Federal Excise Taxes and IRS Form 720

Under US federal regulations, certain products are subject to an excise tax. If your expat business deals in those particular products, the IRS requires that you file Form 720 every quarter. Here’s what you need to know.

What Is IRS Form 720?

IRS Form 720: Quarterly Federal Excise Tax Return is a tax form designed to help businesses report and pay their federal excise taxes.

What Is an Excise Tax?

An excise tax is a tax imposed on a specific product. These products can either be manufactured in the US or imported from another country. Depending on the item in question, the excise tax might be a flat fee or a percentage of the final cost of the product.

Excise taxes can be levied for a few different reasons. Some excise taxes, commonly known as “sin taxes,” are used to raise prices for products seen as being unhealthy or environmentally unfriendly to discourage consumers from purchasing them. Some examples include:

  • Alcohol
  • Tobacco
  • Soft drinks
  • “Gas guzzler” vehicles

Other excise taxes are used to help cover expenses related to the product being taxed. For example, an excise tax on gasoline might be used to fund local road repair.

Some excise taxes are imposed by the local or state government. For now, however, we’re discussing federal excise taxes, as those are the taxes included in Form 720.

Who Needs to File IRS Form 720?

Businesses that produce or sell goods under an excise are required to report their tax obligations using Form 720. Sometimes, these businesses will be based in the US. Others may be based in a foreign country and must pay an excise tax to import their products into the US.

Regardless, some of the most common products under an excise tax include:

  • Gasoline
  • Jet fuel
  • Gas guzzler vehicles
  • Coal
  • Fishing equipment
  • Electric outboard motors
  • Bows and arrows
  • Tires
  • Vaccines
  • Medical devices
  • Ozone-depleting chemicals

While firearms, tobacco, and alcohol are subject to excise taxes, these are not handled through Form 720. Instead, those products are regulated by the Alcohol and Tobacco Tax and Trade Bureau, and must be reported through their website.

For a full list of the products and services covered by Form 720, see the Form 720 instructions provided by the IRS.

When Is Form 720 Due?

IRS Form 720 is due every quarter. The quarters and corresponding deadlines are listed below:

  • Quarter 1: January 1–March 31
    • Due date: April 30
  • Quarter 2: April 1–June 30
    • Due date: July 31
  • Quarter 3: July 1–September 30
    • Due date: October 31
  • Quarter 4: October 1–December 31
    • Due date: January 31

Any time the due date for filing falls on a weekend or legal holiday, you have an automatic extension to the next business day.

Note: although Form 720 is due only once every quarter, you must estimate and pay any excise taxes on a semi-monthly basis. “Semi-monthly” divides each month into two parts:

  • Days 1–15 (first semi-monthly period)
  • Days 16–end of the month (second semi-monthly period)

You must submit your estimated payments on the day before the last day of that monthly period. For example, the first semi-monthly period always ends on the 15th day of the month, so you would need to submit your payment by the 14th.

However, just like when filing Form 720 itself, if the due date lands on a weekend or legal holiday, you can wait to file on the next business day.

You’ll send these semimonthly payments to the IRS by electronic transfer (AKA an ACH deposit).

How Do I File Form 720?

If your business is required to file Form 720, don’t stress too much–it isn’t an especially complicated tax form.

Still, to save you time and headaches, let’s go over exactly how to fill out and file Form 720.

1. Prepare the Proper Documents

Before diving into filling out Form 720, take the time to gather all the necessary documents you need in one place. You’ll want to know your business’s inventory, total sales, units, and other relevant metrics.

2. Enter Your Basic Information

Once you have the right documents on hand, it’s time to start with Form 720. First of all, you’ll want to list some basic information about yourself, such as your:

  • Name
  • Address
  • Employer Identification Number (EIN)

(For a foreign address, follow the practice of whatever country you’re in for entering the postal code—and don’t abbreviate the country’s name.)

Then, you’ll also need to provide the end date for the business quarter you’re reporting on.

