Filing the Federal Form 720 is essential for businesses subject to excise taxes. This federal excise tax return ensures that companies pay federal excise taxes accurately and on time. The form applies to certain goods, services, and business activities under specific Internal Revenue Service guidelines, including environmental, air transportation, and fuel taxes.

Businesses that file Form 720 must understand how this tax form works and what it covers. Excise taxes differ from income and sales taxes because they are imposed on specific goods and services. The form is a reporting tool for companies to calculate their tax liability and submit payments according to IRS schedules.

Form 720 is typically filed quarterly by businesses involved in manufacturing, communications, fuel distribution, or other specialized taxes. It enables the IRS to monitor compliance across specific industries and ensure timely submission. This guide provides complete instructions for accurately preparing, filing, and paying the 2016 federal excise tax return while avoiding penalties and ensuring faster processing.

Overview of Federal Excise Taxes and Form 720

Form 720, the Quarterly Federal Excise Tax Return, reports and pays various excise taxes imposed on certain goods and services. It applies to a wide range of business taxes across multiple industries.

What the Federal Excise Tax Covers

• Excise tax scope: Excise taxes apply to taxable goods such as gasoline, diesel fuel, and motor vehicles, as well as services like air transportation and communications.
  
  
• Businesses subject: Companies involved in manufacturing, importing, or selling certain goods or offering specialized services are responsible for paying these business taxes to the IRS.
  
  
• Purpose: The purpose of the form is to help the IRS collect specific taxes and monitor compliance from businesses required to report excise taxes quarterly.
  
  
• Impact on industries: Excise taxes affect specific industries that produce or sell taxable goods, including petroleum, transportation, and communications providers.

Who Must File Form 720

• Liability requirement: Businesses required to report excise taxes under IRS guidelines must file Form 720 for each quarter they owe tax liability.
  
  
• Ongoing obligation: Once liable, a company must continue filing until it files a final return, even during quarters with no taxable activities.
  
  
• Applicable filers: Entities that import or produce fuel, provide air transportation, or sell ozone-depleting substances must comply with these quarterly filing obligations.
  
  
• Filing frequency: The form is typically filed quarterly, covering the first, second, third, and fourth quarters of the tax year.

Key Sections of Form 720

• Part I: This section reports taxes that usually require deposits, including environmental taxes, communications taxes, and fuel taxes.
  
  
• Part II: This part lists other excise taxes that are generally paid when the completed form is filed, such as retail taxes and other business taxes.
  
  
• Schedules: Form 720 includes supporting schedules to calculate payments, reconcile prior deposits, and ensure accurate reporting of excise tax details.
  
  

What Changed for the 2016 Federal Excise Tax Year

The IRS introduced several adjustments and updates for the 2016 tax year that affected how businesses reported excise taxes and calculated their payments.

Medical Device Tax Suspension

• Temporary change: The medical device excise tax was suspended for 2016 and 2017, providing relief for manufacturers and importers of affected medical products.
  
  
• Impact: Under federal excise tax rules, businesses in the healthcare and manufacturing sectors did not have to pay this specific tax for those years.

Updated Patient-Centered Outcomes Research Fee

• Revised rate: For policy or plan years ending after October 1, 2015, but before October 1, 2016, the PCORI fee increased to $2.17 per covered life.
  
  
• Application: This fee applies to insurers and self-insured employers filing under other forms that link with Form 720 for accurate PCORI reporting.

Air Transportation Taxes and Facility Charges

• 2016 rate details: Air transportation taxes remained consistent, with domestic segment taxes at 4.00 dollars and international travel facility fees at 17.80 dollars per person.
  
  
• Affected businesses: Airlines and ticketing companies had to include these charges in their quarterly Form 720 filings under air transportation taxes.

Environmental and Fuel Tax Adjustments

• Ongoing obligations: Environmental taxes on ozone-depleting substances and fuel taxes on gasoline and diesel fuel will continue at existing rates.
  
  
• Business focus: Companies producing, importing, or selling fuels must accurately calculate and pay these taxes to avoid penalties and interest.

Structural and Format Changes to the Form

• IRS updates: The 2016 version of Form 720 expanded from six to eight pages to include more detailed schedules and clearer instructions for electronic filing.
  
