Form 720: An Effective Guide

What Do We Mean By IRS Form 720?

IRS Form 720 is the official tax form used by individuals and businesses to report and pay federal excise taxes to the Internal Revenue Service (IRS). Excise taxes are not based on income but are instead levied on specific goods, services, and activities—often at the manufacturing, import, or point-of-sale level.

Unlike income tax forms, Form 720 is transaction-specific, meaning it applies only if you engage in an activity that triggers a listed excise tax liability under the Internal Revenue Code (IRC).

Purpose of Form 720

Form 720 is not a general business tax form — it targets specific transactions that are subject to excise tax under the Internal Revenue Code (IRC). It ensures the IRS collects excise taxes that are imposed on:

• Sales or use of certain goods
• Provision of services
• Environmental responsibilities

Certain industry-specific activities , These include:

• Fuel and energy distribution
• Air transportation
• Chemical importation
• Insurance services
• Tire manufacturing
• Heavy vehicle operation
• Tanning services
• Sporting goods manufacturing

The form helps the IRS track taxable transactions, enforce environmental and transportation-related excise laws, and collect federal revenue from non-income sources.

Who Must File IRS Form 720?

IRS Form 720 must be filed by any individual, corporation, partnership, limited liability company (LLC), or other entity that is engaged in activities subject to federal excise tax as defined in the Internal Revenue Code (IRC).

Excise tax liability doesn’t depend on income level or business size. If your business sells, uses, manufactures, or provides certain goods or services covered under federal excise tax laws, you are required to file Form 720—even if you’re a sole proprietor or small service provider.

Key Categories of Entities Who Must File:

1. Fuel Producers, Importers, and Sellers
   • Companies dealing with gasoline, diesel, kerosene, alternative fuels, and aviation fuel.
   • Examples: Fuel blending operations, truck stops, distributors of biodiesel.
2. Transportation Service Providers
   • Airlines and logistics companies that provide passenger or cargo air transportation.
   • Companies operating pipeline transportation of petroleum or oil.
3. Manufacturers and Sellers of Taxable Goods
   • Retailers or producers of:
     • Heavy trucks and trailers
     • Sport fishing and archery equipment
     • Tires and rubber components
     • Vaccines listed under IRC Section 4131
4. Service-Based Businesses
   • Indoor tanning service providers must collect and remit a 10% excise tax on their service fees.
5. Insurance Companies and Brokers
   • Insurers writing foreign insurance policies or reinsurance agreements.
   • Entities offering specific non-life insurance products that are liable for federal excise tax.
6. Chemical Importers and Manufacturers
   • Entities handling ozone-depleting chemicals or substances taxed under Superfund environmental rules.
   • Companies involved in toxic chemical production or importation.
7. Trucking and Highway Use Operators
   • Businesses that operate highway vehicles over 55,000 pounds gross weight may be required to file Part I excise tax or related Schedule 1 (for heavy vehicle use tax).

You Don’t Need to File Form 720 If:

• Your business does not conduct operations subject to federal excise tax.
• You qualify for a permanent exemption (such as certain nonprofit entities using fuel for exempt purposes).
• You only have one-time or irregular excise liability, in which case Form 720 may only be required for that quarter.

Special Situations:

• Excise tax exempt sales: Even if sales are exempt (e.g., to state or local governments), the filer may still be required to report them on Form 720 and claim a credit via Schedule C.
• Zero tax liability: Some taxpayers are required to file even if they owe no tax in that quarter, especially if they are typically liable and previously reported.
• New businesses: If you are starting a business that falls under a taxable category (e.g., tanning salon or archery retail), you must begin filing Form 720 in the first quarter your business operates.

Detailed Structure and Sections of IRS Form 720

IRS Form 720 is used to report and remit quarterly federal excise taxes for businesses engaged in excise-taxable activities. Due to the broad range of industries it covers—from fuel and air transportation to tanning salons and archery equipment—Form 720 is structured into logically segmented parts and specialized schedules to help taxpayers report excise tax obligations clearly and accurately.

