[Federal Register Volume 61, Number 120 (Thursday, June 20, 1996)]
[Rules and Regulations]
[Pages 31399-31427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14881]
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DEPARTMENT OF THE TREASURY
Bureau of Alcohol, Tobacco and Firearms
27 CFR Parts 17, 19, 70, 170, 194, 197, and 250
[T.D. ATF-379; Re Notice Nos. 634, 649, 748, and 758]
RIN 1512-AA20
Taxpaid Distilled Spirits Used in Manufacturing Products Unfit
for Beverage Use (73R-24P)
AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of
the Treasury.
ACTION: Final rule, Treasury decision.
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SUMMARY: This final rule amends and recodifies the regulations on
taxpaid distilled spirits used to manufacture nonbeverage products. The
regulations formerly in 27 CFR part 197 (Drawback on Distilled Spirits
Used in Manufacturing Nonbeverage Products) are recodified as a new
part, designated 27 CFR part 17. In conjunction with the
recodification, a number of changes to the drawback regulations have
been made. Further, the regulations formerly in 27 CFR part 170,
subpart U (Manufacture and Sale of Certain Compounds, Preparations, and
Products Containing Alcohol) have been distributed between 27 CFR part
19 and the new part 17; and conforming amendments have been made in 27
CFR parts 70, 194, and 250. Significant changes from prior regulations
are discussed below under SUPPLEMENTARY INFORMATION.
EFFECTIVE DATE: This Treasury decision is effective on August 19, 1996.
FOR FURTHER INFORMATION CONTACT: Steve Simon, Wine, Beer, and Spirits
Regulations Branch, Bureau of Alcohol, Tobacco and Firearms, 650
Massachusetts Avenue NW, Washington, DC 20226; (202) 927-8210.
SUPPLEMENTARY INFORMATION:
Notices of Proposed Rulemaking
On July 29, 1987, ATF published Notice No. 634 in the Federal
Register (52 FR 28286). That notice proposed the recodification of
regulations concerning nonbeverage drawback, including changes from the
former regulations (27 CFR part 197). Public comment was requested
concerning the proposed changes. A 90-day comment period was provided,
which ended on October 27, 1987. In response to Notice No. 634, ATF
received four written public comments. In addition, some review
comments were received from ATF personnel after the publication of
Notice No. 634.
On December 8, 1987, ATF solicited additional public comments
regarding the nonbeverage drawback regulations. On that date, ATF
published Notice No. 649 (52 FR 46628), which requested comments
specifically relating to drawback on nonbeverage products brought into
the U.S. from Puerto Rico or the Virgin Islands. In conjunction, the
comment period for Notice No. 634 was extended until January 8, 1988.
No additional comments concerning Notice No. 634 were received pursuant
to that extension.
On August 31, 1992, ATF decided to republish the proposed
recodification and amendment of 27 CFR part 197. Notice No. 748 was
published in the Federal Register (57 FR 39536). Because more than 4
years had elapsed since the end of the previous comment periods, the
proposed regulations were republished in their entirety, with some
additional changes, so that anyone else who wished to comment on them
would have an opportunity to do so.
Notice No. 748 prescribed a 30-day comment period, which was
scheduled to end on September 30, 1992. On September 14, 1992, ATF was
asked to extend this comment period for an additional 90 days. ATF
partially granted this request. On October 1, 1992, Notice No. 758 (57
FR 45357) extended the comment period for Notice No. 748 by an
additional 30 days, until October 30, 1992. The full 90-day extension
(as requested) was not granted, because most of the same regulatory
issues had been previously aired for public comment during a sufficient
length of time. Subsequent to the official ending of the comment
period, comments that were received while it was still practicable to
consider them were given consideration.
In response to Notices No. 748 and 758, comments were received by
letter, telephone, and personal visit from a total of twelve persons
representing eleven entities (nine industry members and two industry
groups). These comments are discussed carefully below, following the
discussion of comments submitted previously under Notice No. 634.
Public Comments on Notice No. 634
Comments relating to Notice No. 634 were received from four
correspondents:
1. One commenter proposed that Sec. 17.183 be liberalized to allow
manufacturers to sell or transport byproducts from which alcohol may be
recovered, without removing the alcohol or adding an appropriate
substance to prevent the recovery of residual alcohol. The commenter
was concerned particularly about economic loss from an inability to
process ``spent'' vanilla beans for food use applications.
ATF did not adopt this comment, because potable alcohol recovered
from a nonbeverage manufacturer's byproduct would have been previously
subject to drawback; thus less than 10% of the tax would remain paid.
The possible recovery of such potable alcohol by unknown persons would
present an unacceptable jeopardy to the revenue. Subject to formula
approval and/or approval of an alternative procedure under Sec. 17.3,
ATF could allow byproducts containing recoverable alcohol to be
subjected to additional processing, on the manufacturer's premises, for
food use applications.
The basis for Sec. 17.183 in this final rule is ATF Ruling 81-8,
1981-4 QB 24. That ruling provided a liberalized procedure for the
disposition of spent vanilla beans, whereby they could be treated with
any substance that the manufacturer deemed adequate to make
[[Page 31400]]
recovery of potable alcohol impractical. This procedure has been
broadened in Sec. 17.183 to apply to the disposition of any byproduct
from which alcohol can be recovered. However, under the broadened rule,
prior approval from ATF must be obtained for treatment with substances
not previously authorized.
In Sec. 17.183(c), certain substances are authorized for treatment
of spent vanilla beans. No further authorization is needed for the use
of these substances, when disposing of spent vanilla beans. Approval is
required if other substances will be added to such beans, or if other
byproducts from which alcohol can be recovered will be disposed of.
Manufacturers who have already received approval for other methods of
disposal, not mentioned in Sec. 17.183, may continue to operate under
such approval.
2. Another commenter expressed support for some of the proposals of
Notice No. 634, but he had reservations about several others. He
requested that ATF review the nonbeverage industry's ``historical
compliance track record'' before imposing new recordkeeping
requirements concerning usage of finished products (Sec. 17.166); he
questioned the revised definition of ``distilled spirits'' in
Sec. 17.11 as being different from the definition of the same term in
27 CFR part 5; and he sought a ``transition period'' for the
implementation of new language in Sec. 17.161 (dealing with general
requirements for records).
ATF reviewed the compliance record of the nonbeverage manufacturing
industry and determined that the new records in Sec. 17.166(b),
concerning usage of nonbeverage products, are needed to verify that
such products were manufactured in the amount claimed. The new records
close a gap in the recordkeeping system of the former part 197.
(However, see the further discussion of this issue below, in
conjunction with a comment submitted pursuant to Notice No. 748.)
The revised definition of ``distilled spirits'' was also kept
unchanged, because the revised definition is consistent with the
definition of ``distilled spirits'' in the Internal Revenue Code (26
U.S.C. 5002(a)(8)). The nonbeverage drawback regulations are issued
under the Internal Revenue Code, while 27 CFR part 5 is a regulation
under the Federal Alcohol Administration Act. The revised definition in
part 17 differs from the former definition in part 197 only by the
deletion of the words ``fully taxpaid or tax determined at the
distilled spirits rate.'' This change brings the definition closer both
to 26 U.S.C. 5002(a)(8) and to the ordinary meaning of ``distilled
spirits.'' Whenever taxpaid distilled spirits are specifically intended
in part 17, the word ``taxpaid'' is stated. A new definition of
``taxpaid'' is provided in Sec. 17.11.
Finally, ATF determined that there is no need for a transition
period for implementation of new language in Sec. 17.161, because the
only substantive change brought about by that new language is
liberalizing. That change makes it clear that normal business records,
including invoices and cost accounting records, are adequate for
regulatory purposes if they contain the required information. (ATF
anticipates that ordinarily no records besides these normal business
records need be maintained for purposes of compliance with the
regulations.) Other new language in Sec. 17.161 does not impose a
substantive requirement, but simply spells out the purposes of records.
3. A third commenter pointed out what appeared to him to be
contradictions in the proposed regulations. However, the apparent
contradictions were actually the result of misunderstanding. In one
instance, the commenter confused the terms ``eligible for drawback''
and ``subject to drawback.'' In order to prevent further confusion of
this sort, definitions of both of these terms were included in Notice
No. 748 and remain in this final rule (see Sec. 17.11).
Another point of confusion concerned the difference between spirits
contained in an intermediate product and spirits consumed in the
manufacture of such a product. Spirits contained in an intermediate
product are eligible for drawback, and become subject to drawback when
the intermediate product is used in the manufacture of a nonbeverage
product. However, spirits consumed in the manufacture of an
intermediate product (which are not contained in that product when
completed) never become subject to drawback. Drawback cannot be claimed
on such spirits (see Secs. 17.154 and 17.155). Nevertheless, under
Secs. 17.127 and 17.185, a manufacturer may treat the intermediate
product as an unfinished nonbeverage product; then the consumed spirits
may be included in a drawback claim.
4. A fourth commenter took issue with the standard used by ATF to
determine whether to grant drawback of tax on spirits used in
nonbeverage products. He questioned the requirement that products
produced with spirits must be ``unfit for beverage use.'' The commenter
asked that this be changed to ``sale and use for (non) beverage
purposes.''
This commenter's requested change was not adopted, because the
standard that must be met in order to receive drawback is expressly
stated in the law (26 U.S.C. 5131(a)). Drawback may be granted only for
``distilled spirits on which the tax has been determined, (used) in the
manufacture or production of medicines, medicinal preparations, food
products, flavors, flavoring extracts, or perfume, which are unfit for
beverage purposes'' (emphasis added).
Public Comments on Notice No. 748
The following paragraphs discuss the suggested changes that were
submitted in response to Notice No. 748 (as amended by Notice No. 758).
The comments are grouped topically, since in some cases several
commenters proposed the same or similar recommendations.
1. Section 17.136 states that ``A product is not a medicine,
medicinal preparation, food product, flavor, flavoring extract, or
perfume for nonbeverage drawback if its formula would violate a ban or
restriction of the U.S. Food and Drug Administration (FDA) pertaining
to such products.'' This reflects a longstanding ATF policy. See Rev.
Rul. 58-350, 1958-2 CB 974; see also various regional industry
memoranda in 1991 regarding FD&C Red No. 3, and the following Industry
Circulars: 61-2, 62-33, 65-4, 70-12, 72-8, 72-28, 72-29, 73-6, and 76-
17.
However, a group of commenters pointed out that the wording of
Sec. 17.136 could be interpreted to prevent manufacturers from
receiving drawback on products intended for export to countries with
different food and drug requirements. Further, certain products for
domestic use, such as tobacco flavors and animal feed flavors, are not
subject to the same requirements as products intended for internal
human consumption. Products may legally be made for such uses even
though banned for human consumption.
ATF appreciates this comment. Since the limitation of Sec. 17.136
only applies to products that violate FDA bans or restrictions, it is
not intended to prevent drawback in the situations mentioned by the
commenters. In general, there would be no FDA violations in those
situations. Therefore, language has been added to Sec. 17.136 in this
final rule to clarify this point.
2. Another suggestion pertained to Sec. 17.166(b). This new
regulation requires records of ``other disposition'' of nonbeverage
products--that is, disposition other than by sale. Former regulations
in 27 CFR 197.130 only
[[Page 31401]]
required disposition records for products disposed of by sale;
Sec. 17.166(b) closes this gap in the recordkeeping system.
However, a change in Sec. 17.166(b)(1) introduced by Notice No.
748, adding some language which had not been present in Notice No. 634,
was a cause of concern for several commenters. This change added a
proposed requirement that would have applied whenever a nonbeverage
product is disposed of by being used as an ingredient in other
products. The new language would have required disposition records, in
such instances, to show the formula number of every other product in
which the first product was used as an ingredient. The commenters
stated that a requirement to show such formula numbers would be onerous
for many flavor companies who frequently use their flavors as
ingredients in many other flavors.
The purpose of the proposed requirement added by Notice No. 748 was
to enable an ATF inspector to follow the ``audit trail'' to the next
product and compare its batch records, showing usage of the first
product, with the first product's records of disposition. This
inspection technique had been facilitated under the former regulations
in part 197 by a requirement that supporting data (submitted with each
claim) show, for each product manufactured, the formula number of each
nonbeverage or intermediate product used as an ingredient. That
requirement was eliminated from the simplified supporting data proposed
by Notice No. 748 (and adopted by this final rule), but its absence
would have been more than made up for by the proposed additional
language in Sec. 17.166(b)(1).
After carefully considering this public comment, ATF has decided
that the benefits of the proposed additional requirement in
Sec. 17.166(b)(1) may not be commensurate with the added burden to
industry. Therefore, in this final rule, Sec. 17.166(b)(1) reads as it
did in Notice No. 634, without the formula-number requirement added by
Notice No. 748. However, ATF reserves the right to examine this issue
further and possibly to propose another rulemaking, if experience shows
that the formula-number requirement, or something similar, is needed
for adequate administration of the law.
3. Two commenters requested permission to continue using the old
supporting data, as prescribed under Rev. Proc. 64-32, 1964-2 CB 951,
and former regulations (27 CFR 197.110-197.119). Even though the new
supporting data prescribed by this final rule is much simpler, some
companies have computerized their system, and it would actually be a
hardship for them to have to change.
Section 17.147 allows modifications of the supporting data to be
used without prior permission, if the modified form contains all of the
required information. For the most part, the old supporting data
contains all of the information required under this final rule. There
are only a few new elements, which include: A certification that
required physical inventories have been taken, separate data for
different effective tax rates and for Puerto Rican and U.S. Virgin
Islands spirits and imported rum, and certain explanatory information
sometimes required in Part IV of the new form. Therefore, drawback
claimants may continue to use the old supporting data as long as the
new elements are included.
4. Another comment stated an objection to the requirement for
physical inventories (Sec. 17.167). The commenter claimed that physical
inventories were not required under part 197. However, that is not so.
Physical inventories were mentioned in Secs. 197.116-197.119, with the
intent that they should be taken every claim period. Such inventories
are necessary from time to time to ensure the accuracy of the book
account. In line with the principles of the Administration's
``Reinventing Government'' regulatory initiative, ATF has determined
that claimants with bond coverage need not be required to take a
physical inventory every month (as proposed in Notices No. 634 and
748). Therefore, this final rule provides for quarterly physical
inventories.
5. Some other suggested improvements were related to the proposed
revision of the formula form (previously numbered ATF F 1678, now ATF F
5154.1). A draft version of this form was published in the same issue
of the Federal Register as Notice No. 748 (see 57 FR 39564). First, the
commenter requested additional space for addresses when a single form
is filed for multiple plants; but this is not necessary, since adequate
space is provided on the reverse of the form. (The reverse was not
printed in the Federal Register, since it is virtually a blank page.)
If the reverse is still not sufficient, a continuation on plain paper
is acceptable.
Also, the commenter suggested that ATF F 5154.1 be redesigned for
computer-generated insertion of data. However, he did not propose any
specific changes. If a claimant has a specific proposal for a computer-
generated form, it could be approved as an alternate procedure under
Sec. 17.3. In a separate project, ATF has developed a computer program
to facilitate the preparation of nonbeverage product formulas, which is
available for use by industry members. For more information on this
project, please contact the ATF Laboratory or the person listed above
under FOR FURTHER INFORMATION CONTACT.
6. Another suggestion proposed a simplified procedure for
alternation of premises between a distilled spirits plant and a
nonbeverage product manufacturing plant. This suggestion cannot be
considered at this time, since it relates to other regulations that are
not the subject of this rulemaking. This comment will be treated as a
suggestion for future amendment of 27 CFR part 19.