  
• Enhanced compliance: The IRS encouraged businesses to file electronically for faster processing and better tracking of payments and liabilities.
  
  

Preparing to File Form 720

Before completing the federal excise tax return, every business should organize its records, confirm account access, and review relevant IRS forms and publications to ensure compliance.

Gathering the Necessary Information

• Business identification: Obtain a valid Employer Identification Number (EIN) since all excise taxes must be reported under a business’s registered tax ID.
  
  
• Quarterly records: Collect invoices, sales receipts, and prior filings to ensure that the upcoming quarter’s return reflects accurate reporting of excise activity.
  
  
• Deposit confirmations: Verify semi-monthly deposits made through the Electronic Federal Tax Payment System (EFTPS) or other electronic filing channels.
  
  
• Supporting documentation: Prepare certifications, exemption records, and any prior corrections submitted via other forms, such as Form 720X.

Understanding Applicable Excise Tax Categories

• Fuel-related taxes: Includes excise taxes on gasoline, diesel fuel, and kerosene imposed on production, import, or sale for specific uses.
  
  
• Environmental obligations: Covers taxes on ozone-depleting substances and imported chemical products subject to specialized taxes.
  
  
• Communications and transportation: Applies to communications providers and air transportation companies that charge customers for taxable services.
  
  
• Retail and manufacturer taxes: These categories include retail taxes on trucks and trailers and other excise taxes affecting specific industries.
  
  

Step-by-Step Instructions for Completing the Form 720

Understanding how to correctly complete each section of Form 720 is crucial for accurate reporting and compliance with IRS regulations.

Step 1: Complete the Business Information Header

Enter your business name, address, and EIN as registered with the IRS. Specify the quarter covered and check the appropriate boxes for changes or final returns. Businesses required to report must ensure that all identifying details match IRS records to prevent delays or rejected filings.

Step 2: Fill Out Part I – Taxes That Require Deposits

Part I covers excise taxes requiring semi-monthly deposits, such as environmental, fuel, and communications taxes. Each line corresponds to a specific tax type. Businesses must calculate and report liability based on taxable goods or services sold during the quarter, ensuring correct tax rates and accurate totals before submission.

Step 3: Fill Out Part II – Other Excise Taxes Paid with the Return

Part II reports other excise taxes that do not require deposits. These include retail taxes, manufacturer taxes, and other business taxes. Each entry must be verified using the latest form instructions to ensure correct tax rates and amounts. Companies must confirm all applicable IRS numbers for each type of tax imposed.

Step 4: Complete Part III – Summary and Payment Details

This section totals all tax liability from Parts I and II. Businesses calculate net taxes due after accounting for prior deposits, credits, or overpayments. Accurate reporting here ensures the correct balance is paid or refunded. The completed form should reflect exact totals that align with EFTPS or paper payments sent to the IRS.

Step 5: Attach Required Schedules and Supporting Forms

Attach any relevant schedules, such as Schedule A for semi-monthly liabilities, Schedule T for two-party exchanges, or Schedule C for refunds. Supporting IRS forms like Form 6627 or Form 6197 may also be required. These attachments verify claims and confirm compliance with applicable IRS guidelines and reporting procedures.

How to File Form 720 Through Electronic Filing or Paper Forms

Businesses can file Form 720 electronically or by mail. The IRS recommends electronic filing to ensure timely submission, reduce processing time, and minimize reporting errors.

Electronic Filing (E-File) Method

• E-file advantages: Electronic filing offers faster processing, reduces manual errors, and provides immediate confirmation once the IRS receives your federal excise tax return.
  
  
• Authorized providers: Only IRS-approved transmitters and Electronic Return Originators (EROs) can handle e-file submissions for excise taxes.
  
  
• Security assurance: Data is encrypted during transmission, ensuring compliance and protection of business information when filing through the IRS website.
  
  
• Record retention: Keep a copy of the acknowledgment notice and submission receipt for future verification or audit purposes.

Paper Filing Option

• Mailing address: Paper forms must be sent to the Department of the Treasury, Internal Revenue Service, Cincinnati, OH 45999-0009, using approved delivery methods.
  
  
• Delivery proof: Businesses should retain proof of timely submission, such as a postmarked receipt or delivery confirmation from a private carrier.
  