Let’s walk through each section in full detail:

1. Header Section – Taxpayer Information

Purpose: Identifies the filer and filing period.

Details:

• Business Name & EIN: The legal name and Employer Identification Number (EIN) of the entity responsible for the excise tax.
• Provide the full mailing address, including city, state, and ZIP code.
• Quarter Selection: One of the four boxes must be checked to indicate the filing quarter (Q1 to Q4).
• Final Return Checkbox: If this is the last Form 720 the business will ever file (due to closure or cessation of excise activity), this box must be checked.

Why it matters: Accurate EIN and quarter ensure IRS correctly matches the excise tax to the proper taxpayer and period.

2. Part I –Taxes on Environmental Impact, Transportation, Fuel, and Communication Services

Purpose: To report excise taxes on high-regulated sectors.

Key Areas:

• Environmental Taxes: Includes taxes on ozone-depleting chemicals and petroleum-based oils.
• Fuel Excise Taxes: Applies to gasoline, diesel, kerosene, compressed natural gas (CNG), liquefied petroleum gas (LPG), aviation fuels, and more.
• Air Transportation Taxes: Includes passenger ticket taxes, cargo waybill taxes, and frequent flyer award taxes.
• Communications & Pipeline Taxes: Covers toll telephone services, teletypewriter exchanges, and pipeline transportation.

Structure:

• Each line corresponds to a tax type and rate.
• Taxable quantity (e.g., gallons or tickets) × applicable tax rate = total tax owed.

Note: Rate codes and tax computation details are provided in IRS instructions.

3. Part II – Other Excise Taxes

Purpose: Covers miscellaneous and industry-specific excise taxes.

Examples:

• Tanning Services (Line 140): 10% tax on fees charged for indoor UV tanning services.
• Heavy Vehicle Sales (Line 133): Retail-level tax on trucks and trailers with a gross weight over 33,000 pounds.
• Sporting Goods (Lines 136–139): Excise taxes on archery equipment and fishing rods.
• Vaccine Tax (Line 138): Imposed on certain vaccines listed under IRC §4131.
• Foreign Insurance Policies (Lines 141–144): Applies to policies issued by foreign insurers or reinsurers.

Structure:

• Line items include taxable amount × excise rate = total tax.

Used by: Tanning salons, medical manufacturers, vehicle dealers, and international insurance providers.

4. Schedule A – Excise Tax Liability

Purpose: Provides a monthly summary of excise tax liabilities for internal control and audit tracking.

Structure:

• Column A: Tax name or code.
• Columns B–D: Monthly liability for each of the 3 months in the quarter.
• Column E: Total tax liability for the quarter.

Why it matters: It helps the IRS confirm quarterly tax totals match deposits and payments made across months.

5. Schedule C – Claims (Credits and Refunds)

Purpose: Used to claim credits or refunds for overpaid or exempt excise taxes.

Common Credits:

• Fuel used for nontaxable purposes (e.g., farming, nonprofit school buses).
• Sales to tax-exempt organizations (state/local governments).
• Exports: Products exported outside the U.S.
• Blending & mixing credits: For alternative fuels.

Required Info:

• Type of credit
• Amount
• Reason for claim
• Backup documentation (kept on file)

Important: All claims are subject to IRS audit. Must correlate with Part I or II entries.

6. Schedule T – Two-Party Exchange Information

Purpose: Reports fuel ownership transfers without physical movement — common among petroleum terminal operators.

Details Required:

• Name and EIN of both parties (transferor and transferee)
• Date of exchange
• Type and quantity of fuel
• Terminal code and location

Note: Only fuel handlers engaged in terminal-level operations need to complete this.

7. Payment & Signature Section

Purpose: Finalize the tax due and authenticate the return.

Includes:

• Total tax due: Calculated from Part I + II – Schedule C credits.
• Payment info: Filers indicate how payment is being made (EFTPS or paper check).
• Signature: Must be signed by a corporate officer, sole proprietor, or authorized representative.
• Paid Preparer Section: If a third party helped complete the return, they must fill out their credentials.

