Form 720

Published on October 17, 2024
by Aya Takriti

Aya Takriti, an IRS Enrolled Agent with 10 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 in the Middle East.

Table of Contents

Do businesses need to submit Form 720?

If you sell products or offer services subject to excise tax, then you must submit Form 720 to report and pay excise tax to the Internal Revenue Service (IRS).

Not all businesses are required to submit this form. Form 720 targets businesses or similar entities that are due with excise tax for tax compliance.

What is an Excise Tax?

These are taxes levied upon specific products, services, or activities upon a customer’s purchase.

Generally, the tax is added to specific goods or services to discourage certain negative habits or to finance government initiatives related to the product.

The tax is charged immediately to the business that offers it, so it is often already included in the price of the product and is not visible on the receipt.

What products should I look out for excise tax?

Here are typical examples to check:

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

 

It’s important to remember that any business handling even a single taxable product or service must file Form 720.

How do I file Form 720?

You can download and fill out Form 720 on the IRS official website.

    1. Basic business information: You can specify the name of your business, address, and Employer Identification Number (EIN).
    2. Reporting Period: Specify the current quarter when filling out the form.
    3. Parts I and II – Excise Taxes: Identify and categorize the excise tax offered by your business and fill in the corresponding sections.
    4. Schedules: Specify the correct schedules for the detailed aspect of your excise tax liability.
    5. Part III – Calculation: Summarize the total excise tax stated on your form. Also, include the previous payments made in the earlier quarters.
    6. Signature and Submission: Sign and date the form for completion and submit it to the IRS to pay any taxes due.

Where can I submit my completed Form 720?

You can mail the completed form to the Department of the Treasury Internal Revenue Service Ogden, UT 84201-0009.

Alternatively, you can file it electronically using the Electronic Federal Tax Payment System (EFTPS) offered by the IRS.

The IRS recommends filing electronically to ensure smoother and quicker filing. 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 if you still offer goods or services subject to excise tax for that period. Here are the specific deadlines:

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

Are there penalties for late filing of Form 720?

Yes, there is a list of penalties that could subject a business if they fail to file on time.

  • Penalties for Late Filing: The IRS will charge a penalty of 5% of the unpaid tax for each month it’s late and up to 25% of the tax owed.
  • Penalty for Late Payment: For late payment of excise tax, the IRS imposes a penalty of 0.5% of the unpaid tax for each month the payment is late and up to 25% of the tax owed.
  • Fraud Penalty: If failure to file and pay was due to intentional fraud upon investigation by the IRS, the penalty could be as high as 75% of the amount owed.
  • Interest Charges: In addition to the penalties incurred, 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 the taxes are paid in full.

Are there tax credits available for using Form 720?

Yes, Here are a few credits available to specific products and vendors:

  • Alternative Fuel Credit: For certain fuels such as liquefied petroleum gas (LPG), compressed natural gas (CNG), and other alternative fuels used in vehicles or related purposes.
  • Nontaxable Use of Fuel: This applies to nontaxable uses of gasoline, diesel, and other fuels, like specific governmental or agricultural purposes.
  • Biodiesel and Renewable Diesel Credit: Credit is offered to businesses that manufacture biodiesel or renewable diesel mixtures to produce or use these fuels.
  • Sales of Undyed Kerosene: For businesses offering undyed kerosene used for certain nontaxable purposes.
  • 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 businesses offering kerosene for aviation purposes under special rules that may be eligible for credits.
  • Alternative Fuel Mixture Credit: For businesses that blend alternative and conventional fuels.
  • 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.
  • Credit for Sales by Registered Vendors: This is for specific fuel sales by registered businesses, such as kerosene used for heating or gasoline sold at a tax-exempt price.