Managers, senior management officials, excise examiners, and personnel at CEAC must understand and follow the technical guidance and information processes to ensure examinations of excise returns, excise refunds, and excise claims with LB&I taxpayers are accurately prepared and submitted.

Excise examinations are conducted by excise examiners located in field offices.

While not all inclusive, this table reflects many of the significant statutes affecting excise taxes with LB&I taxpayers.

Overall responsibility for examining corporations, Sub chapter S corporations and partnerships with assets greater than $10 million is assigned to LB&I. These businesses typically employ large numbers of employees, deal with complicated tax law issues, as well as sophisticated accounting principles, and conduct business in an expanding global environment. Excise Tax Policy is responsible for developing additional guidance or reference materials for its specific functional administrative needs as they apply to excise examinations for LB&I taxpayers. Such material must remain consistent with LB&I policies and general procedural requirements.

Director, Examination - Specialty Policy is responsible for Excise Tax Examination policy and procedures.

Director, Examination - Specialty Examination is responsible for operational examination compliance activities.

Chief, Estate & Gift/Excise Tax Exam is responsible for ensuring that approved policies and procedures specific to Excise Tax Examination are communicated to and carried out by excise examiners.

Excise Tax Examination has jurisdiction over all non-wagering excise tax issues related to Indian Tribal Governments (ITGs). Tax Exempt & Government Entities (TE/GE) ITG has jurisdiction for all wagering excise tax issues relating to ITGs. Refer to IRM 4.24.6.2.14, Excise Examinations of Indian Tribal Government Cases, for procedures to follow on ITG cases.

Excise examiners are expected to collaborate and perform their professional responsibilities supporting the LB&I team. To achieve this, excise examiners work with the team members and taxpayer personnel who have knowledge of the issues and can most effectively assist in developing and managing excise tax examinations for LB&I taxpayers. For more detailed guidance, refer to IRM 4.46.1.2, Overview of the LB&I Examination Process.

Program Goals - The program goals provided in this IRM section are designed to increase compliance with excise tax laws by applying them with integrity and fairness, as well as by providing taxpayers top quality post-filing services for excise taxes administered by SB/SE.

Program Reports - Information reporting of program objectives are included on Program Manager Monthly Briefings provided to Director, Examination - Specialty Policy.

Program Effectiveness - FSEQ uses National Quality Review System to measure program effectiveness based on independent case reviews from a sample of examination work. National, area, and territory trend analysis on the quality attributes are used to establish baselines to assess program performance, identify opportunities to improve work processes, analyze causes for failure, assess the feasibility of possible solutions, and measure the success of quality improvement efforts.

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

Terms and their definitions used throughout this IRM section are listed in Exhibit 4.24.5-1.

Acronyms and their definitions used throughout this IRM section are listed in Exhibit 4.24.5-2.

The IRM sections described below are the primary sources of information for excise examiners, excise managers, and personnel at CEAC who process excise examinations with LB&I taxpayers. Together this material forms the operating rules and explains the responsibilities for excise tax audit procedures used in the audit of an LB&I taxpayer.

Supplemental guidance that contains resources, job aids, and information for excise issues and cases, Form 637, Application for Registration (For Certain Excise Tax Activities), as well as the Fuel Compliance Program are housed at the Excise Tax Knowledge Base Homepage.

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 more detailed guidance, refer to IRC 7803(a)(3) and the Taxpayer Bill of Rights Website.

Third-Party Contacts - The need to contact third parties should be considered early in the examination or as soon as the need arises. IRC 7602(c) provides that IRS personnel may not contact third parties with respect to the determination or collection of tax liability without providing advance notice to the taxpayer. IRS personnel are required to maintain a record of such contacts and provide taxpayers with this record upon request. For more detailed guidance, refer to IRM 4.46.3.4.1, Third Party Contacts.

A Pre-Contact Analysis involves gathering sufficiently detailed information, both external and internal, about the taxpayer and its entire operations. The excise examiner reviews and analyzes this information to plan the examination and more efficiently deploy resources.

The excise examiner will document in the workpapers those actions taken to determine which excise taxes were considered in the examination planning process of the taxpayer or its subsidiaries.

The excise examiner should consider all excise taxes in the pre-planning of each LCC case. Refer to IRM 4.24.5.1.2 for a listing of excise taxes and applicable statutes. Excise taxes that are frequently present in LCC cases include, but are not limited to the following:

Sources of pre-contact analysis information may be gathered from, but are not limited to, the following activities:

The excise examiner should meet with the other examination team members including:

For more detailed guidance, refer to IRM 4.10.2.7.5.1, Specialist Referral System (SRS) - Online Referrals.

If, after reviewing the available information concerning the taxpayer, it is determined that an excise examination is not warranted, the excise examiner will:

In addition to the original issue identified on taxpayer’s claim, the scope of an excise claim examination should include other significant issues identified during the examination.

An excise examiner should consider the taxpayer’s entire business activity and other potential excise tax liabilities to determine if the excise examination should be expanded beyond the claim for refund. For example:

Whenever possible, the excise examiner should consult with the excise manager when raising new issues. The excise examiner should document reasons for expanding or not expanding the scope beyond the original claim for refund. Document the substance of the conversation on Form 9984.

