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The Fuel Compliance Program started in June 1994, following passage of the Omnibus Budget Reconciliation Act of 1993 that became effective on January 1, 1994. Initially, the focus of the program was on the proper sale and use of diesel fuel indelibly dyed in accordance with IRS regulations. In subsequent years, the Fuel Compliance Program adapted as the fuel industry changed. Consequently, fuel inspections now involve a broader range of taxable fuels, biofuels, and alternative fuels. For compliance purposes, it is essential employees, managers, and senior management officials understand and follow the technical guidance explained in this section.

The federal excise tax imposed by IRC 4081 no longer applies to removals of diesel fuel that are indelibly dyed (or dyed and marked) in accordance with IRS regulations.

IRC 4083(d) and authorize employees, upon presenting appropriate credentials and a written notice to the owner, operator, or agent in charge, to enter any place and to conduct inspections in accordance with paragraphs (a) through (c) of Treas. Reg. 48.4083-1. Employees are authorized to inspect, examine, and search:

Employees are authorized to take and remove samples to determine the composition of the fuel. Refer to Treas. Reg. 48.4083-1(c)(3).

This authority applies to three broad categories:

Director, Examination - Specialty Policy is responsible for procedures and policies in this section.

Program Manager, Excise Tax Policy is responsible for ensuring that procedures are accurate and updated regularly, as needed.

Chief, Estate & Gift/Excise Tax Exam is responsible for ensuring excise tax employees adhere to the procedures within this section.

TMs are responsible for ensuring GMs are aware and adhere to procedures in this section.

GMs are responsible for ensuring employees have current copies of this section and are adhering to procedures in this section that are pertinent to their job duties and roles.

Employees are responsible for following all pertinent guidance in this section.

Program Reports - The effectiveness of employees following procedures outlined in this section is evaluated with the use of the following reports:

Program Effectiveness - The effectiveness of this program is measured by revenues protected not by revenues assessed or collected. Employee vigilance and visibility in all geographic regions promotes voluntary taxpayer compliance.

Annual Reviews

All information management systems that are utilized have safeguards in place, which address all key components of Information Technology (IT) security to restrict access to sensitive data.

The following table contains the definitions of the terms utilized throughout this section.

The following table contains the acronyms utilized throughout this section.

Inspection sites can be broadly categorized as pervasively regulated, non-pervasively regulated or designated inspection sites.

Employee actions will be determined by the type of inspection site.

IRC 7602(a)(2), Examination of Books and Witnesses, permits employee to contact third parties to:

For purposes of IRC 7602, determining the tax or penalty associated with an action permitted by IRC 4083(d) qualifies as determining the tax liability of any person.

The Taxpayer First Act amended IRC 7602(c)(1) and is effective for notices of third party contacts and contacts of third parties made after August 15, 2019. IRS is required to:

In situations involving third party contact notices provided after August 15, 2019, or in which contacts with third parties will occur after August 15, 2019, a notice meeting the new requirements must be provided. Employees may not contact a third party until the 46th day following the date of the notice, except as otherwise provided by an authorized delegate of the Secretary. Employees will use a current Letter 3164-E, Third Party Contact.

The taxpayer can waive rights under IRC 7602(c) and authorize IRS to contact a third party by signing Form 12180, Third Party Contact Authorization Form. If a taxpayer signs Form 12180, then Form 12175, Third Party Contact Report Form, does not need to be completed and employee may proceed contacting third parties listed on Form 12180. Refer to IRM 25.27.1.3.6, Taxpayer Authorizes Contact with a Third Party, for guidance.

For guidance about procedures and documenting third party contacts, refer to IRM 25.27.1, Third-Party Contact Program.

The following table provides guidance on whether an action is a third party contact requiring advance notice to the taxpayer:

The procedures to be followed and samples to be obtained at each terminal facility will differ depending on:

Employee must present credentials and provide the terminal operator or other responsible party with a Notice 916 and Publication 1 prior to conducting the inspection and explain what fuel samples are needed.

Employee will tour the facility. The tour should include, but not be limited to, following the line from the dye tank to the dye injection point(s). Employee should look for security measures in place to deter and detect tampering with the mechanical dye injection system and indications security measures were breached. Specific security measures are not required; therefore, the lack of particular security efforts will not result in the imposition of IRC 6715(a)(2).

