• Project Code = 0637 - Form 637 Registration

• Tracking Code = 7641 - Form 637 Sample Review

• MFT = B0

(7) The scanned original request and completed check sheet must be forwarded to the AIMS/ERCS Team.

(8) Upon receipt, the AIMS/ERCS Team establishes the request on ERCS using the information from the classification check sheet.

(9) The AIMS/ERCS Team assigns the request to the excise group where the terminal is geographically located regardless of the area in which the entity is registered.

(10) The AIMS/ERCS Team forwards the excise group assignment information and the SAT Designation request letter to the registration group manager via secure e-mail.

(11) If a SAT Designation requestor provides the Excise Operations Unit new information about the changes in business operations, which may include but is not limited to, changes in refueling equipment, security measures, owners/operators or any other change to the SAT Designation criteria specified in Notice 2016-15, Section 4 then that updated information will be forwarded to the registration group manager via secure e-mail for follow-up actions.

(12) If a SAT Designation denial or revocation is contested, then the Chief, Estate & Gift/Excise Tax Exam is the only person authorized to address and propose a remedy. For this reason, if the Excise Operations Unit receives a written appeal, then they must forward it to the registration group manager for consideration via secure e-mail and have no contact with the requestor or designee.

(1) Upon receipt of the SAT Designation request letter and excise group assignment information from the AIMS/ERCS Team, the registration group manager will assign the IMS case file to the Lead Technician (LT) responsible for the territory where the terminal requesting SAT Designation is located.

(2) The LT must prepare and issue Letter 3681-A, Secure Airport Terminal (SAT) Notification, to the SAT Designation requestor and provide their contact information.

(3) The LT must upload Letter 3681-A and SAT Designation request letter in IMS and assign the related Form 637 case to the group indicated by the AIMS/ERCS Team.

(4) The registration group has no further duties in processing the designation request unless a contested denial or revocation occurs.

(5) If a SAT Designation requestor objects in writing to a denial or revocation, then it is contested. In this situation, a written appeal must be provided by the SAT Designation requestor to the registration group manager within 10 calendar days from the date Letter 3685-A, Denial of Secure Airport Terminal (SAT) Designation, or Letter 3691-A, Revocation of Secure Airport Terminal (SAT) Designation, was issued.

(6) If a SAT Designation requestor or designee contests a denial or revocation, then the designated LT documents this on the case activity record and uploads the written appeal into the IMS case file.

(7) The LT forwards the IMS case file to the registration group manager prior to a scheduled meeting between the Chief, Estate & Gift/Excise Tax Exam, and the registration group manager.

(8) If the Chief, Estate & Gift/Excise Tax Exam determines a SAT Designation should be granted or continued, then the IMS case file will be updated to the designated LT who will issue Letter 3689-A, Approval of Secure Airport Terminal (SAT) Designation, to the requestor or designee. The LT must also contact the IRS ExSTARS Coordinator to update the designation.

(9) If the Chief, Estate & Gift/Excise Tax Exam concurs a SAT Designation should be denied or revoked, then they sign Letter 3684-A, Final Denial of Appeal for Secure Airport Terminal (SAT) Designation, or Letter 3690-A, Final Denial of Appeal for Secure Airport Terminal (SAT) Designation Revocation.

(10) After the Chief, Estate & Gift/Excise Tax Exam signs the applicable denial or revocation letter, it will be forwarded to the registration group manager for issuance to the SAT Designation requestor and uploaded into the IMS case file. Once the appropriate letter is issued, the Form 637 group manager or designee will contact the IRS ExSTARS Coordinator to update the designation.

(11) The SAT Designation requestor has no administrative recourse if they disagree with a denial or revocation following appeal. Currently, the SAT Designation requestor may independently submit a new request for a SAT Designation, which must comply with the procedures described in Notice 2016-15, Section 5.01.

(1) A completed compliance review of the Form 637 activity letter S registration is required to make a SAT Designation determination.

(2) Refer to IRM 4.24.23.7.1 for detailed guidance about the group manager’s responsibilities. Additionally, the group manager must:

1. Ensure all initial SAT Designation request cases are completed by examiners within 60 calendar days of assignment to the group manager.

2. Review a SAT Designation, if applicable, when the IMS case file for an activity letter S registrant is completed.

   Note: It is the responsibility of the examiner to consider a SAT Designation when completing a review of a Form 637 activity letter S registrant and document their findings in the IMS case file.

3. Determine whether the examiner’s recommendation to approve, continue, deny, or revoke a SAT Designation is warranted following a review of the IMS case file. If the Group Manger concurs, then they will take appropriate action and documents the IMS case file. If the group manager does not concur, then they should confer with the examiner and document the decision reached, which may include returning the IMS case file for further development.

4. Offer to confer with the requestor or designee about unagreed issues.

5. Sign and issue the appropriate SAT Designation letter, if applicable, which is prepared by the examiner, and then upload it in the IMS case file.

6. Confirm the examiner forwarded the initial SAT Designation request, SAT Designation questionnaire and Form 13499-E, Secure Airport Terminal (SAT) Designation Recommendation, to the IRS ExSTARS Coordinator prior to closing the IMS case file.