7. Another comment pointed out that the last sentence of
Sec. 17.137 (requiring qualification as a distilled spirits plant)
should be limited to products that are disapproved as ``fit for
beverage use.'' This comment is well taken. Under Sec. 19.58, as
amended by this final rule, exemption from qualification requirements
is provided to manufacturers of various products that are unfit for
beverage use, which nevertheless would not be approved for drawback
because they are not medicines, medicinal preparations, flavors,
flavoring extracts, food products, or perfume. Therefore, the suggested
change has been made.
8. Several comments addressed the procedure for determining whether
products are fit or unfit for beverage use (Sec. 17.134). It was stated
that the use of an organoleptic examination (taste test) performed by
ATF is not sufficiently objective and ``can result in a very arbitrary
tasting method with unpredictable results.''
As an alternative to the method currently used, one commenter
suggested the use of an independent testing panel funded by industry.
The commenter opined that such a panel might be more ``objective'' and
might alleviate the problem of delays in formula approvals caused by a
backlog of submissions at the ATF Laboratory.
Interestingly, this particular idea (absent the funding proposal)
had been previously considered by ATF pursuant to a suggestion
submitted by two ATF employees. At that time, ATF determined that the
panel would have to be restricted to analysis of samples, since most
industry members would be opposed to allowing an independent laboratory
to see their formulas. Additionally, it was determined that training
and certification by ATF would be necessary, thus minimizing any time
and cost savings to the Government. These findings are still considered
to be valid.
[[Page 31402]]
Furthermore, ATF disagrees that a panel funded by industry would be
any more objective than the taxpayer-funded ATF Laboratory. On the
contrary, industry funding would seem to introduce a possibility for
bias not currently present. ATF has no interest to be served by
approving or disapproving any particular formula. Our only interest is
to administer the law on an impartial basis. An element of subjectivity
(but not bias) is unavoidably present due to the legal requirement that
products be ``unfit for beverage use.'' This cannot be eliminated
merely by shifting the responsibility for decision-making to another
entity. Therefore, ATF has decided not to adopt this suggestion.
Another commenter proposed a different alternative. This one
suggested that ATF incorporate a ``standard reference method'' for
organoleptic examination based on a method prescribed by the American
Society for Testing and Materials (ASTM). The method recommended by the
commenter is as follows:
Samples: (1) Non-Beverage Test (NBT) sample(s)--Formulate six or
fewer samples over a range of dilution levels of the NBT component
in 15% ethanol. (2) Non-Beverage Reference (NBR) and Beverage
Reference (BR) samples--From the list of ingredients and amounts in
Table 1 (i.e. a table listing ingredients and their quantities
recognized by ATF as usually sufficient to make products unfit for
beverage use), select and formulate one sample for a NBR at 15%
ethanol. Reduce the amount of the respective ingredient in the NBR
sample to formulate a BR sample that would be deemed potable.
Procedure: (1) Recruit a panel of at least 15 members previously
screened as outlined below.
(2) Each panelist is presented the NBR and BR samples as
examples of a nonpotable and potable beverage, respectively.
(3) Each panelist is then presented in random order each NBT
sample for comparison in acceptablility to the NBR and BR sample.
(4) Each panelist responds to the question, ``Is this sample
more like the NBR or BR sample in acceptability?''
(5) Count the number of panelists scoring each NBT sample as
more like the BR sample in acceptability.
(6) Use the statistical tables for the duo-trio difference test
(from ASTM ``Manual on Sensory Testing Methods, STP 434'') to
conclude which NBT samples are potable. Determine significance at
the 95% confidence level.
(7) Report the highest concentration of the nonbeverage
component that is significant as an upper bound in concentration of
the NBT component for potability.
Panelist Screening: (1) Present both the NBR and BR samples to a
prospective panelist.
(2) Ask the question, ``Which sample is more acceptable to
you?''
(3) Screen out any panelists which select the NBR sample.
ATF has reviewed this proposed method and finds it unacceptable for
several reasons. First, the method does not test for the specific
information needed for drawback determinations under 26 U.S.C. 5131.
The proposal is, in effect, a test for determining what concentration
of a single ``component'' is needed to render an ethanol solution
nonpotable. However, in making drawback determinations, ATF is not just
interested in the contribution to potability by a specific component;
rather, ATF is interested in the resulting potability of a product,
which may contain many components. Further, ATF is not interested in
quantitating the level of concentration at which a solution becomes
nonpotable; rather, ATF is just interested in determining, yes or no,
whether a particular final product is fit for beverage use. In other
words, the proposed method provides extraneous, unnecessary information
while simultaneously failing to provide the particular information that
ATF needs.
Secondly, the proposed method does not even provide a definitive
determination whether a particular sample is beverage or nonbeverage.
It only provides a determination whether the sample is ``more like''
the ``beverage reference'' or the ``nonbeverage reference.'' If one of
the two reference samples is closer than the other to the border
separating beverage from nonbeverage, the test sample may in fact be
``more like'' one of them even though it is on the opposite side of
that border. For example, imagine that on a scale of 1-100, the
separation between beverage and nonbeverage occurs at 50. If the
beverage reference is at 40 and the nonbeverage reference is at 75, a
test sample at 55 will taste ``more like'' the beverage reference even
though the sample is in fact nonbeverage.
Thirdly, the composition of the proposed panel would not be
appropriate. As the example just given shows, it is important for the
panel to understand the real difference between beverage and
nonbeverage, not merely whether a sample is ``more like'' one or the
other. This implies a panel with expertise, not just a panel of random
individuals. Though not explicitly stated, it is implied that the
proposed method would utilize randomly selected individuals. By
contrast, the panelists used by ATF are all university-trained
chemists, who receive a minimum of 1 year of special training at the
ATF Laboratory before their vote is given full weight in drawback
approval determinations. This ensures maximum consistency and
continuity over time in application of the ``unfit for beverage use''
standard.
Because ATF uses expert panelists, it is not necessary to empanel a
minimum of 15. In most cases, a panel of two is sufficient for a
definitive determination. If a sample is at all borderline, additional
panelists are recruited up to a maximum of 12. At least \2/3\ of them
must agree that the sample is unfit for beverage use. By this method,
the eight chemists of the ATF Laboratory's Nonbeverage Section (aided
when necessary by the eight chemists of the Beverage Alcohol Section)
are able to examine about 2,400 samples per year. This is in addition
to their other work, which includes chemical analyses and examination
of thousands of formulas submitted without samples.
Therefore, although ATF appreciates the effort put into devising
the proposed new method, we have concluded that it is in no way
superior to the method currently being used.
Accordingly, Sec. 17.134 is adopted by this final rule without
change from Notice No. 748. ATF hopes that the information in this
section will be used by manufacturers to identify and ``weed out''
products that are clearly fit for beverage use.
9. Finally, a commenter requested that ATF publish, in Sec. 17.137,
a list of ingredients and their quantities that are recognized by the
ATF Laboratory as usually sufficient to make products unfit for
beverage use. The commenter was referring to the following Guidelines,
which were distributed to attendees at an ATF-sponsored industry
seminar:
----------------------------------------------------------------------------------------------------------------
Ingredient Amount
----------------------------------------------------------------------------------------------------------------
Citric Acid................................. If ethanol less than 30%, acid = 0.1 x ethanol content (% v/v) +
0.5.
If ethanol greater than 30%, acid = 0.1 x ethanol content (% v/
v).
Salt........................................ 3.2 grams salt per 100 ml at 45% ethanol (more for greater
ethanol).
Vanillin.................................... 1 oz. per gallon at 30% ethanol.
Ethyl Vanillin.............................. 0.4 oz. per gallon at 30% ethanol.
[[Page 31403]]
Propylene Glycol............................ Equal amounts by volume of propylene glycol and ethanol.
Ethyl Acetate............................... 2.0% by volume at 90% ethanol.
Maltol...................................... 5% at 90% ethanol.
Essential Oils.............................. Most are unfit at a level of 3% in 90% ethanol. An exception is
anise oil which needs 4.2%. Many 1% solutions of essential oils
are unfit.
Benzaldehyde................................ 1.2 oz. benzaldehyde or bitter almond oil per gallon at 90%
ethanol.
----------------------------------------------------------------------------------------------------------------
ATF agrees that this information should be widely distributed among
nonbeverage industry members; however, the problem with publishing it
in the regulations is that it can only be a guide, not applicable to
all products. If it were contained in regulations, industry members
would tend to assume that if their products met the guidelines, they
would automatically be approved for drawback. No such guarantee can be
provided. (For example, products meeting the citric acid guidelines may
nonetheless be fit for beverage use if they contain sufficient sugar.)
Therefore, ATF has decided to publish this information as a future
Industry Circular, rather than as an amendment to the regulations.
Other Changes From Former Regulations
Other changes, proposed in Notice No. 748, were not the subject of
public comment. Except as noted, they have been adopted substantially
as proposed.
1. Adoption of Rulings. The holdings of certain Revenue Rulings and
ATF Rulings are reflected in the final regulations, as follows: Rev.
Rul. 55-689, 1955-2 CB 729 (Sec. 17.187); Rev. Rul. 56-239, 1956-1 CB
715 (Sec. 17.135); Rev. Rul. 56-314, 1956-2 CB 1023 (Sec. 17.137); Rev.
Rul. 56-335, 1956-2 CB 1024 (Sec. 17.181); Rev Rul. 56-336, 1956-2 CB
1023 (Sec. 17.182); Rev. Rul. 56-367, 1956-2 CB 1026
(Sec. 17.135(b)(2)); Rev. Rul. 56-394, 1956-2 CB 1021 (Sec. 17.152(c));
Rev. Rul. 56-395, 1956-2 CB 1025 (Sec. 17.186); Rev. Rul. 58-350, 1958-
2 CB 974 (Sec. 17.136); Rev. Rul. 63-87, 1963-1 CB 384 (Secs. 17.11:
new definition of ``food products,'' and 17.133(d)); Rev. Rul. 69-138,
1969-1 CB 327 (Secs. 17.126(b) and 17.152(a), (c), and (d)); ATF Rul.
73-1, 1973 ATF CB 85 (Sec. 17.133(b)); ATF Rul. 74-2, 1974 ATF CB 27
(Sec. 17.76); ATF Rul. 76-17, 1976 ATF CB 85 (Secs. 17.151 and
17.152(b)); ATF Rul. 76-19, 1976 ATF CB 86 (Secs. 17.169 and
17.185(b)); ATF Rul. 77-27, 1977 ATF CB 165 (Sec. 17.122); and ATF Rul.
82-7, 1982-2 QB 46 (Sec. 17.11: new definition of ``medicines'').
Rev. Rul. 57-369, 1957-2 CB 948, has been adopted in the
instructions to the revised ATF Form 5154.1 (formerly Form 1678). Rev.
Rul. 58-317, 1958-1 CB 586, is not reflected in the regulations; it is
obsolete since iso-alcoholic elixir has been removed from the National
Formulary. Rev. Rul. 58-428, 1958-2 CB 975, is also not reflected in
the regulations, because the repeal of 26 U.S.C. 5082 has removed its
authority. The holding of ATF Rul. 81-8, 1981-4 QB 24, has been
modified in Sec. 17.183 (see discussion above, under ``Public Comments
on Notice No. 634''). Revenue Procedure 64-32, 1964-2 CB 951, has been
replaced by the new supporting data form (ATF Form 5154.2), per
Sec. 17.147.
2. Form number changes. The prescribed form entitled ``Formula and
Process for Nonbeverage Products'' has been revised and renumbered from
1678 to 5154.1. This will not require resubmission of any formulas
previously approved on Form 1678. Similarly, the form number of the
``Bond for Drawback Under 26 U.S.C. 5131'' is being changed from 1730
to 5154.3, but this will not require resubmission of any bonds
previously approved.
3. Alternate methods or procedures. A new section (Sec. 17.3) has
been added to provide for the employment of alternate methods or
procedures, if approved by the Director pursuant to a showing of the
conditions stated in the regulation.
4. Incorporation by reference. Former Sec. 197.3 is not included in
this final rule, because consultation with the Office of the Federal
Register indicated that the use of the National Formulary, United
States Pharmacopeia, and Homeopathic Pharmacopoeia of the United States
does not amount to an incorporation by reference. Although Sec. 17.132
makes a ``reference'' to these books, there is no ``incorporation'' of
them into the regulations. There is merely an authorization, for
manufacturers who so choose, to utilize formulas from them as approved
formulas without the necessity of submitting ATF Form 5154.1.
Incorporation by reference with the approval of the Director of the
Federal Register under 5 U.S.C. 552(a)(1) is intended to be a
substitute for the reprinting of material required to be published in
the Federal Register under Sec. 552(a)(1)(A)-(E). However, the
authorization for manufacturers to make use of the N.F., U.S.P., and
H.P.U.S. on a voluntary basis does not entail a requirement for ATF to
publish the contents of those books in the Federal Register. It is true
that a manufacturer who has chosen to adopt a formula from the N.F.,
U.S.P., or H.P.U.S. may be subject to a $1,000 fine if he subsequently
fails to follow it (Sec. 17.148). However, the enforcement of this
requirement does not require publication of that formula, any more than
similar enforcement of the manufacturer's own proprietary formulas
requires their publication. The enforcement in each instance pertains
to the manufacturer's choice of a formula, rather than to the contents
of the N.F., U.S.P., and H.P.U.S. per se.
5. Signature authority. Section 17.6, generalized from certain
provisions in former Secs. 197.30 and 197.67(a), states the rule as to
when evidence of signature authority is required.
6. Delegations of authority. Authorities vested in the Director by
part 17 may be delegated, through delegation orders, to subordinate
officials. This possibility is reflected in the definition of
``Director'' in Sec. 17.11 by addition of the words ``or his or her
delegate.'' ATF's Alcohol and Tobacco Laboratory is specified in
Secs. 17.121, 17.122, 17.126, 17.131, 17.132, and 17.136 as the
recipient of certain documents, such as formulas. Accordingly, a new
definition of ``Alcohol and Tobacco Laboratory,'' giving its address,
is provided in Sec. 17.11.
7. New and modified definitions. For clarity, some new definitions
are added in Sec. 17.11. Besides those mentioned elsewhere in this
preamble, there are new definitions of ``approved,'' ``CFR,''
``month,'' ``person,'' ``proof gallon,'' ``quarter,'' ``recovered
spirits,'' and ``this chapter.'' With respect to the definitions of
``month'' and ``quarter,'' claimants desiring to use slightly different
time periods may apply under Sec. 17.3. (Existing approvals remain in
effect.) The definitions of ``director of the service center,''
``district director'' (an I.R.S. official), ``total annual
withdrawals,'' and ``year'' in former Sec. 197.5 have been deleted as
unnecessary. The definitions of ``used'' and ``time distilled spirits
are used'' are in regulations Secs. 17.151 and 17.152. The
[[Page 31404]]
definition of ``nonbeverage products'' in Sec. 17.11 has been modified
to reflect the addition of perfume to the list of products that may be
approved for drawback. (Pub. L. 103-465, Sec. 136(a).) Elsewhere in
this final rule, wherever the types of nonbeverage products are listed,
this addition of perfume is reflected as well. ATF is in the process of
delegating authority under its new organizational structure; however,
this process is not yet complete; therefore, the definition of
``regional director (compliance)'' and the use of that term throughout
this final rule are retained.
8. Time for payment of special tax. A sentence has been added in
Sec. 17.24 to clarify when a payment of special tax is considered late.
Under 26 U.S.C. 5131, special tax is a prerequisite for drawback
eligibility. Therefore, no penalty under 26 U.S.C. 5134(c) will be
imposed as long as special tax is paid before completion of final
action on the claim.