The following table identifies issues that must be reviewed, addressed, and documented to complete a terminal inspection.

Employee must inspect the shipping documents to:

Employee will ask the terminal about sales of B70 - B99 and E-00. If the terminal sells these products, employee will obtain a customer list and submit a Form 5346, Examination Information Report, to GM.

To ensure the dye concentration requirement under is satisfied, employee will obtain a "concentration" sample of dyed fuel from a transport compartment.

If the terminal has more than one dye injector at the loading rack, employee will attempt to secure a "concentration" sample from each loading arm that has a separate dye injector.

The following table identifies the procedural issues that must be reviewed, addressed, and documented to obtain a dyed sample from a transport vehicle.

Some terminal owners require terminal employees to draw samples. In that instance, employee must observe the sampling process to ensure a sample is properly obtained.

If after two hours a "concentration" sample can not be obtained and the other inspection duties are complete, employee may leave without a sample but will notate in the workpapers why a sample was not obtained.

Samples of undefined product and waste oil will be obtained if the products are stored at the terminal. Employee must:

The following table identifies case history actions that must be addressed and documented.

If test results from EFL show the fuel was below concentration, employee will plan a follow-up inspection to occur within one month of the initial inspection. For detailed guidance, refer to IRM 4.24.15.3.2.

Employee must timely record the inspection in IMS. For detailed guidance, refer to IRM 4.24.16.2, Report Writing and Case Processing Overview.

Follow the procedures in IRM 4.24.16.2.2(3), Inspections Resulting in No Adverse Actions, to close the inspection.

Employee must inform the IRS ExSTARS Coordinator if the terminal or refinery (some refineries may also be terminals) has closed, no longer sells taxable products, has an address change, or has changed ownership. For detailed guidance, refer to IRM 4.24.17.

Refer to the applicable subsections below if the terminal also engages in business activities that would classify it as a fuel wholesaler, retailer and/or end-user.

When test results from EFL indicate the dye concentration did not meet the requirements (i.e., possible infraction), the total number of gallons involved will include only those gallons indicated on the BOL unless another sample was obtained from the same injector on the same or subsequent date (i.e., follow-up inspection additional transports). If additional samples were obtained and determined to be below concentration, the total gallons involved would be all gallons dispensed from the identified dye injector/loading arm from the time the first below concentration sample was secured through the period that the subsequent below concentration sample was secured.

Employee will follow the procedures below within five business days:

If the lab result from the follow-up sample indicates the concentration of dye in the fuel is still not in compliance, employee will repeat the procedures outlined above. The second referral will reference the previous referral to ensure the revenue agent is aware of the extent of the issue.

Railroad terminals have an exception to Excise Summary Terminal Activity Reporting System (ExSTARS) reporting requirements that permits them to make daily summary disbursement reports instead of reporting the individual disbursements. Employee must be aware of this exception when conducting an inspection of the Form 720-TO. The meter tickets must contain the dyed fuel notice as required by Treas. Reg. 48.4101-1(h)(3).

The purpose of an inspection for a railroad terminal is the same as for other types of terminals. Employee will follow the procedures outlined in IRM 4.24.15.3.1.

To address safety concerns caused by the unique nature of railroad terminals, specific procedures have been developed for railroad terminal inspections. The procedures apply only to fuel inspections, not to examinations conducted by revenue agents. Unless specifically contradicted in the procedures below, procedures for inspections of railroad terminals are the same as for other terminals.

To address the safety concerns while maintaining IRS authority to conduct unannounced inspections, the following arrangement is in place:

Typically, railroad terminals do not retain the records required in at the terminal site. Additionally, the disbursement records do not detail the disbursements into each locomotive.

To address the ability of the railroad terminal companies to comply with the record requirements, railroad terminals must provide the following:

Employee must present credentials and provide the wholesaler with Notice 916 and Publication 1 prior to conducting the inspection.

Employee will tour the facility and obtain information from the wholesaler that will help understand the operation of the business, including but not limited to, the following information:

Employee will screen the fuel by obtaining a nozzle sample from each tank containing diesel or kerosene, whether or not it is dyed, using the sampling methods described in IRM 4.24.15.13. Employee will screen the fuel to:

Gasoline samples are only secured as part of a project or at the instruction of management. If EFL sample results show adulterants, employee will generate a Form 5346 and discuss how to proceed with GM.

