Federal Form 720 is the official document taxpayers use to report and pay federal excise taxes. It applies to specific goods, services, and activities subject to taxation under federal law. Certain goods, such as fuel, airline transportation, and indoor tanning services, are subject to these excise taxes, which fund critical government programs.

Businesses liable for these excise taxes must file Form 720 quarterly with the Internal Revenue Service. Filing ensures compliance with federal regulations and accurate reporting of tax liabilities. Companies that sell or produce taxable goods or provide specific services must pay excise taxes based on the applicable tax rate and activity type.

This guide provides comprehensive 2017 instructions for Form 720, explaining who must file, how to calculate liability, payment methods, and filing deadlines. It also outlines penalties for failure to file, reasonable cause exceptions, and recordkeeping standards. Every business subject to excise taxes should understand this process to maintain compliance and avoid costly penalties.

Form 720 2017 Instructions: Understanding the Federal Excise Tax Return

The federal excise tax return is the quarterly filing tool for businesses liable for excise taxes on certain goods and services. Understanding the 2017 instructions helps taxpayers complete the form correctly under federal regulations.

What the Federal Excise Tax Return Covers

• Purpose: According to federal tax law, the form allows taxpayers to report and pay excise taxes imposed on specific goods and services.
  
  
• Examples of taxable activities: The tax applies to selling fuel, providing airline services, offering indoor tanning, and manufacturing sporting equipment.
  
  
• Scope of liability: Any person or business responsible for collecting or paying excise taxes must file Form 720 quarterly to report their tax obligations.
  
  
• Reporting period: Each quarterly return reports three months of activity and must be filed by the applicable due date listed in the IRS instructions.

Who Must File Form 720: Businesses Liable for Excise Taxes

Form 720 applies to multiple industries, including energy, transportation, telecommunications, and manufacturing. The IRS determines liability based on the activities performed and the goods or services provided.

Taxpayers Required to File Form 720

• Businesses selling taxable goods: Companies selling gasoline, diesel, or other fuels must report and pay excise taxes on every gallon sold to consumers.
  
  
• Airline and transportation companies: Carriers that collect passenger fees must report air transportation excise taxes on domestic and international flights.
  
  
• Manufacturers and retailers: Businesses producing or selling taxable goods such as heavy highway vehicles or tobacco products must calculate and report taxes using the correct rate.
  
  
• Insurance providers and administrators: Organizations subject to the patient-centered outcomes research fee must report the per-person fee based on the number of covered lives.

Key Sections of the Federal Excise Tax Return and Their Purpose

Understanding the structure of the federal excise tax return ensures complete and accurate reporting. Each part of Form 720 serves a specific function related to calculating liability.

Overview of Form 720 Sections

• Part I: This section reports regular excise taxes on fuel, transportation, communications, and environmental activities under federal law.
  
  
• Part II: This portion covers special taxes, including the patient-centered outcomes research fee, indoor tanning, and certain sporting or recreational goods.
  
  
• Part III: The summary section calculates total liability, deposits, and overpayments, determining whether additional money is owed or refundable.
  
  
• Schedules A and C: Schedule A records semi-monthly tax deposits, while Schedule C supports claims for credits, refunds, or tax adjustments.

Filing Deadlines and Due Date Requirements for Form 720

Form 720 must be filed quarterly according to IRS deadlines. Late filing results in penalties unless the taxpayer establishes reasonable cause for the delay.

Quarterly Filing Schedule for 2017

• First quarter (January–March): As federal filing regulations require, the first quarter's due date is April 30, 2017.
  
  
• Second quarter (April–June): The due date for the second quarter is July 31, 2017, and applies to all businesses with excise tax obligations.
  
  
• Third quarter (July–September): According to the standard quarterly filing schedule, the third quarter due date is October 31, 2017.
  
  
• Fourth quarter (October–December): The fourth quarter's due date is January 31, 2018, marking the final filing period for the 2017 tax year.
  
  
• Reasonable cause exception: The IRS may waive penalties if the taxpayer proves that failure to file resulted from circumstances beyond their control.

Step-by-Step Instructions for Completing the Federal Excise Tax Return

Completing Form 720 involves several steps, from gathering records to submitting payment. Each step must be completed carefully to avoid errors and penalties.

Step 1: Gather Required Information

Before preparing the form, collect all relevant data, including business name, Employer Identification Number, and address. Ensure excise tax receipts, semi-monthly deposit records, and previous returns are available. Review any applicable schedules, including Schedule A, Schedule C, or Form 6627, to confirm all supporting documentation is accurate and complete before filing.