  
• Complete documentation: Attach all required schedules and forms before mailing to prevent delays or additional IRS correspondence.
  
  
• Filing reminders: Paper filings take longer to process, so businesses should submit them early to meet the IRS due date for each quarter.
  
  

Payment and Deposit Procedures for Excise Taxes

Paying excise taxes correctly is as important as filing the form itself. To ensure compliance, the IRS requires most payments to be made electronically through approved channels.

Making Payments and Deposits

• EFTPS requirement: The Electronic Federal Tax Payment System (EFTPS) is the standard method for depositing excise and other business taxes.
  
  
• Deposit frequency: Most Part I taxes must be deposited semi-monthly, with deadlines on the 14th and 29th of each month unless those dates fall on weekends.
  
  
• Small liability exception: If total excise taxes for a quarter are $2,500 or less, businesses can pay with the return instead of through EFTPS.
  
  
• Accuracy importance: Deposits must equal at least 95% of the liability for each semi-monthly period.
  
  

Required Schedules and Attachments for Form 720

Every federal excise tax return must include supporting schedules and documents that verify reported amounts and confirm compliance with IRS guidelines. These attachments depend on the business activities and the specific taxes imposed during the quarter.

Schedule A: Semi-Monthly Liability Reporting

• Purpose: Schedule A helps the IRS confirm that semi-monthly deposits match excise tax liabilities reported in Part I of Form 720.
  
  
• When required: This schedule is necessary for businesses reporting environmental, communications, and fuel taxes requiring deposits.
  
  
• Information included: Filers must list liability for each semi-monthly period, separating regular and alternative method taxes with totals matching Part I entries.
  
  
• Accuracy tip: Double-check that each amount reported corresponds with payment confirmations made through EFTPS or other approved payment methods.

Schedule T: Two-Party Exchange Information

• Purpose: Schedule T reports fuel exchanges between two registered parties at a terminal.
  
  
• Applicable transactions: This schedule applies to taxable goods such as gasoline, kerosene, and diesel fuel delivered or received under a two-party exchange agreement.
  
  
• Required details: The filer must include terminal operator data, quantities transferred, and both parties’ registration numbers for verification.
  
  
• Filing relevance: This schedule supports accurate reporting of fuel taxes and helps prevent duplication or underreporting of liabilities.

Schedule C: Claims for Refunds and Credits

• Purpose: Schedule C allows filers to claim credits or refunds for overpaid excise taxes or nontaxable fuel uses.
  
  
• Eligible claims: Refunds may apply to diesel fuel used for off-highway business purposes, exported goods, or sales to tax-exempt buyers.
  
  
• Documentation requirement: Supporting records such as invoices, exemption certificates, or registration proof must be attached for all claims.
  
  
• Correction: Depending on the type of correction requested, some claims must be filed using forms such as Form 8849 or Form 720X.

Supporting Forms and Attachments

• Environmental taxes: Businesses reporting ozone-depleting substances must attach Form 6627 to calculate environmental tax liabilities accurately.
  
  
• Gas guzzler tax: Companies importing or manufacturing certain motor vehicles must complete Form 6197 to report and pay this specialized tax.
  
  
• Payment voucher: Form 720-V is included for those who pay by check or money order, ensuring payments are properly applied to the correct quarter.
  
  
• Record retention: If the IRS requests verification or performs an audit, all forms and schedules should be kept for at least four years.
  
  

Common Mistakes When Filing Form 720

Businesses must take extra care to avoid errors that can delay processing or result in penalties. The following issues frequently occur during the preparation or submission of federal excise tax returns.

Identification and Filing Errors

• Incorrect EIN: Using the wrong employer identification number or leaving it blank can cause IRS processing delays and correspondence issues.
  
  
• Unsigned return: Missing signatures or having an unauthorized individual sign the return makes the filing invalid and may trigger penalties.
  
  
• Wrong tax period: Entering the wrong month or year for the quarter can lead to rejected filings or payment misapplication.

Tax Calculation Errors

• Incorrect tax rates: Using outdated or incorrect rates for fuel, air transportation, or communications taxes results in inaccurate reporting.
  
  
• Miscalculated totals: Adding errors, rounding issues, or missed deposits can alter total tax liability and cause overpayment or underpayment.
  