9. Retention of special tax stamps. Former regulations did not
specify a retention period for special tax stamps. These final
regulations (Sec. 17.55) make the retention period the same as for
other required records and documents (generally 3 years). The retention
period for the list of multiple business locations, which was 2 years
under former Sec. 197.28, has also been made the same as for other
documents (Sec. 17.31).
10. Reincorporation. A new Sec. 17.77 has been added, stating that
when an existing corporation or corporations are reorganized into a new
corporation, a new special tax must be paid. This new section is
similar to regulations for liquor dealers in Sec. 194.163. Although
Sec. 17.77 states the general rule, there may be exceptions. For
instance, ATF has ruled that a reorganization under 26 U.S.C.
368(a)(1)(F), consisting of a mere change in identity, form, or place
of organization of one corporation, however effected, does not require
a new special tax. If there is a question as to whether a new special
tax is required, the ATF Tax Processing Center, (513) 684-6580, should
be consulted.
11. Amount of bond for monthly claims. The wording of former
Sec. 197.107 allowed for the possibility that the amount (or ``penal
sum'') of a bond might be reduced due to frequent on-site inspections.
This concept has become obsolete, since today no claimant is regularly
inspected as frequently as quarterly. Therefore, under these final
regulations (Sec. 17.102), bonds for monthly claims must cover the
total drawback claimed during any quarter. It is not anticipated that
this change will affect the required bond coverage of any current
monthly claimant.
12. Time for filing formulas. Language in former Sec. 197.95,
respecting time for filing formulas, has been revised in Sec. 17.121(b)
to express more clearly the statutory requirement of 26 U.S.C. 5131-
5134. Both formula and claim must be filed within ``6 months next
succeeding the quarter in which the distilled spirits covered by the
claim were used'' (26 U.S.C. 5134(b)). However, if there is any doubt
about a product's eligibility for drawback, it is preferable that the
formula be filed and approved before commencement of manufacture.
13. Formulas for use at multiple plants. The revised formula form
(ATF F 5154.1) permits a manufacturer to file a single formula for use
at more than one plant, if the plants at which the formula will be used
are listed on the form. This change is reflected in Sec. 17.121(c).
14. Adoption of predecessor's formulas. Former Sec. 197.99 allowed
the adoption of a predecessor's formulas (for continued use at the same
plant, when its ownership changes) by filing a notice listing the
formulas' serial numbers, names, and dates of approval. This final rule
(Sec. 17.125(a)) only requires the notice of adoption to list the names
and serial numbers. The notice must be filed with the regional director
(compliance). Further, since copies of the articles of incorporation or
other documents are necessary to prove the change of ownership, a
sentence has been added to include this general requirement.
15. Adoption of manufacturer's own formulas from another plant.
Adoption of a company's own formulas for use at another of its plants,
including adoption by a parent company of formulas of its wholly owned
subsidiary, and vice versa, is a new option provided by this final
rule. (See Sec. 17.125(b).) Previous regulations did not provide for
this. The procedure for this type of adoption is to submit a letterhead
notice to the ATF Laboratory, accompanied by two photocopies of the
formula to be adopted and some evidence of the relationship between the
plants. After verifying the formulas, the ATF Laboratory will forward
the notice to the regional director (compliance). The adopting plant is
also required to reference the notice in its first claim relating to
the adopted formula(s).
16. Formulas for intermediate products. ATF needs to know all
ingredients that will enter into the finished nonbeverage product.
Therefore, these final regulations (Sec. 17.126) require the submission
of formulas on ATF Form 5154.1 (formerly 1678) for intermediate
products, unless the formula for an intermediate product is written as
part of the approved formula for the nonbeverage product(s) in which
the intermediate product will be used. (If the formula for the
intermediate product is written as part of the nonbeverage product's
formula, the intermediate product is treated as an unfinished
nonbeverage product; see discussion below.)
17. Self-manufactured ingredients optionally treated either as
intermediate products or as unfinished nonbeverage products. Spirits
consumed in the manufacture of intermediate products are not subject to
drawback, both under former regulations (Sec. 197.119) and this final
rule (Sec. 17.155). If spirits are recovered in the manufacture of
intermediate products, drawback may be claimed, but only if and when
the spirits are subsequently reused in the manufacture of a nonbeverage
product (Sec. 197.118 in former regulations and Sec. 17.153(a) in this
final rule). These restrictions are necessary for protection of the
revenue, because when spirits are consumed or recovered in the
manufacture of an intermediate product, it could be difficult or
impossible to correlate the quantity of such spirits with the
production of a batch of finished nonbeverage product in which the
intermediate was used.
However, in some instances, the manufacture of an intermediate
product requires consumption of significant quantities of spirits that
are not ultimately contained in that intermediate product. The
inability to claim drawback on such spirits would be a hardship.
Therefore, manufacturers have been permitted to resubmit their formulas
to show production of the intermediate product as an integral part of
the formula for the related nonbeverage product. If this is done, the
former intermediate product is regarded instead as an unfinished
nonbeverage product; consequently, spirits necessarily consumed (or
recovered) in its manufacture are regarded as consumed (or recovered)
in the manufacture of a nonbeverage product and are subject to
drawback. This procedure protects the Federal revenue, because each
batch of unfinished nonbeverage product is restricted to use in a
specific batch of a predetermined finished product and must be so used
within the time period specified in the approved nonbeverage product's
formula.
Although this procedure was available under former regulations,
many manufacturers were not aware of it, because it was not described
in the
[[Page 31405]]
regulations. In order to inform manufacturers of this procedure, it is
described in Secs. 17.127 and 17.185 of these final regulations.
Manufacturers are given the option to designate their self-manufactured
alcoholic ingredients as either intermediate products or unfinished
nonbeverage products. There are advantages and disadvantages that go
with each choice.
The advantage of designating an ingredient as an unfinished
nonbeverage product is that spirits recovered or consumed in the
manufacture of the ingredient are subject to drawback in the same way
as other spirits recovered or consumed in the manufacture of
nonbeverage products. The disadvantages of this designation are: (1)
Each batch of the ingredient must be used within a limited time in a
single batch of a predetermined nonbeverage product. (2) The ingredient
cannot be transferred to another plant under Sec. 17.185(b). (This
restriction is due to the necessity of a single, unified batch record,
which must be maintained at the place of production.)
Conversely, the advantages of designating an ingredient as an
intermediate product are: (1) Several batches may be accumulated,
stored indefinitely, and used in the manufacture of any nonbeverage
product whose formula calls for their use. Less (or more) than a full
batch of such a product may be used to produce a batch of a finished
nonbeverage product. (2) Ingredients designated as intermediate
products may be transferred to another branch or plant of the same
manufacturer under Secs. 17.169 and 17.185. (3) For manufacturers who
already have intermediate product formulas on file, another advantage
of the ``intermediate product'' designation is that no new formula or
procedural changes would be required. But the disadvantage of that
designation is that spirits consumed or recovered in production of the
intermediate product may not be claimed for drawback.
18. Subpart U of 27 CFR part 170. Subpart U of 27 CFR part 170,
which provided exemptions from special tax and qualification
requirements for manufacturers and sellers of certain products that are
unfit for beverage use, is being revoked, but the material from that
subpart has not been entirely eliminated. Material related exclusively
to drawback manufacturers has been incorporated in the new part 17.
Some material has been eliminated, either as unnecessary or as covered
by other regulations. The remaining material has been relocated into
subpart D of part 19 (see new Sec. 19.58; this section is grouped under
a new centerheading, ``Activities Not Subject to this Part,'' along
with former Sec. 19.69, which is redesignated as Sec. 19.57).
Conforming amendments have also been made in 27 CFR parts 70 and 194.
Former Sec. 170.613(a)(6) (``Salted wines'') was previously
incorporated into 27 CFR 24.215 by T.D. ATF-299 (55 FR 24974). Sections
in part 17 containing language from former subpart U of part 170 are:
Secs. 17.132, 17.133, and 17.168.
19. Submission of quantitative formulas. This change strengthens
requirements respecting submission of formulas for nonbeverage drawback
products. Regulations allow formulas prescribed by the United States
Pharmacopeia (U.S.P.), the National Formulary (N.F.), and the
Homeopathic Pharmacopoeia of the United States (H.P.U.S.) to be used
without the prior filing and approval of quantitative formulas. This
procedure has been allowed because of the descriptive nature of these
formulas and their consistency over the years. At present, however, the
N.F. and U.S.P. are deleting their requirements for specific quantities
of ingredients in some of their formulas, except for the active
ingredients. Such non-descriptive formulas are not adequate for
regulatory purposes, since alcohol is usually a vehicle rather than an
active ingredient and is therefore not stated as a specific quantity
within such formulas. Drawback of tax under 26 U.S.C. 5134 is claimed
and allowed on exact amounts of alcohol used in the manufacture of
nonbeverage products according to the quantity specified in the
approved formula.
Therefore, Sec. 17.132 in this final rule is worded so that ATF may
require submission of quantitative formulas on ATF Form 5154.1
(formerly 1678), Formula and Process for Nonbeverage Products, for
preparations which appear in the N.F., U.S.P., or H.P.U.S. whenever it
is determined that such submission is necessary to maintain control
over alcohol used and to insure that the products meet the statutory
requirements for drawback eligibility. It is expected that the list of
preparations for which approval of quantitative formulas will be
required under this regulation will be published as an ATF ruling in
the ATF Bulletin.
20. Drawback status of U.S.P., N.F., and H.P.U.S. preparations.
Preparations listed in the U.S.P., N.F., and H.P.U.S. are generally
exempt from the requirement to file quantitative formulas (former
Sec. 197.96; Sec. 17.132 in this final rule), but this exemption does
not necessarily entail approval for drawback. The statutory standard of
``unfit for beverage purposes'' remains and must be enforced (26 U.S.C.
5131(a)).
Former regulations in part 197 were silent concerning the drawback
status of U.S.P., N.F., and H.P.U.S. products. However, this issue
should be addressed, so that manufacturers may properly plan.
Therefore, Sec. 17.132 in this final rule states that formulas listed
in the U.S.P., N.F. and H.P.U.S. are approved for drawback except as
otherwise provided by regulation or ATF ruling. Alcohol, U.S.P.
(including dehydrated alcohol and dehydrated alcohol injection),
alcohol and dextrose injection, U.S.P., and tincture of ginger,
H.P.U.S., are specifically declared in this regulation to be fit for
beverage use.
Similarly, H.P.U.S. preparations made at dilutions higher than
``4X'' (i.e. one part in 10,000) are presumed to be fit for beverage
use. Manufacturers of such products may contest this presumption by
submitting appropriate evidence that a specific product is unfit for
beverage use. The reason for the initial presumption is that the ATF
Laboratory has determined that even for H.P.U.S. products containing
certain poisonous materials, dilutions of greater than ``4X'' are fit
for beverage use. ATF neither confirms nor disputes the medicinal value
of such products, but the dilution one part of active ingredients in
10,000 parts or more of alcohol and water has been found to result in a
product that would be suitable for consumption as a beverage.
Therefore, it has been ATF's position to deny drawback for H.P.U.S.
products diluted to greater than ``4X.'' These final regulations
reflect this position in Sec. 17.132(b).
21. Liquor-filled candies. Paragraph (c) of Sec. 17.133 states
ATF's longstanding policy that candies with alcoholic fillings may be
regarded as nonbeverage products only if the fillings meet the
requirements for alcoholic sauces, as stated in Sec. 17.133(a). Since
some States may prohibit or restrict the manufacture or sale of liquor-
filled candies, a sentence in the introductory text of Sec. 17.133
cautions applicants that formula approval does not authorize violation
of State law.
22. Use or sale of products for beverage purposes. The last
sentence of Sec. 17.134 (adapted from former Secs. 170.615 and 170.618)
makes it clear that drawback approval may be revoked if a product is
found being used or sold for beverage purposes.
23. Manufacturers who are also users of denatured alcohol. Since no
tax is paid on denatured spirits, it would be conducive to fraud on the
revenue for a single manufacturer to produce the same product out of
both specially denatured alcohol and taxpaid alcohol
[[Page 31406]]
on which drawback may be claimed. Section 17.135(a) prohibits this
practice.
24. Claims for credit by manufacturers of nonbeverage products.
Drawback manufacturers who also operate a distilled spirits plant may
find it more convenient to claim nonbeverage drawback in the form of a
credit to offset distilled spirits taxes owed by the distilled spirits
plant. Therefore, Sec. 17.142(b) permits such a procedure.
25. Changes in supporting data requirements. Under the regulations
published in this document, the supporting data required to accompany
claims has been simplified. The new supporting data is described by ATF
Form 5154.2, which is authorized by these regulations. Use of this
Government form is not mandatory; Sec. 17.147 permits the use of any
alternative format that clearly shows all the required information.
The new supporting data has eliminated material that is not
necessary to the processing of drawback claims. Former Part II
(``Distilled Spirits Received'') is gone. So is former Part V
(``Intermediate Products Account'') except for the totals in column
(i), which are incorporated into the Distilled Spirits Account. Part
III has been shortened from 16 columns to 8, and is redesignated as
``Production of Nonbeverage Products.'' Most of the simplification in
Part III results from elimination of detailed information on use of
specific finished products. Use of eligible spirits will be reported in
three columns (``Kind,'' ``Drawback Rate,'' and ``Amount''), and use of
ineligible spirits will not be reported, except for recovered spirits.
Information no longer reported in the supporting data must still be
recorded in the manufacturer's records, as prescribed in subpart H of
part 17. The regional director (compliance) is authorized, under
Secs. 17.147(a) and 17.123, to require additional supporting data if
necessary in a particular case.
Some new information has been added to the supporting data.
Information about the place of origin of Puerto Rican and Virgin
Islands spirits and other imported rum is required, because ATF needs
this information in order to implement the Caribbean Basin Economic
Recovery Act (Pub. L. 98-67, Title II). Separate reporting is required
for spirits taxpaid at different effective tax rates through
application of the wine and flavor tax credit of 26 U.S.C. 5010,
because such spirits are subject to drawback at different rates. (The
drawback rate is $1.00 less than the rate at which distilled spirits
tax was paid, as provided in 26 U.S.C. 5134.)
26. Public Law 98-369. This document reflects certain changes made
by Public Law 98-369 (Deficit Reduction Act of 1984). Those changes
are: (1) Addition of 26 U.S.C. 5206(d), relating to obliteration of
marks, and (2) imposition of a $1,000 penalty for nonfraudulent
violations of drawback law and regulations, unless the manufacturer
establishes reasonable cause for a violation. Sections affected are:
Secs. 17.148 and 17.184.
With respect to the $1,000 penalty, the statute requires that the
penalty be imposed ``for each failure to comply'' with law or
regulations. This means that a separate penalty can be imposed for each
product listed on a claim. For example, if several products were not
manufactured according to formula, but were still unfit for beverage
use, a $1,000 penalty could be imposed for each nonconforming product.
If the amount claimed on any such product is less than $1,000, the
penalty is limited to the amount claimed.
Recordkeeping violations can also result in imposition of a penalty
for each separate product. However, if the violations are so serious
that they prevent the manufacturer from establishing either the
unfitness of a product for beverage use or the quantity of the product
that was made, then the penalty provision would not apply. Each claim
must be considered on its own merits, and the burden of proving
entitlement to drawback is always on the manufacturer. If this burden
is not met with respect to any product, the claim for drawback relating
to that product would be denied.
The preceding comments also apply to products manufactured without
submission of a formula. If the manufacturer can sustain the burden of
proof, the claim would be approved subject to the penalty. However,
without a formula, it is unlikely that this burden could be sustained
other than by examination of batch records. ATF is not obliged to send
an inspector to examine batch records when a manufacturer refuses to
comply with the requirement to submit a formula.