Step 2: Complete Header Information

Enter the business name, address, and EIN as registered with the IRS. Indicate the quarter ending date. Additionally, include a valid phone number for IRS correspondence. If the business is closing or no longer liable for excise taxes, mark the “Final Return” box before signing and dating the form.

Step 3: Fill Out Part I – Regular Excise Taxes

This section includes taxes on fuel, transportation, communications, and environmental activities. Use the correct IRS tax rate to report all applicable categories, such as gasoline, diesel, kerosene, and aviation fuel. Include air transportation and communications taxes as imposed by law. Attach Form 6627 if reporting environmental taxes for oil spills or ozone-depleting chemicals.

Step 4: Fill Out Part II – Special Excise Taxes

Part II includes specialized taxes like the PCOR fee and indoor tanning. Report the PCOR fee using the correct rate for the plan year. Include the 10 percent tax on tanning services and applicable percentages for sport fishing and firearms sales. Verify whether additional special taxes apply under federal excise tax regulations.

Step 5: Complete Part III – Summary and Payment

Combine totals from Parts I and II to calculate total tax liability. Deduct deposits and applicable credits from Schedule C to determine the remaining balance. Enter overpayments or amounts due and indicate whether payment is enclosed. The authorized officer must sign and date the form to certify accuracy and compliance.

Step 6: Verify Calculations and Review Before Submission

Double-check all numbers, tax rates, and calculations to prevent errors. Ensure every required attachment is included and consistent with Form 720 entries. Maintain records for at least four years to comply with IRS retention requirements. Review the form internally before submission to ensure that calculations align with quarterly liability and payment data.

How to File Form 720: E-File and Paper Submission Options

Businesses may file Form 720 electronically or on paper. Each method offers distinct advantages, depending on reporting volume, recordkeeping needs, and preferred submission process.

Electronic Filing (E-File)

• IRS e-file program: Businesses can file electronically through approved transmitters participating in the federal excise tax e-file system.
  
  
• Benefits: Electronic filing ensures faster processing, instant confirmation, and reduced error risk compared to manual submission.
  
  
• Requirements: The IRS mandates the use of authorized providers to transmit federal excise tax data securely.
  
  
• Mandatory filing: Large operators, such as those filing terminal or airline data exceeding transaction thresholds, must use the electronic method.

Paper Filing Method

• Mailing address: Submit completed returns to the Department of the Treasury, Internal Revenue Service, Cincinnati, OH 45999-0009.
  
  
• Original forms required: Taxpayers must use official IRS forms, include payment vouchers, and sign all documents in ink for acceptance.
  
  
• Timely delivery: Filing should occur before the due date, and certified mail is recommended to prove timely submission.
  
  
• Private delivery services: Approved carriers such as UPS, FedEx, and DHL may be used to meet filing deadlines for paper submissions.

Payment Process for the Federal Excise Tax Return

All payments related to the federal excise tax return must follow IRS-approved procedures. Electronic payments are generally the most secure and efficient option.

Electronic Federal Tax Payment System (EFTPS)

• System purpose: The EFTPS enables taxpayers to pay excise taxes electronically through a secure system managed by the Department of the Treasury.
  
  
• Setup and registration: Businesses must register with EFTPS.gov using their EIN, banking data, and a Personal Identification Number issued upon enrollment.
  
  
• Advantages: Payments are confirmed immediately, reducing the risk of misapplication, and all transactions are recorded for compliance verification.
  
  
• Special rule: Final balance payments on line 10 require Form 720-V when mailing a paper return instead of EFTPS transfers.

Alternative Payment Options

• Third-party providers: Businesses may authorize accountants or banks to remit excise tax payments electronically or by check on their behalf.
  
  
• Form 720-V payment voucher: The voucher ensures that checks or money orders are properly credited to the taxpayer’s account.
  
  
• Prohibited payments: The IRS does not accept cash, postdated checks, or foreign currency for federal excise tax returns.
  
  
• Recordkeeping: Maintain written proof of every payment, including date, method, and confirmation number, for reconciliation and future audits.

Required Schedules and Attachments for Form 720

Certain schedules and attachments must be filed with the federal excise tax return to ensure complete and accurate reporting. Each document has a specific purpose based on the taxpayer’s liability.

Key Schedules and Attachments

• Schedule A: This schedule requires taxpayers to report semi-monthly excise tax liabilities. Each entry must show the exact liability amount for every half-month reporting period.
  
  
• Schedule C:  This schedule allows businesses to claim credits or refunds for overpaid excise taxes. Each claim must include documentation proving eligibility and the transaction’s taxable nature.
  
