Procedures

Rev. Proc. 66-20

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to provide information as to the date to be shown in claims for credit of tax, Form 2635, Claim-Alcohol and Tobacco Taxes, or claims for refund of tax, Form 843, Claim, filed under section 5705 of the Internal Revenue Code of 1954, on cigars and cigarettes withdrawn from the market.

SEC. 2. BACKGROUND.

The period of limitation for filing claims for credit or refund of tax, as set forth in section 5705(c) of the Code, is 6 months after the date of withdrawal from the market, loss (otherwise than by theft), or destruction of the cigars and cigarettes to which the claim relates.

SEC. 3. ACCEPTABLE DATES ON CLAIM.

It will be acceptable for claimants to show on either Form 2635 or Form 843 as the date of withdrawal from the market, the date that cigars and cigarettes were received on the factory premises (as described in the manufacturer's application for permit), or were voluntarily destroyed or reduced to tobacco, at a place other than such premises. In lieu of a listing of such specific date or dates, the claimant may certify (under penalties of perjury) that the products covered by the claim were received on the factory premises, or voluntarily destroyed or reduced to tobacco, at a place other than such premises, within 6 months prior to the date that the claim is filed.

SEC. 4. INQUIRIES.

Inquiries in regard to this Revenue Procedure should refer to the number thereof and should be addressed to the appropriate Assistant Regional Commissioner, Alcohol and Tobacco Tax.

Revenue Procedure 59-2, C.B. 1959-1, 800, is hereby superseded.

26 U.S.C. 5705; 26 CFR 601.315

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Rev. Proc. 66-21

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to explain the requirement concerning the "notice" to appear on packages of large cigars and to furnish suggestions for compliance with the regulations.

SEC. 2. BACKGROUND.

The Internal Revenue Service has received inquiries whether the appearance of the word "cigars" in the class designation on a package of large cigars would fulfill the requirements of 26 CFR 270.214 and 275.73 or if the word "cigars" must be separately stated on the package.

SEC. 3. REQUIREMENT OF REGULATIONS.

Under the return system it is necessary that packages of cigars and cigarettes have positive expressions of the quantity, kind, and class of the cigars and cigarettes contained in the packages. Therefore, for large cigars 26 CFR 270.214 and 275.73 specifically require that packages of such products shall, before removal subject to tax, have adequately imprinted thereon, or on a label securely affixed thereto, the designation "cigars" and the appropriate class designation.

This means that the appearance on the package of the word "cigars" in the class designation for large cigars does not fulfill the requirement of 26 CFR 270.214 or 275.73 and that the word "cigars" must be separately and adequately stated. While such descriptive words as "cigarillos," "cheroots," "blunts," "panatelas," etc., may be used on packages of cigars, they will not be considered as a substitute for the word "cigars."

SEC. 4. SUGGESTIONS FOR COMPLIANCE.

.01 The Internal Revenue Service suggests to manufacturers and importers the following ways in which the word "cigars" may appear on the package. The word "cigars" may be imprinted directly on the package or on a label securely affixed to the package. For example, it may appear in connection with (1) a brand name, such as "Perfect Cigars," (2) the quantity statement, such as "25 cigars," or (3) a slogan, such as "finest quality cigars." .02 Manufacturers and importers are urged to submit packages to their Assistant Regional Commissioner, Alcohol and Tobacco Tax, for advice where there is any doubt about compliance with the requirement of the regulations.

SEC. 5. INQUIRIES.

Inquiries in regard to this Revenue Procedure should refer to its number and be addressed to the office of the appropriate Assistant Regional Commissioner, Alcohol and Tobacco Tax.

Revenue Procedure 62-5, C.B. 1962-1, 426, is hereby superseded.

26 U.S.C., 5723; 26 CFR 601.311

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Rev. Proc 66-22

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to outline the procedure for the preparation and distribution by manufacturers of tobacco products of Form 2149, Notice of Removal of Cigars, Cigarettes, Cigarette Papers, or Cigarette Tubes, from Factory for Export, covering shipments of tax-exempt cigars and cigarettes replacing products lost, damaged, or destroyed in transit for exportation.

SEC. 2. BACKGROUND.

.01 26 CFR 290.198 and 290.199 provide for the preparation and distribution of the several copies of Form 2149, and 26 CFR 290.203 provides for the filing of two copies of the form with the District Director of Customs at the port of exportation, for each shipment removed for exportation.

.02 Where cigars and cigarettes are lost, damaged, or destroyed in transit for exportation (either the total shipment of a part of the shipment) and the manufacturer of tobacco products makes a replacement shipment, the two sets of Form 2149 will, in the aggregate, indicate the removal for exportation of more products than are entered on the export declaration and ship's manifest. Since the District Director of Customs certifies to only the actual quantity exported, the additional Form 2149 covering a replacement shipment often creates confusing and additional work in his office. Therefore, the following procedure should be used when replacement shipments are made.

SEC. 3. PROCEDURE.

.01 Preparation and Disposition of Forms 2149 Covering Replacement Shipments. - When tax-exempt cigars and cigarettes are removed from the factory to replace cigars and cigarettes lost, damaged, or destroyed in transit for exportation, Form 2149 should contain a statement to the effect that the cigars and cigarettes listed thereon were removed from the factory to replace cigars and cigarettes removed under Form 2149, serial number, which were lost, damaged, or destroyed, as applicable. It should also contain an explanation of the loss, damage, or destruction. Only two copies of the form need be prepared, one copy to be retained by the manufacturer as a part of his records and one copy to be forwarded to the Assistant Regional Commissioner, Alcohol and Tobacco Tax. No copy should be sent to the District Director of Customs for the reason stated in section 2.02 above.

.02 Accounting for Lost, Damaged, or Destroyed Cigars and Cigarettes. - Manufacturers are reminded that lost, damaged, or destroyed cigars and cigarettes must be accounted for by tax-payment, by return to the factory, or by the filing of a claim for remission of the tax liability with the Assistance Regional Commissioner, Alcohol and Tobacco Tax.

SEC. 4. INQUIRIES.

Inquiries in regard to this Revenue Procedure should refer to its number and be addressed to the office of the Assistant Regional Commissioner, Alcohol and Tobacco Tax.

Revenue Procedure 62-22, C.B. 1962-2, 486, is hereby superseded.

26 U.S.C. 5704; 26 CFR 601.311

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Rev. Proc. 66-23

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to set forth the procedure to be followed by manufacturers of tobacco products for recording and reporting cigars and cigarettes removed subject to tax and the treatment of tax determined (including taxpaid) cigars and cigarettes received into the factory.

SEC. 2. BACKGROUND.

Recent inspections disclosed that some manufacturers of tobacco products were not fully reporting the quantities of cigars and cigarettes removed subject to tax because they were reducing the quantity of products actually removed to the extent of tax determined products returned to the factory. The manufacturers based their action on the consideration that (1) no claim for allowance or refund of tax would be made on the returned products, and (2) when such products were again removed subject to tax, the tax would be redetermined and paid. However, there is no basis for this practice in the applicable laws and regulations.

SEC. 3. RECORDING AND REPORTING REMOVALS SUBJECT TO TAX.

A manufacturer of tobacco products must enter in his records and reports the total quantity of cigars and cigarettes removed subject to tax, reflect such quantity in the tax return for the period in which the removals occurred, and pay the full amount of tax (except for authorized adjustments). In no case may the manufacturer, in his reports and tax returns, reduce the quantity of products actually removed subject to tax by the quantity of tax determined products returned to the factory.

SEC. 4. TREATMENT OF TAX DETERMINED PRODUCTS RECEIVED INTO FACTORY.

.01 All tax determined (including taxpaid) cigars and cigarettes (those which have not been returned to an "in bond" status) received into the factory must be segregated and identified as tax determined products and their receipt and disposition entered in the records in the account of taxpaid or tax determined products received. If reshipped, supporting records (such as copies of invoices, bills of lading, shipping tickets, etc.) must clearly identify the products as reshipped tax determined products. Lack of such identifications may result in the assessment of tax on the reshipped products. Tax determined cigars and cigarettes so handled would not be included in monthly reports.

.02 If tax determined cigars and cigarettes received into the factory are later to be returned to an "in bond" status, such disposition must be recorded in the taxpaid or tax determined account and the products concurrently picked up in the "received by return to bond" account. Thus, when the cigars and cigarettes are picked up as received by return to bond, they will be included in the monthly reports. When such cigars and cigarettes are then removed subject to tax, they will be so reported and fully covered in the tax return for the period in which they were removed. If the manufacturer wishes to obtain allowance, credit, or refund of tax which has been previously determined or paid on the products returned to bond, he may file claim on Form 2635, Claim-Alcohol and Tobacco Taxes, or Form 843, Claim, as applicable, and follow the procedures prescribed in 26 CFR 270.282, 270.283, 270.311, and 270.313 which involve notifying the Assistant Regional Commissioner, Alcohol and Tobacco Tax, before returning the products to an "in bond" status.

SEC. 5. INQUIRIES.

Inquiries in regard to this Revenue Procedure should refer to its number and be addressed to the office of the appropriate Assistant Regional Commissioner, Alcohol and Tobacco Tax.

Revenue Procedure 63-13, C.B. 1963-1, 501, is hereby superseded.

26 U.S.C. 5703, 5705, 5741; 26 CFR 601.311

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Rev. Proc. 66-25

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to furnish instructions as to which manufacturer's name and location, or permit number (to be shown in the mark as required by 26 CFR 270.212), should appear on packages of cigars or cigarettes produced and packaged by one manufacturer and transferred in bond to another such manufacturer.

SEC. 2. BACKGROUND.

Under the provisions of section 5704(b) of the Internal Revenue Code of 1954 and 26 CFR 270.233, a manufacturer of tobacco products may transfer cigars and cigarettes under his bond, without payment of tax, to the factory of any manufacturer of tobacco products. When so transferred, the cigars and cigarettes are exempt from the packaging requirements of 26 CFR 270.211. However, the regulations contemplate that the cigars or cigarettes may be shipped in bulk or in packages, as desired. When the cigars or cigarettes are transferred in packages, the question has been raised as to which manufacturer the mark on the package should identify.

SEC. 3. IDENTIFICATION OF MANUFACTURER LIABLE FOR TAX

Packages containing cigars or cigarettes produced by one manufacturer and transferred in bond, without payment of tax, to another manufacturer of such products should, in the mark required by the regulations, identify by name and location (by city and State), or by permit number, the manufacturer who will remove the cigars and cigarettes subject to tax. He becomes liable for the tax on such products upon their receipt and will usually be the proper claimant in respect to credit, refund, or allowance provided by law.

SEC. 4. INQUIRIES.

Inquiries regarding this Revenue Procedure should refer to its number and be addressed to the appropriate Assistant Regional Commissioner, Alcohol and Tobacco Tax.

Revenue Procedure 64-6, C.B. 1964-1, (Part 1), 664, is hereby superseded.