IRS will reject unsigned forms. Always double-check before mailing or submitting electronically.

How to Calculate Tax for IRS Form 720

Form 720 is not a single-rate form—it applies dozens of different excise tax types, each with its own rate structure and base (e.g., gallons, tickets, sales amount). So, accurate calculation depends on identifying what tax you’re paying and what quantity or value it’s based on.

Step 1: Identify the Type(s) of Excise Tax You Owe

Go through your business operations and match them to excise-taxable activities. Common categories include:

Activity	Reported In	Example
Gasoline or diesel fuel sales	Part I	Fuel distributor, blender, or importer
Indoor tanning services	Part II	10% of total fees charged to clients
Archery equipment retail	Part II	11% tax on sales of bows/arrows
Foreign insurance policies	Part II	1%–4% based on policy type
Heavy truck/trailer retail	Part II	12% of sale price for heavy vehicles

Step 2: Find the Applicable IRS Tax Rate

You can find the official rates:

• On the IRS Form 720 Instructions [latest version]
• In the excise tax tables for fuels and equipment
• Embedded in Form 720 next to each line item

Examples of IRS Excise Tax Rates:

Item	IRS Line	Rate
Diesel Fuel	Line 26	$0.244 per gallon
Gasoline	Line 22	$0.184 per gallon
Indoor Tanning Services	Line 140	10% of customer charges
Heavy Trucks/Trailers	Line 133	12% of sale price
Arrow Shafts (Archery)	Line 139	$0.55 per shaft

Step 3: Multiply Taxable Units × Applicable Rate

Use this formula:

Excise Tax = Taxable Quantity or Value × Applicable Rate

Examples:

1. Fuel Example
   1. 25,000 gallons of diesel sold
   1. IRS Rate = $0.244
   1. Excise Tax = 25,000 × $0.244 = $6,100
2. Tanning Services Example
   1. $22,000 total tanning service revenue in the quarter
   1. IRS Rate = 10%
   1. Excise Tax = $22,000 × 0.10 = $2,200
3. Retail Truck Sale
   1. Vehicle sold for $96,000
   1. IRS Rate = 12%
   1. Excise Tax = $96,000 × 0.12 = $11,520

Step 4: Enter the Result on the Correct Line of Form 720

Each type of tax has a dedicated line number:

• Report the calculated tax amount in the right-hand column of that line.
• Ensure you enter the total tax per line, not per transaction.

Step 5: Add All Excise Taxes to Get Your Quarterly Total

Once all applicable taxes are entered:

1. Add the subtotals from Part I and Part II
2. Include any taxes carried forward (if applicable)
3. Transfer the total to the “Total Tax” section

Step 6: Apply Credits (If Any) via Schedule C

If you qualify for a credit (e.g., tax-exempt use of fuel), calculate that separately using:

Credit = Exempt Quantity or Sale × Applicable Rate

Then:

• Fill out Schedule C
• Subtract the credit amount from your gross tax liability

Step 7: Report Monthly Totals in Schedule A

For Schedule A:

• Break down the total tax into monthly liabilities (Month 1, 2, 3 of the quarter).
• This helps IRS match your deposits or EFTPS payments.

Step 8: Calculate Final Tax Due

Finally:

Final Tax = Total Taxes (Part I + Part II) – Approved Credits (Schedule C)

Pay this amount using:

• EFTPS (Electronic Federal Tax Payment System)
• Or by mailing a check with the return (if eligible for paper filing)

Form (720 ) Excise Taxes Calculation – Example

Each excise tax listed on Form 720 has its own base (e.g., gallons, units, price, or revenue) and its own IRS-defined rate. Below is a detailed guide for some of the most common and important excise tax items, organized by their corresponding line numbers and sections on the form:

Part I – Excise Taxes on Fuel, Transportation, Environmental, and Communication Services

