File Form 720 2010 Instructions: Federal Excise Tax Guide

IRS Form 720, also known as the Quarterly Federal Excise Tax Return, is a form businesses must use to report and pay federal excise tax. This tax is imposed on specific goods and services, such as motor fuel, indoor tanning services, and air transportation. Unlike income taxes, which apply broadly, excise taxes are levied on specific products or activities, making it crucial for certain industries to understand when they are liable for these taxes.

The form is organized into multiple sections that allow taxpayers to report different categories of excise taxes imposed under the Internal Revenue Code. Businesses that manufacture, sell, or use taxable fuel, firearms, or other taxable goods, as well as service providers such as tanning facilities or transportation companies, are often required to file. Filing ensures that the excise tax liability is reported correctly, credits or refunds are claimed when applicable, and all obligations are reflected accurately in the return.

Since deadlines fall at the end of each quarter, it is critical to file Form 720 on or before the official due date. If a due date falls on a legal holiday or weekend, the next business day becomes the filing deadline. Timely filing not only helps businesses remain compliant with the law but also prevents penalties for late reporting. This guide provides clear instructions on how to prepare, file, and pay the excise tax return, while also explaining special rules and providing examples to help businesses stay informed.

What Is IRS Form 720?

IRS Form 720 is the Quarterly Federal Excise Tax Return used by businesses to report and pay federal excise tax. This tax is imposed on specific goods and services, ranging from fuel and air transportation to indoor tanning services and certain manufactured products. The form provides a structured way for taxpayers to report excise taxes imposed under the Internal Revenue Code, ensuring that the liability is clearly accounted for each quarter.

Form 720 covers a wide range of excise taxes, which may include:

• Fuel and transportation taxes apply to motor fuel, diesel fuel, kerosene, aviation fuel, and taxes on the use of inland waterways. These taxes ensure that the cost of transportation services and fuel consumption is reported correctly each quarter.
  
  
• Environmental taxes are levied on petroleum products, chemical sales, and ozone-depleting substances. Businesses that manufacture or sell these products are responsible for calculating and reporting the liability imposed by law.
  
  
• Communications and air transportation taxes apply to long-distance telephone services and passenger air travel. Service providers in these industries must file to account for the federal excise tax liability generated by sales.
  
  
• Retail taxes on goods apply to specific products, including sporting goods, firearms, and tires. Manufacturers and retailers of these items are required to include the tax imposed on each sale when they file Form 720.
  
  
• Service-based taxes include the 10 percent tax on indoor tanning services. Businesses offering these services must collect the excise tax from customers and report the liability on their excise tax return.

The form itself is divided into three main parts:

• Part I covers general excise taxes, including taxes on fuel, transportation, and retail tax items that most businesses encounter.
  
  
• Part II reports environmental taxes, which apply to chemical products, petroleum sales, and related liabilities determined by the IRS.
  
  
• Part III is used for claims and credits, allowing taxpayers to request refunds or apply credits for excise taxes that have already been paid.

Form 720 is a key tax return for businesses subject to excise tax liability. By requiring the proper reporting of each tax imposed, it helps ensure that excise taxes are accurately reflected and that companies remain compliant with applicable laws.

Who Needs to File Form 720?

Form 720 must be filed by businesses and individuals who are liable for excise taxes imposed on certain goods, services, or activities. The requirement applies to a wide range of industries, including manufacturing, fuel distribution, and transportation. Each taxpayer is responsible for determining liability under the Internal Revenue Code and filing accordingly.

Businesses and services commonly required to file include:

• Manufacturers or importers must file if they produce or bring into the United States taxable goods such as tires, firearms, coal, and kerosene.
  
  
• Retailers are required to file if they sell products subject to federal excise tax, including sport fishing equipment, bows, or certain heavy vehicles.
  
  
• Operators of indoor tanning services must file, as a federal excise tax is imposed on the cost of tanning services, effective with the 2010 tax year.
  
  
• Fuel distributors or sellers must file if they deal in taxable fuel such as motor fuel, diesel fuel, kerosene, or aviation gasoline.
  
  
• Providers of communications services and air transportation must file because the excise tax is levied on both passenger air travel and certain telephone services.