26 U.S.C. 5704, 5723; 26 CFR 601.311

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Rev. Proc. 67-18

SECTION 1. PURPOSE.

Revenue Procedure 66-24, C.B. 1966-1, 652, established procedures to be followed by a manufacturer of tobacco products (or by his authorized representative) in executing Form 3069, Schedule of Cigars, Cigarettes, or Cigarette Papers or Tubes Withdrawn from the Market. In order to make such procedures applicable to Form 3069 without regard to revision date, they are restated herein to omit reference, in sections 3 and 4, to specific item numbers appearing on the form.

SEC. 2. BACKGROUND.

.01 Damaged cigars and cigarettes were destroyed at the premises of a wholesale tobacco dealer under the supervision of an alcohol and tobacco tax inspector. The dealer prepared Form 3069 with the intention of transmitting the schedule to the manufacturer who would file claim for credit or refund of tax under section 5705 of the Internal Revenue Code of 1954. However, the manufacturer was not aware of the destruction of such products. The matter did not come to his attention until after the destruction of the cigars and cigarettes. Therefore, the manufacturer could not properly claim that he had withdrawn them from the market. Accordingly, a claim for credit or refund of tax on such products is not allowable.

.02 One condition to the credit or refund of tax on domestic cigars and cigarettes under section 5705 of the Code is the withdrawal of the products from the market by the manufacturerwho paid the tax. However, the law and regulations do not preclude the allowance of a claim where the cigars and cigarettes are destroyed or reduced to tobacco at a location other than the factory premises if the manufacturer takes possession or acquires ownership of the cigars and cigarettes prior to destruction or reduction to tobacco.

SEC. 3. SIGNATURE REQUIRED ON FORM 3069.

The action of the manufacturer in withdrawing cigars and cigarettes from the market must be evidenced by the signature of the manufacturer (or by the signature of the manufacturer's authorized representative) on the schedule, Form 3069.

SEC. 4. EXECUTION OF SCHEDULE FOR THE MANUFACTURER BY HIS REPRESENTATIVE.

Whenever a manufacturer withdraws cigars and cigarettes from the market and the schedule, Form 3069, is to be executed in his behalf by an employee such as a district manager, distribution manager, etc., not otherwise authorized to sign documents filed with the Assistant Regional Commissioner, Alcohol and Tobacco Tax, the manufacturer is responsible for timely filing Form 1534, Power of Attorney, as provided for in 26 CFR 270.68 authorizing such person to so act. It is the responsibility of the manufacturer to have on file with the Assistant Regional Commissioner, Alcohol and Tobacco Tax, for the region where the claim will be filed a Form 1534 prior to the execution of any schedule for the manufacturer by the person named in the power of attorney. Execution of Form 3069 by a person not authorized to do so may result in the disallowance of the claim. After cigars and cigarettes have been disposed of and a claim for credit or refund filed, the determination will be made in alcohol and tobacco tax offices as to whether the person who executed Form 3069 was duly authorized to act in behalf of the manufacturer. Manufacturers should fully instruct their representatives in the proper preparation of Form 3069.

SEC. 5. INQUIRIES.

Inquiries in regard to this Revenue Procedure should refer to its number and be addressed to the office of the appropriate Assistant Regional Commissioner, Alcohol and Tobacco Tax.

SEC. 6. EFFECT ON OTHER DOCUMENTS.

Revenue Procedure 66-24, C.B. 1966-1, 652, is hereby superseded.

26 U.S.C. 5705; 26 CFR 601.315

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Rev. Proc. 68-34

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to modify the provisions of Revenue Procedure 68-18, C.B. 1968-1, 808, to allow for soakage in determining losses from tampered packages of distilled spirits in bonded storage. (See paragraphs 3.01 (a) and (d).) For convenience, the provisions of the Revenue Procedure, as modified, are restated.

SEC. 2. BACKGROUND.

Section 5006(b)(1) of the Internal Revenue Code of 1954 and 26 CFR 201.310(a) provide that when it is found that a package of distilled spirits in bond has sustained a loss due to theft or unauthorized voluntary destruction, immediate taxpayment of the original quantity of spirits entered for deposit in storage in the package may be required. An exception is made that where losses from any cause other than theft or unauthorized voluntary destruction can be established by the proprietor to the satisfaction of the Assistant Regional Commissioner, Alcohol and Tobacco Tax, the tax on the loss so established may be credited against the tax on the original quantity. Acceptable procedures for determining normal storage losses for packages filled by individual gauge and by average fill methods are prescribed below.

SEC. 3. METHODS FOR DETERMINING LOSSES.

.01 Packages filled by the individual gauge method. - In order to credit the tax on normal storage losses against the tax on the original quantity of spirits entered for deposit in a package filled by the individual gauge method, when such package has sustained a loss due to theft or unauthorized voluntary destruction, the proprietor should:

(a) Determine the loss from the tampered package by actual gauge or by using the present gross weight, present proof, and original tare of the package, and subtracting the tax gallons so obtained from the original tax gallons entered into the package.

(b) Weigh ten similar packages containing the same kind of spirits produced on the same day as the spirits in the tampered package and stored under similar conditions.

(c) Select, from the ten packages weighed, the package which, on the basis of original and present gross weights, appears to have sustained the least loss.

(d) Determine the loss from the comparison package by the same method used to determine the loss from the tampered package. The tax gallon loss so determined will be considered the normal storage loss from the tampered package.

(e) Subtract the tax gallons considered to be the normal storage loss from the total tax gallon loss from the tampered package.

The quantity determined in (e) above will be considered as a loss due to theft or unauthorized voluntary destruction and must be taxpaid in accordance with the provisions of 26 CFR Part 201.

.02 Packages filled by average fill methods. - In order to credit the tax on normal storage losses against the tax on the original quantity of spirits entered for deposit in a package filled by an average fill method, when such package has sustained a loss due to theft or unauthorized voluntary destruction, the proprietor should:

(a) Gauge the tampered package by weight and proof.

(b) Weigh ten similar packages containing the same kind of spirits produced on the same day as the spirits in the tampered package and stored under similar conditions.

(c) Select from the ten packages weighed the package with the heaviest gross weight.

(d) Subtract the gross weight of the tampered package from the gross weight of the comparison package.

(e) Convert the difference between the gross weights of the two packages to tax gallons, using the proof of the spirits in the tampered package.

The quantity determined in (e) above will be considered as a loss due to theft or unauthorized voluntary destruction and must be taxpaid in accordance with the provisions of 26 CFR Part 201.

SEC. 4. EFFECT ON OTHER DOCUMENTS.

This Revenue Procedure supersedes Revenue Procedure 68-18, C.B. 1968-1, 808.

SEC. 5. INQUIRIES.

Inquiries concerning this Revenue Procedure should refer to its number and be addressed to the appropriate Assistant Regional Commissioner, Alcohol and Tobacco Tax.

26 U.S.C. 5006, 5204; 26 CFR 601.301

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Rev. Proc. 69-27

SECTION 1. PURPOSE.

This Revenue Procedure establishes the procedure to be followed when tobacco articles are transferred in bond to or between export warehouses or are returned to a factory from an export warehouse and part of the shipment is delayed and later delivered to the consignee.

SEC. 2. BACKGROUND.

Occasionally proprietors of export warehouses receive shipments of tobacco articles from factories or other export warehouses and find the shipment is incomplete in relation to the quantities shown on the covering Form 2149 or 2150. Manufacturers may also occasionally receive incomplete shipments of tobacco articles being returned to factories from export warehouses. The regulations in 26 CFR 290.200 and 290.201 require that immediately upon receipt of a shipment the person receiving the shipment (consignee) shall execute the certificate of receipt on each copy of the notice of removal, noting thereon any discrepancy, and return one copy of the notice to the person who made the shipment (consignor). In some instances the missing articles are later delivered to the consignee.

SEC. 3. TRANSFER TO EXPORT WAREHOUSE.

.01 When tobacco articles which have been delayed during a transfer in bond are delivered to an export warehouse after the proprietor has received part of the shipment and properly disposed of the covering Form 2149 or 2150, he will enter in his records and on his record copy of the covering Form 2149 or 2150 the quantities of articles so received and the actual date of receipt. He shall also prepare a letter, in original and three copies, to the consignor informing him of the receipt. All copies of the letter should be signed and it should identify, by serial number and date, the Form 2149 or 2150 covering the shipment from which the articles were delayed, specify the kind and quantity of articles belatedly received, and give the date of actual receipt. The original and one copy of the letter should be sent to the consignor, one copy should be submitted with the proprietor's monthly report for the month in which the delayed articles were received, and the remaining copy retained by the proprietor as part of his record. .02 When the consignor receives the two copies of the letter he should send the original to his assistant regional commissioner to obtain relief from the tax liability on the articles accounted for (or submit it with a claim if the tax has been paid or assessed), and associate the remaining copy of the letter with the related Form 2149 or 2150 and retain it as part of his records.

SEC. 4. RETURN TO FACTORY.

.01 When the delayed portion of a shipment of tobacco articles being returned from an export warehouse is delivered to a factory after the manufacturer has received part of the shipment and properly disposed of the covering Form 2150, he will enter in his records and on his record copy of the covering Form 2150 the quantities of articles so received and the actual date of receipt. He shall also prepare a letter, in original and two copies, to the export warehouse proprietor informing him of the receipt. All copies of the letter should be signed and it should identify, by serial number and date, the Form 2150 covering the shipment from which the articles were delayed, specify the kind and quantity of articles belatedly received, and give the date of actual receipt. The original and one copy of the letter should be sent to the export warehouse proprietor, and the remaining copy should be retained by the manufacturer as part of his records.

.02 Upon receipt of the two copies of the letter the export warehouse proprietor should forward the original to his assistant regional commissioner to obtain relief from the tax liability on the tobacco articles accounted for (or submit it with a claim if the tax has been paid or assessed), and associate the remaining copy of the letter with the related Form 2150 and retain it as part of his records.

SEC. 5. INQUIRIES.

Inquiries regarding this Revenue Procedure should refer to its number and be addressed to the office of your Assistant Regional Commissioner, Alcohol, Tobacco and Firearms.

26 U.S.C. 5704; 26 CFR 601.311

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Rev. Proc. 71-5

SECTION 1. PURPOSE.

This Revenue Procedure expresses procedures which may be followed by proprietors of export warehouses at international airports when tobacco articles are sold to passengers of aircraft departing for destinations outside the United States.

SEC. 2. BACKGROUND.

Section 5704 of the Internal Revenue Code of 1954 provides that an export warehouse proprietor may remove tobacco articles, without payment of tax, for consumption beyond the jurisdiction of the internal revenue laws of the United States. Regulations in 26 CFR 290.198 require that the export warehouse proprietor prepare a notice of removal, Form 2150, for each shipment removed from his warehouse. In connection with sales to airline passengers this requires that a separate Form 2150 be prepared for each shipment of tobacco articles sold to each passenger. It is reasonable that an alternate procedure should be established which would be in compliance with the intent of regulations and afford equivalent security to the revenue, but would not require a separate Form 2150 for each passenger. Therefore, after review and concurrence of his assistant regional commissioner (alcohol, tobacco and firearms), an export warehouse proprietor making such removals may follow the procedures in Section 3 below which the Director, Alcohol, Tobacco and Firearms Division, finds in compliance with the intent of law and regulations.

