FEDERAL-AID POLICY GUIDE
July 30, 1992, Transmittal 3

G 3016.4

CHAPTER 1

USE OF FUNDS FOR FUEL TAX EVASION PROJECTS

OPI: HPP-13

Par.

  1. Purpose

  2. Authority

  3. Background

  4. Guidance

  5. Approvals

  6. Reporting

  1. PURPOSE. Funds have been authorized by the Congress for the use of the States and the Internal Revenue Service (IRS) to stem motor fuel tax evasion. This guidance describes the procedures for making these funds available to the States.

  2. AUTHORITY. Section 1040 of the Intermodal Surface Transportation Efficiency Act of 1991 (Pub. L. No. 102-240).

  3. BACKGROUND

    1. Section 1040 of the Intermodal Surface Transportation Efficiency Act of 1991 authorized $5 million per year for fiscal years (FY) 1992 through 1997 from the Highway Trust Fund and $2.5 million per year from the General Fund for highway use tax evasion projects. A portion of these funds is being allocated to the States for participation in regional motor fuel tax enforcement task forces. Three such task forces were organized in 1991 covering 14 States, under the coordination and leadership of the IRS district offices and State revenue agencies in the States of New Jersey, Indiana, and Texas. A preliminary plan for organizing all of the States and the District of Columbia into regional task force groups is provided in Attachment 1.

    2. The revenue agencies in the proposed lead States have been invited to work with the respective IRS district offices to organize regional task forces. Other lead States may be designated for a regional task force if necessary.

    3. Funds will be allocated annually to the States, including the District of Columbia, for the use of the State revenue agency responsible for motor fuel tax enforcement to carry out the purposes of section 1040. Funds are available at 100 percent Federal share. However, as specified in section 1040, States wishing to receive funds for tax evasion projects must certify that the aggregate expenditure of funds of the State, exclusive of Federal funds, for motor fuel tax enforcement activities will be maintained at a level which does not fall below the average level of such expenditures for its last two fiscal years.

    4. Enforcement of motor fuel tax compliance with respect to revenue allocations by State, for fuel used by commercial motor carriers, will not be an emphasis under this program. Enforcement of State allocations of motor fuel taxes with respect to motor carriers will be addressed under section 4008 of the Intermodal Surface Transportation Efficiency Act of 1991 entitled "Participation in International Registration Plan and International Fuel Tax Agreement."

  4. GUIDANCE. To receive funding under this program, the State revenue agency responsible for enforcement of State motor fuel taxes shall follow these procedures:

    1. Sign the Memorandum of Understanding (MOU) agreeing to participate in at least one of the regional task forces. The proposed regional grouping plan presented in Attachment 1 was developed as a guide. States should join one or more task forces to best meet their needs for coordinated fuel tax enforcement.

    2. Prepare an estimate of costs by category of expenditure. Allowable costs shall be determined in accordance with the Office of Management and Budget (OMB) Circular A-87, "Cost Principles for State and Local Governments." A sample budget is provided inAttachment 2.

    3. Establish accounting codes for attributing costs to the project. For example, if a system of time distribution for payroll costs is not already in place, a system will have to be developed to record the hours devoted to the project.

    4. Comply with the intergovernmental review requirements of 49 CFR Part 17 according to the procedures established by the State. Since the program is authorized under the same procedures as Title 23 U.S.C. Highways, the Catalog of Domestic Federal Assistance Programs Number is 20.205, Highway Planning and Construction.

    5. Submit a letter to the FHWA Division Administrator in the State requesting funds for the project along with the following items:

        (1) evidence of completion of the intergovernmental review requirements,

        (2) a copy of the signed MOU (original signatures not required,)

        (3) the cost estimate by expenditure category,

        (4) three signed original copies of the Grant Agreement. (One signed original copy will be returned to the State following signature by the Division Administrator.)

    6. Request in writing FHWA approval of the following items as necessary:

        (1) revised budget whenever a new cost category is added or the estimate for a single cost category changes by more than 10 percent of the total agreement amount, i.e. $5,000 for a $50,000 project,

        (2) proposal for procurement of professional services, including identification of the contractor and estimated cost, when the estimatedcost exceeds $10,000.

    7. Designate, for the lead States, a representative and alternate to serve on the national project Steering Committee. The Steering Committee comprised of Federal, State, and industry representatives reviews progress and results of motor fuel tax compliance activities.

    8. Submit progress reports and payment vouchers as described in the Grant Agreement. The report of motor fuel tax enforcement activities, project expenditures by category, and narrative project summary will be usedto compile the reports to the Congress on March 31 and September 30 each year through FY 1997.

    9. Arrange for audits when required by 49 CFR Part 90.

  5. APPROVALS. The Grant Agreement includes all of the specific requirements on the use of project funds, including the certification to maintain funding for motor fuel tax enforcement activities at the average level for the previous two fiscal years. The Division Administrator may approve projects by signing the Grant Agreement. One copy with original signatures shall be returned to the State and one copy with original signatures shall be forwarded to the Washington Headquarters (HPP-13), either directly or through the Regional Office as directed by the Regional Administrator. The Grant Agreement may be amended as needed to provide additional funding and to extend the completion date.

  6. REPORTING. Reports from participating States are due every 6 months for use in preparing the reports to the Congress as required by section 1040. Reports will cover the 6-month periods ending March 31 and September 30 and will be due 60 days following the end of the reporting period. The report consists of 2 forms, Part 1 - Tax Filings and Examination/Audit and Part 2 - Criminal Investigations. The reporting forms are provided as Attachments 3 and 4. The reporting format may be revised from time to time as needed. Since enforcement of State allocations of motor fuel tax with respect to commercial motor carriers will not be emphasized under this program, reports concerning enforcement of motor fuel taxes with respect to motorcarriers are not required.

    1. Each 6-month report should also include a summary of expenditures for the reporting period. An amended budget can be included for FHWA approval at this time, if needed. A sample financial summary and budget revision based on the earlier sample budget is provided as Attachment 5.

    2. Each State should provide a copy of the completed report forms to the lead State and to the FHWA division office. To facilitate compilation of reports for the Steering Committee, the lead States should provide copies of all reports from each task force directly to the Federal Highway Administration (HPP-13), 400 Seventh Street, SW., Washington, D.C. 20590.

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