With respect to timely filing, a late-filed claim or formula counts
as just one ``failure to comply.'' So if the only noncompliance is
lateness in filing a claim, the maximum penalty would be $1,000. Late-
filed formulas result in a separate penalty for each late formula.
Special tax paid subsequent to final action on a claim also results in
a $1,000 penalty. It should be noted that in no case will a claim be
paid more than 6 years after the quarter in which the products were
manufactured, due to the statute of limitations of 28 U.S.C. 2401.
Finally, the penalty provision does not apply in a case of fraud.
Fraud is considered to be a deliberate violation with intent to
deceive. If there is fraud, the entire claim will be denied, and the
manufacturer may be subject to other civil and criminal penalties as
well.
27. Changes in recordkeeping requirements. Items deleted from the
supporting data have been incorporated into the records required by
subpart H of part 17 to be maintained at each nonbeverage premises.
Certain formerly required records that are duplicative of the
information provided by the supporting data have been deleted from
subpart H. The holding of Industry Circular 79-5 with respect to
records of raw materials and finished products has been clarified and
incorporated in the regulations (see Secs. 17.164 and 17.165). An
amendment to Sec. 19.780, specifying that the record required by that
section must show the contents of each container, will facilitate the
use of that record by nonbeverage manufacturers in complying with
Sec. 17.162 in instances where a shipment consists of non-uniform
containers.
28. Gains in spirits received or on hand. This final rule requires
gains in spirits received, as disclosed by the receiving gauge, and
gains in spirits on hand, as disclosed by physical inventory, to be
deducted from the claim covering the period in which the gain occurs.
Deduction is appropriate in these circumstances, since a gain indicates
either receipt of ineligible (untaxpaid) spirits or an excessive claim
in a previous period. Regulations stating this requirement are in
Secs. 17.147(d), 17.162(d), and 17.167(a).
With respect to spirits received, Sec. 17.162(d) sometimes allows a
gain to be avoided by recording the shipping plant's taxpayment gauge
as the quantity received. For spirits received in a tank car or tank
truck, this is only allowed when the drawback manufacturer's receiving
gauge is within 0.2% of the taxpayment gauge. (This duplicates
Sec. 197.130a(a) in former regulations.) If the taxpayment gauge was
inaccurate within the 0.2% limitation, the discrepancy will tend to
resolve itself as a gain or loss on the drawback manufacturer's next
physical inventory.
If the gauge of spirits received in a tank car or tank truck
differs from the taxpayment gauge by more than 0.2%, the receiving
gauge must be recorded in the manufacturer's records as the quantity
received. This rule is based on the assumption that if the discrepancy
is that great, the receiving gauge is more likely to be accurate. Under
Sec. 17.162(d), any gain disclosed in such
[[Page 31407]]
circumstances must be immediately recorded as such and deducted from
the manufacturer's next claim.
29. Evidence of taxpayment. A new provision in Sec. 17.163 requires
manufacturers to obtain commercial invoices or other documentation when
spirits are purchased from wholesale and retail liquor dealers. This
new requirement will help provide evidence of taxpayment of the
spirits.
In addition, Sec. 17.163 requires all manufacturers to obtain
evidence of the effective tax rate paid on spirits other than alcohol,
grain spirits, neutral spirits, distilled gin, and straight whisky.
Spirits other than those kinds may contain wine and/or flavoring
material that brings the effective tax rate below the normal distilled
spirits rate ($13.50 per proof gallon). The effective tax rate is
significant for nonbeverage drawback, because the drawback rate is $1
less than the rate at which tax was paid or determined (26 U.S.C.
5134(a)).
For shipments received from a distilled spirits plant, an effective
tax rate below $13.50 per proof gallon must be noted on the record of
shipment required by Sec. 19.780 to be forwarded to the nonbeverage
manufacturer. For spirits purchased from wholesale or retail liquor
dealers, the drawback claimant must obtain the evidence of effective
tax rate from the bottler, producer, or importer. If the required
evidence is not obtained, drawback will only be allowed based on the
lowest effective tax rate possible for the kind of distilled spirits
product used.
30. Production (batch) records. Under Sec. 17.164, the production
records for nonbeverage and intermediate products generally must be
kept by batch. To enable an ATF officer to compare the ingredients used
in each batch with the ingredients listed in the product's formula, the
records must refer to ingredients by the same names as are used for
them in the product's formula. Synonymous names may additionally be
shown. Alcohol usage may be shown by weight or by volume, and the proof
of the spirits must also be shown.
The alcohol content of nonbeverage products must be tested ``at
representative intervals.'' This requirement is a variable, because the
appropriate interval will vary to a great degree depending on the type
of product and the frequency with which it is manufactured. The purpose
of testing alcohol content is to verify the accuracy of the formula and
to monitor compliance with it. If a manufacturer feels unsure of how
frequently alcohol content should be tested to accomplish this purpose
for a particular product, advice may be requested from ATF. Whenever
the manufacturer does make a test, the results must be recorded in the
production records.
31. Specifications for physical inventories. These final
regulations (Sec. 17.167) specify that the ``on hand'' figures in the
supporting data must be verified by physical inventories ``as of the
end of each quarter in which nonbeverage products were manufactured for
purposes of drawback.'' The words ``as of'' indicate that the inventory
need not be taken exactly at the end of the quarter; but if it is taken
at a slightly different time, the data must be worked backward or
forward to the end of the quarterly period. The regulations also
authorize the regional director (compliance) to require physical
inventories of nonbeverage products and raw ingredients whenever such
inventories are deemed necessary to ensure compliance with regulations.
32. Recovered alcohol. Recordkeeping requirements for recovered
alcohol, formerly in Sec. 170.617(c), are incorporated in new
Sec. 17.168. The regulations as proposed in Notice No. 748 did not
provide for destruction of recovered alcohol, although permission for
such destruction could be granted under Sec. 17.3, subject to such
recordkeeping and other conditions as the approving official might have
deemed appropriate. Since the need for destruction of recovered alcohol
is an eventuality that can be expected to occur from time to time, this
final rule provides a standard procedure to replace the need for an
application under Sec. 17.3. Section 17.168 provides standard
recordkeeping requirements and Sec. 17.183 requires a notification,
which will give ATF the option of witnessing the destruction.
33. Records retention. Section 17.170 (corresponding to former
Sec. 197.133) extends the records retention period from 2 years to 3
years, for consistency with other ATF regulations. This change will
ensure the availability of records to support any action that may be
taken within the period of the statute of limitations prescribed by 26
U.S.C. 6531. This section of law prescribes a 3-year statute of
limitations for most offenses; but for certain offenses involving fraud
or willful violation, the statute of limitations is 6 years. Therefore,
as in other ATF regulations, Sec. 17.170 contains a provision that
permits the regional director (compliance) to require a longer records
retention period, not to exceed an additional 3 years.
34. Inspection of records. In addition to the records specifically
required by regulations, ATF officers are authorized under 26 U.S.C.
5133 (as delegates of the Secretary of the Treasury) to inspect any
records ``bearing upon the matters required to be alleged'' in drawback
claims. This authority is reiterated in Sec. 17.171.
In carrying out this authority, ATF will continue to protect
proprietary information. For example, the production records in
Sec. 17.164 do not require greater detail as to ingredients than is
shown on a product's formula. If some secret ingredients of a product
are referred to in general terms, such as ``essential oils,'' on the
formula, then the required production record for that product would
only need to show the quantity of ``essential oils'' used in the
production of each batch. The production record would not have to
specify the secret ingredients. If unusual circumstances should require
an ATF officer to examine other records, such as master formulas that
do specify the secret ingredients, Sec. 17.171 does not provide
authority for copies of such formulas to be made without the consent of
the proprietor. (However, such copies could be required by the Director
or a regional director (compliance) under Sec. 17.123.)
The law, in 18 U.S.C. 1905 and 26 U.S.C. 7213, imposes criminal
penalties on any ATF officer who makes unauthorized disclosure of
confidential business information obtained in the course of his or her
employment. Further restrictions on disclosure are found in 26 U.S.C.
6103, which generally prohibits unauthorized disclosure of returns and
return information. ``Returns'' and ``return information'' in that
section include drawback claims and the records and reports which
support them.
35. Discontinuance of business. A requirement has been added, in
Sec. 17.187, for notification to ATF when a manufacturer permanently
discontinues business. This will enable ATF to manage its files, and it
is reasonable in view of the conditional exemption from basic permit
and special (occupational) tax requirements for the sale of alcohol
remaining on hand.
36. Nonbeverage products from Puerto Rico and the Virgin Islands.
Amendments to 27 CFR 250.173 and 250.309 allow use of the new
supporting data form (ATF F 5154.2) and specify that claims and bonds
shall be filed with the Chief, Puerto Rico Operations, for nonbeverage
products brought into the U.S. from Puerto Rico and the Virgin Islands.
Although Notice No. 748 only proposed to amend the place for filing
drawback claims, the place for filing bonds should be amended as well,
since bonds and claims are filed at the same
[[Page 31408]]
place. Other changes in part 250 are miscellaneous technical and
conforming changes.
Distribution Table for Part 197
------------------------------------------------------------------------
Former section New section
------------------------------------------------------------------------
Subpart A
Sec. 197.1............................... Sec. 17.1.
Sec. 197.2............................... Sec. 17.2.
Sec. 197.3............................... Deleted.
Subpart B
Sec. 197.5: (generally).................. Sec. 17.11.
``Director of the Service Center''........ Deleted.
``District Director''..................... Deleted.
``Time distilled spirits used''........... Sec. 17.152(a).
``Total annual withdrawals''.............. Deleted.
``Used''.................................. Sec. 17.151.
``Year''.................................. Deleted.
Subpart C
Sec. 197.25.............................. Sec. 17.21 & Sec. 17.22.
Sec. 197.25a............................. Sec. 17.22.
Sec. 197.26.............................. Sec. 17.23.
Sec. 197.27.............................. Sec. 17.24.
Sec. 197.28.............................. Sec. 17.31.
Sec. 197.29.............................. Sec. 17.32.
Sec. 197.29a(a).......................... Sec. 17.41.
Sec. 197.29a(b).......................... Sec. 17.42.
Sec. 197.29a(c).......................... Sec. 17.43.
Sec. 197.30 (except last sentence)....... Sec. 17.33.
Sec. 197.30 (last sentence).............. Covered by Sec. 17.6.
Sec. 197.31.............................. Sec. 17.34.
Subpart D
Sec. 197.40.............................. Sec. 17.51.
Sec. 197.40a............................. Sec. 17.52.
Sec. 197.41.............................. Sec. 17.54.
Sec. 197.42.............................. Sec. 17.53.
Sec. 197.43.............................. Sec. 17.61.
Sec. 197.46.............................. Sec. 17.62.
Sec. 197.47.............................. Sec. 17.63.
Sec. 197.47a............................. Sec. 17.55.
Sec. 197.48.............................. Sec. 17.71.
Sec. 197.49.............................. Sec. 17.72.
Sec. 197.50.............................. Sec. 17.73.
Sec. 197.51.............................. Sec. 17.74.
Sec. 197.52.............................. Sec. 17.81.
Sec. 197.53.............................. Sec. 17.82.
Sec. 197.54.............................. Sec. 17.83.
Sec. 197.57.............................. Sec. 17.91.
Sec. 197.58.............................. Sec. 17.92.
Sec. 197.59.............................. Sec. 17.93.
Subpart E
Sec. 197.65.............................. Sec. 17.101 (up to last
sentence).
Sec. 197.66.............................. Sec. 17.103.
Sec. 197.67.............................. Secs. 17.105, 17.6.
Sec. 197.68.............................. Sec. 17.104.
Sec. 197.69.............................. Sec. 17.106.
Sec. 197.70.............................. Sec. 17.144 (2nd sentence).
Sec. 197.71.............................. Sec. 17.101 (last
sentence).
Sec. 197.72.............................. Sec. 17.107.
Sec. 197.73.............................. Sec. 17.108.
Sec. 197.75.............................. Sec. 17.111.
Sec. 197.76.............................. Sec. 17.112.
Sec. 197.77 (except last sentence)....... Sec. 17.113.
Sec. 197.77 (last sentence).............. Covered by Sec. 17.108
(last sentence).
Sec. 197.79.............................. Covered by Sec. 17.111.
Sec. 197.80.............................. Sec. 17.114.
Subpart F
Sec. 197.95 (sentences 1-2, 6, 8-9)...... Sec. 17.121.
Sec. 197.95 (sentences 3 & 4)............ Sec. 17.131.
Sec. 197.95 (5th sentence)............... Sec. 17.137.
Sec. 197.95 (7th sentence)............... Sec. 17.122.
Sec. 197.95 (last sentence).............. Deleted.
Sec. 197.96.............................. Sec. 17.132(a).
Sec. 197.97.............................. Sec. 17.123.
Sec. 197.98.............................. Sec. 17.124.
Sec. 197.99.............................. Sec. 17.125(a).
Subpart G
Sec. 197.105............................. Sec. 17.141.
Sec. 197.106 (up to proviso)............. Sec. 17.142(a).
Sec. 197.106 (proviso, except next-to- Sec. 17.143.
last sentence).
Sec. 197.106 (next-to-last sentence)..... Sec. 17.146(b).
Sec. 197.107 (except first & last Sec. 17.102.
sentences).
Sec. 197.107 (first & last sentences).... Sec. 17.144 (first & last
sentences).
Sec. 197.108............................. Sec. 17.145.
Sec. 197.109............................. Sec. 17.146(a).
Sec. 197.110............................. Sec. 17.147.
Sec. 197.111............................. New supporting data form.
Sec. 197.112-113......................... Sec. 17.162(a).
Sec. 197.114............................. Sec. 17.162(b).
Sec. 197.115............................. Sec. 17.147 & new
supporting data form.
Sec. 197.116 (except last sentence)...... New supporting data form.
Sec. 197.116 (last sentence); also Sec. Sec. 17.167(a).
197.117 (2nd sentence), Sec. 197.118
(2nd sentence), & Sec. 197.119 (2nd
sentence).
Sec. 197.117 (first sentence)............ New supporting data form.
Sec. 197.117 (3rd & 4th sentences)....... Sec. 17.153(b).
Sec. 197.117 (last sentence)............. Sec. 17.153(c).
Sec. 197.118 (first sentence)............ New supporting data form.
Sec. 197.118 (last sentence)............. Sec. 17.153(a).
Sec. 197.119 (first sentence)............ Deleted; covered by new
supporting data form and
Sec. 17.164(b).
Sec. 197.119 (last sentence)............. Sec. 17.155.
Subpart H
Sec. 197.130 (introduction).............. Sec. 17.161 (first
sentence).
Sec. 197.130(a)-(d)...................... Covered by Sec. 17.162(a)-
(c).
Sec. 197.130(e)-(g)...................... Sec. 17.164(b).
Sec. 197.130(h)-(j)...................... Sec. 17.166(a).
Sec. 197.130a(a)......................... Sec. 17.162(d).
Sec. 197.130a(b)......................... Sec. 17.164(d).
Sec. 197.130b............................ Sec. 17.163 (a) & (c).
Sec. 197.131............................. Sec. 17.166(c).
Sec. 197.132 (except last clause)........ Sec. 17.161 (from 2nd
sentence to end).
Sec. 197.132 (last clause)............... Covered by Sec. 17.171.
Sec. 197.133 (except last sentence)...... Sec. 17.170.
Sec. 197.133 (last sentence)............. Sec. 17.171.