SEC. 3. ACCEPTABLE PROCEDURES

.01 Sales slips and lading receipts. The export warehouse proprietor will prepare a separate sales slip for each sale of tobacco articles. The minimum information which must be included on the sales slip is a pre-printed serial number; a list of the articles sold; the name of the passenger; and identity of the flight by airline name (or abbreviation), flight number, and date. A lading receipt on which all sales slips for a flight are itemized will be prepared by the proprietor and presented to the purser or other appropriate aircrew member, who will certify that the tobacco articles were received on board and that delivery to the passengers will not be made until the aircraft has left the territorial limits of the United States. The lading receipt may or may not be certified by a customs officer, depending on local Customs' requirements. The needs of Customs and the airline companies will be considered in determining the numbers of copies and disposition of sales tickets and lading receipts.

.02 Other responsibilities of proprietor. The purchaser must be clearly informed that the tobacco articles are for consumption outside the United States and if returned to the United States must be declared to Customs and are subject to duty or tax. This may be accomplished by a conspicuous statement on a copy of the sales slip furnished the passenger, or by some other method acceptable to Customs and the assistant regional commissioner (alcohol, tobacco and firearms). If a flight does not depart or is diverted or returns without reaching a destination outside the United States the proprietor is responsible for recovering and returning the unexported tobacco articles to his warehouse.

.03 Notice of removal, Form 2150. Notice of removal, Form 2150, may be prepared daily, weekly, or semi-monthly on the basis of the lading receipts executed during the removal period. The frequency of preparation of Forms 2150 will be dictated by the volume of operations and administrative convenience to all concerned. If the Form 2150 is prepared weekly and any week overlaps two months, a separate Form 2150 must be filed for removals during that portion of the week falling in each of the months. The Form 2150 will be prepared in triplicate and presented to Customs for execution of the certificate of export. The original completed form will be immediately submitted to the assistant regional commissioner (alcohol, tobacco and firearms), one copy will be furnished to Customs, and one copy will be retained by the proprietor.

.04 Acceptance of procedures to Customs and assistant regional commissioner (alcohol, tobacco and firearms). Procedures which an export warehouse proprietor wishes to establish in accordance with the foregoing criteria must be acceptable to the appropriate local customs officer as evidenced by his written consent. Specifics of the proposed procedures must also be approved in all respects by the assistant regional commissioner (alcohol, tobacco and firearms) before the proprietor begins operating under the procedures.

SEC. 4. ALTERNATE PROCEDURES.

The export warehouse proprietor may not use procedures other than those specifically set forth in 26 CFR Part 290 or conforming to this Revenue Procedure unless they are approved by the Director, Alcohol, Tobacco and Firearms Division, as provided in 26 CFR 290.72 relating to authorizations for alternate methods or procedures. Those proprietors who already have such specific authorizations may continue to operate as approved therein.

SEC. 5. INQUIRIES.

Inquiries concerning this Revenue Procedure should refer to its number and be addressed to the office of the appropriate assistant regional commissioner (alcohol, tobacco and firearms).

26 U.S.C. 5704; 26 CFR 601.311

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ATF Proc. 74-1

(Synopsis)

Reciprocal Privileges for Iceland and Jordan. Iceland and Jordan are added to the list of foreign countries to which the reciprocal privileges provided by section 309 of the Tariff Act of 1930, as amended (19 U.S.C. 1309), may be extended. Alcohol, distilled spirits, beer, and wine may be withdrawn free of tax, or with benefit of drawback, for use as supplies on aircraft registered in Iceland and Jordan and engaged in foreign trade.

26 CFR 601.301, 252.23.

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ATF Proc. 75-1

(Synopsis)

Removal of Tax-Exempt Tobacco Products for Use as Supplies on U.S. Navy Ships. Manufacturers of tobacco products and proprietors of tobacco export warehouses may accept the certification of the commanding officer or supply officer for procurement of tax-exempt tobacco products for listed classes (generally excludes harbor craft) of U.S. Navy ships on orders to proceed beyond the jurisdiction of the internal revenue laws of the United States. The proper certification is as follows:

These tobacco products will be held as sea stores for issue and consumption outside the three-mile limits of the United States.

Commanding Officer

(or Supply Officer of a listed vessel)

26 CFR 290.64, 290.206, 601.311.

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ATF Proc. 76-3

Section 1. Purpose.

This ATF Procedure sets forth the position of the Bureau of Alcohol, Tobacco and Firearms (ATF) with regard to the possible use of plastic containers for bottling distilled spirits and provides procedural guidelines for affected industries.

SEC. 2. BACKGROUND.

.01 The concept of utilizing plastic for manufacturing liquor bottles is not new. Several years ago an experimental packaging and marketing program was authorized for distilled spirits plant proprietors who proposed to bottle distilled spirits in polyvinyl chloride (PVC) plastic bottles. The experimental program was terminated, however, on May 11, 1973 (Industry Circular 73-10), as a result of a Food and Drug Administration (FDA) proposal that PVC resin not be used as a component of food packaging material where such material would come in contact with alcoholic foods. Since that time, there has been no authorization given to package distilled spirits in plastic containers of any kind.

.02 ATF is aware of a renewed interest on the part of the distilled spirits industry regarding the development and acceptability of a plastic liquor bottle. Over the past few years, plastics technology has progressed to the point that plastic barrier resins other than PVC may now be capable of meeting FDA requirements for alcoholic beverage packaging. It is conceivable, therefore, that rigid or semirigid containers manufactured with one or more of these plastic resins may ultimately be considered feasible by the industry for packaging distilled spirits products.

SEC. 3. PRIMARY CONSIDERATIONS.

.01 No action will be taken by the Bureau with regard to industry applications for the use of plastic liquor bottles until the following conditions and considerations have been appropriately taken into account:

1. Bottle Specifications

(a) Bottles must be rigid or semirigid, i.e., having a molded shape or design which cannot be permanently altered by pressure without damage to the bottle.

(b) The plastic compound must be approved by the Food and Drug Administration for use in containers for packaging alcoholic beverage products for human consumption. Written verification from FDA will be required to assure that the plastic formulation meets all applicable FDA requirements.

(c) Bottles must be manufactured only in approved sizes.

2. Laboratory Tests

The ATF laboratory will conduct tests of plastic bottles regarding their suitability for packaging distilled spirits. These tests will take into consideration proof gain or loss, volume reduction, and other parameters.

3. Environmental Assessments

Under the National Environmental Policy Act of 1969, we are required to consider the environmental impacts of any major action taken by the Bureau. In addition to the Environmental Impact Statement which was issued regarding the proposed PVC liquor bottles, there will be a need for further studies into the environmental aspects of other plastics prior to our taking any action regarding their proposed use in the manufacture of liquor bottles. Environmental Impact Statements pertaining to liquor bottles proposed to be manufactured with other plastic formulations may have to be prepared and issued before a decision can be reached.

SEC. 4. BUREAU PROCEDURE.

.01 Preliminary Testing Program

The Bureau has no objection to the experimental use of plastic liquor bottles for shelf testing, organoleptic research, or other applicable tests conducted under laboratory conditions. Such tests shall utilize samples withdrawn in accordance with 27 CFR Part 201 and may not involve distribution of distilled spirits packaged in plastic containers to consumers in any way. Test results may be provided to the Bureau to assist the ATF laboratory in its analysis of the plastic material.

.02 Application for Approval

Any authorized bottler or importer desirous of seeking permanent approval to package distilled spirits in plastic containers for distribution will be required to submit a formal letter application to the Director. Verification must be provided with this application that the plastic compound in question meets all applicable FDA requirements for alcoholic beverage packaging. Any extractive and toxicity data received in support of this verification will be subject to confirmation by the Food and Drug Administration. Applicants should also furnish any available environmental information regarding the plastic formulation to the Bureau as an aid in the preparation of any Environmental Assessments that may have to be prepared. This information may be submitted with, or at any time prior to, the formal application.

.03 Samples

Samples of plastic containers shall be made available to the Bureau before an application may be considered. Such samples may be submitted with the formal application or in conjunction with any preliminary testing program. The samples submitted should include at least six empty plastic bottles of each size to be used, two filled plastic bottles of each distilled spirits product and two filled glass bottles of each product for purposes of control and comparison.

.04 Final Action

We anticipate that satisfying the foregoing requirements will be a time-consuming task. Therefore, we feel that a final decision on any formal application could not be made in the near future.

SEC. 5. INQUIRIES.

Inquiries concerning this procedure should refer to its number and be addressed to the Assistant Director, Regulatory Enforcement, Bureau of Alcohol, Tobacco and Firearms, 1200 Pennsylvania Avenue, NW., Washington, DC 20226.

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ATF Proc. 80-5

Section 1. Purpose.

This ATF Procedure establishes guidelines which tobacco export warehouse proprietors may follow in recording sales of tobacco products to persons crossing the United States border into Canada or Mexico when individual sales to such persons do not exceed 1000 cigarettes or 1000 cigars. These guidelines become effective February 16, 1981.

SEC. 2. BACKGROUND.

Section 5704, Title 26 of the United States Code, provides that an export warehouse proprietor may remove tobacco articles, without payment of tax, for consumption beyond the jurisdiction of the internal revenue laws of the United States. Regulations in 27 CFR 290.198 require that the export warehouse proprietor prepare Form 2150, Notice of Removal of Cigars, Cigarettes, Cigarette Papers, or Cigarette Tubes, for each shipment removed from his warehouse.

Revenue Procedure 72-27 provided an alternative to this requirement by authorizing the removals to be documented on sales slips with the daily summarization of the individual sales slips on a Form 2150, when the quantities purchased by an individual for his personal use did not exceed 400 cigarettes or 100 cigars in any calendar week, or when purchases did not exceed the quantity the purchaser was legally entitled to take into the country being entered without payment of duty or tax, whichever quantity was greater. All other transactions were considered to be commercial exportations and were subject to the provisions of 27 CFR 290.198, 290.199 and 290.205.

ATF Procedure 76-1 extended the authority to use sales slips as the basic documentation for smaller commercial transactions, by providing for documentation of the individual transactions on sales slips, and the consolidation of these transactions on a Form 2150, when individual sales did not exceed 4500 cigarettes or 1000 cigars. This extension of the authorized use of sales slips to document small commercial transactions was made at the request of several export warehouse operators, who said it would greatly reduce their paperwork, and at the same time facilitate Customs' certification of the transactions.