(1) An examiner recommends approving, continuing, denying, or revoking SAT Designations. An examiner assigned a Form 637 activity letter S review that includes a SAT Designation must address whether it should be continued or revoked. To confirm a terminal is designated as a SAT, refer to Terminal Control Number (TCN) Terminal Locations Directory.

(1) If an initial SAT Designation requestor satisfies the criteria for approval, then the examiner must:

1. Complete Form 13499-E and upload the document into the IMS case file.

2. Prepare Letter 3689-A and update the IMS case file workpapers to reflect findings and recommendations.

3. Send via secure e-mail an initial SAT Designation request letter, Letter 3689-A, Form 13499-E and SAT Designation Questionnaire to the IRS ExSTARS Coordinator after the group manager signs and issues Letter 3689-A.

   Note: The e-mail should be addressed to the ExSTARS mailbox at sbse.excise.exstars@irs.gov.

4. Close the IMS case file.

(1) If the terminal operator continues to meet the criteria for a SAT Designation, then the examiner must:

1. Prepare and upload Form 13499-E and workpapers into the IMS case file.

2. Prepare and issue Letter 3696-A, Secure Airport Terminal (SAT) Compliance Review Summary, and update the IMS case file workpapers to reflect findings and recommendations.

3. Send via secure e-mail the SAT Designation questionnaire, a copy of signed Letter 3696-A and Form 13499-E to the IRS ExSTARS Coordinator using the ExSTARS mailbox at sbse.excise.exstars@irs.gov.

4. Close the IMS case file to the group manager.

(1) If an initial SAT Designation requestor fails to satisfy the requirements for a SAT Designation, then the examiner must obtain written concurrence from the SAT Designation requestor. If this happens, then an e-mail from the SAT Designation requestor will satisfy the denial. Upon receipt of the concurrence, the examiner must:

1. Complete Form 13499-E, which must include the reason for the denial.

2. Prepare Letter 3685-A, Denial of Secure Airport Terminal (SAT) Designation.

3. Update the IMS case file workpapers to reflect findings and recommendations.

4. Close the IMS case file to the group manager who, in turn, will sign and issue Letter 3685-A to the requestor.

5. Send via secure e-mail a copy of the initial SAT Designation request letter, Letter 3685-A, Form 13499-E and SAT Designation Questionnaire to the IRS ExSTARS Coordinator after the group manager signs and issues Letter 3685-A.

   Note: IRS ExSTARS Coordinator’s e-mail address is sbse.excise.exstars@irs.gov.

(2) If an initial SAT Designation requestor fails to satisfy the requirements for a SAT Designation and does not concur with the denial, then the examiner must:

1. Prepare an unagreed write-up using Form 886-A that includes the facts summarizing the reason(s) why the designation is being denied, supported with the controlling tax law, arguments, requestor’s adverse position and examiner’s conclusion.

2. Complete Form 13499-E, which must include the reason for the denial.

3. Update the IMS case file workpapers to reflect findings and recommendations.

4. Close the IMS case file to the group manager who, in turn, will sign and issue Letter 3685-A, including the unagreed write-up, to the requestor.

(1) If the terminal operator no longer satisfies the requirements for a SAT Designation, then the examiner may obtain written concurrence from the SAT Designation requestor. If this happens, then an e-mail from the requestor will satisfy the revocation.

(2) Upon receipt of the concurrence, the examiner must:

1. Complete Form 13499-E, which must include the reason for the revocation.

2. Prepare Letter 3691-A, Revocation of Secure Airport Terminal (SAT) Designation.

3. Update the IMS case file workpapers to reflect findings and recommendations.

4. Close the IMS case file to the group manager who, in turn, will sign and issue Letter 3691-A to the requestor.

5. Send via secure e-mail a copy of the initial SAT Designation request letter, Letter 3691-A, Form 13499-E and SAT Designation Questionnaire to the IRS ExSTARS Coordinator after the group manager signs and issues Letter 3691-A.

(3) If the designee does not concur with the revocation, then the examiner must:

1. Prepare an unagreed write-up, using Form 886-A, including the facts summarizing the reason(s) why the designation is being revoked, supported with the controlling tax law, arguments, requestor’s adverse position and examiner’s conclusion.

2. Complete Form 13499-E, which must include the reason for the revocation.

3. Update the IMS case file workpapers to reflect findings and recommendations.

4. Close the IMS case file to the group manager who, in turn, will sign and issue Letter 3691-A, including the unagreed write-up, to the designee.

(1) Once all the steps and procedures described above have been completed, the examiner must forward the appropriate document (i.e., approval or denial letter) to the IRS ExSTARS Coordinator.

(2) To finalize the process for approving, continuing, denying, or revoking a SAT Designation, the IRS ExSTARS Coordinator must:

1. Update the TCN file with the SAT Designation letter, SAT Designation Questionnaire and Form 13499-E received from the examiners.

2. Update the applicable SAT Designation on the TCN location directory.