------------------------------------------------------------------------
Derivation Table for Part 17
------------------------------------------------------------------------
New section Source
------------------------------------------------------------------------
Subpart A
Sec. 17.1................................ Sec. 197.1.
Sec. 17.2................................ Sec. 197.2.
Sec. 17.3................................ NEW.
Sec. 17.4................................ NEW.
Sec. 17.5................................ NEW.
Sec. 17.6................................ NEW (cf. Secs. 197.30 and
197.67(a)).
Subpart B
Sec. 17.11: (generally).................. Sec. 197.5.
``Alcohol & Tobacco Laboratory''...... NEW.
``Approved''.......................... NEW.
``CFR''............................... NEW.
``Eligible''.......................... NEW.
``Food products''..................... Rev. Rul. 63-87.
``Medicines''......................... ATF Rul. 82-7.
``Month''............................. NEW.
``Person''............................ NEW.
``Proof gallon''...................... NEW.
``Quarter''........................... NEW.
``Recovered spirits''................. NEW.
``Subject to drawback''............... NEW.
``Taxpaid''........................... NEW.
``This chapter''...................... NEW.
Subpart C
Sec. 17.21............................... Sec. 197.25.
Sec. 17.22............................... Sec. 197.25a.
Sec. 17.23............................... Sec. 197.26.
Sec. 17.24............................... Sec. 197.27.
Sec. 17.31............................... Sec. 197.28.
Sec. 17.32............................... Sec. 197.29.
Sec. 17.33............................... Sec. 197.30.
Sec. 17.34............................... Sec. 197.31.
Sec. 17.41............................... Sec. 197.29a(a).
Sec. 17.42............................... Sec. 197.29a(b).
Sec. 17.43............................... Sec. 197.29a(c).
Subpart D
Sec. 17.51............................... Sec. 197.40.
Sec. 17.52............................... Sec. 197.40a.
[[Page 31409]]
Sec. 17.53............................... Sec. 197.42.
Sec. 17.54............................... Sec. 197.41.
Sec. 17.55............................... Sec. 197.47a.
Sec. 17.61............................... Sec. 197.43.
Sec. 17.62............................... Sec. 197.46.
Sec. 17.63............................... Sec. 197.47.
Sec. 17.71............................... Sec. 197.48.
Sec. 17.72............................... Sec. 197.49.
Sec. 17.73............................... Sec. 197.50.
Sec. 17.74............................... Sec. 197.51.
Sec. 17.75............................... NEW.
Sec. 17.76............................... ATF Rul. 74-2.
Sec. 17.77............................... NEW.
Sec. 17.81............................... Sec. 197.52.
Sec. 17.82............................... Sec. 197.53.
Sec. 17.83............................... Sec. 197.54.
Sec. 17.91............................... Sec. 197.57.
Sec. 17.92............................... Sec. 197.58.
Sec. 17.93............................... Sec. 197.59.
Subpart E
Sec. 17.101.............................. Secs. 197.65 & 197.71.
Sec. 17.102.............................. Sec. 197.107 (except first
& last sentences).
Sec. 17.103.............................. Sec. 197.66.
Sec. 17.104.............................. Sec. 197.68.
Sec. 17.105.............................. Sec. 197.67.
Sec. 17.106.............................. Sec. 197.69.
Sec. 17.107.............................. Sec. 197.72.
Sec. 17.108.............................. Sec. 197.73.
Sec. 17.111.............................. Secs. 197.75 & 197.79.
Sec. 17.112.............................. Sec. 197.76.
Sec. 17.113.............................. Sec. 197.77.
Sec. 17.114.............................. Sec. 197.80.
Subpart F
Sec. 17.121.............................. Sec. 197.95 (sentences 1-2,
6, 8-9).
Sec. 17.122.............................. Sec. 197.95 (7th sentence)
& ATF Rul. 77-27.
Sec. 17.123.............................. Sec. 197.97.
Sec. 17.124.............................. Sec. 197.98.
Sec. 17.125(a)........................... Sec. 197.99.
Sec. 17.125(b)........................... NEW.
Sec. 17.126(a)........................... NEW.
Sec. 17.126(b)........................... Rev. Rul. 69-138.
Sec. 17.127.............................. NEW.
Sec. 17.131.............................. Sec. 197.95 (3rd & 4th
sentences).
Sec. 17.132(a)........................... Sec. 197.96.
Sec. 17.132(b)........................... Sec. 170.616.
Sec. 17.133.............................. Sec. 170.613(a) (7)-(9),
Rev. Rul. 63-87 & ATF Rul.
73-1.
Sec. 17.134.............................. NEW.
Sec. 17.135.............................. Rev. Ruls. 56-239 & 56-367.
Sec. 17.136.............................. Rev. Rul. 58-350.
Sec. 17.137.............................. Sec. 197.95 (5th sentence)
& Rev. Rul. 56-314.
Subpart G
Sec. 17.141.............................. Sec. 197.105.
Sec. 17.142(a)........................... Sec. 197.106 (up to
proviso) & ATF Order
1100.95A.
Sec. 17.142(b)........................... NEW.
Sec. 17.143.............................. Sec. 197.106 (proviso,
except next-to-last
sentence).
Sec. 17.144.............................. Secs. 197.70 & 197.107
(first & last sentence).
Sec. 17.145.............................. Sec. 197.108.
Sec. 17.146.............................. Secs. 197.106 (next-to-last
sentence) & 197.109.
Sec. 17.147(a)........................... Sec. 197.110.
Sec. 17.147(b)........................... Sec. 197.115 (last
sentence).
Sec. 17.147 (c) & (d).................... NEW.
Sec. 17.148.............................. NEW.
Sec. 17.151.............................. Sec. 197.11 (``Used'').
Sec. 17.152(a)........................... Sec. 197.11 (``Time
distilled spirits are
used'').
Sec. 17.152(b)........................... ATF Rul. 76-17.
Sec. 17.152(c)........................... Rev. Ruls. 56-394 & 69-138.
Sec. 17.152(d)........................... Rev. Rul. 69-138.
Sec. 17.153.............................. Secs. 197.117 (last three
sentences) & 197.118 (last
sentence).
Sec. 17.154.............................. Sec. 197.11 (``Intermediate
products'').
Sec. 17.155.............................. Sec. 197.119 (last
sentence).
Subpart H
Sec. 17.161.............................. Secs. 197.130
(introduction) & 197.132
(except last clause).
Sec. 17.162(a)........................... Secs. 197.112-113 & 197.130
(a)-(d).
Sec. 17.162(b)........................... Secs. 197.114 & 197.130 (a)-
(d).
Sec. 17.162(c)........................... NEW.
Sec. 17.162(d)........................... Sec. 197.130a(a).
Sec. 17.163 (a) & (c).................... Sec. 197.130b.
Sec. 17.163(b)........................... NEW.
Sec. 17.164.............................. Secs. 197.130 (e)-(g) &
197.130a(b).
Sec. 17.165.............................. Industry Circular 79-5.
Sec. 17.166(a)........................... Sec. 197.130 (h)-(j).
Sec. 17.166(b)........................... NEW.
Sec. 17.166(c)........................... Sec. 197.131.
Sec. 17.167(a)........................... Secs. 197.116-119.
Sec. 17.167(b)........................... Industry Circular 79-5.
Sec. 17.168.............................. Sec. 170.617(c).
Sec. 17.169.............................. NEW.
Sec. 17.170.............................. Sec. 197.133 (except last
sentence).
Sec. 17.171.............................. Sec. 197.132 (last two
clauses), Sec. 197.133
(last sentence) & Industry
Circular 79-5.
Subpart I
Sec. 17.181.............................. Rev. Rul. 56-335.
Sec. 17.182.............................. Rev. Rul. 56-336.
Sec. 17.183.............................. ATF Rul. 81-8 (modified).
Sec. 17.184.............................. NEW.
Sec. 17.185 (a) & (c).................... NEW.
Sec. 17.185(b)........................... ATF Rul. 76-19.
Sec. 17.186.............................. Rev. Rul. 56-395.
Sec. 17.187.............................. Rev. Rul. 55-689.
------------------------------------------------------------------------
Executive Order 12866
It has been determined that this rule is not a significant
regulatory action, because it will not: (1) Have an annual effect on
the economy of $100 million or more or adversely affect in a material
way the economy, a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local or
tribal governments or communities; (2) Create a serious inconsistency
or otherwise interfere with an action taken or planned by another
agency; (3) Materially alter the budgetary impact of entitlements,
grants, user fees, or loan programs or the rights and obligations of
recipients thereof; or (4) Raise novel legal or policy issues arising
out of legal mandates, the President's priorities, or the principles
set forth in Executive Order 12866.
Paperwork Reduction Act
The collections of information contained in this final regulation
have been submitted to the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 3504(h))
and approved under control numbers 1512-0078, 1512-0079, 1512-0095,
1512-0141, 1512-0188, 1512-0378, 1512-0379, 1512-0472, 1512-0492, 1512-
0500, and 1512-0514. The likely respondents and recordkeepers are
businesses or other for-profit institutions, including small businesses
or organizations.
The collection of information under control number 1512-0078 is in
Sec. 17.106. This information is required by ATF to obtain the surety's
agreement to any changes in the terms of bonds. The collections of
information under control number 1512-0079 are in Secs. 17.6 and
17.105. This information is required when agents obtain authority to
sign official documents on behalf of the principal.
The collections of information under control number 1512-0095 are
in Secs. 17.121, 17.126, 17.127, 17.132, and 17.136. This information
is required by ATF to describe the formulas for nonbeverage and
intermediate products. The information is used to ensure that drawback
products meet the statutory requirements for approval as being
medicines, medicinal preparations, food
[[Page 31410]]
products, flavors, flavoring extracts, or perfume that are unfit for
beverage use.
The collections of information under control number 1512-0141 are
in Secs. 17.92, 17.93, 17.142, 17.145, and 17.146. The information on
this claim form must be submitted to ATF by manufacturers claiming
nonbeverage drawback or refund of special (occupational) tax. The
information is used to determine whether the claim is valid.
The collection of information under control number 1512-0188 is in
Sec. 17.6. The information on this form provides ATF with notification
of corporate officials authorized to sign documents on behalf of the
corporation.
The collections of information under control number 1512-0378 are
in Secs. 17.3, 17.54, 17.111, 17.112, 17.122-17.125, 17.143, 17.168(a),
17.183, and 17.187. This control number covers miscellaneous
information required by ATF on an irregular basis to ensure compliance
with law and regulations or to grant permission for the use of optional
procedures.
The collections of information under control number 1512-0379 are
in Secs. 17.161-17.167, 17.168(b), 17.169, 17.170, 17.182, and 17.186.
This information is required to support claims for drawback. The
records kept by manufacturers at their plants are used by ATF
inspectors conducting on-site inspections.
The collections of information under control number 1512-0472 are
in Secs. 17.31-17.34, 17.41, 17.53, 17.61, 17.63, 17.71, and 17.74. The
information on this special tax return is required when paying special
(occupational) tax. The collections of information under control number
1512-0492 are in Secs. 17.42, 17.43, 17.52, and 17.55. This control
number pertains to records associated with the preparation and filing
of the special tax return. The collections of information under control
number 1512-0500 are in Secs. 17.31-17.34, 17.41, and 17.53. This
requirement is the same special tax return covered by control number
1512-0472, except that the form is modified (simplified) for use by
renewal taxpayers.
The collection of information under control number 1512-0514 is in
Secs. 17.147 and 17.182. This collection of information consists of
supporting data required to accompany claims for drawback. The
supporting data submitted to ATF is used to make a preliminary
verification of claims before they are paid.
The estimated total number of respondents and recordkeepers
affected by these collections of information is 611. The estimated
average annual burden is approximately 36 hours per respondent or
recordkeeper. (This figure represents the additional time that would be
required, beyond what a manufacturer would customarily spend on
recordkeeping in the ordinary course of his business.) Comments on
these collections of information, including comments relating to the
accuracy of the burden estimate and suggestions for reducing this
burden, were requested by Notices No. 634 and 748. Public comments
pertaining to the collections of information prescribed by this final
rule are discussed above, under the headings ``Public Comments on
Notice No. 634'' and ``Public Comments on Notice No. 748.'' An agency
may not conduct or sponsor, and a person is not required to respond to,
a collection of information unless it displays a valid control number
assigned by OMB.
Regulatory Flexibility Act
The provisions of the Regulatory Flexibility Act relating to a
final regulatory flexibility analysis (5 U.S.C. 603, 604) are
applicable to this final rule. A final regulatory flexibility analysis
has been prepared and reads as follows:
I. Rationale for Agency Action
The law (26 U.S.C. 5131-5134) authorizes a drawback of internal
revenue tax on alcohol used in the manufacture of certain nonbeverage
products. This drawback shall be granted by the Department of the
Treasury on receipt of a proper claim. To determine whether a claim is
proper, regulations may require certain records to be kept and reports
to be submitted by those claiming drawback, in order to establish their
eligibility. That is, it must be shown that the alcohol on which
drawback is claimed: (A) Was actually used, (B) was used in the
manufacture of the particular products for which drawback is
authorized, and (C) was originally taxpaid.
The regulations dealing with nonbeverage drawback are therefore
issued under this primary rationale: to protect the revenue. However,
this rationale is modified by a secondary rationale, which is: to
require only those items of information to be submitted or to be
recorded which are actually necessary to establish eligibility for
drawback. With respect to those items required to be submitted to the
Bureau of Alcohol, Tobacco and Firearms (ATF), only those should be
submitted which are actually used to maintain control over the approval
of claims. With respect to those records required to be maintained at
the claimant's premises, the claimant's own record system should be
utilized at all possible times to avoid duplication.
II. Objective and Legal Basis for the Rule
A. Objective basis. The objective basis of these regulations is
that a dual control system is used to verify the propriety of claims:
Initially, a sampling procedure in the regional office is used to
screen the claims before they are paid; subsequently, periodic field
inspections at the manufacturing premises provide the opportunity to
audit more detailed records.
At the regional offices, not every item on every report is checked
every time; however, a sufficient number are checked in order to insure
that there is no likelihood of fraud. Those reports which are checked
must contain sufficient information to reveal undisguised fraud and/or
honest mistakes. The information submitted should also permit detection
of any problems which would result in scheduling an on-site inspection
sooner than would otherwise be planned.
During on-site inspections, ATF officers examine original batch
records to verify compliance with approved formulas. A physical
inventory is taken and records are examined to see whether they agree
with the inventory. If necessary, a claim adjustment may be required.
B. Legal basis. The legal basis of these regulations is found in 26
U.S.C. 5131-5134 and 7805. These laws give the Secretary of the
Treasury broad discretion to promulgate regulations, but the
regulations must be limited to the function of revenue protection.
Treasury Department Order No. 120-01 (dated June 6, 1972, effective
July 1, 1972) delegated to the Bureau of Alcohol, Tobacco and Firearms
the function of prescribing and administering such regulations.
C. Estimate of number of small entities affected and types. It is
estimated that this document will affect about 611 small entities which
use taxpaid alcohol to manufacture nonbeverage products.
III. Detailed Estimate and Description of the Reporting,
Recordkeeping and Compliance Requirements
A. Reporting requirements. The most significant reporting
requirements of this document pertain to the supporting data that is
required to accompany each claim. The supporting data must include
information regarding: the amount of taxpaid alcohol received, the
amount of each product produced, the amount of taxpaid alcohol used and
the
[[Page 31411]]
product in which used, the amount of alcohol recovered (if any), the
amount of tax claimed as drawback, the amount of alcohol on hand at the
beginning and end of each claim period, and an explanation of any
discrepancies disclosed by physical inventory. Other reports which are
required less frequently include: Statements of formula and process
(which are necessary to establish that the products being manufactured
are of the types for which drawback is authorized under law), bonds and
consents of surety in the case of claimants filing monthly claims,
samples of the product if needed to determine its nonbeverage
character, a special tax return and registration (as required by law in
26 U.S.C. 5131-5132), an application for an employer identification
number in order to identify the special taxpayer, and information
relating to any changes in the location or control of the business. If
no drawback is claimed, then none of the requirements need be complied
with. The reporting requirements affect all classes of nonbeverage
drawback manufacturers. Some knowledge of chemistry is helpful in
preparing the required formulas for submission, and an elementary
knowledge of bookkeeping is needed to maintain the required accounts
for submission.