However, since ATF Procedure 76-1 was issued, the Bureau has revised the regulations in 27 CFR Part 290 to authorize Customs to require landing certificates for exportations to contiguous countries. (T.D. ATF-52, 43 F.R. 59286, December 19, 1978). This change was made because it was found that cigarettes which were ostensibly being entered into Mexico were in fact being retained in or returned to the United States. The United States Customs Service simultaneously changed its policy to require landing certificates for commercial exportations.

In order to combat abuses of the personal-use exportation privilege, Customs published Treasury Decision 79-1 (43 F.R. 59288, December 19, 1978), setting forth this change in policy regarding those exportations. Customs determined that 5 cartons of cigarettes (1000 cigarettes) are a quantity of cigarettes appropriate for normal personal use. Accordingly, proprietors of export warehouses along the United States-Mexican border were required to present landing certificates to confirm that purchases of more than 5 cartons of cigarettes (1000 cigarettes) are presented or declared through Mexican customs.

SEC. 3. CHANGES IN PROCEDURE.

In recognition of these changes and clarifications, ATF has concluded that it is no longer appropriate for official documentation of commercial exportations (more than 1000 cigarettes and 1000 cigars) to be made on sales slips. Such documentation of commercial transactions causes administrative difficulties for both ATF and Customs.

Accordingly, this procedure supersedes ATF Procedure 76-1 and discontinues the authority of export warehouse proprietors to officially document commercial exportations of tobacco products (more than 1000 cigarettes and 1000 cigars) on sales slips. Effective February 16, 1981, all of these commercial exportations must be properly documented on ATF Form 2150 as required by the regulations in 27 CFR 290.198, 290.199, and 290.205.

Within the newly prescribed limits for small exportations of tobacco products, this new ATF Procedure continues in effect essentially the same procedural requirements for documentation of individual small transactions by sales slips consolidated onto a single Form 2150. However, this new ATF Procedure provides alternative points for obtaining the purchaser's signature and recording license plate information on a sales slip.

All previous authorizations to operate under the procedures set out in Revenue Procedure 72-27 or Procedure 76-1 are herby cancelled effective February 16, 1981. Any previously approved alternate procedures other than those specifically based on either Revenue Procedure 72-27 or ATF Procedure 76-1 will continue in effect to the extent they apply to non-commercial type transactions (i.e., the sale of not more that 1000 cigarettes or 1000 cigars) and have not otherwise been terminated. Export warehouse proprietors are authorized to use the sales slip form of documentation for personal-use quantities (not more than 1000 cigarettes and 1000 cigars) as set forth in this procedure. No specific approval from ATF is required as long as these procedures are followed exactly.

SEC. 4. ACCEPTABLE PROCEDURES.

.01 Limitation of Procedures. A daily summarized Form 2150 may be prepared for reporting removals of cigars or cigarettes for exportation by individuals entering Canada or Mexico with not more than 1000 cigarettes or not more than 1000 cigars in any calendar day. The procedures for exportation in 27 CFR 290.198, 290.199 and 290.205 shall be followed, with a separate Form 2150 for each exportation, when the quantities exported are more than 1000 cigarettes or more than 1000 cigars in a calendar day. Any sale to an individual involving more than 1000 cigarettes or 1000 cigars per day must be documented on an individual Form 2150. If more than one sale is made to an individual during a day, the total of the sales that day are considered to be a single transaction.

An export warehouse proprietor may use multiple sales slips or invoices for recording components of a total sale involving 1000 or more cigarettes or cigars. However, the records and Customs certification for ATF purposes must be documented on an individual Form 2150 showing the total number of cigarettes and cigars involved in the transaction.

For example, if an individual on a given day makes three separate purchases of 1000 cigarettes (5 cartons) each from an export warehouse, the export warehouse proprietor may record the first sale of 1000 cigarettes on a sales slip, and that sale may be reported on the daily summarized Form 2150. The second and third sales must be recorded (A) on two separate Forms 2150 showing removal of 1000 cigarettes each, or, alternatively, (B) the second and third sales may be reported on a single Form 2150 showing the removal of 2000 cigarettes. The U.S. Customs Service will require the export warehouse proprietor to present a landing certificate with any Form 2150 submitted under (A) or (B).

.02 Preparation of Sales Slips. The export warehouse proprietor shall prepare a separate sales slip (original and 3 copies) for each daily sale of tobacco products totaling not more than 1000 cigarettes or 1000 cigars. The minimum information that must be included on the sales slip is (1) a pre-printed serial number, (2) the name and address of the purchaser, (3) the date of purchase, (4) a list of the products sold, (5) license plate identification of the vehicle in which the cigarettes and cigars are to be transported to Canada and Mexico, (6) signature of receipt by purchaser, (7) a space for certification of export by Customs, and (8) a conspicuous statement that the products are sold exempt from U.S. Federal tax for consumption outside the United States and that if such products are returned to the United States they must be declared to Customs and are then subject to duty or tax.

Item 5, the license plate identification, must be completed in all instances except those where the purchaser will carry the tobacco products over the border by foot. Item 5 is to be completed by the proprietor at the time of delivery of the articles to the purchaser. Alternatively, the license plate of the vehicle in Item 5 may be recorded on the sales slip at the point where the order is given. When license plate identification is recorded on sales slips at the point where the order is taken, the proprietor is responsible for verifying, and if necessary, correcting the license plate information at the point where the tobacco products are delivered to the purchaser. The proprietor is also responsible for assuring with reasonable certainty (by examining passports, drivers licenses, border crossing cards, etc.) that the purchaser's name and address, and all other information on the sales slip, are correct and complete.

.03 Distribution and Certification of Sales Slip. At the time of sale, the export warehouse proprietor shall furnish the purchaser with two copies of the sales slip. In addition, he shall attach one copy of the sales slip to the shipment of the tobacco products. The remaining copy will be retained by the proprietor at the export warehouse until the signed copy is returned to him after delivery of the tobacco products. When the shipment is delivered to the purchaser at the border, the purchaser will sign both the copy he surrenders to obtain delivery of the articles and the copy that will be furnished to the Customs officer who supervises the exportation. Alternatively, the purchaser may at the point where the order is given, sign an original and one copy of the sales slip, but no other copies; take the signed original and signed copy to the border crossing point; give them both to an employee of the export warehouse at the time the products and a copy of the sales slip are delivered to the purchaser.

The export warehouse employee making delivery of the tobacco products will visually determine the transporting vehicle's license number and the State, Province or country issuing such license and will record (or verify if recorded at the point of sale) the information on the two signed copies of the sales slip. The customs officer will receive one of the signed copies, as noted above, and the proprietor will retain the other as part of his records.

.04 Preparation and Disposition of Daily Summarized Form 2150. At the close of each business day a consolidated Form 2150 will be prepared, in triplicate. The form shall be marked to show that it is a consolidated form, and it shall include all the information called for by the form except items 6, 7, 8, 9, and columns (b) and (e) or item 12. At item 11 there shall be entered the words "as shown on individual sales slips," and the serial numbers of such individual sales slips shall be entered in column (a) of item 12. All copies will be submitted to the Customs officer at the border for execution of the certificate of export. After certification, the Customs officer will retain a copy and return the original and remaining copy to the warehouse proprietor. The proprietor will retain as part of his records the copy of the consolidated Form 2150 and the receipted copies of the related sales slips. He will transmit the original of the consolidated Form 2150 to the Regional Regulatory Administrator, Bureau of Alcohol, Tobacco and Firearms, no later than the close of the business day following the day the removals were made.

SEC. 5. ALTERNATE PROCEDURES.

The export warehouse proprietor may not use procedures other than those in 27 CFR Part 290 or as set forth in this ATF procedure unless they are approved by the Director, Bureau of Alcohol, Tobacco and Firearms, as provided in 27 CFR 290.72 relating to the authorizations for alternate methods or procedures. All previous authorizations for alternate methods or procedures under Revenue Procedure 72-27 and ATF Procedure 76-1 are terminated effective February 16, 1981.

SEC. 6. EFFECTS ON OTHER DOCUMENTS.

ATF Proc. 76-1, ATF C.B. 1976, 121, is hereby superseded effective February 16, 1981

SEC. 7. INQUIRIES.

Inquiries concerning this ATF Procedure should refer to its number and be addressed to the office of the appropriate Regional Regulatory Administrator, Bureau of Alcohol, Tobacco and Firearms.

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ATF Proc. 81-1

Section 1. Purpose.

The purpose of this procedure is to inform proprietors of distilled spirits plants, brewers, and winemakers of the types of adjustments which may be made on their respective excise tax returns to increase or decrease the amount of tax due. General information is also provided on the method to be used in making such adjustments.

SEC. 2. BACKGROUND.

The Bureau of Alcohol, Tobacco and Firearms recognizes the need to furnish some guidelines with respect to the types of adjustments which may be made on excise tax returns to increase or decrease the amount of tax due. That information is furnished in this procedure, as well as information on the methods which should be used to make such adjustments.

The information in this procedure applies to prepayment and deferred payment excise tax returns filed by proprietors of breweries, wineries and distilled spirits plants.

Adjustments to distilled spirits excise tax returns (both to increase and to decrease the tax) were previously addressed in Revenue Procedure 68-6, C.B. 1968-1, 748 (Internal Revenue), which is superseded by this new procedure. A large part of Revenue Procedure 68-6 pertains to distilled spirits tax return forms which are no longer in use. Some pertinent parts of Revenue Procedure 68-6 are now explained in regulations or in the instructions on forms, and it is therefore deemed unnecessary to restate those parts in this new procedure. Some pertinent parts of Revenue Procedure 68-6 do not appear elsewhere. These parts are retained or restated below.

SEC. 3. ADJUSTMENTS DECREASING THE AMOUNT OF TAX DUE.

(a) Claims. Where a claim for credit has been filed, no credit may be applied to the amount of tax due on a return until advice is received from the regional regulatory administrator that the claim has been allowed. If the credit on an approved claim is larger than the amount of taxes due on a single tax return, any remaining credit should be carried over to the next tax return. Claims for credit of tax need be filed only for reasons specified in regulations.

(b) Official Notice. A proprietor may make an adjustment to decrease the amount of tax due when so notified by ATF. Such notification is sent when an error is discovered by ATF upon examination of a tax return.

(c) Errors Discovered by Proprietors. A proprietor may make adjustments on a current tax return to decrease the amount of tax due when he discovers past clerical or mathematical errors which resulted in higher taxpayment than was required. Examples of such errors are using the wrong conversion factor for metric conversion and simple arithmetical errors.

A proprietor may also make an adjustment decreasing the tax due on a current tax return when he finds that taxes have been overpaid on a prior tax return due to overstated removals. A notation should be made on the current tax return in sufficient detail to enable ATF personnel to make a judgment as to the validity of the purpose for which the adjustment is being made.

A brewer, winemaker or distilled spirits plant proprietor need not file a claim in order to make an adjustment on a current tax return to correct a previous overpayment based on overstated removals. This is so even if the overstatement of removals is due to so-called "short shipments." However, the fact that such claims are not necessary does not lessen the need for industry to satisfy ATF that removals were, in fact, overstated.