The risk analysis aids in developing an excise examination plan and should be performed for each entity and each type of excise tax. Risk analysis information is used to:

The risk analysis should consider those excise taxes for which the taxpayer may be liable. The analysis includes identifying:

Excise Tax Examination is not subject to LB&I case materiality thresholds. For this reason, excise examiners should apply their best judgement when determining materiality.

The time allocated for the excise examination should consider:

The time allocated to the excise examination may be reduced if the excise examiner is experienced in a specific type of excise tax; however, if this is not the situation, then the time allocated to the excise examination should be increased to allow for research and familiarization with the issues. Excise examination time may also be increased for actions by the SME or other specialists.

The excise examiner and the excise manager will determine the initial time allocated for a case, as well as an expansion or contraction of that time. This is done in collaboration with the team coordinator and team manager.

Once the excise examination plan is finalized, the excise examiner will obtain the excise manager’s approval and forward it to the team coordinator. A copy of the excise examination plan will remain with the case file. If an appointment date for an on-site visit has not been arranged, the excise examiner will collaborate with the team coordinator to schedule that appointment.

Consult with the team coordinator for input on proforma workpapers to use for documenting the risk analysis/excise examination plan. Depending on the type of LB&I examination, excise examiners may use the following forms:

Refer to IRM 4.46.3.9, Examination Plan, for information about preparation of the risk analysis/excise examination plan.

The planning meeting is an IRS meeting for all examiners, specialists, and managers that may also include the taxpayer. The purpose of the meeting is to discuss the taxpayer’s business activities, as well as the planned areas of the examination. The excise examiner should be familiar with the types of excise taxes reported by the taxpayer. Refer to IRM 4.46.3.4, Internal Planning and Internal Planning Discussions, for information about the planning meeting.

The opening conference, which is conducted with the taxpayer present, introduces the examiners and specialists assigned to the case. The excise examiner provides a synopsis of the excise taxes that will be addressed and answers any questions raised by the taxpayer. Refer to IRM 4.46.3.6, Opening Conference/Meeting, for information about the opening conference.

IDRs should be tailored to a specific issue or type of excise tax.

The team coordinator may determine the name of the person to whom the IDR should be issued and the numbering system used for all IDRs issued.

Prior to issuing an IDR, the excise examiner should discuss with the taxpayer and the team coordinator the specific information needed. The taxpayer may be able to explain what type of information is available. Conferring with the team coordinator also ensures that the excise examiner does not ask for readily available information.

The excise examiner should consider the amount of data potentially available with LCC & IC cases and tailor the IDR accordingly. For example, do not request all insurance contracts with the first IDR. Instead, request a summary of all activity and then choose specific contracts in a subsequent IDR.

A mutually agreeable response date must also be established. Refer to IRM 4.46.4.7, Information Document Request Process, for information about IDR procedures.

Periodic examination meetings are arranged by the team coordinator and the taxpayer to discuss open IDRs and provide updates on outstanding issues. Refer to IRM 4.46.3.8, Issue Discussion Meetings, for information about periodic examination meetings.

In support of the LB&I Executive Compensation Strategy, excise examiners should verify up-to-date filing of officers’ and key executives’ returns using IDRS command code IMFOLI when conducting an LB&I stand-alone excise tax examination. Excise examiners should use their judgement to determine if key officer and executive returns should be further inspected. If issues are found, Form 5346, Examination Information Report, will be completed and forwarded per local procedures. Guidance on inspection of officers' returns is found in IRM Exhibit 4.46.3-6, Inspection of Key Officer and Executive Returns. For more detailed guidance, refer to Corporate Executive Compliance.

The excise examiner must issue Form 5701, Notice of Proposed Adjustment (NOPA), along with an explanation on Form 886-A, Explanation of Items, for each proposed issue unless it is an LB&I stand-alone excise examination. The excise examiner must collaborate with the team coordinator for the issuance and numbering of the NOPA. Refer to IRM 4.46.4.13, Notice of Proposed Adjustment (NOPA), for information about Form 5701.

For complex facts and circumstances, a written AOFs may be necessary. Refer to IRM 4.46.4.11, Written Acknowledgment of the Facts (AOF), for information about AOF procedures.

Once the taxpayer responds to the Form 5701, the appropriate excise examination reports are prepared. For more detailed guidance about excise report writing, refer to IRM 4.24.20, Excise Tax Report Writing Guide. If there is a proposed adjustment on Form 4136, the adjustment will be reflected on the Team Coordinator’s examination report. Therefore, a memorandum of adjustments is prepared to notify the Team Coordinator about:

The Service maintains an ongoing effort to develop, monitor and revise programs designed to assist taxpayers in complying with legal requirements and avoiding penalties. As indicated in Policy Statement P-20-1, Penalties are Used to Enhance Voluntary Compliance, the Service uses penalties to encourage voluntary compliance. For more detailed guidance, refer to IRM 4.24.9, Excise Tax Penalties Guidance, or IRM 4.46.4.12, Penalty Consideration.

A closing memorandum may be requested at the conclusion of the excise examination, which identifies types of excise taxes examined, the entity name, EIN, and tax period(s) examined. A detailed discussion of each type of excise tax examined along with the findings is issued even if the excise examination resulted in a no-change. Refer to IRM 4.46.5.18, Post-Examination Management Critique, for information about a closing memorandum or closing examination critique meeting.