Instructions For Form 720 - Quarterly Federal Excise Tax Return

Exceptions. The safe harbor rule does not apply to:

Alternative method taxes

Enter the tax included in amounts billed or

•

The 1st and 2nd quarters beginning on or after the

tickets sold during the period beginning

effective date of an increase in the rate of tax unless the

September 1 and ending September 10/11

deposit of taxes for each semimonthly period in the calendar

in box S, Special rule for September box

quarter is at least

(16.67%) of the tax liability you would

on the 4th quarter return.

have had for the look-back quarter if the increased rate of

For the remaining days in the September period, report

tax had been in effect for that look-back quarter;

•

the liability as follows:

Any quarter if liability includes any tax not in effect

throughout the look-back quarter; or

•

For deposits under the alternative method, any quarter if

Regular method taxes

Enter the liability for the period beginning

liability includes any tax not in effect throughout the

September 26/27 and ending September

look-back quarter and the month preceding the look-back

30 in box F.

quarter.

Alternative method taxes

Enter the tax included in the amounts billed

or tickets sold for the period beginning

Requirements to be met. For the safe harbor rule to apply,

September 11/12 and ending September

you must:

•

15 in box M of the 4th quarter return.

Make each deposit timely at an authorized financial

Enter the tax included in amounts billed or

institution, and

tickets sold during the period beginning

•

Pay any underpayment for the current quarter by the due

September 16 and ending September 30 in

date of the return.

box N of the 4th quarter return.

If you meet the requirements and use the safe harbor

rule, check the box on line 5 of Form 720.

Schedule T—Two-Party Exchange

The IRS may withdraw the right to make deposits of

Information Reporting

tax using the safe harbor rule from any person not

complying with these rules.

CAUTION

In a two-party exchange, the receiving person, not the

delivering person, is liable for the tax imposed on the

removal of taxable fuel from the terminal at the terminal

Schedule A—Excise Tax Liability

rack. A two-party exchange means a transaction (other than

a sale) where the delivering person and receiving person

are both taxable fuel registrants and all of the following

How to complete. Complete Schedule A to record net tax

occur.

•

liabilities for Part I taxes for each semimonthly period in a

The transaction includes a transfer from the delivering

quarter even if your net liability is under $2,500.

person, who holds the inventory position for the taxable fuel

in the terminal as reflected in the records of the terminal

The following table will help you determine which boxes

operator.

to complete on Schedule A.

•

The exchange transaction occurs before or at the same

time as completion of removal across the rack by the

IF you are reporting under THEN you report on AND enter the net

the...

line...

tax liability in

receiving person.

•

boxes...

The terminal operator in its records treats the receiving

person as the person that removes the product across the

Regular method

A – G

terminal rack for purposes of reporting the transaction on

Alternative method

M – S

Form 720-TO, Terminal Operator Report.

•

The transaction is the subject of a written contract.

If you are reporting more than one type of tax on

Information reporting. Schedule T — Two-Party Exchange

lines 1 and 2:

Information Reporting, is used to report gallons of taxable

1. Add the net tax liability for each tax for each

fuel:

semimonthly period, and

•

Received in a two-party exchange within a terminal.

2. Enter the total in the applicable box.

These gallons must also be included on the appropriate line

on page 1 of Form 720, or

Additional rules. Report communications and air

•

Delivered in a two-party exchange contemporaneous with

transportation taxes based on:

a removal across the rack.

•

Actual collections on line 1, or

•

Enter all gallons of fuel received or delivered in a

Amounts billed or tickets sold on line 2. The amount of tax

two-party exchange within a terminal for the applicable fuel.

to report for a semimonthly period is the net amount that is

considered collected during that period.

Example. The amounts billed for communications

Schedule C—Claims

services from June 1-15, 2006, are considered collected

Complete all information requested for each line, including

during the period July 1-7, 2006, and are reported for the

month income tax year ends and period of claim. Enter the

3rd quarter of 2006 on Schedule A in box M, not the 2nd

month as “MM.” Enter the period of claim as “MM/DD/

quarter of 2006.

YYYY.” Your claim will be disallowed if you do not follow the

Reporting tax liability under the special September rule.

required procedures or do not provide all the required

An additional reporting is required under the special

information. Also, you are certifying to the applicable

September rule (for the period shown in the chart above) as

statement(s) on Schedule C when you make a claim. See

follows:

Pub. 510 for more information.

You must include in gross income (income tax

Regular method taxes

Enter the tax liability for the period

return) the amount from line 4 of Form 720 if you

beginning September 16 and ending

took a deduction on the income tax return that

September 25/26 in box G, Special rule for

CAUTION

included the amount of the taxes and that deduction

September.

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Instructions For Form 720 - Quarterly Federal Excise Tax Return - 2006 Page 9

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