Employee shall take photographs to support any penalty determinations.

Refer to IRM 4.24.15.15 for detailed guidance about labeling instructions if a "field concentration" or "sulfur" sample is obtained.

Refer to the applicable IRM section if the wholesaler also engages in business activity that would classify it as a retailer and/or an end-user.

Refer to IRM 4.24.15.10.1 for detailed guidance about procedures on documenting samples taken for sulfur concentration testing.

Refer to or the governing Treasury Regulations, for detailed guidance about the requirements for a blender of biodiesel at a site other than a terminal.

The wholesaler may be subject to penalties if any of the following is found:

If a potential compliance issue exists, employee is expected to "follow the fuel" back to its source or to its destination. Any inspection conducted as a result of following fuel is considered a separate inspection.

The following table identifies case history documentation that is required for a proposed penalty.

For inspections that result in no adverse action, case documentation must include at a minimum:

For detailed guidance related to a blitz inspection, refer to IRM 4.24.15.8.

Employee must present their credentials, as well as provide the retailer with a Notice 916 and Publication 1 prior to conducting the inspection.

Employee will tour the facility and obtain information from the retailer that will help understand the operations of the business, including but not limited to the following:

Employee will screen the fuel from each tank containing diesel or kerosene, whether dyed or undyed, using the nozzle screening method described in IRM 4.24.15.12 . If warranted under this subsection, employee will obtain a nozzle sample using the procedures described in IRM 4.24.15.13 .

Dyed fuel samples will only be forwarded to EFL if a penalty is being proposed or the appearance of the fuel indicates the dye concentration of fuel may have been altered or is otherwise "suspicious."

Samples will be obtained for sulfur testing only if information indicates fuel may exceed the allowable sulfur level. Refer to IRM 4.24.15.10 for detailed guidance.

Employee shall take photographs to support any penalty determinations.

Gasoline samples are only secured as part of a project or at the instruction of management. If EFL sample results show adulterants, employee will generate a referral and discuss how to proceed with GM.

Refer to IRM 4.24.15.7 if the retailer also engages in business activity that would classify it as an end-user.

The retailer may be subject to penalties if any of the following is discovered:

The following table identifies issues that must be reviewed, addressed, and documented to propose a retailer inspection penalty.

For inspections that result in no adverse action, the case history documentation at a minimum must include:

Complete Form 15427, Blocked Pump Checksheet, if the retailer is a Form 637 Registrant with activity letter "UP." Employee is responsible for sending the completed Form 15427 via secure e-mail to GM and to the 637 Registration GM. See IRM 1.10.3.2.1, Secure Messaging & Encryption, for information on sending secured e-mail messages.

For detailed guidance related to a blitz project, refer to IRM 4.24.15.8.

For detailed guidance related to sulfur, refer to IRM 4.24.15.10.

Employee must secure permission from the authorized person that controls the site to establish an IRS fuel inspection site.

Employee must defer to the person in control on traffic flow and safety issues.

Employee must identify the site as an IRS fuel inspection site with the official sign provided.

Employee must convey their identity and contact information, as well as provide a Notice 916 to every driver prior to conducting the inspection.

If the driver refuses the inspection, refer to IRM 4.24.15.2.1.2 for the appropriate procedures.

If the vehicle is a fuel transport, review the BOL to determine:

Screen the fuel in the propulsion tank using the screening procedures discussed in IRM 4.24.15.12.

If no dyed fuel is present and the fuel appears normal, employee will secure only the tag and state information and then release the driver.

If dyed fuel is present, employee will inform the driver, issue Publication 1, and secure a "usage" sample. If the contents of the fuel are "suspicious" (i.e., the fuel is dark), employee will secure an "investigative" sample.

The following table identifies information that must be obtained from the vehicle driver during an on-road inspection that results in a proposed dyed fuel penalty.

Employee will obtain the following information to establish who is responsible for the presence of dyed fuel in the on-road vehicle:

Employee will immediately "follow the fuel" when possible and conduct follow-up inspections to determine the extent of the non-compliance. If it is determined the location is beyond an acceptable distance from which employee is located, employee will notify GM to have the information referred to another employee in that area for follow-up.