  
• Wrong IRS number: Reporting a tax under the wrong IRS code, such as confusing fuel tax types, creates discrepancies with IRS records.

Deposit and Payment Errors

• Late deposits: Missing semi-monthly deposit due dates can lead to late-payment penalties and additional interest charges.
  
  
• Paper deposits: Sending deposits directly to the IRS by mail instead of using EFTPS violates electronic payment requirements.
  
  
• Deposit shortfall: Depositing less than 95 percent of the required liability causes noncompliance and may prompt penalty assessments.

Schedule and Attachment Errors

• Missing schedules: Failure to attach required schedules, such as Schedule A or Schedule C, leads to IRS requests for clarification.
  
  
• Mismatched data: Totals on schedules must align with entries on Form 720; mismatches can delay refunds or trigger further review.
  
  
• Incomplete claims: Refund or credit requests without complete documentation are automatically denied or returned for revision.
  
  

Zero-Activity and Dormant-Year Filing Guidance

Even if a business has no excise tax liability in a particular quarter, Form 720 may still need to be filed to maintain compliance and avoid penalties.

When a Zero Return Is Required

• Ongoing filers: Businesses that previously filed Form 720 must continue filing until they submit a final return, even during periods with no taxable activity.
  
  
• Temporary inactivity: Companies temporarily inactive in producing or selling taxable goods must still file a zero quarterly return.
  
  
• Final filing: A “final return” should be marked only when the business permanently ceases all excise-taxable activities.

Completing a Zero-Liability Return

• Form entries: Fill out business identification and tax period information, entering zero in all applicable tax lines.
  
  
• Signature requirement: The form must be signed and dated like any standard filing to confirm that the information reported is accurate.
  
  
• Timely submission: File by the quarter’s standard due date to maintain compliance and prevent automatic penalty notices.
  
  
• Record retention: Keep copies of all zero-activity filings and supporting documentation for at least four years.
  
  

First-Time Filer Tips for Federal Excise Taxes

Businesses filing the Form 720 for the first time can ensure accuracy and compliance by following these proven best practices.

Preparation and Setup

• EIN requirement: Obtain an Employer Identification Number before filing, as all excise taxes must be reported under a valid business identifier.
  
  
• EFTPS enrollment: Register for the Electronic Federal Tax Payment System immediately, since deposits must be made electronically for most excise taxes.
  
  
• IRS resources: For the latest guidance and tax rates, review the IRS website's current form instructions and publications.

Recordkeeping Best Practices

• Keep detailed records: Retain invoices, receipts, and deposit confirmations that support reported amounts for each quarter.
  
  
• Maintain organized files: Separate documents by quarter and by type of tax for faster retrieval and audit preparation.
  
  
• Include proof of payments: Store EFTPS confirmations or check receipts to verify all payments against reported liabilities.

Professional Assistance

• Tax professional help: To ensure accurate reporting and compliance, seek assistance from a licensed preparer familiar with excise tax rules.
  
  
• Software solutions: Use approved electronic filing software to complete the federal excise tax return with automated error checks and built-in calculation tools.
  
  
• Review before submission: Double-check every figure and ensure all attachments are present before filing to avoid penalties and delays.
  
  

Special Tax Categories for the 2016 Form 720

Form 720 covers several specialized taxes across industries. Understanding these helps businesses ensure compliance and precise calculations of quarterly tax liability.

Environmental and Fuel Taxes

• Environmental taxes: These apply to ozone-depleting substances such as certain chemicals used in manufacturing or refrigeration systems.
  
  
• Fuel taxes: These include levies on gasoline, diesel fuel, and kerosene for commercial or noncommercial use, reported under Part I of Form 720.
  
  
• Alternative fuels: Credits or adjustments may apply for alternative fuel mixtures depending on eligibility under current IRS rules.
  
  
• Calculation accuracy: Businesses must calculate total gallons and apply correct tax rates to avoid errors or underpayments.

Communications and Air Transportation Taxes

• Communications taxes: These are imposed on communications providers offering local telephone or other taxable services within the United States.
  
  
• Air transportation taxes: Businesses providing air transportation services must include applicable domestic or international travel charges in their quarterly return.
  
