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Industry Circular

Number: 65-20
Date: August 10, 1965

Office of the Commissioner of Internal Revenue Alcohol and Tobacco Tax Division


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AMENDMENT OF REGULATIONS IN 26 CFR PART 270 Manufacturers of tobacco products:

Purpose. The purpose of this industry circular is to provide information about the amendment of regulations in 26 CFR Part 270, covering the manufacture of tobacco products, by Treasury Decision 6840, effective September 1, 1965, published in the Federal Register of July 27, 1965 (30 F.R. 9310).

Background. The notice of proposed rule making was published in the Federal Register of August 6, 1964 (29 F.R. 11377). The comments received in response to the notice were carefully considered and evaluated. The amendments with certain modifications were then adopted by Treasury Decision 6840.

Principal Amendments. The principal amendments incorporated in 26 CFR Part 270 are as follows:

(a) Section 270.212 was amended to provide greater operating flexibility for manufacturers operating more than one factory and desiring to use the same packaging materials at all factories. Under such circumstances, the mark may consist of the name of the manufacturer (including, if he wishes, the city and State where he has a place of business), if the factory where the products are packaged is identified on or in the package by a means approved by the Director, Alcohol and Tobacco Tax Division. This means that the factory where packaged may be identified by imprinting (at the time of packaging, either on the outside or inside the package) a symbol, number, letter, etc., approved by the Director. Such symbol, number, letter, etc., may even be impressed into the tinfoil at the time of packaging.

(b) Section 270.231 was amended to make it clear that any tobacco products furnished without determination and payment of tax, for personal consumption by employees, must be furnished gratuitously. In addition, the section was amended to make it clear that such tax-exempt tobacco products gratuitously furnished to employees for off-factory consumption must be furnished to the employee within the factory and taken from the factory by the employee on the day for which furnished. "Employee" as used in the section has been changed to include only those persons whose duties require their presence in the factory or whose duties relate to the manufacture, distribution, or sale of tobacco products.

(c) A new Section 270.186 was added to prescribe the specific information to be included in manufacturers' auxiliary or supporting records of transfers of tobacco products in bond to or from other factories.

(d) Section 270.202 was amended to prescribe the manner in which the overages and shortages of tobacco products disclosed by inventories will be summarized and included in the monthly report.

(e) A new Section 270.255 was added to clarify the procedures for recording shortages or overages of tobacco products disclosed by inventories and to provide for the filing of a claim for remission if such shortage can be satisfactorily explained or for the taxpayment of shortages not satisfactorily explained. For example, shortages of unpackaged cigars are generally recognizable as reasonable if they result from normal loss or breakage in grading, humidifying, sorting, rewrapping, cellophaning, or packaging, or if they result from inherent difficulties in accurately establishing production or otherwise accounting for the product.

Overages and shortages in inventories made at different times cannot be netted against each other; each discrepancy must be recorded and reported. However, it should not be misunderstood as requiring overages and shortages to be recorded and reported by brand, type of package, etc., or as requiring recording and reporting of differences between two or more counts taken to arrive at one accurate inventory. This Treasury Decision continues the existing requirement to record overages and shortages in such categories as small cigarettes, large cigarettes, small cigars, and large cigars.

Form 3068, Monthly Report Manufacturer of Tobacco Products, has been revised to conform with the amended regulations and upon receipt of this revised form (Rev. 9-64) by manufacturers the prior form (Rev. 7-63) should be destroyed.

(f) A new Section 270.286 was added to include in the regulations provisions for handling errors (e.g., erroneous invoices) made in computing the tax which result in overpayments, since it is recognized that such errors are common and, to a certain extent, unavoidable in today's volume of removals of tobacco products.

(g) Section 270.69 was amended to provide that a diagram shall be submitted identifying each building where the factory consists of more than one building at the same street address. If an existing factory consists of more than one building at the same address, no action need be taken by a manufacturer unless the assistant regional commissioner requests that a diagram be submitted. (h) Section 270.183 was amended to provide that in recording the daily totals of manufactured tobacco, a manufacturer may disregard fractions of less than one-half pound and increase fractions of one-half pound or more to the next whole pound. A new Section 270.216 was added to recognize slight variations in weight inherent in filling packages of manufactured tobacco.

(i) The regulations were also amended to delete obsolete provisions relating to the redemption of stamps and to make miscellaneous clarifying and conforming changes of a minor nature.

Reprints of Part 270. For your information and guidance, a reprint of 26 CFR Part 270, reflecting the amendments, is being printed and will be furnished to you when it is available.

Inquiries. Inquiries regarding this circular should refer to its number and be addressed to the office of your assistant regional commissioner (alcohol and tobacco tax).

Harold Serr

Harold A. Serr

Director, Alcohol and Tobacco Tax Division

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