At a minimum, the case history must document the following:

The actual number of vehicles screened during each inspection must be timely recorded in IMS. See IRM 4.24.13.5 for procedures about IMS.

For detailed guidance, refer to IRM 4.24.16.

Employee must present their credentials as well as provide the end-user with a Notice 916 and Publication 1 prior to conducting the inspection.

The following table identifies information that must be reviewed and addressed during an inspection of an end-user facility to document the operation of the business.

Employee will screen the fuel in the on-road diesel vehicles or mobile machinery using the procedures discussed in IRM 4.24.15.12. If the fuel in a vehicle or mobile machinery appears to be dyed then a "usage" sample is obtained from each propulsion tank and from the storage tank that is the source of the dyed fuel in the vehicle or mobile machinery. If the fuel is "suspicious," employee will secure an "investigative sample."

Employee shall take photographs to support any penalty determinations.

All or some of the dyed fuel in the storage tank that is the source of the fuel in the propulsion tank may be considered held for a use other than a nontaxable use and thus subject to a penalty under IRC 6715(a)(2). The number of gallons involved in the violation is determined by the evidence the taxpayer provides regarding the past and current use of dyed fuel. For example:

Employee will obtain information to determine the culpable parties. Joint and several liability may apply.

Employee must "follow the fuel" to determine the extent of the non-compliance. If geographically necessary, employee will notify GM to have the information referred to another employee in the appropriate area for follow-up.

Follow-up inspections will be conducted to ensure the taxpayer is compliant. Follow-up inspections to re-check previously penalized propulsion and bulk tanks are considered a separate inspection for purposes of correctly calculating multiple violations and will be entered into IMS separately.

If directed by management or the circumstances warrant, employee will obtain "sulfur" samples of undyed diesel or gasoline to be tested for adulterants.

If directed by management or circumstances warrant, employee must obtain samples of dyed fuel to ensure the dye concentration has not been altered. An IRC 6715(a)(3) penalty may apply to the end-user, fuel supplier or other person. For detailed guidance, refer to IRM 20.1.11.6.1.3, Willful Alteration of Dye Concentration.

The following table identifies information that is received from an entity during an end-user inspection, which results in a dyed fuel penalty, that must be reviewed, addressed, and documented.

Inspections that result in no adverse actions must include in the case history:

To ensure IRC 6715(a)(1) and IRC 6715(a)(2) penalties are supported by the best possible evidence, employee will make all reasonable efforts to obtain fuel samples from each vehicle or storage tank subject to the penalty. These efforts include traveling to sites at which the taxpayer¡¯s vehicles or fuel storage tanks are located.

Employee must contact GM if circumstances hinder or prevent that employee from obtaining a sample.

An IRC 6715(a)(1) or IRC 6715(a)(2) penalty may be proposed without a fuel sample if employee visually detects that fuel in the vehicle or storage tank is dyed but is unable to obtain a sample using the approved sampling method. For example, employee detects dyed fuel in a propulsion tank during a properly administered pipette screening but employee is unable to obtain a sample using the sampling pump method.

Under no circumstances will employee propose a IRC 6715(a)(1) or IRC 6715(a)(2) based solely on testimony of the owner, an employee of the taxpayer or third party. The oral or written testimony will prompt further investigation.

Employee must record within IMS the steps taken to obtain a sample and, if a sample was not obtained, explain the basis for proposing the penalty without a sample being drawn.

GM will ensure all necessary supplies are available prior to the beginning of a blitz activity. These supplies include but are not limited to:

A list of terminals and TCNs may be provided at the beginning of the retail blitz activity.

GM will appoint a contact person for the blitz activity. The contact person will:

Employee¡¯s GM will refer the abnormal sample results to a field GM of the assigned area to determine the appropriate follow-up action.

GMs will not be informed by EFL if a sample is deemed normal.

GM will provide direction and information for sample collection if at another location other than a retailer or end-user.

Samples of undyed diesel and jet fuel are collected from storage tanks at retailers, wholesalers, and selected terminals. Kerosene and gasoline samples may be collected if the fuel is "suspicious" (i.e., color, smell, location or shipping paperwork).

The taxpayer is provided with Letter 3918, Notice 916, and Publication 1.

All storage tanks must be sampled. One sample per storage tank is collected.