  
• Form 6627: This attachment calculates environmental excise taxes. It covers oil spill liability, ozone-depleting chemicals, and imported petroleum products, which must be accurately reported to the IRS.
  
  
• First Taxpayer’s Reports: These reports confirm that excise tax was collected at the first point of sale. They identify the initial taxpayer responsible for remitting the applicable excise tax.
  
  
• Exemption Certificates: These certificates document tax-exempt transactions, such as sales to government entities, exporters, or farmers. Each certificate must contain a signature, date, and supporting documentation.

Common Errors When Filing the Federal Excise Tax Return

Filing Form 720 incorrectly can lead to penalties, rejected returns, and compliance problems. Understanding common mistakes helps businesses maintain accuracy and prevent financial consequences.

Filing and Timing Errors

• Missed deadlines: Many taxpayers fail to meet quarterly filing deadlines. Missing the due date results in late payment penalties and accrued interest on unpaid balances.
  
  
• Incorrect quarter reporting: Some filers mistakenly include transactions in the wrong quarter. The IRS requires that the excise tax be reported in the quarter in which the taxable transaction occurs.
  
  
• Unsigned or incomplete returns: Unsigned or undated forms are considered invalid. The IRS cannot process returns that lack required signatures and dates of authorization.
  
  
• Late deposits: Deposits not made within semi-monthly deadlines trigger penalties unless the taxpayer can prove reasonable cause as defined by federal regulations.

Tax Rate and Calculation Errors

• Outdated rates: Some taxpayers rely on old tax rates. Federal excise tax rates change periodically, and using outdated data results in inaccurate liability calculations.
  
  
• Fuel tax misreporting: Confusion between gasoline, diesel, and kerosene classifications causes incorrect reporting. Each fuel type has a distinct tax rate and reporting line.
  
  
• Transportation tax mistakes: Misapplying air transportation or cargo tax rates leads to discrepancies. The IRS requires proper percentage and per-person calculations for accuracy.
  
  
• Mathematical inaccuracies: Incorrect addition or subtraction across Parts I and II frequently produces mismatched totals, causing processing delays or IRS correction notices.

Deposit and Payment Mistakes

• Missed safe harbor rule: Depositing less than 95 percent of the current liability or one-sixth of the previous quarter’s total creates underpayment penalties.
  
  
• Incorrect EFTPS use: Businesses sometimes pay final balances through EFTPS instead of Form 720-V. This causes posting delays or potential misapplication of payments.
  
  
• Deposit timing errors: Recording deposit dates instead of liability dates on Schedule A violates federal deposit timing regulations and prompts IRS correction requests.
  
  
• Missing payment proof: The lack of deposit confirmations or payment receipts prevents businesses from substantiating compliance if the IRS audits them.

Schedule and Attachment Omissions

• Missing Schedule A: Failing to include Schedule A when Part I taxes are reported is a critical omission that causes the IRS to reject the filing.
  
  
• Incomplete Schedule C: Credit or refund claims without explanations, invoices, or eligibility proof are frequently disallowed due to insufficient documentation.
  
  
• Omitted Form 6627: Environmental excise taxes cannot be processed without this form, leading to automatic return errors or liability miscalculations.
  
  
• Unsigned supporting reports: Unsigned First Taxpayer’s Reports or missing exemption certificates invalidate related tax exemptions and credits.

Zero Activity and Final Return Procedures

Businesses must sometimes file even if no taxable activity occurred during a quarter. The IRS requires continued compliance until a final return officially closes the filing obligation.

When to File a Zero Activity Return

• Continuing responsibility: Any business that filed in a prior quarter must continue filing Form 720 until the IRS accepts a final return.
  
  
• Seasonal inactivity: Seasonal businesses suspending operations must file a zero activity return.
  
  
• Filing process: Enter zero values in all applicable fields, write “None” on Part III, and sign and date the return before submission.
  
  
• Penalty prevention: Filing a zero activity return demonstrates compliance and prevents late filing penalties, even when no excise taxes were due.

When to File a Final Return

• Business closure: File a final return when a company permanently ceases operations or will no longer conduct taxable activities under excise tax law.
  
  
• Last quarter filing: Report all taxable transactions up to the closure date and check the “Final Return” box at the top of Form 720.
  
  
• Attachments required: Attach all schedules and reports relevant to the last quarter, even if minimal activity occurred, to ensure accuracy.
  
  
• Retention rule: Keep records, receipts, and the final return for at least four years to satisfy IRS documentation requirements after closure.