B. Recordkeeping requirements. The recordkeeping requirements of
this regulation are designed to be supplementary to the reporting
requirements. The records support and amplify the statements given in
the required reports. Ultimately, the purpose is to facilitate
verification of the amount of drawback claimed. No particular form of
record is required; rather, the records may be kept in any format, so
long as the information is clearly expressed. For the most part, these
required records are merely ordinary business records which the
manufacturer would normally maintain in the course of his business.
However, it is still necessary for regulations to specify that these
records must be kept; otherwise, a claimant under investigation might
falsely deny keeping the records, and if there were no requirement that
the records be kept, then it would be difficult to prove any violation
against such a person. The records which this regulation requires
claimants to keep are: Copies of the reports submitted, records of
disposition of nonbeverage products, records of raw materials received,
accounting for recovered alcohol, invoices of purchases, evidence of
taxpayment, and batch records of ingredients used in each production
batch. The regional director (compliance) may also require a
manufacturer to keep inventory records of raw materials and nonbeverage
products. All classes of nonbeverage drawback manufacturers are
affected by these recordkeeping requirements. An elementary knowledge
of bookkeeping is needed to prepare and record the prescribed accounts.
C. Compliance requirements. The compliance requirements of this
regulation are: To retain the special tax stamp at the place of
business as evidence of payment of special tax; to observe the
statutory time restrictions for filing of claims (six months following
the close of the quarter within which the alcohol was used); to retain
the required records for a period of at least 3 years; to obliterate
taxpayment marks on emptied containers of distilled spirits (as
required by 26 U.S.C. 5206); to use intermediate products, and alcohol
recovered from nonbeverage products, for no purpose other than to
manufacture nonbeverage products; to transfer intermediate products to
no one except another branch or plant of the same manufacturer; to
refrain from transferring unfinished nonbeverage products to any other
premises; and to refrain from selling or transferring any recovered
alcohol or material from which alcohol can be recovered, except as
provided by regulation. All classes of nonbeverage drawback
manufacturers are affected by these requirements. No special skills are
needed for compliance.
IV. Conflicting, Duplicative or Overlapping Federal Rules
Some of the requirements of these regulations may overlap
requirements of the Internal Revenue Service (IRS). The reason for this
is that the IRS requires certain financial and cost accounting records
in order to establish income tax liability, and in some cases the same
information may be required by this part in order to establish
eligibility for drawback of excise tax. In case of such overlap, the
proprietor would not be required to keep two separate sets of records;
the same set of records could suffice to meet the requirements of both
ATF and IRS regulations. There is no additional burden, because these
records are merely those which anyone would keep in the ordinary course
of business. The Food and Drug Administration (FDA) may also require
certain records which duplicate or overlap the records required by
these regulations. Such FDA records will also satisfy the ATF
requirement, due to the fact that these regulations do not specify any
particular format for the records, so long as the information is
clearly presented and available to ATF inspectors.
V. Alternatives
A. Multitiering. This concept is not used, because the large
majority of manufacturers of nonbeverage products are small entities.
Consequently, the regulatory requirements have been specifically
designed in consideration of the needs of small establishments. Larger
establishments should also be able to comply with these requirements
without particular difficulties.
B. Simplification of requirements. The requirements as they are
established are felt to be at the minimum. These requirements are
necessary in order to protect the revenue and detect fraud against the
Treasury. In most cases, of course, no fraud exists. But the
requirements must be imposed equally on all claimants, so that if and
when fraud exists, it will be detected. This is the statutory mandate
of 26 U.S.C. 5132.
C. Performance standards. This concept was utilized as much as
possible. For example, an ATF form for ``supporting data'' reports is
provided--but the format presented on that form is not required. (Any
desired format may be used if it provides the necessary information.)
Similarly, the required records also may be kept in any convenient
format. However, the needs of the Government, with respect to
expeditious processing of claims and tax payments, mandate prescription
of specific forms for submission of drawback claims and payment of
special tax. A specific form is also prescribed for formula submission,
in order to facilitate communication concerning the formula among the
applicable ATF offices as well as between ATF and the claimant. A
special regulations section authorizes variation from most requirements
if good cause can be shown for a variation.
D. Exemption of small entities. The law does not authorize
exemption of any entity from the requirements.
VI. Issues Raised by Comments
No comments directed to the issues addressed in the Initial
Regulatory Flexibility Analyses of Notices No. 634 and 748 have been
received from the public or the Chief Counsel for Advocacy of the Small
Business Administration.
Drafting Information
The principal drafter of this document was Steven C. Simon of the
Wine, Beer, and Spirits Regulations Branch, Bureau of Alcohol, Tobacco
and Firearms.
[[Page 31412]]
List of Subjects
27 CFR Parts 17 and 197
Alcohol and alcoholic beverages, Authority delegations (Government
agencies), Claims, Drugs, Excise taxes, Foods, Reporting and
recordkeeping requirements, Spices and flavorings, Surety bonds.
27 CFR Part 19
Administrative practice and procedure, Alcohol and alcoholic
beverages, Authority delegations (Government agencies), Chemicals,
Claims, Customs duties and inspection, Electronic fund transfers,
Excise taxes, Exports, Gasohol, Imports, Labeling, Liquors, Packaging
and containers, Puerto Rico, Reporting and recordkeeping requirements,
Research, Security measures, Spices and flavorings, Stills, Surety
bonds, Transportation, Vinegar, Virgin Islands, Warehouses, Wine.
27 CFR Part 70
Administrative practice and procedure, Alcohol and alcoholic
beverages, Authority delegations (Government agencies), Claims, Excise
taxes, Firearms and ammunition, Government employees, Law enforcement,
Law enforcement officers, Penalties, Seizures and forfeitures, Surety
bonds, Tobacco.
27 CFR Part 170
Alcohol and alcoholic beverages, Authority delegations (Government
agencies), Claims, Customs duties and inspection, Disaster assistance,
Excise taxes, Labeling, Liquors, Penalties, Reporting and recordkeeping
requirements, Surety bonds, Wine.
27 CFR Part 194
Alcohol and alcoholic beverages, Authority delegations (Government
agencies), Beer, Claims, Excise taxes, Exports, Labeling, Liquors,
Packaging and containers, Penalties, Reporting and recordkeeping
requirements, Wine.
27 CFR Part 250
Administrative practice and procedure, Alcohol and alcoholic
beverages, Authority delegations (Government agencies), Beer, Claims,
Customs duties and inspection, Drugs, Electronic funds transfers,
Excise taxes, Foods, Liquors, Packaging and containers, Puerto Rico,
Reporting and recordkeeping requirements, Spices and flavorings, Surety
bonds, Transportation, Virgin Islands, Warehouses, Wine.
Issuance
Accordingly, title 27 of the Code of Federal Regulations is amended
as follows:
Paragraph A. Title 27 CFR part 17 is added to read as follows:
PART 17--DRAWBACK ON TAXPAID DISTILLED SPIRITS USED IN
MANUFACTURING NONBEVERAGE PRODUCTS
Subpart A--General Provisions
Sec.
17.1 Scope of regulations.
17.2 Forms prescribed.
17.3 Alternate methods or procedures.
17.4 OMB control numbers assigned under the Paperwork Reduction
Act.
17.5 Products manufactured in Puerto Rico or the Virgin Islands.
17.6 Signature authority.
Subpart B--Definitions
17.11 Meaning of terms.
Subpart C--Special Tax
17.21 Payment of special tax.
17.22 Rate of special tax
17.23 Special tax for each place of business.
17.24 Time for payment of special tax.
Special Tax Returns
17.31 Filing of return and payment of special tax.
17.32 Completion of ATF Form 5630.5.
17.33 Signature on returns, ATF Form 5630.5.
17.34 Verification of returns.
Employer Identification Number
17.41 Requirement for employer identification number.
17.42 Application for employer identification number.
17.43 Preparation and filing of Form SS-4.
Subpart D--Special Tax Stamps
17.51 Issuance of stamps.
17.52 Distribution of stamps for multiple locations.
17.53 Correction of errors on stamps.
17.54 Lost or destroyed stamps.
17.55 Retention of special tax stamps.
Change in Location
17.61 General.
17.62 Failure to register.
17.63 Certificates in lieu of lost stamps.
Change in Control
17.71 General.
17.72 Right of succession.
17.73 Failure to register.
17.74 Certificates in lieu of lost stamps.
17.75 Formation of partnership or corporation.
17.76 Addition or withdrawal of partners.
17.77 Reincorporation.
Change in Name or Style
17.81 General.
17.82 Change in capital stock.
17.83 Sale of stock.
Refund of Special Tax
17.91 Absence of liability, refund of special tax.
17.92 Filing of refund claim.
17.93 Time limit for filing refund claim.
Subpart E--Bonds and Consents of Sureties
17.101 General.
17.102 Amount of bond.
17.103 Bonds obtained from surety companies.
17.104 Deposit of collateral.
17.105 Filing of powers of attorney.
17.106 Consents of surety.
17.107 Strengthening bonds.
17.108 Superseding bonds.
Termination of Bonds
17.111 General.
17.112 Notice by surety of termination of bond.
17.113 Extent of release of surety from liability under bond.
17.114 Release of collateral.
Subpart F--Formulas and Samples
17.121 Product formulas.
17.122 Amended or revised formulas.
17.123 Statement of process.
17.124 Samples.
17.125 Adoption of formulas and processes.
17.126 Formulas for intermediate products.
17.127 Self-manufactured ingredients treated optionally as
unfinished nonbeverage products.
Approval of Formulas
17.131 Formulas on ATF Form 5154.1.
17.132 U.S.P., N.F., and H.P.U.S. preparations.
17.133 Food product formulas.
17.134 Determination of unfitness for beverage purposes.
17.135 Use of specially denatured alcohol (S.D.A.).
17.136 Compliance with Food and Drug Administration requirements.
17.137 Formulas disapproved for drawback.
Subpart G--Claims for Drawback
17.141 Drawback.
17.142 Claims.
17.143 Notice for monthly claims.
17.144 Bond for monthly claims.
17.145 Date of filing claim.
17.146 Information to be shown by the claim.
17.147 Supporting data.
17.148 Allowance of claims.
Spirits Subject to Drawback
17.151 Use of distilled spirits.
17.152 Time of use of spirits.
17.153 Recovered spirits.
17.154 Spirits contained in intermediate products.
17.155 Spirits consumed in manufacturing intermediate products.
Subpart H--Records
17.161 General.
17.162 Receipt of distilled spirits.
17.163 Evidence of taxpayment of distilled spirits.
17.164 Production record.
17.165 Receipt of raw ingredients.
[[Page 31413]]
17.166 Disposition of nonbeverage products.
17.167 Inventories.
17.168 Recovered spirits.
17.169 Transfer of intermediate products.
17.170 Retention of records.
17.171 Inspection of records.
Subpart I--Miscellaneous Provisions
17.181 Exportation of medicinal preparations and flavoring
extracts.
17.182 Drawback claims by druggists.
17.183 Disposition of recovered alcohol and material from which
alcohol can be recovered.
17.184 Distilled spirits container marks.
17.185 Requirements for intermediate products and unfinished
nonbeverage products.
17.186 Transfer of distilled spirits to other containers.
17.187 Discontinuance of business.
Authority: 26 U.S.C. 5010, 5131-5134, 5143, 5146, 5206, 5273,
6011, 6065, 6091, 6109, 6151, 6402, 6511, 7011, 7213, 7652, 7805; 31
U.S.C. 9301, 9303, 9304, 9306.
Subpart A--General Provisions
Sec. 17.1 Scope of regulations.
The regulations in this part apply to the manufacture of medicines,
medicinal preparations, food products, flavors, flavoring extracts, and
perfume that are unfit for beverage use and are made with taxpaid
distilled spirits. The regulations cover the following topics:
obtaining drawback of internal revenue tax on distilled spirits used in
the manufacture of nonbeverage products; the payment of special
(occupational) taxes in order to be eligible to receive drawback; and
bonds, claims, formulas and samples, losses, and records to be kept
pertaining to the manufacture of nonbeverage products.
Sec. 17.2 Forms prescribed.
(a) The Director is authorized to prescribe all forms, including
bonds and records, required by this part. All of the information called
for in each form shall be furnished as indicated by the headings on the
form and the instructions on or pertaining to the form. In addition,
information called for in each form shall be furnished as required by
this part.
(b) Requests for forms should be mailed to the ATF Distribution
Center, PO Box 5950, Springfield, Virginia 22150-5950.
Sec. 17.3 Alternate methods or procedures.
(a) General. The Director may approve the use of an alternate
method or procedure in lieu of a method or procedure prescribed in this
part if he or she finds that--
(1) Good cause has been shown for the use of the alternate method
or procedure;
(2) The alternate method or procedure is within the purpose of, and
consistent with the effect intended by, the method or procedure
prescribed by this part, and affords equivalent security to the
revenue; and
(3) The alternate method or procedure will not be contrary to any
provision of law, and will not result in any increase in cost to the
Government or hinder the effective administration of this part.
(b) Application. A letter of application to employ an alternate
method or procedure shall be submitted to the regional director
(compliance) for transmittal to the Director. The application shall
specifically describe the proposed alternate method or procedure, and
shall set forth the reasons therefor.
(c) Approval. No alternate method or procedure shall be employed
until the application has been approved by the Director. The Director
shall not approve any alternate method relating to the giving of any
bond or to the assessment, payment, or collection of any tax. The
manufacturer shall, during the period of authorization, comply with the
terms of the approved application and with any conditions thereto
stated by the Director in the approval. Authorization for any alternate
method or procedure may be withdrawn by written notice from the
Director whenever in his or her judgment the revenue is jeopardized,
the effective administration of this part is hindered, or good cause
for the authorization no longer exists. The manufacturer shall retain,
in the records required by Sec. 17.170, any authorization given by the
Director under this section.
Sec. 17.4 OMB control numbers assigned under the Paperwork Reduction
Act.
(a) Purpose. This section collects and displays the control numbers
assigned to the information collection requirements of this part by the
Office of Management and Budget under the Paperwork Reduction Act of
1980, Public Law 96-511.
(b) OMB control number 1512-0078. OMB control number 1512-0078 is
assigned to the following section in this part: Sec. 17.106.
(c) OMB control number 1512-0079. OMB control number 1512-0079 is
assigned to the following sections in this part: Secs. 17.6 and 17.105.
(d) OMB control number 1512-0095. OMB control number 1512-0095 is
assigned to the following sections in this part: Secs. 17.121, 17.126,
17.127, 17.132, and 17.136.
(e) OMB control number 1512-0141. OMB control number 1512-0141 is
assigned to the following sections in this part: Secs. 17.92, 17.93,
17.142, 17.145, and 17.146.
(f) OMB control number 1512-0188. OMB control number 1512-0188 is
assigned to the following section in this part: Sec. 17.6.
(g) OMB control number 1512-0378. OMB control number 1512-0378 is
assigned to the following sections in this part: Secs. 17.3, 17.54,
17.111, 17.112, 17.122, 17.123, 17.124, 17.125, 17.143, 17.168(a),
17.183, and 17.187.