GM will identify terminals to be inspected. A terminal sample must be obtained from each storage tank containing undyed diesel or jet fuel. Samples of other middle distillate products are collected, if warranted. When pulling samples from a terminal:

Samples of undyed and dyed diesel fuel are collected from storage tanks of end-users.

Screen all available on-road registered diesel vehicles.

Obtain a sample from at least one on-road registered diesel vehicle.

On Form 9667, record "V" for a sample from a vehicle and "S" for a sample from a storage tank.

Complete one blitz data inspection sheet for each sample. Complete the blitz data inspection sheets as follows:

Do not record deliveries of fuel that occurred more than 60 days prior to date of inspection.

Form 4564 will be completed if the taxpayer is not able to provide required information at the time of inspection. Employee must inform the designated blitz contact person about the issuance of Form 4564. Complete the document as follows:

Refer to IRM 4.24.15.17 for detailed guidance about packing and shipping samples.

Verify sample numbers on the blitz data inspection sheets match those Form 9667 sample numbers on the bottles.

Place original blitz data inspection sheets in a sealed envelope marked "To be opened by addressee only" and include them in the box with the samples.

Handwrite "B" on one of the blank sides of the shipping box.

If the blitz project duration is greater than one week, samples shall be shipped on the last day of the blitz activity, or at the end of each week.

It is strongly recommended employee makes a copy, photograph or scan each blitz data inspection sheet into the laptop prior to enclosing them in the box.

All blitz inspections must be input into IMS within five business days following the end of the sample collection period. Employee is responsible for updating the IMS case file and issuing the appropriate closing letter.

Refer to IRM 4.24.13.5, Issue Management System (IMS), for detailed guidance about IMS procedures.

Each group is assigned a blitz tracking code. The code must be entered into IMS under the ERCS Data Tab.

For each blitz inspection created on IMS, the SAIN number will reflect the type of inspection (e.g., 515, 516R, 516W, and 518).

For samples determined to be abnormal, GM must send the test results to employee who conducted the inspection or revenue agent who will follow-up on the result. GM or designated blitz contact person must send the lab results within one business day of receiving notification from EFL.

A request from EFL for additional samples or information will be forwarded by GM to employee. The person following up on the initial sample will not necessarily be the same person who sent the first sample. GM must send the request for additional samples or information to employee within one business day of receiving notification from EFL.

Follow-up samples are considered blitz samples. Instructions for labeling and shipping samples must be followed. Refer to IRM 4.24.15.15 and IRM 4.24.15.17 for detailed guidance. The blitz data inspection sheet must indicate the sample is a follow-up and identify the original sample number(s).

If abnormal results are not received within 15 calendar days from the date the samples were shipped, blitz cases will be updated to closing status in IMS. Letter 3143, Non-violation Results of Inspection, must be issued at this time. For certain blitz projects, the 15 day period may be extended. GM will notify employee if the period is extended.

Employee will record the content of the sulfur notice label on the pump in the IMS case history.

Employee will review BOLs and delivery tickets and obtain the following information pertaining to each of the last three shipments of diesel fuel:

Only EFL results that indicate possible sulfur concentration violations are forwarded. If EFL results are not received within 15 days from the date the sample was shipped, employee may assume the sulfur concentration was within the allowable level.

Gasoline samples are secured to determine each sample is representative of the declared octane level. Gasoline samples are secured as part of a project or at management¡¯s instruction. The following sampling procedures apply to fueling field compliance vehicles with gasoline:

For gasoline samples, follow the procedures below:

All samples must be shipped in two-ounce glass bottles with one-ounce fill lines. Fuel samples secured will be one ounce in volume. Refer to IRM 4.24.15.15.2 for detailed guidance pertaining to securing samples.

Ensure there are no cracks or chips in the sample bottles used.

Caps with a plastic, cone-shaped seal inside the cap must be used.

The request to collect investigative samples may come from a variety of sources that include but are not limited to:

Revenue agents may request employees secure samples to determine whether Form 637 biofuel registrants and applicants satisfy the requirements of the associated IRC sections and associated ASTM standards.

Samples must be obtained using one of the approved sampling methods discussed above. Refer to IRM 4.24.15.13 for detailed guidance.

Eight one-ounce samples are collected from each source of fuel for which investigative sample testing is requested.

Eight one-ounce samples are collected from each source for gasoline samples that require octane measurements.