3. Fill Out Part I

You’ll need to complete Part I of Form 720 if your business owes any of the following excise taxes:

  • Environmental tax
  • Communication and air transportation tax
  • Fuel tax
  • Retail tax
  • Ship passenger tax
  • Foreign insurance tax
  • Manufacturer’s tax

The form itself will give you a detailed look at what products and services fall into these categories. For further information, see the IRS Form 720 instructions.

If you do qualify for any of these taxes, you’ll use the “Rate” column to calculate how much your business will owe based on your total sales or units sold. Add the amount you owe to the “Tax” column, and add the amounts together at the bottom of Part I.

4. Fill Out Schedule A

If your business does owe any taxes in Part I, you’ll have to complete Schedule A as well. This is where you’ll fill out your net tax liability for each semi-monthly period, then combine them for the total liability.

Generally, you’ll only need to complete section 1 of Schedule A. But if you’re liable for any of the “alternative method taxes”—numbers 22, 26, 28, or 27 in Part I—you’ll need to complete instead. This is incomplete. Need to find out what you’ll need to complete

5. Fill Out Part II

As with Part I, Part II gives you a list of products and services you may owe excise taxes for, such as:

  • Specified health insurance policies
  • Electric outboard motors
  • Indoor tanning services
  • Sport fishing equipment
  • Waterways fuel
  • Bows and arrows

Once again, Form 720 and its instructions will give you a clear picture of what fits into each category.

The rules for filling out Part II are exactly the same as Part I.

6. Fill Out Schedule T

Schedule T is only necessary for businesses that produce or sell:

  • Diesel
  • Kerosene
  • Gasoline
  • Aviation gasoline

If that applies to you, you’ll use Schedule T to report the total amount of gallons of fuel delivered or received in a “two-party exchange within a terminal.”

7. Fill Out Schedule C

Schedule C lets you reduce how much you owe for Part I and Part II of Form 720 by claiming that your business produces or sells fuel used for specific purposes, such as farming, foreign trade, or military use.

The IRS instructions for Form 720 lists the products that you can claim.

If you can claim any of the uses listed, simply fill out Schedule C with:

  • The appropriate use-case number (e.g., “4” for fuel used by commercial fishing vessels)
  • The associated tax rate
  • Number of gallons
  • Dollar amount of your claim

8. Fill Out Part III

Once you reach Part III of Form 720, you’ll take the information you calculated on all previous sections and enter the total amounts to the correct boxes. Here’s how:

  • If you completed Part I and Part II, combine those totals and put them in box 3
  • If you completed Schedule C, put your total claims in box 4
  • If you made any excise tax deposits for the quarter you’re reporting on, put the total in box 5
  • If you’ve overpaid your excise taxes in any previous quarters, put the total extra payments in boxes 6 and 7
  • Add boxes 5 and 6 together and put the total amount in box 8
  • Add boxes 4 and 8 and put the total amount in box 9
  • If the total tax you put down in box 3 is bigger than the amount in box 9, enter the difference in box 10 (this is your balance due, which you’ll have to pay when filing Form 720)
  • If the amount in box 9 is bigger than box 3, you can use box 11 to choose whether you want to receive the excess as a refund or apply it to your next return

Finally, sign and date the form. Now you’re ready to send it in.

9. File Form 720 and Pay Any Balance Due

After you’ve completed Form 720, review it to be sure all the information you’ve entered is accurate. Once you’re satisfied, you’ll have to file it with the IRS. There are two ways to do this:

First, you could mail it directly to the IRS at this address:

Department of the Treasury

Internal Revenue Service

Ogden, UT 84201-0009

Alternatively, for a more convenient option, you can file Form 720 using the IRS e-file program.

Either way, if you have a balance due in box 10 of Part III, you must pay it off at the same time you file your form. Depending on whether you file electronically or through the mail, you can pay your balance with a check, money order, or direct debit.

Do You Want Some Help With Your Expat Taxes?

Hopefully, after reading this article, you have a better understanding of what IRS Form 720 is and how it works. But if you still have questions, we can help.

At Greenback Expat Tax Services, we have years of experience helping expats around the globe take care of their US tax obligations, no matter how complex they may be. Just contact us, and we’ll be happy to answer all your questions.

Or, if you’re ready to get some expert assistance with meeting your tax obligations, click here to get started on your expat tax return today.