(h) OMB control number 1512-0379. OMB control number 1512-0379 is
assigned to the following sections in this part: Secs. 17.161, 17.162,
17.163, 17.164, 17.165, 17.166, 17.167, 17.168(b), 17.169, 17.170,
17.182, and 17.186.
(i) OMB control number 1512-0472. OMB control number 1512-0472 is
assigned to the following sections in this part: Secs. 17.31, 17.32,
17.33, 17.34, 17.41, 17.53, 17.61, 17.63, 17.71, and 17.74.
(j) OMB control number 1512-0492. OMB control number 1512-0492 is
assigned to the following sections in this part: Secs. 17.42, 17.43,
17.52, and 17.55.
(k) OMB control number 1512-0500. OMB control number 1512-0500 is
assigned to the following sections in this part: Secs. 17.31, 17.32,
17.33, 17.34, 17.41, and 17.53.
(l) OMB control number 1512-0514. OMB control number 1512-0514 is
assigned to the following sections in this part: Secs. 17.147 and
17.182.
Sec. 17.5 Products manufactured in Puerto Rico or the Virgin Islands.
For additional provisions regarding drawback on distilled spirits
contained in medicines, medicinal preparations, food products, flavors,
flavoring extracts, or perfume which are unfit for beverage purposes
and which are brought into the United States from Puerto Rico or the
U.S. Virgin Islands, see part 250, subparts I and Ob, of this chapter.
Sec. 17.6 Signature authority.
No claim, bond, tax return, or other required document executed by
a person as an agent or representative is acceptable unless a power of
attorney or other proper notification of signature authority has been
filed with the ATF office where the required document must be filed.
The ATF officer with whom the claim or other required document is filed
may, when he or she considers it necessary, require additional evidence
of the authority of the agent or representative to execute the
document. Except as otherwise provided by this part, powers of
[[Page 31414]]
attorney shall be filed on ATF Form 1534 (5000.8), Power of Attorney.
Notification of signature authority of partners, officers, or employees
may be given by filing a copy of corporate or partnership documents,
minutes of a meeting of the board of directors, etc. For corporate
officers or employees, ATF Form 5100.1, Signing Authority for Corporate
Officials, may be used. For additional provisions regarding powers of
attorney, see Sec. 17.105 and 26 CFR part 601, subpart E.
Subpart B--Definitions
Sec. 17.11 Meaning of terms.
As used in this part, unless the context otherwise requires, terms
have the meanings given in this section. Words in the plural form
include the singular, and vice versa, and words indicating the
masculine gender include the feminine. The terms ``includes'' and
``including'' do not exclude things not listed which are in the same
general class.
Alcohol and Tobacco Laboratory. The Alcohol and Tobacco Laboratory,
Bureau of Alcohol, Tobacco and Firearms, 1401 Research Boulevard,
Rockville, Maryland 20850.
Approved, or approved for drawback. When used with reference to
products and their formulas, this term means that drawback may be
claimed on eligible spirits used in such products in accordance with
this part.
ATF officer. An officer or employee of the Bureau of Alcohol,
Tobacco and Firearms (ATF) authorized to perform any function relating
to the administration or enforcement of this part.
CFR. The Code of Federal Regulations.
Director. The Director, Bureau of Alcohol, Tobacco and Firearms,
the Department of the Treasury, Washington, DC 20226; or his or her
delegate.
Distilled spirits, or spirits. That substance known as ethyl
alcohol, ethanol, spirits, or spirits of wine in any form (including
all dilutions and mixtures thereof, from whatever source or by whatever
process produced).
Effective tax rate. The net tax rate, after reduction for any
credit allowable under 26 U.S.C. 5010 for wine and flavor content, at
which the tax imposed on distilled spirits by 26 U.S.C. 5001 or 7652 is
paid or determined. For distilled spirits with no wine or flavors
content, the effective tax rate equals the rate of tax imposed by 26
U.S.C. 5001 or 7652.
Eligible, or eligible for drawback. When used with reference to
spirits, this term designates taxpaid spirits which have not yet been
used in nonbeverage products.
Filed. Subject to the provisions of Secs. 70.305 and 70.306 of this
chapter, a claim for drawback or other document or payment submitted
under this part is generally considered to have been ``filed'' when it
is received by the office of the proper Government official; but if an
item is mailed timely with postage prepaid, then the United States
postmark date is treated as the date of filing.
Food products. Includes food adjuncts, such as preservatives,
emulsifying agents, and food colorings, which are manufactured and
used, or sold for use, in food.
Intermediate products. Products to which all three of the following
conditions apply: they are made with taxpaid distilled spirits, they
have been disapproved for drawback, and they are made by the
manufacturer exclusively for its own use in the manufacture of
nonbeverage products approved for drawback. However, ingredients
treated as unfinished nonbeverage products under Sec. 17.127 are not
considered to be intermediate products.
Medicines. Includes laboratory stains and reagents for use in
medical diagnostic procedures.
Month. A calendar month.
Nonbeverage products. Medicines, medicinal preparations, food
products, flavors, flavoring extracts, or perfume, which are
manufactured using taxpaid distilled spirits, and which are unfit for
use for beverage purposes.
Person. An individual, trust, estate, partnership, association,
company, or corporation.
Proof gallon. A gallon of liquid at 60 degrees Fahrenheit, which
contains 50 percent by volume of ethyl alcohol having a specific
gravity of 0.7939 at 60 degrees Fahrenheit (referred to water at 60
degrees Fahrenheit as unity), or the alcoholic equivalent thereof.
Quarter. A 3-month period beginning January 1, April 1, July 1, or
October 1.
Recovered spirits. Taxpaid spirits that have been salvaged, after
use in the manufacture of a product or ingredient, so that the spirits
are reusable.
Regional director (compliance). The principal ATF regional official
responsible for administering regulations in this part, or his or her
delegate.
Special tax. The special (occupational) tax on manufacturers of
nonbeverage products, imposed by 26 U.S.C. 5131.
Subject to drawback. This term is used with reference to spirits.
Eligible spirits become ``subject to drawback'' when they are used in
the manufacture of a nonbeverage product. When spirits have become
``subject to drawback,'' they may be included in the manufacturer's
claim for drawback of tax covering the period in which they were first
used.
Tax year. The period from July l of one calendar year through June
30 of the following year.
Taxpaid. When used with respect to distilled spirits, this term
shall mean that all taxes imposed on such spirits by 26 U.S.C. 5001 or
7652 have been determined or paid as provided by law.
This chapter. Chapter I of title 27 of the Code of Federal
Regulations.
U.S.C. The United States Code.
Subpart C--Special Tax
Sec. 17.2l Payment of special tax.
Each person who uses taxpaid distilled spirits in the manufacture
or production of nonbeverage products shall pay special tax as
specified in Sec. 17.22 in order to be eligible to receive drawback on
the spirits so used. Special tax shall be paid for each tax year during
which spirits were used in the manufacture of a product covered by a
drawback claim. If a claim is filed covering taxpaid distilled spirits
used during the preceding tax year, and special tax has not been paid
for the preceding tax year, then special tax for the preceding tax year
shall be paid. Regardless of the portion of a tax year covered by a
claim, the full annual special tax shall be paid. The manufacturer is
not required to pay the special tax if drawback is not claimed.
Sec. 17.22 Rate of special tax.
Effective January 1, 1988, the rate of special tax is $500 per tax
year for all persons claiming drawback on distilled spirits used in the
manufacture or production of nonbeverage products.
Sec. 17.23 Special tax for each place of business.
A separate special tax shall be paid for each place where distilled
spirits are used in the manufacture or production of nonbeverage
products, except for any such place in a tax year for which no claim is
filed, or no drawback is paid, on spirits used at that place.
Sec. 17.24 Time for payment of special tax.
Special tax may be paid in advance of actual use of distilled
spirits. Special tax shall be paid before a claimant may receive
drawback. Special tax may be paid without penalty under 26 U.S.C.
5134(c) at any time prior to completion of final action on the claim.
[[Page 31415]]
Special Tax Returns
Sec. 17.31 Filing of return and payment of special tax.
Special tax shall be paid by return. The prescribed return is ATF
Form 5630.5, Special Tax Registration and Return. Special tax returns,
with payment of tax, shall be filed with ATF in accordance with
instructions on the form.
(26 U.S.C. 609l, 6151)
Sec. 17.32 Completion of ATF Form 5630.5.
(a) General. All of the information called for on Form 5630.5 shall
be provided, including:
(1) The true name of the taxpayer.
(2) The trade name(s) (if any) of the business(es) subject to
special tax.
(3) The employer identification number (see Secs. 17.41-43).
(4) The exact location of the place of business, by name and number
of building or street, or if these do not exist, by some description in
addition to the post office address. In the case of one return for two
or more locations, the address to be shown shall be the taxpayer's
principal place of business (or principal office, in the case of a
corporate taxpayer).
(5) The class of special tax to which the taxpayer is subject.
(6) Ownership and control information: The name, position, and
residence address of every owner of the business and of every person
having power to control its management and policies with respect to the
activity subject to special tax. ``Owner of the business'' shall
include every partner if the taxpayer is a partnership, and every
person owning 10% or more of its stock if the taxpayer is a
corporation. However, the ownership and control information required by
this paragraph need not be stated if the same information has been
previously provided to ATF, and if the information previously provided
is still current.
(b) Multiple locations. A taxpayer subject to special tax for the
same period at more than one location or for more than one class of tax
shall--
(1) File one special tax return, ATF Form 5630.5, with payment of
tax, to cover all such locations and classes of tax; and
(2) Prepare, in duplicate, a list identified with the taxpayer's
name, address (as shown on the Form 5630.5), employer identification
number, and period covered by the return. The list shall show, by
States, the name, address, and tax class of each location for which
special tax is being paid. The original of the list shall be filed with
ATF in accordance with instructions on the return, and the copy shall
be retained at the taxpayer's principal place of business (or principal
office, in the case of a corporate taxpayer) for the period specified
in Sec. 17.170.
(26 U.S.C. 6011, 7011)
Sec. 17.33 Signature on returns, ATF Form 5630.5.
The return of an individual proprietor shall be signed by the
proprietor; the return of a partnership shall be signed by a general
partner; and the return of a corporation shall be signed by a corporate
officer. All signatures must be original; photocopies are not
acceptable. In each case, the person signing the return shall designate
his or her capacity, as ``individual owner,'' ``member of
partnership,'' or, in the case of a corporation, the title of the
officer. Receivers, trustees, assignees, executors, administrators, and
other legal representatives who continue the business of a bankrupt,
insolvent, deceased person, etc., shall indicate the fiduciary capacity
in which they act.
Sec. 17.34 Verification of returns.
ATF Forms 5630.5 shall contain or be verified by a written
declaration that the return is made under the penalties of perjury.
(68A Stat. 749 (26 U.S.C. 6065))
Employer Identification Number
Sec. 17.41 Requirement for employer identification number.
The employer identification number (defined in 26 CFR 301.7701-12)
of the taxpayer who has been assigned such a number shall be shown on
each special tax return (ATF Form 5630.5), including amended returns
filed under this subpart. Failure of the taxpayer to include the
employer identification number on Form 5630.5 may result in assertion
and collection of the penalty specified in Sec. 70.113 of this chapter.
(Secs. 1(a), (b), Pub. L. 87-397, 75 Stat. 828 (26 U.S.C. 6109,
6723))
Sec. 17.42 Application for employer identification number.
(a) An employer identification number is assigned pursuant to
application on IRS Form SS-4, Application for Employer Identification
Number, filed by the taxpayer. Form SS-4 may be obtained from any
office of the Internal Revenue Service.
(b) Each taxpayer who files a return on ATF Form 5630.5 shall make
application on IRS Form SS-4 for an employer identification number,
unless he or she has already been assigned such a number or made
application for one. The application on Form SS-4 shall be filed on or
before the seventh day after the date on which the first return on Form
5630.5 is filed.
(c) Each taxpayer shall make application for and shall be assigned
only one employer identification number, regardless of the number of
places of business for which the taxpayer is required to file Form
5630.5.
(Sec. 1(a), Pub. L. 87-397, 75 Stat. 828 (26 U.S.C. 6109))
Sec. 17.43 Preparation and filing of Form SS-4.
The taxpayer shall prepare and file the application on IRS Form SS-
4, together with any supplementary statement, in accordance with
instructions on the form or issued in respect to it.
(Sec. 1(a), Pub. L. 87-397, 75 Stat. 828 (26 U.S.C. 6109))
Subpart D--Special Tax Stamps
Sec. 17.51 Issuance of stamps.
Each manufacturer of nonbeverage products, upon filing a properly
executed return on ATF Form 5630.5, together with the proper tax
payment in the full amount due, shall be issued a special tax stamp
designated ``Manufacturer of Nonbeverage Products.'' This special tax
stamp shall not be sold or otherwise transferred to another person
(except as provided in Secs. 17.71 and 17.72). If the Form 5630.5
submitted with the tax payment covers multiple locations, the taxpayer
shall be issued one appropriately designated stamp for each location
listed in the attachment to Form 5630.5 required by Sec. 17.32(b)(2),
but showing, as to name and address, only the name of the taxpayer and
the address of the taxpayer's principal place of business (or principal
office in the case of a corporate taxpayer).
Sec. 17.52 Distribution of stamps for multiple locations.
On receipt of the special tax stamps, the taxpayer shall verify
that a stamp has been obtained for each location listed on the retained
copy of the attachment to ATF Form 5630.5 required by Sec. 17.32(b)(2).
The taxpayer shall designate one stamp for each location and shall type
on it the trade name (if different from the name in which the stamp was
issued) and address of the business conducted at the location for which
the stamp is designated. The taxpayer shall then forward each stamp to
the place of business designated on the stamp.
Sec. 17.53 Correction of errors on stamps.
(a) Single location. On receipt of a special tax stamp, the
taxpayer shall
[[Page 31416]]
examine it to ensure that the name and address are correctly stated. If
an error has been made, the taxpayer shall return the stamp to ATF at
the address shown thereon, with a statement showing the nature of the
error and setting forth the proper name or address. On receipt of the
stamp and statement, the data shall be compared with that on ATF Form
5630.5, and if an error on the part of ATF has been made, the stamp
shall be corrected and returned to the taxpayer. If the Form 5630.5
agrees with the data on the stamp, the taxpayer shall be required to
file a new Form 5630.5, designated ``Amended Return,'' disclosing the
proper name and address.
(b) Multiple locations. If an error is discovered on a special tax
stamp obtained under the provisions of Sec. 17.32(b), relating to
multiple locations, and if the error concerns any of the information
contained in the attachment to Form 5630.5, the taxpayer shall return
the stamp, with a statement showing the nature of the error and the
correct data, to his or her principal office. The data on the stamp
shall then be compared with the taxpayer's copy of the attachment to
Form 5630.5, retained at the principal office. If the error is in the
name and address and was made by the taxpayer, the taxpayer shall
correct the stamp and return it to the designated place of business. If
the error was made in the attachment to Form 5630.5, the taxpayer shall
file with ATF an amended Form 5630.5 and an amended attachment with a
statement showing the error.
Sec. 17.54 Lost or destroyed stamps.
If a special tax stamp is lost or accidentally destroyed, the
taxpayer shall immediately notify the regional director (compliance).
On receipt of this notification, the regional director (compliance)
shall issue to the taxpayer a ``Certificate in Lieu of Lost or
Destroyed Special Tax Stamp.'' The taxpayer shall keep the certificate
available for inspection in the same manner as prescribed for a special
tax stamp in Sec. 17.55.