First-Time Filer Guidance for Form 720

First-time filers must understand that excise tax reporting is transactional, not profit-based. Following clear organizational and procedural steps helps maintain compliance with federal regulations.

Identifying Liability and Registration

• Review business operations: Each filer must determine which activities, goods, or services are subject to excise tax under federal law.
  
  
• Obtain an EIN: Every taxpayer must have an Employer Identification Number before submitting Form 720 to the IRS.
  
  
• Registration requirement: Businesses involved in fuel distribution or other regulated activities must register under applicable federal excise programs.
  
  
• Tax rate verification: To avoid calculation errors, filers must confirm applicable 2017 tax rates using the official instructions for Form 720.

Recordkeeping and Organization

• Maintain complete records: Taxpayers must retain receipts, invoices, and payment proofs for every excise-taxed transaction during the reporting period.
  
  
• Quarterly documentation: Organizing records by quarter allows for efficient verification and minimizes the risk of data loss or reporting inconsistencies.
  
  
• Use reliable software: Businesses should use accounting tools capable of calculating excise liabilities accurately across multiple product categories.
  
  
• Retention duration: The IRS requires that all excise-related documentation be kept for at least four years for audit purposes.

Common Mistakes for New Filers

• Liability misunderstanding: Many new filers incorrectly believe excise taxes apply only to profits, while they apply to specific taxable transactions.
  
  
• Deposit timing issues: Waiting until the return’s due date to deposit funds violates excise deposit schedules, which require semi-monthly payments.
  
  
• Missing attachments: Forgetting schedules or Form 6627 delays processing and can cause rejection until corrected.
  
  
• Incorrect identification data: Providing an invalid or mismatched EIN prevents the IRS from posting the return to the correct taxpayer account.

When to Seek Professional Assistance

• Complex tax structures: Businesses subject to multiple excise categories benefit from professional assistance to ensure correct rate application and compliance.
  
  
• Audit preparation: Experienced tax advisors help maintain organized records, reducing exposure to penalties during IRS reviews.
  
  
• Foreign entity considerations: International companies with U.S. operations may need additional guidance to comply with excise tax treaty provisions.
  
  
• Ongoing compliance: Tax professionals provide updates on law changes, filing deadlines, and calculation rules to keep businesses compliant year-round.

Frequently Asked Questions

Do I need to file Form 720 if I have no excise tax activity this quarter?

If you previously filed Form 720, you must continue filing even with no excise tax activity. File a zero activity return by entering zero on applicable lines and writing “None” on Part III. This confirms compliance with IRS rules and prevents penalty notices or future filing discrepancies in subsequent quarters.

What happens if I miss the filing deadline for my federal excise tax return?

Missing the filing deadline triggers penalties and interest. The IRS typically charges 5 percent of the unpaid tax each month, up to a 25 percent maximum. File immediately to limit additional penalties and interest. If unforeseen events prevented the timely filing or tax payment, the IRS may consider penalty abatement for reasonable cause.

Can I file Form 720 electronically instead of by mail?

The IRS allows electronic filing through approved providers in its e-file program. Electronic filing ensures that processing is completed promptly, there are fewer calculation errors, and data transmission is secure. Many large companies, including those reporting heavy highway vehicle or air transportation taxes, choose to e-file under IRS regulations to meet compliance and data security standards.

How do I calculate fuel excise taxes accurately on Form 720?

To calculate fuel excise taxes correctly, apply the current IRS rate for each fuel type—gasoline, diesel, or kerosene. Multiply the taxable gallons sold or used by the applicable tax rate. Always confirm rates through the official 2017 instructions for Form 720 to prevent reporting errors or underpayment of federal excise tax liability.

What are common penalties for filing errors on Form 720?

Penalties occur for underpayment, inaccurate reporting, or late filing. Common errors include outdated tax rates or missing schedules. The IRS charges interest until payment is complete. Taxpayers may request relief for reasonable cause, such as data errors, system failures, or natural events that prevented the timely submission or payment of excise taxes.

How do I request a refund or credit for overpaid excise taxes?

Refunds or credits must be claimed on Schedule C of Form 720. Include detailed explanations, invoices, and proof supporting each claim. Eligible credits include nontaxable fuel use, exported fuel, or exempt government sales. The IRS rejects claims lacking proper documentation, so maintaining accurate receipts and statements is essential for refund approval.

When should a business file its final federal excise tax return?

Businesses must file a final Form 720 when they permanently cease operations or stop conducting taxable activities. Check the “Final Return” box, include all final quarter liabilities, and attach required schedules. Maintain supporting records for at least four years after submission to ensure compliance with IRS regulations and potential audit requirements.