Instructions For Form 720 - Quarterly Federal Excise Tax Return

The net tax liability for a semimonthly period is not

The following table will help you determine which

reduced by any amounts from Form 720X.

boxes to complete on Schedule A.

CAUTION

AND enter the net

IF you are reporting under THEN you report on tax liability in

Safe Harbor Rule

the...

line...

boxes...

Regular method

A – F

Current Form 720 filers who will be liable for the

Alternative method

M – R

Oil Spill Liability Taxes beginning in April 2006

cannot use the safe harbor method for deposits in

CAUTION

the second and third calendar quarters of 2006, as

If you are reporting more than one type of tax on

explained in Exceptions below. The first semimonthly

lines 1 and 2:

period of the second calendar quarter is April 1 through

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

April 15, 2006. This deposit is due by April 28, 2006 (April

semimonthly period and

29 is a Saturday), and must equal 95% of the net tax

2. Enter the total in the applicable box.

liability for the semimonthly period. See Amount To

Deposit on page 8. All subsequent deposits for the

Additional rules. Report communications and air

second and third calendar quarters must also equal 95%

transportation taxes based on:

•

of the net tax liability for the semimonthly period.

Actual collections on line 1.

•

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

The safe harbor rule applies separately to deposits

tax to report for a semimonthly period is the net amount

under the regular method and the alternative method.

that is considered collected during that period.

Persons who filed Form 720 for the look-back quarter

(the 2nd calendar quarter preceding the current quarter)

Example. The amounts billed for communications

are considered to meet the semimonthly deposit

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

requirement if the deposit for each semimonthly period in

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

the current quarter is at least

(16.67%) of the net tax

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

liability reported for the look-back quarter.

quarter of 2006.

For the semimonthly period for which the additional

Reporting tax liability under the special September

deposit is required (September 1-11 and 16-26 for

rule. An additional reporting is required under the

EFTPS, or September 1-10 and 16-25 for non-EFTPS),

special September rule (for the period shown in the chart

the additional deposit must be at least

(12.23%),

above) as follows:

(11.12%) for non-EFTPS, of the net tax liability

reported for the look-back quarter. Also, the total deposit

Regular method taxes

Enter the tax liability for the period

for that semimonthly period must be at least

(16.67%)

beginning September 16 and ending

of the net tax liability reported for the look-back quarter.

September 25/26 in box G, Special rule for

September.

Exceptions. The safe harbor rule does not apply to:

•

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

Alternative method taxes

Enter the tax included in amounts billed or

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

in box S, Special rule for September box

calendar quarter is at least

(16.67%) of the tax liability

on the 4th quarter return.

you would have had for the look-back quarter if the

increased rate of tax had been in effect for that look-back

For the remaining days in the September period,

quarter;

report the liability as follows:

•

Any quarter if liability includes any tax not in effect

throughout the look-back quarter; or

•

Regular method taxes

Enter the liability for the period beginning

For deposits under the alternative method, any quarter

September 26/27 and ending September

if liability includes any tax not in effect throughout the

30 in box F.

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

Alternative method taxes

Enter the tax included in the amounts billed

quarter.

or tickets sold for the period beginning

Requirements to be met. For the safe harbor rule to

September 11/12 and ending September

apply, you must:

15 in box M of the 4th quarter return.

•

Enter the tax included in amounts billed or

Make each deposit timely at an authorized financial

tickets sold during the period beginning

institution and

•

September 16 and ending September 30 in

Pay any underpayment for the current quarter by the

box N of the 4th quarter return.

due date of the 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

Information Reporting

of tax using the safe harbor rule from any person

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

not complying with these rules.

CAUTION

delivering person, is liable for the tax imposed on the

removal of taxable fuel from the terminal at the terminal

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

Schedule A—Excise Tax Liability

than a sale) where the delivering person and receiving

person are both taxable fuel registrants and all of the

How to complete. Complete Schedule A to record net

following occur.

•

tax liabilities for Part I taxes for each semimonthly period

The transaction includes a transfer from the delivering

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

person, who holds the inventory position for the taxable

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

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