What is Form 720?
Published on September 19, 2024
by Clark Stott
Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
Table of Contents
Form 720 is used by businesses to report and pay excise taxes in the US.
These are special taxes on certain goods, services, or activities, like gasoline, tobacco, air travel, and indoor tanning.
If your business deals with any products or services subject to excise taxes, you’ll need to file this form with the IRS every few months to stay compliant.
What are Excise Taxes?
Excise taxes are taxes on specific goods or services.
Unlike regular sales taxes, which are added to most everyday purchases, excise taxes only apply to certain items, like fuel or alcohol.
For example, when you buy gas or cigarettes, part of the price includes these excise taxes. Sometimes, excise taxes are charged directly to businesses, which will then be included into the cost of the product.
Do I need to pay my Federal Excise return quarterly?
Yes. You need to file Form 720 quarterly if you owe excise taxes for that period. Here’s a quick breakdown of the filing deadlines for each quarter:
|
Period |
Filing Deadline |
|
January 1 – March 31 |
April 30 |
|
April 1 – June 30 |
July 31 |
|
July 1 – September 30 |
October 31 |
|
October 1 – December 31 |
January 31 |
Common Products and Services Subject to Excise Tax
- Gasoline and Diesel Fuel – Taxes on fuel for transportation.
- Tobacco Products – Cigarettes, cigars, and other tobacco items are taxed.
- Alcoholic Beverages – Beer, wine, and spirits are subject to excise tax.
- Airline Tickets – Certain air travel services, especially international flights, are taxed.
- Indoor Tanning Services – A 10% tax applies to the cost of indoor tanning.
- Heavy Highway Vehicles – Trucks and other heavy vehicles often come with excise taxes.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
STREAMLINED AMNESTY
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
Get a quote here.
Who is required to file Form 720?
All businesses or individuals that deal with goods and services subject to excise taxes must file Form 720.
This includes businesses involved in industries like fuel, tobacco, alcohol, air travel, indoor tanning, or healthcare plans subject to specific excise taxes.
Even if your business only deals with one taxable product or service, you’re still required to file Form 720 every quarter to report and pay the excise taxes due.
How do I fill out Form 720?
First, download the form on the official IRS site (Form 720) here.
- Enter Basic Information: Start by providing your business’s name, address, and Employer Identification Number (EIN). You’ll also need to list the business quarter you’re reporting on.
- Complete Part I and II: Identify which excise taxes apply to your business (such as environmental or transportation taxes) and fill in the corresponding sections. Add up the taxes owed based on the rate provided and your total sales or units sold.
- Schedules: Depending on the type of excise tax, you may need to fill out schedules such as Schedule A, C, or T. These cover more detailed aspects of excise tax liability like fuel used for farming or transportation of goods.
- Final Calculation: In Part III, summarize the total excise tax you owe. Include any payments made in prior quarters, and if there’s a balance due, pay it when filing.
- Sign and Submit: Once all sections are complete, sign the form and either mail it to the IRS or file it electronically.
I can file Form 720 electronically?
Yes, you can file Form 720 electronically through the IRS e-file system.
The IRS actually encourages businesses to use electronic filing because it’s faster, more secure, and reduces the chances of errors. You can either use IRS-approved software or work with an authorized tax professional to submit the form electronically.
What tax credits are available when using Form 720?
- Nontaxable Use of Fuel: Credits can be claimed for nontaxable uses of gasoline, diesel, and other fuels. This applies to fuel used in farming or certain governmental purposes.
- Biodiesel and Renewable Diesel Credit: Available for businesses that produce or blend biodiesel or renewable diesel mixtures, offering credits for the production or use of these fuels.
- Alternative Fuel Credit: This applies to fuels like compressed natural gas (CNG), liquefied petroleum gas (LPG), and other alternative fuels used in vehicles or sold for such purposes.
- Aviation Fuel Credit: Credits are provided for certain types of aviation fuel used for exempt purposes or sold under specific conditions.
- Kerosene Used in Aviation: Registered vendors who sell kerosene for aviation purposes under special rules may be eligible for credits.
- Alternative Fuel Mixture Credit: Businesses that blend alternative fuels with conventional fuels may be able to claim this credit.
- Credit for Sales by Registered Vendors: Credits can be claimed for certain sales of fuels, such as kerosene used for heating purposes or gasoline sold at a tax-exempt price.
- Sales of Undyed Kerosene: This credit applies to undyed kerosene used for certain nontaxable purposes.
Tax Credit for LUST (Leaking Underground Storage Tank): Certain environmental excise taxes, like the tax on LUST, can result in credits. - Credit for the Patient-Centered Outcomes Research Fee (PCORI): Credits for this fee can be claimed under specific circumstances related to health research funding.
Are there any penalties for filing Form 720 late?
Yes, you could face penalties if you file IRS Form 720 late or miss a payment.
- Penalties for Late Filing: If you fail to file Form 720 on time, the IRS may impose a penalty of 5% of the unpaid tax for each month the form is late, up to a maximum of 25% of the tax due.
- Penalty for Late Payment: If you don’t pay the excise taxes on time, the penalty is typically 0.5% of the unpaid tax for each month the payment is late, also up to a maximum of 25% of the tax due.
- Interest Charges: In addition to the penalties, you will be charged interest on any unpaid taxes. The IRS calculates interest based on the federal short-term rate, which can vary, plus 3%. Interest will continue to accrue until the taxes are fully paid.
- Fraud Penalty: If the IRS determines that your failure to file or pay was due to intentional fraud, the penalty could be as high as 75% of the amount owed.
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