A taxpayer may be required to file Form 720 if registered under Form 637 or if excise tax accounts remain active, even without current activity. In some cases, a final return must be filed when operations come to an end. Special rules also require a zero return if the business filed in a prior quarter, is registered with the IRS, or holds permits related to excise taxes, ensuring all excise taxes imposed are correctly reported and tracked. 

IRS Form 720 Deadlines and Due Dates

Form 720 is filed quarterly, with each due date corresponding to the end of the respective calendar quarter. The deadlines are strict, and failure to file on time can result in penalties. If a due date falls on a weekend or legal holiday, the next business day becomes the official deadline.

Quarterly due dates are as follows:

1. The first quarter, which spans January through March, requires the form to be filed by April 30.
   
   
2. The second quarter, which spans April through June, requires the form to be filed by July 31.
   
   
3. The third quarter, which spans July through September, requires the form to be filed by October 31.
   
   
4. The fourth quarter, which spans from October to December, requires the form to be filed by January 31 of the following tax year.

Businesses should note that extensions are rarely available for excise tax returns. If payment is not made on time, penalties and interest may be determined by the IRS. Taxpayers must also retain proof of filing and payment, as errors or failures can result in additional penalties.

Meeting each filing date ensures compliance and helps businesses avoid additional costs. When preparing, it is essential to verify whether any special rules apply and to review the IRS instructions for modifications that affect deadlines.

Step-by-Step Guide to Completing Form 720

Completing Form 720 requires attention to detail to ensure that all excise taxes imposed are reported accurately. The following steps outline the preparation process.

Step 1: Gather Required Information.

A taxpayer should collect the Employer Identification Number, business name and address, sales and production records, and proof of any deposits already made. Having complete records at the start prevents delays and errors.

Step 2: Identify the Correct Quarter.

Each return must match the quarter in which the liability occurred. All entries should reflect the correct dates for excise tax liability so that reporting aligns with IRS requirements.

Step 3: Complete the Header Information

The header must include the business details, EIN, quarter, and tax year. Entering accurate information in this section helps prevent processing errors and ensures the return is associated with the correct account.

Step 4: Report General Excise Taxes in Part I.

Businesses must report excise taxes imposed on items such as motor fuel, diesel fuel, tires, firearms, and other taxable goods and services. Calculations should be based on the current IRS instructions to ensure the correct tax amount is reported.

Step 5: Report Environmental Taxes in Part II.

Environmental taxes apply to petroleum products, chemical sales, ozone-depleting substances, and specific activities related to inland waterways. These taxes must be entered accurately using the IRS numbers provided in the instructions.

Step 6: Report Claims and Credits in Part III.

Part III allows taxpayers to report claims for refunds or credits, such as taxes paid on exported goods or adjustments that reduce liability. Supporting documentation should be retained for verification.

Step 7: Calculate the Total Tax Due.

The taxpayer must add all liabilities, subtract any credits, and determine the final amount due. If excise tax liability exceeds $2,500 in a quarter, semi-monthly deposits are required under IRS rules.

After completing all sections, the taxpayer must sign and date the return before submitting it for filing. Preparing the excise tax return carefully ensures compliance, reduces penalties, and provides an accurate reflection of all applicable taxes under federal law. 

Payment and Deposit Rules

Businesses that file Form 720 must also follow the rules for paying excise tax. Payment methods vary depending on the amount of liability and the type of taxes imposed. Failure to pay on time may result in penalties and interest determined by the IRS.

Accepted payment methods include:

• Businesses can use the Electronic Federal Tax Payment System (EFTPS), which is the preferred method because it provides immediate confirmation, secure processing, and a record of each payment.
  
  
• Taxpayers may use deposit coupons (Form 8109) if they do not use EFTPS, but this option is limited and requires payments to be submitted through authorized financial institutions.
  
  
• A taxpayer may also pay the tax due directly with the return if the total liability for the quarter is $2,500 or less, which reduces the need for separate deposits.

Special rules apply to businesses with larger excise tax liability:

• If liability exceeds $2,500 in any month of the quarter, the taxpayer must make semi-monthly deposits instead of paying in full at the end of the quarter.
  
