How to File IRS Form 720: Excise Tax Return Guide 2012

The IRS Form 720, also known as the Quarterly Federal Excise Tax Return, is a mandatory filing requirement for businesses liable for federal excise taxes. This form ensures that taxes on a wide range of goods, services, and activities are correctly reported and paid to the Internal Revenue Service. While it may appear complicated at first, understanding the purpose of the form and the type of excise taxes it covers is the first step toward compliance. Businesses that sell taxable fuel, provide air transportation services, manufacture certain products, or offer services such as indoor tanning may be required to submit this form on a quarterly basis.

For tax year 2012, businesses faced important updates that affected how Form 720 was completed and submitted. Notably, electronic deposits became mandatory, and specific fuel-related credits were either extended or expired. Changes also included a new surtax on fractional ownership program aircraft and revised rates for certain air transportation taxes. These adjustments made it especially important for businesses to carefully follow the Form 720 2012 instructions to ensure accurate reporting.

Filing Form 720 requires attention to detail, proper record-keeping, and knowledge of applicable tax categories. From environmental taxes to manufacturers’ taxes, the form touches on multiple industries and obligations. Whether filing electronically or on paper, taxpayers must meet each due date and provide complete information to avoid penalties. With a clear understanding of the process, businesses can reduce errors, stay compliant, and manage their excise tax liability effectively.

What Is IRS Form 720?

IRS Form 720 is officially titled the Quarterly Federal Excise Tax Return. It is used by businesses and specific organizations to report and pay federal excise taxes. These taxes apply to particular goods, services, and activities such as fuel, air transportation, indoor tanning, and the manufacture of designated products. The IRS requires Form 720 to be filed every quarter, even in cases where a business has no excise tax liability but has previously filed and not submitted a final return.

Types of Excise Taxes Reported on Form 720

• Environmental taxes: These include the oil spill liability tax, ozone-depleting chemicals, imported products containing ozone-depleting substances, and the underground storage tank tax, also referred to as the last tax.
  
  
• Fuel taxes: Businesses report excise tax liability on gasoline, diesel fuel, aviation gasoline, kerosene, alternative fuel, natural gas, motor fuel, dyed diesel, dyed kerosene, and inland waterways fuel.
  
  
• Air transportation taxes: These are excise taxes levied on domestic and international air travel, property transported by air, and fractional ownership program aircraft. Commercial aviation falls under this category.
  
  
• Manufacturer and retail taxes: These include taxes on products such as tires, vaccines, coal, sport fishing equipment, motor vehicles, highway vehicles, and electric outboard motors, levied by manufacturers and retailers. Retail taxes apply to trucks, trailers, and tractors.
  
  
• Other services and industries: Form 720 also applies to excise taxes on indoor tanning services, specified health insurance policies, foreign insurance tax, and fees related to health insurance policies, plan sponsors, covered lives, and lives covered under these policies.

By filing Form 720 every quarter, businesses comply with IRS requirements, ensure proper reporting of excise taxes listed on the form, and avoid penalties for unpaid tax or late filing. This form provides a standardized method for tracking taxes imposed on taxable events across multiple industries.

Calculating Excise Tax

Accurately calculating excise tax is essential for completing Form 720. The IRS requires businesses to report taxes imposed on each taxable event using the correct tax rate and calculation method. Excise taxes may apply to fuel, environmental activities, air transportation, manufacturers’ products, foreign insurance tax, and specified health insurance policies. Because each tax has unique rules, businesses must follow the Form 720 2012 instructions carefully to determine their liability.

• Businesses calculate excise tax liability on fuel by multiplying gallons of gasoline, diesel fuel, aviation gasoline, kerosene, dyed diesel, dyed kerosene, natural gas, and other taxable fuel by the IRS tax rate. The actual count method or the snapshot method may be used, depending on the type of fuel excise tax being applied.
  
  
• For air transportation taxes, liability is based on ticket price, distance traveled, and additional fees for commercial aviation and fractional ownership program aircraft. The surtax applies to certain aircraft fuel, and these rules must be followed when reporting in Part I.
  
  
• Manufacturer’s excise taxes are often calculated as a percentage of sales price or as a fixed amount per item. Products include highway vehicles, electric outboard motors, tires, coal, and vaccines. The tax rate for each product is provided in the IRS instructions and must be reported in Part II of the return.
  
  
• Environmental taxes, such as the underground storage tank tax or use tax, are calculated per barrel or unit of product and must be reported using Form 6627 along with Form 720.
  
  
• Fees imposed on specified health insurance policies require plan sponsors and foreign insurers to calculate liability based on the number of lives covered, the plan year, and other special rules outlined by the Health and Human Services.

By carefully calculating total tax for each category, entering amounts on the appropriate line, and verifying accuracy with deposit records, businesses can reduce errors and avoid penalties for unpaid tax on their quarterly federal excise tax return.

Key Changes for Tax Year 2012

The IRS introduced several vital updates to Form 720 for the 2012 tax year. These adjustments changed how businesses reported excise taxes, claimed credits, and submitted payments. Taxpayers were expected to carefully follow the Form 720 2012 instructions to ensure their excise tax return accurately reflected these changes.