(d) Interest. Interest on any of the above items, as permitted by statute, constitutes an authorized deduction from taxes. Interest, when permitted, should be computed from the date of the overpayment to the due date of the return on which the credit is taken.

Tax returns are carefully examined by ATF inspectors, auditors, and/or technical services specialists. If deductions from tax returns cannot be substantiated, these ATF personnel are instructed to recommend that the deduction from tax be disallowed. If the disallowance is upheld, after review of all pertinent facts, industry members will be required to reenter the amount as an increase in taxes on a subsequent tax return, including interest thereon.

With respect to inventory overages, the fact that a partial or complete physical inventory exceeds book inventory does to, in itself, constitute an authorized adjustment decreasing tax. The physical inventory overage does indicate that an error or inappropriately documented transaction has occurred - whether it be in overstated removals, understated packaged goods production, or some other reason. Of course, once the reason for the inventory overage is discovered, that reason might very well serve as the basis for an authorized deduction from taxes, as set out above.

SEC. 4. ADJUSTMENTS INCREASING THE AMOUNT OF TAX DUE.

A proprietor may correct errors which resulted in underpayment of tax for a previous tax return period on a subsequent tax return. Such errors may be discovered by the proprietor, or the regional regulatory administrator may notify the proprietor to correct for errors which were discovered by ATF upon examination of the proprietor's tax return. If the errors result in a substantial underpayment of tax, the regional regulatory administrator may require the taxpayer to file an amended return. See Section 5 of this procedure for information pertaining to amended returns.

Interest is due on underpayments. Interest on underpayments should be computed from the due date of the return in error to the date of filing the return (and remittance) on which the adjustment of the error is made.

The proprietor may also make an adjustment to increase the tax when he or she exports alcoholic beverages under bond and is unable to furnish documentation to satisfy the regional regulatory administrator of the quantity of products allegedly exported. In this case, the proprietor may voluntarily make an adjustment on a tax return for the amount of the tax, plus interest, on the products for which proof of exportation is not furnished.

SEC. 5. AMENDED RETURNS.

Where an underpayment of tax on a previously filed excise tax return is discovered by the proprietor, or when the proprietor receives a notice from the regional regulatory administrator of such an underpayment, the proprietor may make an adjustment therefor on a subsequent return or he may file an amended return. As pointed out above, where the amount of the underpayment is substantial, the regional regulatory administrator may require the proprietor to file an amended return.

Where an amended return is to be filed, it need show only such entries as are necessary to correct and appropriately identify the error on the original return for the period (or day, in the case of a prepayment return) in question. Such returns should be clearly marked "Amended Return," should identify the period covered by the original return, and should bear the same serial number as the original return. An amended tax return filed to correct an underpayment should reflect as a separate item any interest, at the prevailing rate per annum, due the Government.

SEC. 6. GENERAL.

An underpayment or overpayment on a prepayment return may be adjusted on a semimonthly return or an underpayment or overpayment on a semimonthly return may be adjusted on a prepayment return.

SEC. 7. EFFECT ON OTHER DOCUMENTS.

Revenue Procedure 68-6, C.B. 1968-1, 748 (Internal Revenue) is hereby superseded.

SEC. 8. INQUIRIES.

Inquiries concerning this ATF procedure should refer to its number and be addressed to the appropriate regional regulatory administrator.

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ATF Proc. 83-3

Section 1. Purpose.

This ATF Procedure informs proprietors of distilled spirits plants, bonded wine cellars, importers and exporters who transfer distilled spirits and wine, between their premises and Customs Bonded Warehouses and Customs Manufacturing Bonded Warehouses of the requirements for completing certain transfer documents.

SEC. 2. BACKGROUND.

Effective December 1, 1982, the United States Customs Service removed Customs Officers from Customs Bonded Warehouses and Customs Manufacturing Bonded Warehouses in accordance with Treasury Decision 82-204. ATF operations concerned with the exportation and importation of distilled spirits and wine involving Customs Bonded Warehouses have been affected by the removal of the Customs Officers. This procedure specifies the procedures to be followed when completing forms previously completed by Customs Officers.

SEC. 3. FORM PROCEDURES.

a. Transfer of taxpaid spirits to a Customs Bonded Warehouse. Distilled Spirits can be entered into a Customs Bonded Warehouse under the provisions of 27 CFR 252.26(b) with drawback privileges. The exporter depositing such bottled spirits will prepare ATF Form 5110.30, Drawback on Distilled Spirits Exported, in quadruplicate, as required by 27 CFR 252.190. The exporter will modify Item 6 of Form 5110.30 by lining out the words "Customs Officer in Charge" and entering the word "Proprietor". The exporter will give the original and one copy of the form to the proprietor of the Customs Bonded Warehouse. When the distilled spirits are received by the proprietor of the Customs Bonded Warehouse, he will complete Part IV of Form 5110.30. He will modify Item 21 by lining out the words "Customs Officer" and entering the word "Proprietor". The proprietor of the Customs Bonded Warehouse will then forward the original of the Form 5110.30 to the Regional Regulatory Administrator and file one copy in a Customs file at the Customs Bonded Warehouse.

b. Transfer of untaxpaid distilled spirits or wine from an exporter to a Customs Bonded Warehouse or a Manufacturing Bonded Warehouse. Distilled spirits and wine may be withdrawn, without payment of tax, from a distilled spirits plant or bonded wine cellar for transfer to a Customs Bonded Warehouse or a Manufacturing Bonded Warehouse (27 CFR 252.25, and 252.26(a)). Form 5100.11, Withdrawal of Spirits, Denatured Spirits, or Wines for Exportation, will be prepared, in quadruplicate as required by the instructions on the form, by the exporter or the Manufacturing Bonded Warehouse proprietor as appropriate under the provisions of 27 CFR 252.28, 252.92 or 252.122. The proprietor will modify Item 7 of the form by lining out the words "Customs Officer in Charge" and entering the word "Proprietor".

When the goods are received at the Customs Bonded Warehouse or Manufacturing Bonded Warehouse, the proprietor will complete Part V of the form. The proprietor shall modify the heading of Part V and Item 34 by lining out "Customs Officer's" and "Customs Officer" respectively and substituting the words "Proprietor's" and "Proprietor" respectively. The proprietor shall then sign in Item 34. In addition, the proprietor of a Manufacturing Bonded Warehouse may be required to complete a Form 5180.1, Customs Gauge Report, under the provisions of 27 CFR 252.285. The proprietor will modify Item 7 of the form by lining out the word "Proprietor".

c. Transfer of distilled spirits from Customs custody to the bonded premises of a distilled spirits plant. Imported distilled spirits can be withdrawn, in bulk, from Customs custody without payment of tax under the provisions of 27 CFR 251.171. Form 5100.16, Application for Transfer of Spirits and/or Denatured Spirits in Bond, will be completed by the distilled spirits plant proprietor. One copy of the Form 5100.16 will be forwarded to the Customs Bonded Warehouse proprietor for his records. The proprietor of the Customs Bonded Warehouse will prepare Form 5110.27, Transfer of Spirits. Denatured Spirits or Wines in Bond, and, as necessary, ATF Form 5110.45, Package Gauge Report. Both forms will be completed using the instructions on the forms. Serial numbers in Item 1 of Form 5110.27 may be required by Customs. Item 12A, Form 5110.27, and Item 7, Form 5110.45, will be completed by the proprietor of the Customs Bonded Warehouse. Item 3, Form 5110.27, will be completed by the proprietor of the Customs Bonded Warehouse using information from his file copies of ATF Form 5100.16.

SEC. 4. DISTRIBUTION OF NEW EDITIONS OF FORMS 5100.11, 5110.30 AND 5180.1.

Each distilled spirits plant and bonded wine cellar will receive an initial distribution of the new editions of each form from the ATF Distribution Center when they are published. Additional forms should be ordered from the ATF Distribution Center, 3800 S. Four Mile Run Drive, Arlington, Virginia 22206.

SEC. 5. INQUIRIES.

Inquiries concerning this procedure should refer to its number and be addressed to the Assistant Director, (Regulatory Enforcement) Bureau of Alcohol, Tobacco and Firearms, 1200 Pennsylvania Avenue, N.W., Washington, DC 20226.

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ATF PROC. 86-3

Section 1. Purpose.

This procedure provides guidelines for obtaining Federal label approval for imported liqueurs, cordials, flavored spirits and distilled gins.

SEC. 2. BACKGROUND.

Liqueurs, Cordials and Flavored Spirits

The Bureau has consistently held that importers of all imported liqueurs, cordials and flavored spirits must obtain a statement from the foreign producer listing all ingredients and must submit a minimum 750 ml sample for analysis prior to issuing certificates of label approval.

Section 5.33(g) of Title 27, Code of Federal Regulations, reads as follows:

(g) Contents of Bottles. A complete and accurate statement of the contents of the bottles to which labels are to be or have been affixed shall be submitted, on request, to the Director or the regional director (compliance).

Distilled Gins

Section 5.22(c), Class 3, defines "gin" as a product obtained by original and continuous distillation from mash, or by redistillation of distilled spirits, or by mixing neutral spirits, with or over juniper berries and other aromatics, or with or over extracts derived from infusions, percolations, or maceration of such materials, and includes mixtures of gin and neutral spirits. It shall derive its main characteristic flavor from juniper berries and be bottled at not less than 80 proof. Gin produced exclusively by the original distillation or by redistillation may be further designated as "distilled."

In order to properly determine the class of an imported gin, the Bureau has always required that a statement of process be submitted prior to issuing label approvals for gins designated as "distilled" in accordance with 26 CFR 5.51(d). Section 5.51(d) reads as follows:

(d) Statements of Process. Forms 1649 covering labels for gin bearing the word "distilled" as a part of the designation shall be accompanied by a statement prepared, by the manufacturer, setting forth a step-by-step description of the manufacturing process.

The Bureau has determined that several reasonable alternatives exist as to obtaining certificates of label approval for imported liqueurs, cordials and gins.

SEC. 3. ACCEPTABLE PROCEDURES

Prior to issuing certificates of label approval, the Bureau will require one of the following pieces of documentation:

Liqueurs, Cordials and Flavored Spirits

1. A statement of ingredients from the manufacturer and a 750 ml sample; or

2. A statement from the manufacturer that the product to be imported is identically formulated for world-wide distribution, provided ATF has a list of the ingredients on record, and a 750 ml sample; or

3. A 750 ml sample, and a statement from the importer setting forth the specific contents of the product. Such statement must be supported by a laboratory analysis performed by a commercial laboratory as to the specific ingredients contained in the product, and should differentiate between natural and artificial ingredients, colors, flavors, etc.

Distilled Gins

1. A statement of process from the manufacturer specifying the step-by-step process by which the "Distilled Gin" is manufactured; or

2. A statement from the manufacturer that the product to be imported is identically formulated for world-wide distribution, provided ATF has a statement of process on record.

SEC. 4. LIMITATIONS.