  
• Semi-monthly deposits are due twice each month. Taxes incurred between the 1st and 15th are due by the 29th, and taxes incurred between the 16th and the end of the month are due by the 14th of the following month.
  
  
• If liability exceeds $100,000 on any given day, the business must deposit by the next business day, as per the IRS's next-day deposit rule.

By following these rules, taxpayers can ensure that excise tax liability is paid correctly and on time. Careful planning helps avoid penalties, reduces administrative burden, and ensures compliance with applicable law.

Filing Methods: E-File vs. Paper Filing

The Internal Revenue Service allows businesses to file Form 720 either electronically or by mailing a paper return. Each method has specific requirements, and the choice may depend on the taxpayer’s preferences and filing situation.

Electronic filing offers several advantages:

• E-filing provides immediate acknowledgment that the IRS has received the return.
  
  
• Submissions are processed more quickly than paper returns, reducing delays.
  
  
• Built-in validation in e-file software helps reduce errors and incorrect entries.
  
  
• Businesses can pay electronically through EFTPS at the same time as filing, making the process more efficient.

Paper filing is also permitted but requires additional steps:

• A taxpayer must print or type all entries clearly, using only black ink.
  
  
• The return must be signed and dated before submission, since unsigned forms are not valid.
  
  
• Any required schedules or attachments must be included with the form.
  
  
• Taxpayers must mail the return to the correct IRS address, which varies depending on the location and whether a payment is enclosed.

Although paper filing is accepted, the IRS strongly encourages electronic filing because it is faster, reduces errors, and provides a secure record of submission. Choosing e-file also ensures that the due date is met without risk of mail delivery delays, especially when a due date falls near a legal holiday or weekend.

Required Schedules and Attachments

Specific excise taxes imposed under the Internal Revenue Code require additional schedules or forms to be included with Form 720. These attachments provide details that support the taxpayer’s calculations and claims.

Standard schedules and attachments include:

• Schedule C must be filed when a taxpayer claims refunds or credits, such as for exported goods or items sold for further manufacture or processing. This schedule requires documentation that supports the claim.
  
  
• Form 637 registration is required for specific manufacturers, sellers, or fuel producers to qualify for exemptions. Businesses must include their registration number when claiming exemptions.
  
  
• Environmental tax attachments may be required when reporting petroleum or chemical taxes, including refinery reports or production records.
  
  
• Communications and air transportation service providers may need to provide billing records, customer information, and other documentation to support the excise tax return.

Supporting documentation is also essential:

• Businesses must retain invoices, receipts, import and export records, and certificates of tax payment as part of their permanent records.
  
  
• Records must be kept for at least three years from the due date of the return; retaining them longer provides added protection in case of audit.

Completing all required schedules and attaching proper documentation helps ensure that the excise tax return is accurate and complete. It also reduces the risk of errors, adjustments, or penalties later determined by the IRS.

Common Mistakes to Avoid

Preparing and filing Form 720 requires accuracy. Many taxpayers make errors that can delay processing or result in penalties. Being aware of the most common mistakes can help businesses avoid unnecessary costs and complications.

Frequent errors include:

• Taxpayers often use incorrect tax rates or fail to review current instructions, which leads to underpayment or overpayment of excise taxes.
  
  
• Businesses sometimes make calculation errors, including rounding mistakes or unit conversions, which can result in misreported liability figures.
  
  
• Some filers submit returns with incomplete header information, such as the incorrect Employer Identification Number or an incorrect quarter entry, which can render the form invalid.
  
  
• A frequent mistake is failing to sign and date the return, which makes it incomplete in the eyes of the IRS.
  
  
• Many businesses fail to attach required schedules, such as Schedule C, or to provide supporting documentation for credits or refunds claimed.
  
  
• Errors are common when applying special rules, such as calculating deposits when liability exceeds $2,500 or when the next business day rule applies to deadlines.

Other mistakes involve industry-specific taxes:

• Indoor tanning services sometimes miscalculate the 10 percent tax or apply it to services that are exempt from taxation.
  
  
• Fuel distributors may misclassify taxable fuels, such as diesel fuel or kerosene, resulting in incorrect liability assessments.
  
