[Federal Register Volume 61, Number 115 (Thursday, June 13, 1996)]
[Proposed Rules]
[Pages 30019-30021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14850]



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DEPARTMENT OF THE TREASURY
27 CFR Part 22

[Notice No. 828]
RIN 1512-AB51


Distribution and Use of Tax-Free Alcohol (95R-030P)

AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of 
the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: Pursuant to the President's regulatory reform initiative, the 
Bureau of Alcohol, Tobacco and Firearms (ATF) is proposing revisions in 
this notice to eliminate and liberalize certain regulatory requirements 
relating to tax-free alcohol. ATF believes that these proposed 
revisions will greatly reduce and simplify the qualification process 
governing the tax-free alcohol permit application process.

DATES: Written comments must be received on or before August 12, 1996.

ADDRESSES: Submit written comments to: Chief, Wine, Beer, and Spirits

[[Page 30020]]

Regulations Branch; Bureau of Alcohol, Tobacco and Firearms; P.O. Box 
50221; Washington, DC 20091-0221. ATTN: Notice No. 828.

FOR FURTHER INFORMATION CONTACT: Mary A. Wood, Wine, Beer, and Spirits 
Regulations Branch; Bureau of Alcohol, Tobacco and Firearms; 650 
Massachusetts Avenue, NW; Washington, DC 20226; (202) 927-8210.

SUPPLEMENTARY INFORMATION:

Background

    There are certain registration requirements under the law and its 
implementing regulations that must be met prior to the issuance of a 
permit to withdraw and use tax-free alcohol. Depending upon the class 
of the applicant, these registration requirements may include the 
submission of a detailed application and supporting data, the payment 
of special (occupational) tax (SOT) and the acquisition of bond 
coverage. Once such registration requirements are met, the applicant is 
issued a tax-free alcohol users permit and may commence conducting any 
of the uses authorized under the law and regulations for tax-free 
alcohol permittees. The permittee is allowed to purchase and acquire 
alcohol from a registered distilled spirits plant (DSP) free of the 
excise tax payments normally required to be made by the DSP proprietor.
    For this reason, tax-free alcohol authorized uses and users are 
limited or restricted under the law. Tax-free alcohol may not be 
withdrawn and used for beverage purposes, in food products, or in any 
preparation used in preparing beverage or food products. Tax-free 
alcohol may not be sold, used in the manufacture of any product for 
sale, or sold in any product resulting from the use of tax-free 
alcohol. Finally, tax-free alcohol or products resulting from the use 
of tax-free alcohol may not be removed from the permit premises.
    Authorized users of tax-free alcohol include any State or political 
subdivision of a State, or the District of Columbia acquiring the 
alcohol for nonbeverage purposes. Tax-free alcohol may also be used by 
any educational organization (exempt from income tax), scientific 
university or college of learning, laboratory for use exclusively in 
scientific research, hospital, blood bank, sanitarium, pathological 
laboratory exclusively engaged in making analyses, or tests, for 
hospitals or sanitariums, or clinic operated for charity and not for 
profit. These permittees are unique in that they are not engaged in the 
business of selling tax-free alcohol or any product manufactured from 
or containing tax-free alcohol. Any permittee who uses tax-free alcohol 
in a manner that violates the laws and regulations becomes liable for 
the tax and other provisions of the Internal Revenue Code of 1986, 26 
U.S.C. 5001(a)(4).
    ATF believes that the present bond requirements are unnecessary and 
the qualification requirements can be effectively streamlined. 
Therefore, ATF is proposing to delete the bond requirements and revise 
the qualification requirements for obtaining a permit to withdraw and 
use tax-free alcohol and is soliciting public comments on them.

Bonds and Consents of Surety

    Section 5272 of the Internal Revenue Code of 1986 provides that 
bond coverage may be required as part of the tax-free alcohol permit 
qualification process. Subpart E of the implementing regulations at 27 
CFR Part 22, requires every applicant, with certain exceptions, to 
obtain a bond prior to the issuance of a permit. In 1985, the tax-free 
regulations were revised and the exemption from bond coverage was 
expanded. See, T.D. ATF-199, 50 Fed. Reg. 9152 (March 6, 1985). Under 
those revisions, the percentage of users of tax-free alcohol who were 
exempt from filing a surety bond increased from 36 percent under the 
prior regulations to 75 percent under the adopted regulations.
    Based on the post-1985 experience in administering Part 22, ATF 
believes that bond coverage should no longer be required of any 
applicant for a tax-free alcohol permit.
    Additionally, ATF believes that elimination of the bond requirement 
under Subpart E will result in substantially reduced administrative and 
financial burdens on the tax-free alcohol permittees.

Qualification

    Section 5271 of the Internal Revenue Code of 1986 requires the 
submission of an application before a permit may be issued to procure 
and use tax-free alcohol. Current regulations require the submission of 
a detailed application with supporting data by all applicants. The 
regional director (compliance) is authorized to waive some of the 
detailed data for applicants who are a State, political subdivisions 
thereof or the District of Columbia or whose annual withdrawal and 
usage of tax-free alcohol will not exceed 1,500 proof gallons.
    ATF believes that this waiver should be available to all applicants 
when the regional director (compliance) concludes that the revenue is 
adequately protected with respect to the person submitting the 
application. ATF is, therefore, proposing that regulatory provisions be 
made that will allow the regional director (compliance) to waive 
detailed applications with supporting data for all applicants. The 
regulations will continue to recognize the current waiver category of 
applicants who are governmental entities and the waiver category based 
on the 1,500 proof gallon annual withdrawal and usage is encompassed by 
the proposed amended regulation.