The Bureau reserves the right to require resubmission of the appropriate documentation and/or samples in situations where the Bureau has reason to believe the product has been changed, or when required by the Director.

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ATF PROC. 87-4

(Note: Laboratory work sheets are not reproduced here).

Section 1. Purpose.

The purpose of this ATF Procedure is to advise of the testing method used by the Bureau of Alcohol, Tobacco and Firearms (ATF) in determining whether smokeless tobacco products are chewing tobacco or snuff under 26 U.S.C. Secs. 5701 and 5702.

SEC. 2. BACKGROUND.

.01 Section 13202 of the Consolidated Omnibus Budget Reconciliation Act of 1985, Public Law 99-272, amended 26 U.S.C. 5701 to impose taxes on chewing tobacco and snuff (smokeless tobacco) effective July 1, 1986. As amended by that Act, 26 U.S.C. 5702 defines these products as follows:

Chewing tobacco is any leaf tobacco that is not intended to be smoked.

Snuff is any finely cut, ground, or powdered tobacco that is not intended to be smoked.

.02 Though different rates of tax are imposed on these two products, the statutory definitions do not provide a clear delineation between what is a leaf tobacco (chewing tobacco) and what is a finely cut tobacco (snuff).

.03 In an effort to better carry out its responsibilities in making this fine distinction, ATF procured samples of many smokeless tobacco products on the market shortly after the effective date of the tax imposition, to evaluate the distinction being made in the marketplace between the two products. Over 100 products were tested in ATF's laboratory, using variations of some techniques suggested by members of the smokeless tobacco industry.

.04 As a result of these tests. ATF determined that a carefully conducted sieving operation based on tobacco particle size effectively distinguished between the products which traditionally have been considered to be chewing tobacco (tobacco leaves of larger particle size) and those considered to be snuff (finer tobacco particle size). Further, ATF believes this procedure properly recognizes and applies the statutory definitions in 26 U.S.C. 5702.

.05 The procedure found to make this delineation involved the use of 10 mesh screen in an operation which resulted in 50 percent or more of the particles falling through the sieve in the case of snuff, and less than 50 percent falling through the sieve in the case of chewing tobacco. Consequently, ATF issuing the procedure, described in detail in Section 3, whenever it is administratively necessary to make distinctions between chewing tobacco and snuff under 26 U.S., Secs. 5701 or 5702.

.06 The procedure is employed only when it is not readily apparent from other available information (visual appearance, method of manufacture, etc.) whether the product is chewing tobacco or is snuff. When it is unclear from the other available evidence whether a product is a "leaf tobacco" or is a "finely cut, ground, or powdered tobacco," then the procedure is employed to provide objective information as to the nature of the product.

SEC. 3. DISTINGUISHING BETWEEN CHEWING TOBACCO AND SNUFF BY SIEVE TESTING.

.01 Sieve Testing Method

1. General Methodology.

The sieving operation consists of mechanically vibrating on a sieve, during a 4 minute cycle, approximately equal triplicate samples of smokeless tobacco to determine the percentage of the sample which is retained on the sieve and the percentage of the sample which passes through the sieve.

2. Apparatus

(a) U.S.A. testing sieves, ASTM E.-11, 8 inch diameter, No. 10 mesh (0.0787 inch), with covers and collecting pans

(b) Electric 8 inch sieve shaker, ROTAP (Reg. TM)

(c) Standard analytical balance

.02 Sample Preparation

Triplicate samples of approximately the same size are selected for each test. If the samples are in consumer packages in the range of 25 to 35 grams each, then the product from three individual packages is used for the test. Otherwise, samples of about 30 grams each are weighed out.

If the moisture content of a sample should be so low that the vibration would likely cause disintegration of the tobacco leaves, the sample would not be used.

The three samples are spread by hand over the surfaces of the respective screens as the screens rest on the respective pans.

.03 Testing Procedure.

(a) The tares of the varying component combinations are obtained by weighing and entering lines 2, 5, and 8 of the Laboratory Worksheet (See Exhibit).

(b) The weight of the samples and the associated components is taken and entered in Line 1. Line 2 is subtracted from this to provide the net weight of the sample in Line 3. The covers are removed from the two sieves which will not be at the top of the shaker array.

(c) The three samples are stacked in the sieve shaker, and the shaker is activated for 4 minutes. The sieve are removed from the shaker and the two covers are replaced. (Note: Covers are used on all sieves during the manipulations of the samples to prevent moisture loss between the initial and final weighing).

(d) The weights of the cover and sieve and of the cover and pan are determined and entered in worksheet Lines 4 and 7, respectively.

.04 Computations.

(a) The net weight of the sample retained on the sieve is determined by subtracting from the combined weight of the cover and the sieve and its contents (Line 4), the tare of the cover and the sieve (Line 5), and the result entered in Line 6.

(b) The net weight of the sample which passed through the sieve is determined by subtracting from the combined weight of the cover and the pan and its contents (Line 7), the tare of the cover and the pan (Line 8), and the result entered in Line 9.

(c) The total weight of the sieved sample is determined by adding the net weights of the sample retained on the sieve and the sample which passed through the sieve (Lines 6 and 9) and the result entered in Line 10.

(d) The percentage of the sample retained on the sieve is determined by dividing the net weight of the sample which passed through the sieve (Line 6) by the total weight of the sieved sample (Line 10), multiplying the result by 100, and entering on Line 11.

(e) The percentage of the sample which passed through the sieve is determined by dividing the net weight of the sample which passed through the sieve (Line 9) by the total weight of the sieved sample (Line 10), multiplying the result by 100, and entering on Line 12.

(f) The mean percentages (item 13) will be determined by taking the average of the results of the three samples tested. The mean for percentage on the sieve (item 13a) will be the average of the figures on line 11. The mean for percentage on the pan (item 13b) will be average of the figures on line 12.

(g) The product will be classified as chewing tobacco if the mean percentage in item 13a exceeds 50 percent. The product will be classified as snuff if the mean percentage in item 13b equals or exceeds 50 percent.

SEC. 4. INQUIRIES.

Any inquiries concerning this ATF Procedure should refer to its number and be addressed to:

Chief, Distilled Spirits and Tobacco Branch 
Bureau of Alcohol, Tobacco and Firearms 
1200 Pennsylvania Avenue, NW 
Washington, DC 20226

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ATF Procedure 95-1

(27 CFR 24.249 EXPERIMENTATION WITH NEW TREATING MATERIAL OR PROCESS)

(27 24.250 APPLICATION FOR USE OF NEW TREATING MATERIAL OR PROCESS)

(27 CFR 25.61 GENERAL REQUIREMENTS FOR NOTICE)

(27 CFR 25.62 DATA FOR NOTICE)

ATF establishes guidelines for submission of requests for approval of new materials to be used in the production of beer (or cereal beverages).

SECTION 1. PURPOSE.

The purpose of this procedure is to establish guidelines that will assist brewers and their chemical suppliers in obtaining approval from the Bureau of Alcohol, Tobacco and Firearms (ATF) for the use of materials not previously authorized for use in the production of beer (and cereal beverages).

SEC. 2. CANCELLATION

ATF Procedure 77-1 is hereby cancelled. The procedures for a winemaker to use in applying for permission to experiment with or use new treating materials or processes were incorporated in 27 CFR 24.249 and 24.250, respectively, by Treasury Decision ATF-299. The procedures outlined herein supersede ATF Procedure 77-1 as it relates to beer (and cereal beverages).

SEC. 3. BACKGROUND.

01. To insure that the substances used in the production and processing of beer (and cereal beverages) are safe for human consumption and to insure proper classification of such products, ATF exercises control over the materials that may be used in the production of beer (and cereal beverages). Materials authorized by ATF for the production of beer (and cereal beverages) are periodically included in the Adjunct Reference Manual published by Beer Institute.

02. To avoid unnecessary expansion of the official approved materials lists and to avoid the administrative expense of processing premature applications, ATF must have assurance that brewers have a genuine interest in using a new material before consideration will be given to its authorization. Therefore, ATF will accept applications for use of new materials only from brewers. Chemical manufacturers should work with interested brewers to obtain authorization for the use of new products, using the guidelines provided herein.

SEC. 4. GUIDELINES.

01. Application for approval of the use of a new material in brewing may be submitted by any brewer and must be accompanied by the following, as applicable:

A. The name and description of the material;

B. The purpose, the manner, and the extent to which the material is to be used together with any technical bulletin or other pertinent information relative to the material;

C. A sample of the proposed material (upon request from ATF);

D. Documentary evidence of the Food and Drug Administration's approval of the material for its intended purpose in the amounts proposed for the particular treatment contemplated;

E. The test results of any laboratory scale pilot studies conducted by the brewer in testing the material and an evaluation of the product and of the treatment including the results of tests on the shelf life of the treated product;

F. A tabulation of pertinent information derived from the testing program conducted by the chemical manufacturer demonstrating the function of the material;

G. A list of all chemicals used in compounding the treating material and the quantity of each component;

H. The recommended maximum and minimum amounts, if any, of the material proposed to be used in the treatment; and

I. Two 750-milliliter samples representative of the beer (or cereal beverage) before and after treatment. Three 12-ounce bottles or cans may be substituted for each 750-milliliter sample.

02. Information of a confidential or proprietary nature to the manufacturer or supplier of the treating material may be forwarded by the manufacturer or supplier directly to the Alcohol and Tobacco Programs Division, with a reference to the application filed by the brewer. Information contained within the brewer's application can be disclosed to the public, subject to the limitations of 26 U.S.C. 6103 and 7213.

SEC 5. INQUIRIES.

Inquiries concerning this procedure should refer to it by number and be addressed to the Alcohol and Tobacco Programs Division, Bureau of Alcohol, Tobacco and Firearms, 650 Massachusetts Avenue, NW, Washington DC, 20226.

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ATF Procedure 98-1

(27 U.S.C. 205, Unfair Competition and Unlawful Practices)

(27 CFR Part 7, Labeling and Advertising of Malt Beverages)

ATF is providing guidelines for brewers and bottlers for the labeling of imported malt beverages bottled or packed in the United States, and for the labeling of blends of imported and domestic malt beverages bottled or packed in the United States

SECTION 1. Purpose. The purpose of this procedure is to provide guidance to bottlers and packers of imported malt beverages which are bottled or packed at domestic breweries, and to provide guidance to bottlers and packers for the labeling of blends of imported and domestic malt beverages bottled or packed in the United States.

SEC. 2. Background. As part of the Taxpayer Relief Act of 1997, Public Law 105-34, Congress enacted a new provision in the Internal Revenue Code of 1986 which permits the transfer of beer in bulk containers from customs custody to internal revenue bond at a brewery. After transfer to internal revenue bond at a brewery, imported beer may be bottled or packed without change or with only the addition of water and carbon dioxide, or may be blended with domestic or other imported beer and bottled or packed. This provision of the Taxpayer Relief Act of 1997 is effective on April 1, 1998.

