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IRS Form 720

IRS Form 720

Published on September 30, 2024
by Grace Lorraine Angeles

Grace Lorraine, an IRS Enrolled Agent and CPA with 13 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working abroad.

Table of Contents

What is IRS Form 720?

Form 720 was created for the purpose of reporting excise tax from businesses in the US.

It is primarily used by businesses or similar entities that offer products or services subject to excise tax.

What is an Excise Tax?

This is a tax on certain goods, services, or activities upon purchase.

Only specific goods and services are taxed with this, usually on items to discourage certain behaviors or to fund government projects.

Excise tax is often already included in the product’s price, so it might not be listed separately on the receipt as it is charged directly to the business.

What kind of goods does excise tax apply?

Common examples include:

  • Tobacco products: Cigarettes and cigars
  • E-cigarettes: Vaping pen and disposable vape
  • Alcohol: Beer, wine, and spirits
  • Fuel: Gasoline and diesel
  • Firearms and Ammunition: Guns, bullets, and other related equipment
  • Airline Tickets: On domestic and international flights

It is important to note that every business dealing with even one taxable product or service must still submit Form 720.

How do I complete a Form 720?

You can view and download Form 720 on the IRS official site.

  1. Business Information: Enter essential details such as your business’s name, address, and Employer Identification Number (EIN).
  2. Reporting Period: Indicate the quarter when you file your tax return.
  3. Part I and II – Excise Taxes: Identify and classify all the specific excise tax on your business and complete the sections provided.
  4. Schedule A, C, or T: You need to fill-out the correct schedules on the detailed aspect of your excise tax liability.
  5. Calculation: Calculate all the reported taxes from parts I and II to get your total tax due.
  6. Sign and Submit: Provide your signature with the date, and then you can file to the IRS and pay any taxes due.

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Where do I submit my Form 720?

You can file them electronically using the Electronic Federal Tax Payment System (EFTPS) or by mail to the following address: Department of the Treasury Internal Revenue Service Ogden, UT 84201-0009.

The IRS recommends businesses file electronically because it’s quicker, safer, and less prone to mistakes. You can use IRS-approved software or get help from a tax professional to file online.

When do I file Form 720?

You must file Form 720 every quarter of the period you owe excise taxes. Here are the specific deadlines:

  • April 30: For the quarter ending March 31
  • July 31: For the quarter ending June 30
  • October 31: For the quarter ending September 30
  • January 31: For the quarter ending December 31

What are the penalties for filing Form 720 late?

Here is a guide to the penalties you could incur for late filing:

  • Penalties for Late Filing: If you file Form 720 late, the IRS may charge a penalty of 5% of the unpaid tax for each month it’s late, up to 25% of the tax owed.
  • Penalty for Late Payment: If you don’t pay excise taxes on time, the IRS usually imposes a penalty of 0.5% of the unpaid tax for each month the payment is late, up to 25% of the tax owed.
  • Interest Charges: On top of the penalties you can incur, interest will also be charged on unpaid taxes. The IRS charges interest on unpaid taxes at the federal short-term rate plus 3%. This interest keeps adding up until you pay the taxes in full.
  • Fraud Penalty: If the IRS finds that your failure to file or pay was due to intentional fraud, the penalty could be as high as 75% of the amount you owe.

What tax credits are available when using Form 720?

  • Credit for Sales by Registered Vendors: Credits can be claimed for specific fuel sales, such as kerosene used for heating or gasoline sold at a tax-exempt price.
  • Alternative Fuel Credit: This credit applies to fuels such as liquefied petroleum gas (LPG), compressed natural gas (CNG), and other alternative fuels used in vehicles or other related purposes.
  • Nontaxable Use of Fuel: This can apply to nontaxable uses of gasoline, diesel, and other fuels, such as for farming or specific governmental purposes.
  • Biodiesel and Renewable Diesel Credit: This credit can be offered to businesses that manufacture biodiesel or renewable diesel mixtures, offering credits for producing or using these fuels.
  • Aviation Fuel Credit: This applies to certain types of fuel for aviation used for exempt purposes or sold under specific conditions.
  • Kerosene Used in Aviation: This is for registered vendors selling kerosene for aviation purposes under special rules that may be eligible for credits.
  • Alternative Fuel Mixture Credit: This is for businesses that blend alternative fuels with conventional fuels can claim this credit.
  • Sales of Undyed Kerosene: This applies to undyed kerosene used for certain nontaxable purposes.
  • Tax Credit for LUST (Leaking Underground Storage Tank): This applies to specific environmental excise taxes, like the tax on LUST, which can result in credits.
  • Credit for the Patient-Centered Outcomes Research Fee (PCORI): This is for specific circumstances related to health research funding.
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