Form 14403, Investigative Sample Information, must be completed and included with the shipment to alert EFL of what is suspected and what tests will be done. This form gives the chemist a starting point for the investigation. Form 14403 includes the following information:

Refer to IRM 4.24.15.15 for detailed guidance about required label information on Form 9667.

Refer to IRM 4.24.15.16 for detailed guidance about chain of custody.

Refer to IRM 4.24.15.17 for detailed guidance about packing and shipping samples.

Place completed Form 14403 into the box with the samples.

If results from an initiated sample indicate the need for further development, a referral will be completed within one day of receipt. Refer to IRM 4.24.13.9.1, Referral Procedures, for detailed guidance about completing a referral.

Unless otherwise notated, these instructions apply to all samples.

FCS I.D. - enter the assigned four or five-digit employee identification number.

Date - enter date the sample was collected.

Type of Test (Check only one) - select the applicable test. Refer to IRM 4.24.15.15 for detailed guidance about the type of test to select for tests performed. Checking a single type of test on the label automatically triggers additional tests to be performed.

The following situations are exceptions to selecting only one test:

Declared Product - mark the space to the right of the declared fuel type. The declared fuel type is the product the paperwork or taxpayer claims.

TCN or City/State - For samples obtained from terminals record the TCN. For other samples, record the city and state information.

Number of bottles associated with the sample (record the number). Ensure the correct number of samples are obtained. For guidance, refer to IRM 4.24.15.15.2.

All information entered in the Chain of Custody and Case obÌåÓý sections must match the corresponding information recorded in the Bottle Label section.

The matrix below identifies the tests performed, sample instructions, required paperwork, and the reports generated. Review the "Tests Performed" section of this matrix to select the appropriate type of test on Form 9667.

When custody of a sample is relinquished to another party, Form 13926 is completed to record sample number, names of the parties involved, date each party received the sample, and date when custody was relinquished.

One control document will be used for each sample and the document will be updated to reflect each transfer of custody. Examples of when this occurs include but are not limited to:

The properly completed form must include the:

This form must be placed in the shipping box with the fuel samples to be tested.

Additionally, Form 13927 must be completed and accompany the relinquished samples.

Form 13927 must be completed by employees for all boxes of samples relinquished to the shipping company and shipped to EFL. If the shipment contains more than five samples, an additional Form 13927 will be completed and included in the shipping box.

Employee must manually complete this document.

A properly completed document must include the following:

Information on Form 13927 must match information on Form 9667 for the corresponding sample.

Form 13927 must be placed in shipping box with the fuel samples to which it pertains.

49 CFR 173.4a and IATA 2.6 allow a maximum of 30 ml (approximately one fluid ounce) per "inner packaging." An "inner packaging" is defined as one sample bottle.

The approved shipping box has two layers and can hold up to 12 bottles per layer for a total of 24 bottles. Only ""approved" " shipping boxes will be used for shipping two ounce bottles.

The maximum number of sample bottles permitted in each box depends on the fuel product(s) to be shipped. Two or more products may be shipped in the same box; however, if jet fuel with a flash point less than 73 degrees, gasoline, undefined product, transmix or waste oil is shipped, no more than 15 total samples may be shipped in the same box.

The following table itemizes the necessary actions for packing instructions procedures.

All samples must be shipped overnight using the current approved contract carrier and transportation mode.

All air bills must be completed electronically.

No Saturday or Sunday deliveries are allowed. Samples may be shipped on Friday, but do not indicate on the air bill for the package to be delivered during the weekend.

Ship samples to:

Samples must be shipped to EFL within five business days of being secured. Extensions may be granted by GM, if warranted. Employee will follow the agreement in the MOU between IRS and the state agency for samples obtained by a state employee as part of an MOU.

Include in the box with the samples:

Seal the shipping box with packaging tape.

The shipping box must contain the required excepted quantities marking in red or black ink. The marking must not be covered by any other labels nor any other written markings. The marking for excepted quantities is pre-printed on the box.

The identified shipping account will not be used for any purposes other than to ship fuel.

The shipping box must remain in the custody of the shipper until it is taken to a shipping company location that accepts dangerous goods. The box must not be left in the mail room, hotel front desk, or other location for pick-up. Failure to comply with these instructions will break the chain-of-custody.