Purpose - This section provides guidance pertaining to Form 720-TO, Terminal Operator Report, and Form 720-CS, Carrier Summary Report, compliance examinations (hereinafter referred to as "ExSTARS compliance examinations" ) procedures.

Audience - The audience for this section includes the SB/SE Director, Examination - Specialty, Chief, Estate & Gift/Excise Tax, Excise Territory Managers, Excise Group Managers (hereinafter referred to as "group managers" throughout this section), Excise Tax Revenue Agents (RAs) and Fuel Compliance Agents (FCAs) (collectively and hereinafter referred to as "examiners" throughout this section).

Policy Owner - Director, Examination - Specialty Policy is responsible for the administration, procedures, and updates related to ExSTARS compliance examinations.

Program Owner - Director, Examination - Specialty Tax owns Excise Tax Examination.

Primary Stakeholders - Primary stakeholders include the Chief, Estate & Gift/Excise Tax, Excise Tax Territory Managers, group managers, and Excise Case Selection.

Other Stakeholders - Other areas that follow these policies and procedures include Independent Office of Appeals (Appeals), Agency Wide Shared Services, Counsel, SB/SE Examination, Large Business and International, and Tax Exempt and Government Entities.

Program Goals - The processes and procedures provided in this section are consistent with the objectives or goals for Excise Tax - Examination that are addressed in IRM 1.1.16.5.3.1, Excise Tax Examination.

IRC 4101(d) authorizes the IRS to require information reporting from any person who is registered under IRC 4101 and from any other person who the IRS deems necessary to administer fuel tax rules. These information reports must be filed for each calendar month period and must be filed by the end of the following month per Treas. Reg. 48.4101-2.

The IRS requires terminal operators to file Form 720-TO, Terminal Operator Report, to report the receipt and disbursement of all liquid products. The IRS also requires bulk carriers to file Form 720-CS, Carrier Summary Report. Vessel operators report all liquid product receipts and disbursements to and from approved terminals and refineries designated with a Terminal Control Number (TCN) and Refinery Control Number (RCN), respectively. A pipeline operator only reports receipts and disbursements to and from an approved terminal designated with a TCN.

IRC 4101(d) requires any person with 25 or more reportable transactions (i.e., those transactions required to be reported on Form 720-TO and 720-CS) in a month to file in an electronic format.

ExSTARS is an electronic data interchange system that was developed by federal, state, and industry stakeholders to facilitate compliance with the electronic filing requirement of IRC 4101(d). The IRS uses the information gathered through ExSTARS to plan fuel tax compliance and taxpayer service activities. Therefore, it is important that the IRS ensures that the information gathered through ExSTARS is accurate. ExSTARS compliance examinations are an integral part of the IRS’s overall fuel tax compliance strategy.

The IRS issues a Facility Control Number (FCN) to designate a storage location within the motor fuel bulk transfer/terminal system. A TCN is used to identify individual terminals and an RCN is used to identify individual refineries.

Operators of an approved terminal or refinery apply to register with the IRS for an TCN or RCN, through the IRS ExSTARS Coordinator. Currently, a terminal with a TCN is the only FCN required to file ExSTARS Form 720-TO reports.

ExSTARS compliance examinations are conducted by "examiners" in this section.

The examiner is required to utilize management-specified examination software for all ExSTARS compliance examinations. The Issue Management System (IMS) with affiliated Notebook, which provides lead sheet templates, reports, letters, and closing forms, is the current excise tax examination case software system.

The scope of an ExSTARS compliance examination is limited to ExSTARS filing requirement issues concerning:

ExSTARS compliance examination primary objectives are to:

IRC 6725 imposes a penalty on any person required to file reports under IRC 4101(d) for failing to file the report or for failing to include all required information on the report. Absent reasonable cause, the penalty is $10,000 per failure for each carrier or facility (e.g., a terminal or refinery) for which information is required to be furnished.

During an ExSTARS compliance examination, the examiner will also determine whether the person under examination is required to register with the IRS under IRC 4101(a) and if so, confirm their Form 637 Registration status. See IRM 4.24.17.1.7(3), for link to check a Form 637 Registration status.

While the requirement to register and the information reporting requirements under IRC 4101(d) are independent of each other, most persons with an IRC 4101(d) information reporting obligation are also required to be registered under IRC 4101(a). Absent reasonable cause, IRC 6719 imposes a penalty of $10,000 for each initial failure and $1,000 for each day that the failure to register or reregister continues.

Tax liability matters or issues identified during an ExSTARS compliance examination for unrelated entities are referred to Excise Case Selection (ECS), Workload Selection and Delivery (WSD). The examiner must prepare Form 5346, Examination Information Report, with supporting documentation, and submit to their group manager for approval. Upon approval, the group manager will submit Form 5346 via secure e-mail to WSD at *SBSE Excise WSD.

Tax liability matters or issues identified during an ExSTARS compliance examination for the entity under examination or related entities are expanded to Form 720 examinations by the examiner. The examiner must prepare Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users, and submit to their group manager for approval, with supporting documentation.

