Special rule for allocating distilled spirits taxes between puerto rico and the virgin islands

(a)

In general

Section 7652 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(i)

Reduction of cover over for unreasonable and excessive rum subsidies

(1)

In general

For purposes of this section, with respect to taxes imposed under section 5001 or this section on distilled spirits, the amount covered into the treasury of any covered government (after the application of subsection (f)) in any calendar year shall be reduced (but not below zero) by the sum of— (A)the amount of any unreasonable and excessive rum subsidy paid or incurred by such government in the preceding calendar year, and (B)the amount of any unreasonable and excessive rum subsidy paid or incurred by such government for any calendar year preceding such preceding calendar year which has not been taken into account to reduce the amount so covered for any preceding calendar year. (2)

Unreasonable and excessive rum subsidy

(A)

In general

For any calendar year, the unreasonable and excessive rum subsidy paid by any covered government during such calendar year is the amount of the excess, if any, of— (i)the aggregate amount of direct and indirect government assistance paid or incurred in such calendar year by such government to all persons that produce distilled spirits in the geographical area governed by such government for consumption or sale in such geographical area or in the United States, over (ii)the amount that is 10 percent of the amounts which would (but for this subsection) be covered into the treasury of such government under subsection (a)(3) or (b)(3), whichever is applicable, in such calendar year (without regard to amounts covered into such treasury under subsection (e)). (B)

Direct government assistance

For purposes of subparagraph (A)(i), direct government assistance includes any transfer of funds, grant, loan, equity investment, loan guarantee, production or marketing incentive, income or price support, provision of goods or services other than generally available infrastructure and public services, and such other assistance provided by a covered government as the Secretary identifies as consistent with the purposes of this subsection. (C)

Indirect government assistance

For purposes of subparagraph (A)(i), indirect government assistance includes any amounts expended by a covered government to promote, market, or otherwise support the rum industry in the geographical area governed by such government, to pay interest on, and expenses related to, indebtedness incurred, the proceeds of which are used to provide rum subsidies, and for any other purpose identified by the Secretary as consistent with the purposes of this subsection. (3)

Covered government

For purposes of this subsection, the term covered government means the government of Puerto Rico and the government of the Virgin Islands. (4)

Regulations

The Secretary may prescribe regulations and guidance as necessary or appropriate to carry out the purposes of this subsection, including regulations requiring annual reports to be submitted by covered governments reporting the amount of direct and indirect government assistance provided to persons that produce distilled spirits, the monetary value of such assistance, and any other information as required by the Secretary.

(b)

Effective date

The amendment made by this section shall apply to deposits made under subsection (a)(3) or (b)(3) of section 7652 of the Internal Revenue Code of 1986 for calendar years beginning after December 31, 2009.