Public Participation

    ATF requests written comments from all interested persons. All 
comments received on or before the closing date will be carefully 
considered. Comments received after that date will be given the same 
consideration if it is practical to do so, but assurance of 
consideration cannot be given except as to comments received on or 
before the closing date.
    ATF will not recognize any material as confidential. Any material 
which the commenter considers to be confidential or inappropriate for 
disclosure should not be included in the comment. The name of the 
person submitting the comment is not exempt from disclosure.
    Any interested person who desires an opportunity to comment orally 
at a public hearing should submit his or her request, in writing, to 
the Director within the 60-day comment period. The Director, however, 
reserves the right to determine, in light of all circumstances, whether 
a public hearing will be scheduled.
    Written comments will be available for public inspection during 
normal business hours at the following address: ATF Reading Room, 
Office of Public Affairs and Disclosure, Room 6480, 650 Massachusetts 
Avenue, NW, Washington, DC.

Regulatory Flexibility Act

    It is hereby certified that this proposed regulation will not have 
a significant economic impact on a substantial number of small 
entities. The regulations will give ATF specific regulatory authority 
to relax and remove certain registration requirements. The regulations 
will not increase recordkeeping or reporting requirements. Accordingly, 
a regulatory flexibility analysis is not required because the proposal, 
if promulgated as a final rule, will not have a significant economic 
impact on a substantial number of small entities.

Executive Order 12866

    It has been determined that this proposed regulation is not a 
significant regulatory action as defined in

[[Page 30021]]

Executive Order 12866. Accordingly, this proposal is not subject to the 
analysis required by this Executive Order.

Paperwork Reduction Act

    The provisions of the Paperwork Reduction Act of 1980, Pub. L. 96-
511, 44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR Part 
1320, do not apply to this notice because no new information collection 
requirements are being proposed.
    The existing collections of information contained in this notice of 
proposed rulemaking have been previously reviewed and approved by the 
Office of Management and Budget in accordance with the requirements of 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3504(h) under control 
numbers 1512-0334 and 1512-0335.

    Drafting Information: The principal drafter of this document is 
Mary A. Wood of the Wine, Beer, and Spirits Regulations Branch, 
Bureau of Alcohol, Tobacco, and Firearms.

List of Subjects in 27 CFR Part 22

    Administrative practice and procedure, Advertising, Alcohol and 
alcohol beverages, Authority delegations (Government agencies), Claims, 
Excise taxes, Reporting and recordkeeping requirements, Surety bonds.

Authority and Issuance

    ATF is proposing to amend Part 22 in Title 27 of the Code of 
Federal Regulations as follows:

PART 22--DISTRIBUTION AND USE OF TAX-FREE ALCOHOL

    Par. 1. The authority citation for Part 22 continues to read as 
follows:

    Authority: 26 U.S.C. 5001, 5121, 5142, 5143, 5146, 5206, 5214, 
5271-5276, 5311, 5552, 5555, 6056, 6061, 6065, 6109, 6151, 6806, 
7011, 7805; 31 U.S.C. 9304, 9306.


Sec. 22.21   [Amended]

    Par. 2. Section 22.21(a) is amended by removing the word ``bonds,'' 
from the first sentence.


Sec. 22.25   [Removed]

    Par. 3. Section 22.25 is removed.


Sec. 22.26  [Redesignated]

    Par. 4. Section 22.26 is redesignated as Sec. 22.25.


Sec. 22.27  [Redesignated]

    Par. 5. Section 22.27 is redesignated as Sec. 22.26.


Sec. 22.43  [Amended]

    Par. 6. In Sec. 22.43, paragraphs (a)(2) and (b) are revised as 
follows:


Sec. 22.43  Exceptions to application requirements.

    (a) * * *
    (2) Applications, Form 5150.22, filed by applicants where the 
regional director (compliance) has determined that the waiver of such 
requirements does not pose any jeopardy to the revenue or a hindrance 
of the effective administration of this part.
    (b) The waiver provided for in this section will terminate for a 
permittee, other than States or political subdivisions thereof or the 
District of Columbia, when the permittee files an application to amend 
the permit and the regional director (compliance) determines that the 
conditions justifying the waiver no longer exist. In this case, the 
permittee will furnish the information in respect to the previously 
waived items, as provided in Sec. 22.57(a)(2).


Sec. 22.59  [Amended]

    Par. 7. In Sec. 22.59, the second sentence of the section is 
removed.


Sec. 22.60  [Amended]

    Par. 8. Section 22.60 is amended as follows:
    1. Paragraph (b) is removed.
    2. Paragraph (c) is redesignated as paragraph (b).
    3. Paragraph (d) is redesignated as paragraph (c).


Sec. 22.62  [Amended]

    Par. 9. Section 22.62 is amended by the removal of the last 
sentence in the section.


Sec. 22.63  [Amended]

    Par. 10. Section 22.63 is amended as follows:
    1. Paragraph (b) is removed.
    2. The paragraph letter and title ``(a) Permit.'' designation is 
removed.


Sec. 22.68  [Amended]

    Par. 11. Section 22.68 is amended as follows:
    1. Paragraph (b) is removed.
    2. The paragraph letter and title ``(a) Notice.'' designation is 
removed.

Subpart E [Removed and Reserved]

    Par. 12. Subpart E (Bonds and Consent of Surety) is removed and 
reserved.


Sec. 22.152  [Amended]

    Par. 13. Section 22.152 is amended as follows:
    1. Paragraph (b) is removed.
    2. Paragraph (c) is redesignated as paragraph (b).
    Signed: May 8, 1996.
Bradley A. Buckles,
Acting Director.

    Approved: May 24, 1996.
John P. Simpson.
Deputy Assistant Secretary (Regulatory, Tariff and Trade Enforcement).
[FR Doc. 96-14850 Filed 6-12-96; 8:45 am]
BILLING CODE 4810-13-U