If deficiencies are identified during the ExSTARS compliance examination that impact a Form 637 Registration, then a discretionary review must be conducted with group manager approval. Refer to IRM 4.24.2, Form 637 Excise Tax Registrations, for more information about the registration process.

An FCN Questionnaire is used to request issuance, suspension, continuance, and change in operator or business operation of an approved FCN. The FCN Questionnaire can be found on the Excise Tax Knowledge Base Homepage, under ExSTARS, see ExSTARS Compliance Examinations, refer to Other Related Resources on the right side of the web page. See IRM 4.24.17.2.2 and IRM 4.24.17.2.3 for procedural guidance relating to FCN requests and change of facility status, respectively.

If ExSTARS compliance examination technical support is needed, submit a Guidance Request Memorandum (GRM) to Excise Tax Policy. See IRM 4.24.6.13, Requesting Excise Subject Matter Expert (SME) Assistance, procedures.

IRC 4101 compliance case work, includes the following:

An IRC 4101 compliance examination is assigned at journey level or below grade.

Grade level assignments may differ between IRC 4101 compliance case work and Form 720, Quarterly Federal Excise Tax Return, examinations. The group manager’s assignment of a related Form 720 examination, as a part of the IRC 4101 compliance examination, will require an adjustment from the journey level or below status to match that of the Form 720 case grade.

The primary IRC 4101 compliance case plus any prior and/or subsequent periods, or any related IRC 4101 compliance case work, controlled by an examiner, will carry the same grade level.

A related entity that is examined by other examiners will be graded separately.

When information reports are submitted through ExSTARS, the system validates specific data fields, syntax, and string structure, as described in Publication 3536, Motor Fuel Excise Tax EDI (Electronic Data Interchange) Guide. The validation process does not verify accuracy of the information or identify omitted transactions. ExSTARS generates an error report if issues are detected during the validation process.

Examples of situations that would generate error reports are entering:

Upon submitting monthly data, information providers receive the following acknowledgments:

The ACK files are placed in the participant’s electronic mailbox, set up as part of the EDI testing.

Filing date evidence is the receipt date of a 997-A (accepted) ACK and a 151 ACK. A TS-997 ACK file is created every time an ExSTARS Information Provider or Approved Excise Third Party Transmitter submission is successfully transmitted.

If the information provider receives a TS-997 ACK with an A in the AK501 segment, followed by a TS-151 ACK Level 1 error, then the transaction set has been rejected in its entirety. The information provider is required to correct the problem and resubmit the transaction set as an original file. TS-151 ACK errors are considered "must fix errors" requiring correction within 15 calendar days to be deemed timely filed.

The statute of limitations (SOL) is the allowable time in which the IRS may make an assessment with respect to a return. Under IRC 6501(a) , the SOL generally starts to run on the date the return is filed and expires three years from the date of the filing. If no return is filed, the SOL will remain open indefinitely. In the case of a filed Form 720-TO or Form 720-CS , IRC 6725 imposes a penalty for failing to include all of the information required to be shown on the report or for including incorrect information on the report. The penalty must be assessed within the three-year SOL under IRC 6501(a).

ExSTARS information reports do not post to the Integrated Document Retrieval System (IDRS), thus, there will not be a module on the Master File with the SOL. The ExSTARS report filing date may be found in the case file building materials.

If the SOL cannot be determined, the examiner must use the Request For Information (RFI) Form to obtain filing data from the Joint Operations Center (JOC). The JOC RFI Form is completed by the examiner and forwarded to the group manager for approval. Once approved, the group manager will forward the RFI directly to the JOC mailbox at *SBSE Excise JOC. The JOC RFI Form can be found on the Excise Tax Knowledge Base Homepage, under Excise Examination, see Initiating an Examination, refer to the Related Forms & Documents on the right side of the web page.

An examination of an ExSTARS information report and assessment of penalties must be completed timely and within the statute of limitation period. In cases where the SOL period will expire within 180 days, Form 872-EX, Consent to Extend the Time on Assessment of Information Report Penalty, may be solicited.

The examiner must secure the group manager concurrence prior to a statute extension solicitation.

Letter 907-C, Request to Extend the Time on Assessment of Information Report Penalty, along with Form 872-EX are mailed to the information provider to request extension of the statue. If the information provider:

The examiner must submit through their manager Form 5348, AIMS/ERCS Update (Examination Update), upon securing Form 872-EX to reflect the new statute date.

ExSTARS information reports are not established on the Audit Inventory Management System (AIMS) and therefore do not post to the IDRS.

ExSTARS compliance examinations and associated penalties are controlled on ERCS.

Terminal operators may operate multiple approved terminal facilities under a single Taxpayer Identification Number (TIN). The use of a substitute "TIN," reflecting a facility’s specific terminal control number is used for ERCS purposes.

Bulk carriers, who report information on Form 720-CS, use actual TINs for ERCS purposes.

ExSTARS compliance examination case files are generally established on ERCS by WSD.

The examiner must complete and submit Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users, to the group manager to:

Penalty assessments under IRC 6725 resulting from IRC 4101 compliance case work require a separate IMS case file. The examiner must complete and submit Form 5345-D to the group manager to establish penalty case on ERCS. See IRM 4.24.17.11.2 for additional guidance.