Line 22: Gasoline

• Tax Base: Gallons sold or removed
• IRS Rate: $0.184 per gallon
• Formula:
  Excise Tax = Total Gallons Sold × 0.184
• Example: 40,000 gallons
  ➤ 40,000 × $0.184 = $7,360

Line 26: Undyed Diesel Fuel

• Tax Base: Gallons sold
• IRS Rate: $0.244 per gallon
• Formula:
  Excise Tax = Gallons × 0.244
• Example: 30,000 gallons
  ➤ 30,000 × $0.244 = $7,320

Line 25: Aviation Gasoline

• Tax Base: Gallons sold
• IRS Rate: $0.194 per gallon
• Formula:
  Excise Tax = Gallons × 0.194
• Example: 15,000 gallons
  ➤ 15,000 × $0.194 = $2,910

Line 24: Air Passenger Transportation

• Tax Base: Tickets sold (fares)
• Current IRS rate: 7.5% of the airfare plus $4.80 per flight segment (as of 2025; adjusted annually for inflation)
• Formula:
  Excise Tax = (Fare × 0.075) + ($4.80 × Segments)
• Example:
  1,000 tickets sold, average fare $300, 2 segments per ticket
  ➤ Fare tax: 1,000 × $300 × 0.075 = $22,500
  ➤ Segment tax: 1,000 × 2 × $4.80 = $9,600
  ➤ Total Excise Tax = $32,100

Part II – Other Excise Taxes

Line 133: Heavy Vehicle Retail Sales Tax

• Tax Base: Taxable sale price of trucks or trailers (gross weight ≥33,000 lbs)
• IRS Rate: 12%
• Formula:
  Excise Tax = Sale Price × 0.12
• Example: $110,000 truck
  ➤ $110,000 × 0.12 = $13,200

Line 136–139: Archery/Fishing Equipment

• Tax Base: Number of units or retail sales amount
• IRS Rates:
  • Bows: 11%
  • Arrows: $0.55 per shaft
  • Fishing rods: 10%
• Examples:
  • 5,000 arrows: 5,000 × $0.55 = $2,750
  • $50,000 in fishing rod sales: $50,000 × 0.10 = $5,000

Line 140: Indoor Tanning Services

• Tax Base: Gross service revenue
• IRS Rate: 10%
• Formula:
  Excise Tax = Total Tanning Receipts × 0.10
• Example: $24,000
  ➤ $24,000 × 0.10 = $2,400

Line 141–144: Foreign Insurance Excise Tax

• Tax Base: Premium amount
• IRS Rates:
  • 1% for property & casualty
  • 4% for life insurance
• Formula:
  Excise Tax = Premium × Applicable Rate
• Example: $80,000 premium (life policy)
  ➤ $80,000 × 0.04 = $3,200

Schedule C – Claims & Credits (Refundable Amounts)

Example: Off-Road Diesel Use (e.g., Farming)

• Tax Base: Gallons used off-road
• Credit Rate: $0.244 per gallon
• Formula:
  Credit = Gallons × 0.244
• Example: 4,000 gallons
  ➤ 4,000 × $0.244 = $976 Credit

Schedule A – Monthly Liability Summary

• Add up monthly excise tax liabilities from Part I and II
• Break it down by Month 1, Month 2, and Month 3
• No rate calculation here — it’s for IRS tracking purposes only

Final Calculation (Page 2 Total Section)

Total Excise Tax = (Sum of Part I + Part II) – Credits from Schedule C

Enter this amount in the Tax Due section and submit with payment.

Penalties for Non-Compliance with IRS Form 720

Failing to file IRS Form 720 correctly and on time can lead to significant penalties. Since Form 720 involves federal excise taxes, which apply to regulated industries (e.g., fuel, transportation, insurance, tanning, archery), the IRS strictly enforces compliance.