• Electronic deposits became mandatory in 2012, which required all excise tax deposits to be made through the Electronic Federal Tax Payment System (EFTPS). Businesses could no longer use paper deposit coupons, and many relied on a tax professional or financial institution to handle electronic transfers.
  
  
• Certain credits were extended for this tax year, including the biodiesel mixture credit, renewable diesel credit, and the alternative fuel mixture credit. These extensions benefited businesses dealing in taxable fuel but required proper documentation and reporting.
  
  
• Other credits expired at the end of 2011, such as the alcohol fuel mixture credit. Businesses that had claimed this in prior years could no longer include it on their 2012 excise tax return, which affected how they calculated excise tax liability.
  
  
• A new surtax applied to fuel used in fractional ownership program aircraft beginning April 1, 2012. When this surtax applies, certain air transportation taxes are exempt; therefore, businesses must follow special rules to ensure compliance.
  
  
• Excise tax rates were updated for 2012, including changes to air transportation taxes and manufacturers’ taxes. Businesses needed to check the correct tax rate for items such as domestic air segments or products like arrow shafts to enter the proper amounts on the appropriate line.

These changes underscore the importance of businesses carefully reviewing IRS instructions each year. Staying informed about updates ensured that the total tax was calculated correctly and that penalties for unpaid tax or late reporting were avoided.

Step-by-Step Filing Instructions

Completing Form 720 requires attention to detail and a thorough understanding of its various sections. The following steps outline a structured process for businesses to prepare and file their quarterly federal excise tax returns.

Step 1 – Gather Required Information.

• Businesses must collect their employer identification number, legal business name, and address before starting the form.
  
  
• They must confirm the quarter ending date to ensure the return is filed for the correct period.
  
  
• They should gather all records of excise tax liability, including taxable fuel sales, air transportation taxes, environmental taxes, and taxes levied on manufacturers.
  
  
• They need to compile documentation supporting credits or refunds they plan to claim on Schedule C.
  
  
• They must keep receipts and deposit records for all electronic tax payments made during the quarter.

Step 2 – Complete Basic Information.

• At the top of Form 720, businesses must enter their name, address, and Employer Identification Number (EIN).
  
  
• They must clearly indicate the quarter-end date to avoid confusion.
  
  
• They must check the box for final return if they will not be filing in future quarters, or the address change box if their business address has changed.

Step 3 – Report Taxes in Part I.

• Businesses report environmental taxes, including the underground storage tank tax and taxes on ozone-depleting chemicals.
  
  
• They must report communications and air transportation taxes, such as the tax on local telephone service and air transportation taxes on passengers, property, and commercial aviation.
  
  
• They must pay liability for fuel taxes, including gasoline tax, diesel fuel tax, aviation gasoline tax, kerosene tax, dyed diesel tax, dyed kerosene tax, natural gas tax, inland waterways fuel tax, and other taxable fuels.

Step 4 – Report Taxes in Part II.

• Businesses must report manufacturers' taxes on items such as tires, vaccines, coal, sporting goods, motor vehicles, highway vehicles, and electric outboard motors.
  
  
• They must also include liability for foreign insurance tax and fees related to specified health insurance policies, plan sponsors, covered lives, and lives covered.
  
  
• They must report excise taxes imposed on services such as indoor tanning and any other fees required by the IRS.

Step 5 – Complete Part III (Summary and Payment).

• Businesses must calculate the total tax by combining the amounts reported in Parts I and II.
  
  
• They must subtract credits or refunds reported on Schedule C to determine the net liability.
  
  
• They must record deposits already made for the quarter and apply them toward the balance.
  
  
• They must calculate any remaining balance due or overpayment and complete the payment section.

Following these steps ensures that excise taxes listed on Form 720 are reported correctly and that businesses remain compliant with IRS requirements.

Filing Options: E-File vs. Paper

Form 720 can be filed electronically or on paper. The IRS encourages electronic filing because it reduces errors and provides immediate confirmation, but paper filing remains an option for businesses that prefer it.

How to File Form 720 Electronically?

• Businesses can use an authorized electronic return originator or a transmitter that participates in the IRS e-file program for excise taxes.
  
  
• Electronic filing offers several benefits, including faster processing, quicker refunds, and a reduced likelihood of errors.
  
  
• Businesses filing electronically must ensure that all schedules and attachments are included in the e-file submission.

How to File Form 720 by Mail?

• Paper filing requires mailing the completed Form 720, schedules, and attachments to the IRS processing center in Cincinnati, Ohio.
  
  
• Businesses that pay by check must include Form 720-V, the payment voucher, with their return.
  
  
• The employer identification number and quarter ending date must be included on all forms and attachments to avoid delays in processing.

Quarterly Deadlines

• The return for the first quarter, covering January through March, is due April 30.
  
  
• The return for the second quarter, covering the period from April to June, is due on July 31.
  
  
• The return for the third quarter, covering July through September, is due October 31.
  
  
• The return for the fourth quarter, covering the period from October to December, is due on January 31.