Before starting an ExSTARS compliance examination, the examiner must ask the group manager to perform an ERCS/AIMS review to identify other examiners auditing related entities, subsidiaries, and facilities.

IRM 4.24.5, Large Business and International (LB&I) Examination Program Procedures for Excise Employees, requires examiners working Large Corporate Compliance (LCC) or Industry Case (IC) examinations using an LB&I team approach, to contact the LB&I team coordinator prior to contacting an entity. Similarly, communication must first be made with other examiners auditing related entities, subsidiaries, and facilities to discuss and coordinate the examination process. Refer to IRM 4.24.5.2 , Excise Examinations of LB&I Taxpayers, for additional guidance about LCC/IC examination controls.

Initial notification of an ExSTARS compliance examination communication must be made to the excise tax information contact person listed on the entity’s Motor Fuel Excise Tax EDI Letter of Application (LOA), utilizing Letter 2205-E, Excise Initial Contact, as described below. This information should be part of the case building material. If the contact person is not included, then the examiner must send secure e-mail to request the LOA from the IRS ExSTARS Coordinator at sbse.excise.exstars@irs.gov.

The examiner will issue Letter 2205-E to the LOA contact person. Identify the TCN, if applicable, under the header subsection titled Form.

The examiner must follow authentication requirements found in IRM 11.3.2.3.2, Requirements for Verbal or Electronic Requests, to avoid unauthorized disclosure.

Upon scheduling an initial visit, the examiner must issue the following:

When a valid Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, is on file for the information provider, the appropriate initial contact letter will be mailed to the information provider and a copy of that letter will be mailed to the representative with Letter 937, Transmittal for Power of Attorney.

If the information provider does not respond to the initial contact letter and it is not returned as undeliverable, follow the guidance in IRM 4.10.2.8.3, No Response/No Show Procedures.

If the letter is returned undeliverable, follow the procedures in IRM 4.10.2.8.4, Undeliverable Initial Contact Letters.

The examination issues described in this section emphasize due dates and extensions of ExSTARS information report filings. The examiner is reminded to always consider and document reasonable cause.

ExSTARS information reports must be filed monthly and are due on the last day of the following month.

A 30-day automatic extension is granted to requests received in writing on or before the due date of a report. Additional 30 to 120-day extensions may be granted, if requested and received timely with a valid explanation.

The examiner may request ExSTARS extension information by sending a secure e-mail to the IRS ExSTARS Coordinator at *SBSE Excise EXSTARS.

The examiner will consider all facts and circumstances that lead to a late filed report. The group manager concurrence must be obtained for all late filed penalty determinations.

The accuracy of ExSTARS information is crucial to the Service’s ability to effectively measure compliance. Timely, complete, and accurate filing is essential. The examination issues described in this section emphasize potential errors that may result from noncompliant reporting. The examiners are reminded to always consider and document reasonable cause.

Listed below are some of the ExSTARS information report terminal operator accuracy issues that the examiner may encounter during a compliance examination:

Listed below are some of the ExSTARS information report carrier summary accuracy issues that the examiner may encounter during a compliance examination:

Results of an ExSTARS compliance examination may conclude as follows:

ExSTARS compliance examinations that result in no penalty are closed from ERCS at the group level.

ExSTARS compliance examinations that result in a penalty assessment require separate ERCS controls and a separate case file. See IRM 4.24.17.11, for additional guidance.

The ExSTARS compliance examination case file must contain all the information necessary to ensure a clear understanding of the audit steps taken by the examiner.

The procedural guidance found in the following IRM sections generally apply to ExSTARS compliance examinations, except where noted in this section:

The ExSTARS compliance examination must be established on ERCS when received by an examiner. However, if prior or subsequent ExSTARS compliance examination periods are expanded, the examiner must complete and submit Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users, to the group manager.

If an examiner determines an ExSTARS compliance examination is warranted from a Form 637 Registration review or a Form 720 examination, they must complete a Form 5345-D to establish on ERCS.

In addition, the penalty assessments under IRC 6725 resulting from IRC 4101 compliance case work require a separate Form 5345-D and IMS case file from the ExSTARS compliance examination.

Form 8278 is an adjustment document used by CCP to make a manual assessment or abatement of miscellaneous civil penalties not subject to deficiency procedures.

A separate Form 8278 is required for each tax period and penalty code section.

Multiple facilities, controlled by the same TIN, are combined by period on the Form 8278 whenever possible.

In block "3. MFT," check box for BMF 13.

In block "9. C. Excise (IRM 20.1.11)," enter the number of violations and amount assessed under Penalty Code Section 6725, Failure to report a vessel/facility - IRC sec. 4101(d).

Refer to the instructions to Form 8278 which provides specific excise-related penalty fields.

The IMS case file should only include the relevant penalty assessment page, not all pages of Form 8278.

If necessary, the examiner must complete Form 5348, AIMS/ERCS Update (Examination Update), to update the statute date on ERCS.

Both the examiner and the manager are required to sign the Form 8278. Failure to have both signatures will cause CCP to return the case to the field, causing input delay.