IRS Form 720 Instructions: How to Complete in 8 Steps

IRS Form 720 is used to report and pay your federal excise tax liability for certain products that are manufactured, produced, or imported like fuel as well as services like airline travel. It is not used for alcohol, tobacco, and firearms, which use Form 5000.24. We will discuss IRS Form 720 instructions.

The completion of Form 720 requires detailed accounting information, including quarterly sales separated by product and service as well as the number of units sold for products. We recommend using a comprehensive accounting solution, such as QuickBooks Online, to track and compile this information easily.

What is Form 720?

Form 720 is the Quarterly Federal Excise Tax Return that businesses use to report their federal liability for excise taxes that they either collect from customers or are responsible for paying themselves. Excise taxes for alcohol, tobacco, and firearms are reported on Form 5000.24 instead of Form 720.

Who Must File Form 720?

All businesses must file Form 720 if they collected or are liable for paying any of the following excise taxes:

• Environmental taxes
• Communications and air transportation taxes
• Fuel taxes
• Manufacturer’s taxes
• Patient-centered outcomes research fee
• Sporting equipment taxes

This is a partial list. Form 720 parts I and II provide a complete list, including more detail on the categories above as well as some less common taxes.

When Should You File Form 720?

Form 720 Quarterly Federal Excise Tax Return is due the last day of the month following the end of the quarter. For example, the first quarter ends March 31, so the due date is April 30. If the regular due date falls on a weekend or holiday, Form 720 is due the following business day.

Be sure to read the section on the due date of payments. These are different than the due date for filing the return.

Where to File Form 720

The mailing address to file Form 720 changed in 2019. If you choose to mail Form 720 instead of filing it electronically, mail the form to:

Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0009

For years after 2019, be sure to check with the most recent Form 720 filing instructions to verify the address hasn’t changed.

How to File Form 720 Electronically

Form 720 can be electronically filed through an IRS-approved software provider. Most income tax software providers do not provide for the e-filing of excise tax returns. For a fee, Quarterly Express or Tax Excise can file your Form 720 electronically.

When to Pay Excise Tax from Form 720

In general, excise taxes must be deposited on a semimonthly basis. The first 15 days of each month is the first semimonthly period and the 16th through the last day of the month is the second semimonthly period. Excise taxes must be deposited within 14 days after each period ends and must be made electronically through the Electronic Federal Tax Payment System (EFTPS) system. For instance, taxes collected during the semimonthly period of Jan. 1 to Jan. 15 must be deposited by Jan. 29. If the due date falls on a weekend or holiday, the deposit is due the following business day.

An exception to the regular semimonthly payment schedule is for a Form 720 with $2,500 or less of excise tax due. In this case, the total tax liability can be paid by check along with the filing of Form 720.

Where to Find Form 720

Form 720 is available as a fillable PDF from the IRS website, along with detailed instructions. Be sure to download the form and open it with a PDF application before filling it out. Any information entered inside the web browser prior to downloading the form will be lost.

Step-by-Step Form 720 Instructions: How to Complete

Step 1: Collect Information to File IRS Form 720

Form 720 requires several pieces of information. The form requires a federal employer identification number, plus a detailed report that shows sales of all products (including units sold) and services.

Listed below are the three primary documents and information to complete IRS Form 720.

1. Employer Identification Number

The Employer Identification Number (EIN) is your federal employer ID number, also known as your tax ID. For more information on how to apply for your EIN, check out our Employer ID guide.

2. Sales Report by Product and Service

The excise tax for many of the items on Form 720 is calculated as a percentage of sales. Therefore, you need to keep track of your total sales amount for each product and service that you sell so that you have accurate dollars to use for this calculation. If you have a retail business and you use a point-of-sale (POS) system, then you should be able to generate this report easily. If you track your inventory in QuickBooks, you can generate this report easily.

3. Units Sold Report by Product

The other method used to calculate excise tax is the total units sold. For example, total gallons used for fuel. You need to keep track of the quantities of all products sold so that you can use that information to calculate the excise tax accurately for those items that are based on units sold.