  
• Collection method: These taxes are typically collected from customers and remitted to the IRS by the service provider.
  
  
• Reporting requirement: All collected taxes must be reported quarterly using Part I of Form 720 for accurate reconciliation.

Retail and Other Excise Taxes

• Retail taxes: These apply to sales of heavy trucks, trailers, and certain motor vehicles subject to specific tax rates under Part II.
  
  
• Health-related taxes: The Patient-Centered Outcomes Research Fee continued at the adjusted 2016 rate of 2.17 dollars per covered life.
  
  
• Sporting equipment: Excise taxes also applied to sporting goods such as bows, arrows, and fishing equipment as part of specialized taxes.
  
  
• Foreign insurance: The tax on foreign reinsurance premiums was eliminated for 2016, simplifying reporting for affected businesses.
  
  

Ensuring Compliance and Accurate Reporting

Accurate reporting and compliance help businesses avoid penalties, ensure timely submission, and maintain good standing with the IRS.

Best Practices for Compliance

• Follow due dates: File Form 720 by the last day of the month following the quarter’s end to meet the official due date.
  
  
• Use the correct form: Always use the latest IRS forms and updated instructions to ensure proper reporting and current tax rates.
  
  
• Maintain documentation: Keep detailed records of calculations, payments, and adjustments in case of future IRS review.
  
  
• Review quarterly: Regularly review each section before submission to confirm accurate reporting across all business activities and specific goods.

Penalties and Interest Considerations

• Late filing penalties: The IRS may impose a 5 percent monthly penalty on unpaid excise taxes, up to a maximum of 25 percent.
  
  
• Interest charges: Interest accrues daily on unpaid balances from the original due date until full payment.
  
  
• Incomplete returns: Submitting an incomplete or unsigned return is treated as non-filing and subject to the same penalties.
  
  
• Prevention strategy: Filing electronically through e-file and confirming acceptance helps prevent most errors and penalties.
  
  

Frequently Asked Questions

Do I need to file Form 720 if my business had no excise tax liability?

Yes, existing businesses that have already submitted Form 720 must continue doing so quarterly until they have submitted their final return. Even with no excise tax liability, you must file a zero return to maintain compliance, avoid penalties, and ensure the IRS records your business as active for excise tax purposes.

Is electronic filing mandatory for the 2016 federal excise tax return?

Although filing Form 720 electronically is not required, the Internal Revenue Service strongly encourages taxpayers to do so. Using e-file ensures faster processing, reduces calculation errors, and provides instant confirmation of receipt. Electronic filing also supports accurate reporting, protects confidential business data, and helps companies meet quarterly deadlines with better tracking and verification.

What is the due date for filing Form 720?

Form 720 is typically filed quarterly with due dates on April 30, July 31, October 31, and January 31 of the following year. Each date corresponds to the quarter ending before it. Filing by the correct due date ensures compliance, avoids penalties, and confirms accurate quarterly reporting of all excise taxes owed.

Which taxes must be reported under Part I of Form 720?

Part I covers all federal excise taxes that require deposits every two months. These taxes include environmental, air transportation, communications, gasoline, and diesel fuel. Each section corresponds to a specific IRS number, tax type, and reporting period, allowing businesses to ensure precise calculations and timely electronic payments each quarter.

Can I pay my excise taxes by mail?

To comply with IRS requirements, most excise tax payments must be made electronically through the Electronic Federal Tax Payment System (EFTPS). However, if the total liability for the quarter is $2,500 or less, a business may send a paper check with Form 720 using the included Form 720-V payment voucher for accuracy.

What should I do if I discover an error after filing?

If you find an error after filing Form 720, submit a correction using Form 720X. This amended return allows you to fix reporting mistakes, adjust overpayments or underpayments, and update any miscalculated tax liability. Ensure that supporting documentation accompanies your amended filing to help the IRS process the correction efficiently and accurately.

How long should businesses retain copies of their returns and records?

Businesses should keep all copies of Form 720, supporting schedules, payment confirmations, and related IRS forms for at least four years. Retaining these records ensures proof of compliance if the IRS requests verification. Maintaining organized documentation helps confirm accurate reporting, supports future audits, and simplifies preparation for subsequent quarterly excise tax filings.