SEC. 3. Existing law and regulations. The Federal Alcohol Administration Act, 27 U.S.C. § 205(e), gives the Secretary authority to prescribe regulations regarding the labeling and advertising of malt beverages. Regulations at 27 CFR Part 7, Labeling and Advertising of Malt Beverages, contain requirements for the labeling of malt beverages. Section 7.22 prescribes mandatory information which must appear on malt beverage labels. Section 7.25 prescribes mandatory label language identifying the importer, bottler, or packer of a malt beverage. These existing provisions of part 7 address the labeling of imported malt beverages which are bottled prior to their importation into the United States, and the labeling of domestic malt beverages bottled or packed in the United States. Regulations in part 7 do not address either the labeling of imported malt beverages which are bottled in the United States, or imported malt beverages which are blended with other imported malt beverages or with domestic malt beverages, and then bottled or packed in the United States.

SEC. 4. Country of origin requirements for imported malt beverages.

.01 Malt beverages which are imported into the United States, transferred from customs custody to internal revenue bond at a brewery, and bottled or packed at the brewery, without change following importation, retain their identity as products of their country of origin.

02. Imported malt beverages which are not blended with domestic malt beverages, and which do not contain flavors or any other ingredients (other than water) added at a domestic brewery, retain their status as products of foreign origin. The addition of water and/or carbon dioxide to an imported malt beverage does not change its status as a product of its country of origin.

.03 Malt beverages of foreign origin bottled at a domestic brewery must be labeled with the country of origin under U.S. Customs Service regulations.

04. Treatment of an imported malt beverage at a domestic brewery with functional materials such as preservatives, stabilizers, clarifying agents, and the like, recognized for use in the brewing industry, will not result in the loss of its identity as a product of its country of origin unless the country of origin prohibits the treatment of malt beverages with such materials.

SEC. 5. Name and address requirements for imported malt beverages.

.01 Under § 7.25(b), the name and address of the importer of a malt beverage which is bottled or packed at a domestic brewery must appear on the label, preceded by the phrase "imported by," or a similar appropriate phrase.

.02 Under § 7.25(a), the name and address of the bottler or packer must appear on labels of domestic malt beverages bottled or packed in the United States. Accordingly, labels of imported malt beverages which are bottled or packed in the United States at a domestic brewery must contain, in addition to the required name and address of the importer, the name and address of the domestic bottler or packer, preceded by the phrase "bottled by" or "packed by." The address will be the place where the malt beverage is bottled or packed, or may be the principal place of business of the bottler or packer, if the address shown is a location where bottling or packing takes place.

03. If the importer and the bottler or packer of an imported malt beverage are the same person, the label may show a single name and address preceded by the phrase "imported and bottled by," "imported and packed by," or similar phrase. The address shown on the label may be that of the principal place of business of the importer who is also the bottler or packer, provided the address shown is a location where bottling or packing takes place.

SEC. 6. Labeling of imported malt beverages which are treated or blended at domestic breweries. Malt beverages which are imported into the United States and transferred from customs custody to internal revenue bond at a brewery may be blended with domestic or other foreign malt beverages, and may be treated with flavors and other ingredients at the brewery. These imported malt beverages which are subsequently blended with domestic or other foreign malt beverages lose their identity as products of their country of origin.

01. The blending of an imported malt beverage with a malt beverage produced in the United States, or with a malt beverage produced in a different foreign nation, results in the malt beverage losing its identity as a product of its country of origin. Similarly, the addition of flavors or any other ingredients other than water or functional materials (such as adjuncts used for clarifying or stabilizing) to an imported malt beverage at a domestic brewery results in the malt beverage losing its identity as a product of its country of origin.

02. Imported bulk malt beverages which have lost their identity as products of their countries of origin may not be labeled with a country of origin statement, and the name and address of an importer may not appear on the label of such malt beverages. The name and address of the brewer who bottles or packs such malt beverage will appear on the label preceded by the phrase "bottled by" or "packed by." If the malt beverage is a blend of an imported malt beverage with another malt beverage of foreign or domestic production, the phrase "blended and bottled by," or "blended and packed by" shall appear on the label in lieu of "bottled by" or "packed by."

SEC. 7. Labeling of sake. The labeling of imported sake, whether or not blended with domestic sake, which has been transferred to a domestic brewery from customs custody and which is bottled or packed at a domestic brewery, is governed by regulations in 27 CFR Part 4, Labeling and Advertising of Wine.

SEC. 8. Certificate of label approval requirements. Bottlers and packers of imported malt beverages, including blends of imported and domestic malt beverages, bottled or packed at a domestic brewery, are responsible for obtaining Certificates of Label Approval to cover the bottling or packing of such malt beverages. Blends of imported and domestic malt beverages will receive the class and type code for a domestic malt beverage of the appropriate class and type.

SEC. 9. Effective date. This procedure is effective as of April 1, 1998, and will remain in effect until revoked or superseded, or replaced by regulations implementing the provisions of section 1421 of Public Law 105-34.

SEC. 10. For further information contact:

Chief, Regulations Division 
Bureau of Alcohol, Tobacco and Firearms 
650 Massachusetts Avenue, NW 
Washington, DC 20226 
Telephone (202) 927-8230.

signed by: Bradley Buckles 3/25/98

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ATF Procedure 98-2

(26 U.S.C. 5418, Beer imported in bulk)

(27 CFR Part 25, Beer)

(27 CFR Part 251, Importation of Distilled Spirits, Wines, and Beer)

ATF is providing guidelines to importers and brewers in order to permit the importation of beer in bulk containers and its transfer, without payment of tax, from customs custody, to internal revenue bond at a brewery.

Section 1. PURPOSE.

The purpose of this procedure is to provide brewers and importers with immediate guidance for importing beer in bulk containers and transferring it to internal revenue bond at a brewery where it may be bottled, filled into kegs, and removed on determination of tax, or without payment of tax.

Sec. 2. BACKGROUND.

As part of the Taxpayer Relief Act of 1997, Public Law 105-34, Congress included a new provision which permits the transfer of beer in bulk containers from customs custody to internal revenue bond at a brewery, without payment of tax. Section 1421 of the Taxpayer Relief Act added a new 5418 to the Internal Revenue Code of 1986 (IRC), effective April 1, 1998, which reads as follows:

Sec. 5418. Beer imported in bulk.

Beer imported or brought into the United States in bulk containers may, under such regulations as the Secretary may prescribe, be withdrawn from customs custody and transferred in such bulk containers to the premises of a brewery without payment of the internal revenue tax imposed on such beer. The proprietor of a brewery to which such beer is transferred shall become liable for the tax on the beer withdrawn from customs custody under this section upon release of the beer from customs custody, and the importer, or the person bringing such beer into the United States, shall thereupon be relieved of the liability for such tax.

Sec. 3. EXISTING LAW AND REGULATIONS.

Under provisions of the IRC in effect both before and after April 1, 1998, beer may be imported or brought into the United States in containers of any size. Section 5051(a)(1) imposes an internal revenue excise tax of $18 per barrel of 31 U.S. gallons on all beer imported into the United States. Under 5054(a)(2), the tax on imported beer is payable at the time of importation, or if entered for warehousing, at the time of removal from the first such warehouse. Imported beer brought into the United States in bottles or kegs is taxpaid at the time of its release from customs custody, and is moved into wholesale and retail distribution channels for sale to consumers. Before April 1, 1998, imported beer brought into the United States in bulk containers was required to be taxpaid at the time the containers were released from customs custody. This procedure may still be followed; however, taxpaid beer may not be brought onto bonded brewery premises. After imported bulk beer is taxpaid and released, such beer may be taken to an unbonded facility and bottled or placed into kegs for sale to consumers. Before April 1, 1998, there was no provision in the IRC or implementing regulations in 27 CFR parts 25 or 251 to import beer into the United States and transfer it to internal revenue bond, thus deferring the tax payment on such beer until such time as the beer is removed from internal revenue bond.

Sec. 4. CHANGES MADE BY PUBLIC LAW 105-34.

Under the provisions of Section 1421 of Public Law 105-34, beer may be imported in bulk containers, released from customs custody and transferred to internal revenue bond at a brewery. Upon release of the beer from customs custody, the importer is relieved of the liability for the tax on the beer, and the brewer assumes the liability for the tax on the Brewer's Bond. The tax on such imported beer is ultimately determined at the time beer is removed from the brewery for consumption or sale, and is paid by the brewer by return as provided by 5061. Such beer may also be removed from the brewery without payment of tax for any purpose authorized by 5053.

Sec. 5. BOND COVERAGE REQUIRED.

Prior to receiving beer transferred from customs custody to internal revenue bond, the brewer must obtain bond coverage for the internal revenue tax liability on bulk beer transferred from customs custody to internal revenue bond. Until the Brewer's Bond, Form 5130.22, is revised to include this coverage, a brewer may file a Consent of Surety, Form 1533, to cover the tax liability. Consents of Surety will be executed as provided in 25.92, and the "change covered by this consent" will read as follows:

"To continue in effect and extend the terms and conditions of such bond, including all exclusions and limitations of such terms and conditions previously consented to and approved, to cover the tax for which the principal shall become liable, on all beer withdrawn from customs custody in bulk containers and transferred to internal revenue bond at a brewery premises."

Brewers holding a Brewer's Bond, Form 5130.22, in less than the maximum penal sum must ensure that the penal sum of their existing bond is adequate to cover any additional tax liability resulting from the transfer of imported beer to internal revenue bond. A superseding or strengthening bond, accompanied by the consent described above, should be used to increase the penal sum, if necessary.

Sec. 6. CONDITIONS FOR THE IMPORTATION OF BEER IN BULK CONTAINERS AND ITS TRANSFER TO BREWERY PREMISES.

Beginning April 1, 1998, beer may be imported in bulk containers and transferred without payment of tax from customs custody to internal revenue bond at the brewery. Importers and brewers shall comply with the following conditions in order to transfer beer under 5418.

.01 The brewer will obtain appropriate bond coverage as outlined in Section 5.

.02 Beer will be imported in containers larger than one barrel of 31 gallons. Imported beer containing any distilled spirits, wine, or cider; sake containing any distilled spirits; and beer concentrated by the removal of water, may not be imported and transferred to internal revenue bond under section 5418 because these products are generally not classified as beer under the IRC. Sake containing no added distilled spirits and high gravity beer are considered beer for purposes of transfer to internal revenue bond.

.03 If a brewer imports the beer, the brewer shall hold a basic permit issued under the Federal Alcohol Administration Act (FAA Act) as an importer of malt beverages. If purchasing the beer from an importer for resale at wholesale, the brewer shall hold a basic permit issued under the FAA Act as a wholesaler of malt beverages. If sake is being imported, the brewer shall hold a basic permit under the FAA Act as an importer or wholesaler of wine.

.04 On release of the beer from customs custody, the importer will prepare a transfer record documenting the transfer of the beer and maintain such record. This record will identify the importer and will show the number of containers transferred and quantity of beer within each container, the foreign origin of the beer, the customs entry number, amount of duty paid, kind of beer, and identification of the foreign brewer. A copy of this record will be furnished to and maintained by the brewer if the brewer is not the importer.