Below is a breakdown of the various penalties and non-compliance consequences:

1. Late Filing Penalty (IRC §6651(a)(1))

When It Applies:

• If Form 720 is not filed by the due date (typically the last day of the month following the end of each calendar quarter)

Penalty Amount:

• 5% of the unpaid tax for each month (or part of a month) the return is late
• Capped at 25% of the unpaid tax

If your business owes $10,000 in excise tax and files 3 months late:

$10,000 × 5% × 3 months = $1,500 penalty

2. Late Payment Penalty (IRC §6651(a)(2))

When It Applies:

• If tax is not paid by the due date, even if Form 720 is filed on time

Penalty Amount:

• 0.5% of the unpaid tax per month (or part thereof), up to a maximum of 25%

This can combine with the late filing penalty, making total penalties potentially 47.5% of unpaid tax over time.

If $5,000 is unpaid for 6 months:

$5,000 × 0.5% × 6 months = $150 penalty

3. Interest Charges on Late Payments (IRC §6601)

When It Applies:

• Interest is charged on any unpaid tax from the due date of the return until paid in full

Rate:

• Determined quarterly by the IRS (usually ~3%–7% per annum, compounded daily)

Formula:

Interest = Unpaid Tax × (Annual Rate ÷ 365) × Days Late

This is separate from penalties and continues to accrue even if penalties max out.

4. Penalty for Filing a False or Fraudulent Claim (IRC §6675)

When It Applies:

• If a taxpayer knowingly files a false claim on Schedule C (e.g., claiming fuel credits improperly)

Penalty Amount:

• 100% of the credit falsely claimed
• Possible civil fraud penalty of 75% of the underpayment (IRC §6663)
• Criminal prosecution in severe or willful cases

5. Negligence or Disregard of Rules (IRC §6662)

When It Applies:

• Occurs in cases of careless reporting without deliberate deception
• Examples: Using wrong rates, misreporting gallons, or not keeping records

Penalty Amount:

• 20% of the underpaid tax

Easily triggered when businesses file in a rush or use outdated rate schedules.

6. Failure to Make Required Deposits (IRC §6656)

When It Applies:

• Excise taxes may be subject to semi-monthly deposits via EFTPS
• Failure to deposit timely and properly triggers penalties

Penalty Amounts:

• 2% – Deposits 1–5 days late
• 5% – 6–15 days late
• 10% – More than 15 days late
• 15% – Amount not paid within 10 days of IRS notice

7. Additional Civil/Criminal Penalties

In egregious cases (e.g., repeat non-filing, forged documents, cash underreporting), the IRS may pursue:

• Civil fraud charges: 75% of underpayment
• Criminal fraud: Fines + imprisonment
• Revocation of IRS privileges or licenses

IRS Form 720 Quarterly Filing Deadlines

Form 720, the Quarterly Federal Excise Tax Return, must be filed four times per calendar year, covering specific three-month tax periods. The IRS requires timely submission by the end of the month following the close of each quarter.

Filing Schedule:

Quarter	Tax Period Covered	Filing Due Date
Q1	January 1 – March 31	April 30
Q2	April 1 – June 30	July 31
Q3	July 1 – September 30	October 31
Q4	October 1 – December 31	January 31 (of the next year)

Key Reminders:

• If the due date falls on a weekend or federal holiday, the deadline is extended to the next business day.
• A return is treated as timely filed if it’s postmarked or electronically submitted by the deadline.
• Taxpayers who are not liable for excise taxes in a given quarter are generally not required to file—unless the IRS specifically requests a return.

Conclusion

IRS Form 720 plays a critical role in collecting federal excise taxes across diverse industries—fuel, transportation, manufacturing, insurance, tanning services, and more. Filing this form accurately and on time each quarter is essential not only for compliance but also to avoid costly penalties and interest.

Understanding the structure, identifying applicable excise tax lines, calculating your liability correctly, and using the appropriate schedules (A, C, T) ensures smooth filing. Whether you’re a large fuel distributor or a small tanning salon, staying current with tax rates and deadlines is key.

Frequently Asked Questions (FAQs)