  
• Manufacturers reporting retail tax on items such as sport fishing equipment or coal may apply the incorrect rate or IRS number, resulting in errors on the return.

Avoiding these mistakes begins with carefully reviewing the IRS instructions, double-checking calculations, and maintaining accurate records. Taking these steps ensures that the excise tax return is complete and correct before submission.

Tips for First-Time Filers

Filing Form 720 for the first time can feel overwhelming. New taxpayers often struggle to understand which taxes apply to their business and how to prepare the form correctly. Following a few key practices can help first-time filers stay compliant.

Practical tips include:

• Every business should start by reviewing IRS Publication 510 to determine which excise taxes apply to its activities and products.
  
  
• Taxpayers should obtain an Employer Identification Number and complete Form 637 registration if exemptions or special rules apply to their industry.
  
  
• First-time filers should enroll in the Electronic Federal Tax Payment System early to allow time for processing before deposits are due.
  
  
• Businesses should establish a filing calendar that tracks each due date and accounts for weekends and legal holidays that may affect deadlines.
  
  
• A system for record-keeping should be established to retain invoices, receipts, and calculation worksheets, as the IRS may request these documents for verification purposes.

Additional best practices:

• Taxpayers should consider consulting with a tax professional when they are uncertain about the correct classification of taxable fuel, indoor tanning services, or retail tax items.
  
  
• Businesses should prepare a draft return in advance and review it for errors, ensuring that all entries are accurately reflected.
  
  
• It is essential to notify the IRS when a business ceases operations subject to excise tax, and a final return should be filed to close the account.

By following these steps, first-time filers can reduce errors, avoid penalties, and gain confidence in preparing their excise tax return. These practices also help establish reliable systems, making future quarterly filings much easier.

Frequently Asked Questions

Who must file Form 720, and what taxes are included?

A taxpayer must file Form 720 if liable for federal excise tax under the Internal Revenue Code. The excise tax return covers excise taxes imposed on motor fuel, diesel fuel, kerosene, coal, indoor tanning services, sport fishing equipment, and transportation on inland waterways. Retail tax on specific products and services is also reported. Manufacturers, registered sellers, and businesses subject to excise tax liability must file by the applicable due date.

What are the filing due dates for Form 720?

Form 720 must be filed quarterly. The due dates are April 30, July 31, October 31, and January 31 of the following tax year. If the deadline falls on a weekend or a legal holiday, the next business day is the new deadline. Each quarter’s excise tax liability must be reported on the return. Special rules apply if the IRS determines deposits are required before the final return is filed.

How does a taxpayer complete Form 720 correctly?

To prepare Form 720, the taxpayer should review the instructions and gather all accounts, sales, and fuel records. Each entry must reflect taxes imposed and applicable credits or refunds. The form must be signed and dated before it is submitted. Errors should be avoided by carefully calculating liability on taxable fuel, transportation services, or retail tax items. IRS rules require taxpayers to retain records and notify the agency of any modifications.

What happens if excise taxes are not paid on time?

Failure to pay federal excise tax or file the return on time may result in penalties and interest determined by the IRS. A taxpayer is responsible for meeting each due date and ensuring that deposits are made when liability exceeds thresholds. For example, if the excise tax levied on motor fuel exceeds $2,500 in a quarter, semi-monthly deposits are required. Extensions are rare, and businesses must remain compliant to avoid penalties.

What is a final return, and when must it be filed?

A final return is required when a business ceases operation, subject to excise taxes imposed under federal law. The taxpayer must mark the form as final, report all liability through the closing date, and pay any balance due. For example, manufacturers selling taxable fuel or retailers selling sporting goods must close their accounts. Filing a final return ensures the IRS updates the registration and stops future filing requirements.

What schedules or attachments are required with the excise tax return?

Schedules and attachments are required when excise taxes imposed qualify for exemptions, refunds, or credits. Schedule C supports a claim for overpaid taxes or exported goods. Form 637 registration is required for specific manufacturers or registered sellers seeking exemptions. Documentation for taxable fuel, coal, or inland waterways must also be retained. Each supporting page must be prepared carefully so the IRS can verify the liability, credit, or refund reported.