.05 Imported beer is subject to tax at the rate prescribed by 5051(a)(1) on its removal from the brewery for consumption or sale. Imported beer is not eligible to be taxpaid at the reduced rate of tax provided for by 5051(a)(2). For the purpose of determining the 2,000,000 annual barrel limitation for eligibility to pay the reduced rate of tax, a brewer may exclude the quantity of imported beer transferred to internal revenue bond during a calendar year, provided such imported beer is not produced by that brewer or by a member of a controlled group which includes that brewer. Imported beer removed from the brewery subject to tax will not be counted in determining an eligible brewer's first 60,000 barrels of beer removed from the brewery during a calendar year. In the case of blends of foreign and domestic beer, the reduced rate goes only to the domestic part of the blend.

.06 Imported beer may be mingled with domestic beer at the brewery, and may be removed from a brewery without payment of tax for any purpose authorized by 5053. Imported beer may not be removed or withdrawn from brewery premises in the same container in which transferred from customs custody except for transfers to another brewery of the same ownership under 25.181.

.07 Imported beer is not eligible for credit or refund of tax for any reason prescribed by 5056. Imported beer is not eligible to be exported with benefit of drawback under 5055. Imported beer may not be returned to the brewery from which removed for an offset as provided by 25.159.

.08 Brewers will keep records documenting the transfer of imported beer from customs custody to brewery premises, the quantity of imported beer removed from the brewery subject to tax and without payment of tax, and the quantity of imported beer in any mixtures of beer removed or transferred from the brewery. Imported beer transferred to brewery premises will be reported on line 5a of the Brewer's Report of Operations, Form 5130.9.

.09 Brewers must maintain adequate records evidencing the appropriate tax payment of beer or the entitlement to credit or refund for beer lost, destroyed, or returned to the brewery. Records are necessary to assure that different components in a blend of imported and domestic beers receive the appropriate tax treatment. Adequate records as contemplated by this paragraph include, for example, a statement on the label or on a commercial invoice accompanying a shipment as follows "___ % Domestic Beer, ___ % Foreign Beer." A country of origin statement may be substituted for the term "foreign beer" on labels or on invoices.

.10 Transfer of beer from customs bond to internal revenue bond under 5418 does not constitute tax determination. Therefore, a brewer need not file claims for losses of imported beer on brewery premises in circumstances for which claims are not required for domestic beer under current regulations (such as in the case of losses during storage or bottling).

Sec. 7. EFFECTIVE DATE.

This procedure is effective April 1, 1998, and will remain in effect until revoked or superseded, or replaced by regulations implementing the provisions of section 1421 of Public Law 105-34.

Sec. 8. FOR FURTHER INFORMATION CONTACT:

Chief, Regulations Division 
Bureau of Alcohol, Tobacco and Firearms 
650 Massachusetts Avenue, NW 
Washington, DC 20226 
Telephone (202) 927-8230.

signed by: Bradley Buckles 3/25/98

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ATF Procedure 98-3

(26 U.S.C. 5364 - WINE IMPORTED IN BULK)

(27 CFR Part 24 - WINE)

(27 CFR Part 251 - IMPORTATION OF DISTILLED SPIRITS, WINES AND BEER)

SECTION 1. PURPOSE.

The purpose of this procedure is to establish guidelines that will assist importers and bonded wine premises proprietors in importing bulk wine in bond as authorized in 26 U.S.C. 5364, effective April 1, 1998. This procedure will remain in effect until the Bureau of Alcohol, Tobacco and Firearms (ATF) issues amended regulations covering operations on bonded wine premises and importation of wine to take this new law into account.

SEC. 2. BACKGROUND.

Section 1422 of the Taxpayer Relief Act of 1997 amended the Internal Revenue Code of 1986 (IRC) by adding a new section 5364, effective April 1, 1998, which provides as follows:

SEC. 5364. WINE IMPORTED IN BULK.

Wine imported or brought into the United States in bulk containers may, under such regulations as the Secretary may prescribe, be withdrawn from customs custody and transferred in such bulk containers to the premises of a bonded wine cellar without payment of the internal revenue tax imposed on such wine. The proprietor of a bonded wine cellar to which such wine is transferred shall become liable for the tax on the wine withdrawn from customs custody under this section upon release of the wine from customs custody, and the importer, or the person bringing such wine into the United States, shall thereupon be relieved of the liability for such tax.

Before the effective date of section 5364, all imported wine is required to be taxpaid upon removal from customs custody, and taxpaid bulk imported wine was transferred to the taxpaid premises of a bonded wine cellar or to a taxpaid wine bottling house because taxpaid wines are not permitted on bonded premises. Only treatments such as stabilizing, mixing and bottling (which do not increase the volume of taxpaid wine) are allowed on taxpaid premises. After April 1,1998, bulk imported wine may be transferred from customs bond to the premises of a bonded wine cellar. ATF will issue amended regulations covering this newly authorized activity, but this procedure is issued in the interim to insure that such transfers take place without jeopardy to the revenue, and to answer other questions resulting from this change.

SEC. 3. GUIDELINES.

.01 Before transferring imported wine in bulk containers from customs bond to internal revenue bond, a wine premises proprietor must obtain bond coverage for the internal revenue tax liability on bulk wine transferred from customs custody to internal revenue bond. Until the Wine Bond, Form 5120.36, is revised to include this coverage, proprietors must file a Consent of Surety. The Consent of Surety will be executed on ATF Form 1533 as provided in § 24.152, and will read as follows:

"To continue in effect and extend the terms and conditions of such bond, including all exclusions and limitations of such terms and conditions previously consented to and approved, to cover the tax for which the principal shall become liable, on all wine withdrawn from customs custody in bulk containers and transferred to internal revenue bond at a bonded wine premises."

Wine premises proprietors holding a Wine Bond, Form 5120.36, in less than the maximum penal sum must ensure that the penal sum of their existing bond is adequate to cover any additional tax liability resulting from the transfer of imported wine to internal revenue bond. A superseding or strengthening bond, accompanied by the consent described above, should be used to increase the penal sum, if necessary.

.02 Conditions on importation of bulk wine in bond prior to issuance of regulations implementing 26 U.S.C. 5364:

A. Bulk containers are defined in 27 CFR part 24 as containers larger than 60 liters (15.8502 gallons). No smaller container may be imported in bond.

B. The importer of wine must have an importer's basic permit issued under the Federal Alcohol Administration Act. If the bonded wine premises proprietor purchases the wine from the importer for resale at wholesale, the proprietor must have a wholesaler's basic permit issued under the Federal Alcohol Administration Act.

C. The same certificates of origin and identity that are required to support importation and label claims for taxpaid imports of bottled and bulk wines will be required for bulk wines imported in bond.

D. On release of the wine from customs custody, the importer will prepare and maintain a transfer record documenting the transfer of the wine. This record will identify the importer and will show the number of containers transferred and quantity of wine within each container, the origin of the wine, the customs entry number, amount of duty paid, kind of wine, and identification of the foreign producer. A copy of this record will be furnished to and maintained by the bonded wine premises proprietor if the proprietor is not the importer.

E. Imported wine transferred to bonded wine premises will be reported along with other wine received in bond on line 7 of Section A of the Report of Wine Premises Operations, ATF Form 5120.17.

F. Records of wine operations conducted on imported wine should be expanded to show the country of origin of the wine.

G. The limitations on wine treatments in part 24 will apply to imported wine on bonded wine premises. For example, amelioration is permitted only at the bonded wine premises where the wine is produced; if a natural wine has been ameliorated, it may only be sweetened by the winemaker who produced it; and wine spirits may only be added to natural still wine in the same State where it was produced by fermentation.

H. Imported wine may be subjected to authorized treatments or blended with other wine at the wine premises. However, if wine is to be labeled as a product of another country, it may only be subjected to treatments authorized for taxpaid wine under 27 CFR 24.296(b) and to other treatments only if such other treatments are permitted for wine made in the country of origin.

I. Imported wine is subject to tax at the rate prescribed by 26 U.S.C. 5041(b) on its removal from the wine premises for consumption or sale. Imported wine is not eligible for small domestic producer's wine tax credit provided for by 26 U.S.C. 5051(c). In the case of blends of foreign and domestic wine, any small domestic producer's wine tax credit will be computed only on the domestic part of the blend. Imported wine removed from the wine premises subject to tax will not be counted in determining an eligible small producer's first 100,000 gallons of wine removed from the premises during a calendar year.

J. Imported wine may be removed from bonded wine premises free of tax or without payment of tax for any purpose authorized by 26 U.S.C. 5362.

K. Bulk imported wine which is taxpaid by the domestic bonded wine premises proprietor is not eligible for credit or refund of tax for any reason. The refund and credit provisions of 26 U.S.C. 5044 are limited to domestic wines. However, blends of imported and domestic wines may be returned to bond, and credit or refund of tax may be claimed for the domestic portion of such blend. Imported wine and blends of domestic and imported wine may be returned to taxpaid wine premises for reconditioning.

L. Imported wine packaged in the United States may be exported with benefit of drawback under 26 U.S.C. 5062. Imported wine stored on bonded premises may be removed without payment of tax for export under 26 U.S.C. 5362. Exportation of imported wine is subject to the same requirements as exportation of domestic wine.

M. Taxpayers are reminded that they must maintain adequate records evidencing the appropriate tax payment or entitlement to credit or refund for product returned to bond. This information is needed in order to assure that the different component products receive the appropriate tax treatment. Adequate records as contemplated by this paragraph include, for example, a statement on the label or a commercial invoice accompanying the shipment as follows: " __% Domestic and __% Foreign wine, blended in internal revenue bond." (Specific appellations of origin may be substituted for the terms "domestic" and "foreign" where the wine so labeled qualifies for such appellation under the FAA Act)

03. Existing ATF policies concerning labeling of taxpaid imported bulk wine will be applied to bulk wine imported in bond. Any new questions which arise will be decided on a case by case basis.

04. Taxpayers are responsible for maintaining adequate records evidencing the appropriate tax payment or entitlement to credit or refund for product returned to bond. Failure to comply with any of the above conditions may result in the assessment of tax on any wine transferred from customs custody to internal revenue bond at the wine premises. Likewise, failure to maintain adequate supporting records may result in loss of varietal designation, appellation of origin, or other label claims.

SEC 4. EFFECTIVE DATE.

This procedure takes effect April 1, 1998 and will remain in effect until revoked, superseded. This procedure will be replaced by a temporary rule implementing the provisions of 26 U.S.C. 5364 on its effective date.

SEC 5. INQUIRIES.

Inquiries concerning this procedure should refer to it by number and be addressed to:

Regulations Division, 
Bureau of Alcohol, Tobacco and Firearms, 
650 Massachusetts Avenue, NW 
Washington DC, 20226 
Telehone: (202) 927-8230

signed by: Bradley Buckles 3/25/98