If a due date falls on a weekend or legal holiday, the deadline shifts to the next business day. Meeting these deadlines ensures timely filing and helps businesses avoid penalties for unpaid taxes or late returns.

Zero Activity and Final Return Guidance

Businesses may still need to file Form 720 even if they do not have excise tax liability for a given quarter. The IRS requires consistent filing until a final return is submitted.

Filing a Zero Return

• A business must file a zero return if it previously filed Form 720 but has no current excise taxes listed for the quarter.
  
  
• To file, the business enters zero on the appropriate line in Parts I and II and writes “None” in the summary section of Part III.
  
  
• Schedule A is not required for zero returns, but the return must still be signed and submitted by the due date.

Filing a Final Return

• A final return is required when a business permanently stops engaging in activities subject to excise tax.
  
  
• The filer must check the “Final return” box on the form and include any remaining excise tax liability.
  
  
• Final returns apply when a business closes, sells its operations, or no longer expects taxable events in future quarters.

Filing zero returns or final returns ensures the IRS receives a complete record and prevents unnecessary notices or penalties for future quarters.

Tips for First-Time Filers

Businesses filing Form 720 for the first time must take steps to prepare accordingly. Understanding the process reduces errors and ensures compliance with IRS requirements.

Preparing Before Filing

• New filers must obtain an Employer Identification Number (EIN) before completing Form 720.
  
  
• They must determine which excise taxes apply to their business and review IRS Publication 510 for guidance on these taxes.
  
  
• They should set up an EFTPS account for electronic deposits, as deposits are required every quarter.

Record-Keeping Best Practices

• Businesses should maintain records of taxable fuel sales, taxable events, and excise tax liability for at least four years.
  
  
• Documentation must include receipts, invoices, and statements for any credits claimed.
  
  
• Records should be organized by quarter ending date to simplify reporting.

Using IRS and Professional Resources

• First-time filers may benefit from working with a tax professional who can explain special rules and verify entries on the excise tax return.
  
  
• IRS resources such as Publication 510, the IRS business hotline, and online tools provide additional support for plan sponsors, foreign insurers, and other businesses subject to excise taxes.

Following these tips enables new filers to meet requirements confidently and minimize the risk of unpaid taxes or compliance issues.

Frequently Asked Questions

What are the Form 720 2012 instructions, and who is required to file this form?

The Form 720 2012 instructions guide businesses in reporting excise taxes listed on the quarterly federal excise tax return. Any company with excise tax liability for taxable fuel, environmental taxes, manufacturers' taxes, or other taxable events must file. The IRS requires quarterly filing even when no tax is due, unless a final return is submitted. A correct employer identification number and quarter-end date are always needed.

How does Form 720 cover fuel tax and other excise taxes?

Form 720 requires reporting of fuel tax categories, including gasoline tax, diesel fuel, aviation gasoline, kerosene tax, dyed diesel, dyed kerosene, inland waterways fuel, natural gas, and diesel water emulsion. These taxes apply to taxable fuel stored in a fuel tank, moved through a terminal rack, or sold in bulk sales. The tax imposed is calculated based on fuel type, tax rate, and other applicable rules governing taxable events.

What excise taxes are reported for transportation and insurance?

Form 720 includes excise taxes levied on commercial aviation, property air transportation taxes, and fractional ownership program aircraft. Foreign insurers must report foreign insurance tax, while plan sponsors report fees related to specified health insurance policies. These taxes may be based on the number of lives covered, the plan year, or the number of lives covered during that year. Health and Human Services oversees specific assessments, and the fee applies to both insurers and plan sponsors.

How are environmental taxes and indoor tanning services reported?

Environmental taxes reported on Form 720 include the underground storage tank tax, also known as the last tax, and other excise taxes on ozone-depleting chemicals. Indoor tanning services are also subject to excise tax levied at a fixed tax rate. Businesses must enter liability on the appropriate line in Part II. These excise taxes help ensure compliance across various industries and are payable on a quarterly basis.

What happens if excise tax liability is unpaid or filed late?

If a taxpayer fails to pay their excise tax liability by the due date, the IRS may impose penalties and interest on the unpaid tax. Errors such as failing to attach a payment voucher, using the incorrect quarter-end date, or omitting Part III totals can also create issues. A tax professional can help businesses avoid mistakes, apply special rules, and remain compliant in future quarters.

How are manufacturers’ taxes and motor vehicle excise taxes handled?

Manufacturers' taxes apply to highway vehicles, motor vehicles, tires, vaccines, coal, electric outboard motors, and other taxable items. The excise tax return requires these liabilities to be reported in Part II of the return. The tax imposed depends on the tax rate and sales price or count method. Businesses must also consider exempt removals, other exempt removals, and other fees when determining total tax owed for the quarter.

What methods are used for calculating tax in Part II and Part III?

Businesses may use the actual count method or the snapshot method to calculate certain excise tax liability. These methods apply to taxable events such as fuel tax, environmental taxes, and indoor tanning services. Part II records manufacturer and insurance excise taxes, while Part III calculates total tax, deposits, and overpayments. Following the IRS Form 720 instructions for 2012 ensures accurate reporting of all excise taxes listed.