Step 2: IRS Form 720 — General Information Section

In this section, you will provide the following basic information about your business:

• Business name: Enter the name of your business
• Business address: Enter your business mailing address
• Employer ID number: Enter your nine-digit federal employer identification number
• Quarter ending date: Enter the last day of the quarter you are reporting on, such as. March 31, June 30, Sept. 30 or Dec. 31

Step 3: IRS Form 720 — Part I

Part 1 is used to compute excise taxes for which semimonthly deposits are generally required. In this section, you will compute excise taxes on the following items:

• Environmental like petroleum oil spills and ozone-depleting chemicals
• Communications like local telephone service
• Air transportation like travel by airplane
• Fuel like aviation, kerosene, and diesel
• Retailers of trucks, trailers and semitrailers
• Ship passenger like on a cruise ship
• Foreign insurance policies
• Manufacturers of coal, tires, or vaccines

To calculate environmental taxes, you will need to complete Form 6627 and file it with Form 720. The calculation of excise taxes can be complicated and vary greatly from one tax to another. IRS Publication 510 provides additional information concerning the calculation of excise taxes.

Step 4: IRS Form 720 — Part II

Part II is used to calculate excise taxes that can be paid with Form 720 instead of being deposited semimonthly, except the Floor Stocks Tax. In this section, you will calculate excise taxes if you collect or are liable for excise taxes on:

• Certain health insurance policies
• Sportfishing equipment, fishing rods, and poles
• Motors for boats
• Bows
• Indoor tanning services

If you issue health insurance policies, you will need to provide the average number of lives covered for each policy issued.

Step 5: IRS Form 720 — Part III

Part III calculates the balance due or overpayment of tax for the quarter. It accumulates the tax from parts I and II and subtracts the tax credits claimed on schedule C and the semimonthly tax deposits made during the quarter.

Step 6: IRS Form 720 — Schedule A (Excise Tax Liability)

You must complete Schedule A to show your semimonthly deposit required if you owe taxes from Part I. You do not need to complete Schedule A if you don’t owe any taxes in Part I.

Step 7: IRS Form 720 — Schedule T (Two-Party Exchange Information Reporting)

You do not need to complete Schedule T if you do not produce, manufacture or sell diesel fuel, kerosene, gasoline or aviation gasoline. The purpose of Schedule T is to report the total gallons of taxable fuel received or delivered in a two-party exchange. In a two-party exchange, the receiving person, not the delivering person, is liable for the tax imposed on the removal of taxable fuel from the terminal at the terminal rack.

A two-party exchange means a transaction―other than a sale―where the delivering person and receiving person are both taxable fuel registrants. Refer to Form 720 instructions to determine if you have transactions that would qualify as two-party exchanges.

Step 8: IRS Form 720 — Schedule C (Claims)

You must report excise tax on fuels in Part I, even if the fuel is used for an exempt purpose. However, if the fuel is used for an exempt purpose, then Schedule C can be completed to claim a credit to offset the tax calculated in Part I. Below is a chart from the Form 720 instructions that provides a list of exempt uses of fuels for which a credit can be claimed.

IRS Form 720 Schedule C (Type of Use Table)

Frequently Asked Questions (FAQs) on IRS Form 720

Here are some of the most frequently asked questions about IRS Form 720.

Can You File Form 720 Electronically?

For a fee, you can file Form 720 electronically through an IRS approved modernized e-File provider.

What Goods Are Subject to Excise Tax?

Fuel is the primary product that is subject to excise tax. This includes a number of different types of fuel like diesel, kerosene, and aviation. In addition, the following items are also subject to excise tax:

• Environmental like petroleum oil spills and ozone-depleting chemicals
• Communications like local telephone service
• Air transportation like travel by airplane
• Fuel like aviation, kerosene, and diesel
• Retailers of trucks, trailers and semitrailers
• Ship passenger like on a cruise ship
• Foreign insurance policies
• Manufacturers of coal, tires, or vaccines
• Manufacture or import of fishing and archery equipment

What Is the Mailing Address for Form 720?

Form 720 should be mailed to:

Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0009

How Do I Report Sales for Alcohol, Tobacco & Firearms?

Alcohol, tobacco, and firearms are regulated by an agency called Alcohol and Tobacco Tax and Trade Bureau (TTB) and are not reported on Form 720. To file and pay your excise taxes for alcohol, tobacco, and firearms, you must complete Form 5000.24, which can be completed online at the TTB website.

Bottom Line

Excise taxes can be overwhelming. The key to filing your tax returns properly is making sure that you have good, accurate accounting records. By using accounting software like QuickBooks to manage your income and expenses, you will have access to the reports that you need to complete your tax forms.