Today, we’re going to discuss what’s needed for an Excise Tax Bond, specifically a Tax Fuel Bond under section 4104. The bond ensures that the payment of the tax imposed on fuel under § 4081(a)(1), or § 4081(b) of the Internal Revenue Code, guarantees that the seller of the fuel will not attempt to defraud the United States of any tax obligations under those sections. The principal will file all tax returns and statements as required by law or regulation. The principal will pay all taxes, including any penalty interest charges that the principal will comply with all other requirements under the law of regulations regarding tax under § 4081(a)(1), or § 4081(b).
The reason I bring this up is that people that sell or import fuel are required to obtain this bond. Generally, few companies like writing Excise Tax Bonds since the IRS is the obligee, and the IRS is an obligee that often makes claims on bonds. I work with sureties that understand the risk, understand how to underwrite the financials for this obligation, and do it often. One of the requirements of the surety is that they are federally approved to issue these bonds up to the amount that is required. The sureties that Pedersen & Sons works with are all federally approved surety companies, so that’s not a problem.
Another thing to know is the bond guarantees the payment of tax and compliance with the law. The surety company is going to look at the financial statements of the company applying for the bond. If the company does not have financials or is unwilling to provide financials, the surety can then look to the owners or investors obtaining the bond. If they, too, are not willing to provide financials, the surety can then take collateral which could be required either if financials are provided. The financials help the surety underwrite the bonds to determine what, if any, collateral is going to be required. The financials would be both the profit and loss, and a balance sheet for the company.
The financial risk associated with the bond can be high because it could be a very large bond amount for certain companies, depending on their possible tax liability for the year. Collateral is also an option. Collateral can be cash or a letter of credit. If it’s cash, the surety would need to know where the cash is coming from. If it’s a letter of credit, the letter of credit would have to be in a format acceptable to the surety, issued by a bank acceptable to the surety.
In my experience, it’s best to line up your bond as soon as possible, so you can ensure that you comply with the IRS deadline. There are legal ramifications if the bond is not filed by the deadline. If you don’t have the bond on file, you should speak to your attorney about that. If you’re unable to obtain the bond, it’s best to give my office a call or send us an email as soon as possible so that we can start working with you to help you obtain the bond so that you ensure that you’re in compliance with the IRS provision.
Sign up for Our Newsletters