Sec. 17.55 Retention of special tax stamps.
Taxpayers shall keep their special tax stamps at the place of
business covered thereby for the period specified in Sec. 17.170, and
shall make them available for inspection by any ATF officer during
business hours.
(Title II, sec. 201, Pub. L. 85-859, 72 Stat. 1348 (26 U.S.C. 5146))
Change in Location
Sec. 17.61 General.
A manufacturer who, during a tax year for which special tax has
been paid, moves its place of manufacture to a place other than that
specified on the related special tax stamp, shall register the change
with ATF within 90 days after the move to the new premises, by
executing a new return on ATF Form 5630.5, designated as ``Amended
Return.'' This Amended Return shall set forth the time of the move and
the address of the new location. The taxpayer shall also submit the
special tax stamp to ATF, for endorsement of the change in location.
(Title II, sec. 201, Pub. L. 85-859, 72 Stat. 1374 (26 U.S.C. 5143))
Sec. 17.62 Failure to register.
A manufacturer who fails to register a change of location with ATF,
as required by Sec. 17.61, shall pay a new special tax for the new
location if a claim for drawback is filed on distilled spirits used at
the new location during the tax year for which the original special tax
was paid.
Sec. 17.63 Certificates in lieu of lost stamps.
The provisions of Secs. 17.61 and 17.62 apply to certificates
issued in lieu of lost or destroyed special tax stamps.
Change in Control
Sec. 17.71 General.
Certain persons, other than the person who paid the special tax,
may qualify for succession to the same privileges granted by law to the
taxpayer, to cover the remainder of the tax year for which the special
tax was paid. Those who may qualify are specified in Sec. 17.72. To
secure these privileges, the successor or successors shall file with
ATF, within 90 days after the date on which the successor or successors
assume control, a return on ATF Form 5630.5, showing the basis of the
succession.
Sec. 17.72 Right of succession.
Under the conditions set out in Sec. 17.71, persons listed below
have the right of succession:
(a) The surviving spouse or child, or executor, administrator, or
other legal representative of a taxpayer.
(b) A husband or wife succeeding to the business of his or her
living spouse.
(c) A receiver or trustee in bankruptcy, or an assignee for the
benefit of creditors.
(d) The members of a partnership remaining after the death or
withdrawal of a general partner.
Sec. 17.73 Failure to register.
A person eligible for succession to the privileges of a taxpayer,
in accordance with Secs. 17.71 and 17.72, who fails to register the
succession with ATF, as required by Sec. 17.71, shall pay a new special
tax if a claim for drawback is filed on distilled spirits used by the
successor during the tax year for which the original special tax was
paid.
Sec. 17.74 Certificates in lieu of lost stamps.
The provisions of Secs. 17.71-73 apply to certificates issued in
lieu of lost or destroyed special tax stamps.
Sec. 17.75 Formation of partnership or corporation.
If one or more persons who have paid special tax form a partnership
or corporation, as a separate legal entity, to take over the business
of manufacturing nonbeverage products, the new firm or corporation
shall pay a new special tax in order to be eligible to receive
drawback.
Sec. 17.76 Addition or withdrawal of partners.
(a) General partners. When a business formed as a partnership,
subject to special tax, admits one or more new general partners, the
new partnership shall pay a new special tax in order to be eligible to
receive drawback. Withdrawal of general partners is covered by
Sec. 17.72(d).
(b) Limited partners. Changes in the membership of a limited
partnership requiring amendment of the certificate but not dissolution
of the partnership are not changes that incur liability to additional
special tax.
Sec. 17.77 Reincorporation.
When a new corporation is formed to take over and conduct the
business of one or more corporations that have paid special tax, the
new corporation shall pay special tax and obtain a stamp in its own
name.
Change in Name or Style
Sec. 17.81 General.
A person who paid special tax is not required to pay a new special
tax by reason of a mere change in the trade name or style under which
the business is conducted, nor by reason of a change in management
which involves no change in the proprietorship of the business.
Sec. 17.82 Change in capital stock.
A new special tax is not required by reason of a change of name or
increase in the capital stock of a corporation, if the laws of the
State of incorporation provide for such changes without creating a new
corporation.
Sec. 17.83 Sale of stock.
A new special tax is not required by reason of the sale or transfer
of all or a controlling interest in the capital stock of a corporation.
[[Page 31417]]
Refund of Special Tax
Sec. 17.91 Absence of liability, refund of special tax.
The special tax paid may be refunded if it is established that the
taxpayer did not file a claim for drawback for the period covered by
the special tax stamp. If a claim for drawback is filed, the special
tax may be refunded if no drawback is paid or allowed for the period
covered by the stamp.
Sec. 17.92 Filing of refund claim.
Claim for refund of special tax shall be filed on ATF Form 2635
(5620.8), Claim--Alcohol, Tobacco and Firearms Taxes. The claim shall
be filed with the Chief, Tax Processing Center, PO Box 145433,
Cincinnati, OH 45203. The claim shall set forth in detail sufficient
reasons and supporting facts to inform the regional director
(compliance) of the exact basis of the claim. The special tax stamp
shall be attached to the claim.
(68A Stat. 791 (26 U.S.C. 6402))
Sec. 17.93 Time limit for filing refund claim.
A claim for refund of special tax shall not be allowed unless filed
within three years after the payment of the tax.
(68A Stat. 808 (26 U.S.C. 6511))
Subpart E--Bonds and Consents of Sureties
Sec. 17.101 General.
A bond shall be filed by each person claiming drawback on a monthly
basis. Persons who claim drawback on a quarterly basis are not required
to file bonds. Bonds shall be prepared and executed on ATF Form 5154.3,
Bond for Drawback Under 26 U.S.C. 5131, in accordance with the
provisions of this part and the instructions printed on the form. The
bond requirement of this part shall be satisfied either by bonds
obtained from authorized surety companies or by deposit of collateral
security. Regional directors (compliance) are authorized to approve all
bonds and consents of surety required by this part.
Sec. 17.102 Amount of bond.
The bond shall be a continuing one, in an amount sufficient to
cover the total drawback to be claimed on spirits used during any
quarter. However, the amount of any bond shall not exceed $200,000 nor
be less than $1,000.
Sec. 17.103 Bonds obtained from surety companies.
(a) The bond may be obtained from any surety company authorized by
the Secretary of the Treasury to be a surety on Federal bonds. Surety
companies so authorized are listed in the current revision of
Department of the Treasury Circular 570 (Companies Holding Certificates
of Authority as Acceptable Sureties on Federal Bonds and as Acceptable
Reinsuring Companies), and subject to such amendatory circulars as may
be issued from time to time. Bonds obtained from surety companies are
also governed by the provisions of 31 U.S.C. 9304, and 31 CFR part 223.
(b) A bond executed by two or more surety companies shall be the
joint and several liability of the principal and the sureties; however,
each surety company may limit its liability, in terms upon the face of
the bond, to a definite, specified amount. This amount shall not exceed
the limitations prescribed for each surety company by the Secretary, as
stated in Department of the Treasury Circular 570. If the sureties
limit their liability in this way, the total of the limited liabilities
shall equal the required amount of the bond.
(c) Department of the Treasury Circular No. 570 is published in
the Federal Register annually on the first workday in July. As they
occur, interim revisions of the circular are published in the Federal
Register. Copies of the circular may be obtained from: Surety Bond
Branch, Financial Management Service, Department of the Treasury,
Washington, DC 20227.
(Sec. 1, Pub. L. 97-258, 96 Stat. 1047 (31 U.S.C. 9304))
Sec. 17.104 Deposit of collateral.
Except as otherwise provided by law or regulations, bonds or notes
of the United States, or other obligations which are unconditionally
guaranteed as to both interest and principal by the United States, may
be pledged and deposited by principals as collateral security in lieu
of bonds obtained from surety companies. Deposit of collateral security
is governed by the provisions of 31 U.S.C. 9303, and 31 CFR part 225.
(Sec. 1, Pub. L. 97-258, 96 Stat. 1046 (31 U.S.C. 9301, 9303))
Sec. 17.105 Filing of powers of attorney.
(a) Surety companies. The surety company shall prepare and submit
with each bond, and with each consent to changes in the terms of a
bond, a power of attorney in accordance with Sec. 17.6, authorizing the
agent or officer who executed the bond or consent to act in this
capacity on behalf of the surety. The power of attorney shall be
prepared on a form provided by the surety company and executed under
the corporate seal of the company. If other than a manually signed
original is submitted, it shall be accompanied by certification of its
validity.
(b) Principal. The principal shall execute and file with the
regional director (compliance) a power of attorney, in accordance with
Sec. 17.6, for every person authorized to execute bonds on behalf of
the principal.
(Sec. 1, Pub. L. 97-258, 96 Stat. 1047 (31 U.S.C. 9304, 9306))
Sec. 17.106 Consents of surety.
The principal and surety shall execute on ATF Form 1533 (5000.18),
Consent of Surety, any consents of surety to changes in the terms of
bonds. Form 1533 (5000.18) shall be executed with the same formality
and proof of authority as is required for the execution of bonds.
Sec. 17.107 Strengthening bonds.
Whenever the amount of a bond on file and in effect becomes
insufficient, the principal may give a strengthening bond in a
sufficient amount, provided the surety is the same as on the bond
already on file and in effect; otherwise a superseding bond covering
the entire liability shall be filed. Strengthening bonds, filed to
increase the bond liability of the surety, shall not be construed in
any sense to be substitute bonds, and the regional director
(compliance) shall not approve a strengthening bond containing any
notation which may be interpreted as a release of any former bond or as
limiting the amount of either bond to less than its full amount.
Sec. 17.108 Superseding bonds.
(a) The principal on any bond filed pursuant to this part may at
any time replace it with a superseding bond.
(b) Executors, administrators, assignees, receivers, trustees, or
other persons acting in a fiduciary capacity continuing or liquidating
the business of the principal, shall execute and file a superseding
bond or obtain the consent of the surety or sureties on the existing
bond or bonds.
(c) When, in the opinion of the regional director (compliance), the
interests of the Government demand it, or in any case where the
security of the bond becomes impaired in whole or in part for any
reason whatever, the principal shall file a superseding bond. A
superseding bond shall be filed immediately in case of the insolvency
of the surety. If a bond is found to be not acceptable or for any
reason becomes invalid or of no effect, the principal shall immediately
file a satisfactory superseding bond.
(d) A bond filed under this section to supersede an existing bond
shall be marked by the obligors at the time of execution, ``Superseding
Bond.'' When
[[Page 31418]]
such a bond is approved, the superseded bond shall be released as to
transactions occurring wholly subsequent to the effective date of the
superseding bond, and notice of termination of the superseded bond
shall be issued, as provided in Sec. 17.111.
Termination of Bonds
Sec. 17.111 General.
(a) Bonds on ATF Form 5154.3 shall be terminated by the regional
director (compliance), as to liability on drawback allowed after a
specified future date, in the following circumstances:
(1) Pursuant to a notice by the surety as provided in Sec. 17.112.
(2) Following approval of a superseding bond, as provided in
Sec. 17.108.
(3) Following notification by the principal of an intent to
discontinue the filing of claims on a monthly basis.
(b) However, the bond shall not be terminated until all outstanding
liability under it has been discharged. Upon termination, the regional
director (compliance) shall mark the bond ``canceled,'' followed by the
date of cancellation, and shall issue a notice of termination of bond.
A copy of this notice shall be given to the principal and to each
surety.
Sec. 17.112 Notice by surety of termination of bond.
A surety on any bond required by this part may at any time, in
writing, notify the principal and the regional director (compliance) in
whose office the bond is on file that the surety desires, after a date
named, to be relieved of liability under the bond. Unless the notice is
withdrawn, in writing, before the date named in it, the notice shall
take effect on that date. The date shall not be less than 60 days after
the date on which both the notice and proof of service on the principal
have been received by the regional director (compliance). The surety
shall deliver one copy of the notice to the principal and the original
to the regional director (compliance). The surety shall also file with
the regional director (compliance) an acknowledgment or other proof of
service on the principal.
Sec. 17.113 Extent of release of surety from liability under bond.
The rights of the principal as supported by the bond shall cease as
of the date when termination of the bond takes effect, and the surety
shall be relieved from liability for drawback allowed on and after that
date. Liability for drawback previously allowed shall continue until
the claims for such drawback have been properly verified by the
regional director (compliance) according to law and this part.
Sec. 17.114 Release of collateral.
The release of collateral security pledged and deposited to satisfy
the bond requirement of this part is governed by the provisions of 31
CFR part 225. When the regional director (compliance) determines that
there is no outstanding liability under the bond, and is satisfied that
the interests of the Government will not be jeopardized, the security
shall be released and returned to the principal.
(Sec. 1, Pub. L. 97-258, 96 Stat. 1046 (31 U.S.C. 9301, 9303))
Subpart F--Formulas and Samples
Sec. 17.121 Product formulas.
(a) General. Except as provided in Secs. 17.132 and 17.182,
manufacturers shall file quantitative formulas for all preparations for
which they intend to file drawback claims. Such formulas shall state
the quantity of each ingredient, and shall separately state the
quantity of spirits to be recovered or to be consumed as an essential
part of the manufacturing process.
(b) Filing. Formulas shall be filed with the Alcohol and Tobacco
Laboratory on ATF Form 5154.1, Formula and Process for Nonbeverage
Products. Filing shall be accomplished no later than 6 months after the
end of the quarter in which taxpaid distilled spirits were first used
to manufacture the product for purposes of drawback. If a product's
formula is disapproved, no drawback shall be allowed on spirits used to
manufacture that product, unless it is later used as an intermediate
product, as provided in Sec. 17.137.
(c) Numbering. The formulas shall be serially numbered by the
manufacturer, commencing with number 1 and continuing thereafter in
numerical sequence. However, a new formula for use at several plants
shall be given the highest number next in sequence at any of those
plants. The numbers that were skipped at the other plants shall not be
used subsequently.
(d) Distribution and retention of approved formulas. One copy of
each approved Form 5154.1 shall be returned to the manufacturer. The
formulas returned to manufacturers shall be kept in serial order at the
place of manufacture, as provided in Sec. 17.170, and shall be made
available to ATF officers for examination in the investigation of
drawback claims.
Sec. 17.122 Amended or revised formulas.
Except as provided in this section, amended or revised formulas are
considered to be new formulas and shall be numbered accordingly. Minor
changes may be made to a current formula on ATF Form 5154.1 with
retention of the original formula number, if approval is obtained from
the Director. In order to obtain approval to make a minor formula
change, the person holding the Form 5154.1 shall submit a letter of
application to the Alcohol and Tobacco Laboratory, indicating the
formula change and requesting that the proposed change be considered a
minor change. Each such application shall clearly identify the original
formula by number, date of approval, and name of product. The
application shall indicate whether the product is, has been, or will be
used in alcoholic beverages, and shall specify whether the proposed
change is intended as a substitution or merely as an alternative for
the original formula. No changes may be made to current formulas
without specific ATF approval in each case.
Sec. 17.123 Statement of process.
Any person claiming drawback under the regulations in this part may
be required, at any time, to file a statement of process, in addition
to that required by ATF Form 5154.1, as well as any other data
necessary for consideration of the claim for drawback. When pertinent
to consideration of the claim, submission of copies of the commercial
labels used on the finished products may also be required.
Sec. 17.124 Samples.
Any person claiming drawback or submitting a formula for approval
under the regulations in this part may be required, at any time, to
submit a sample of each nonbeverage or intermediate product for
analysis. If the product is manufactured with a mixture of oil or other
ingredients, the composition of which is unknown to the claimant, a 1-
ounce sample of the mixture shall be submitted with the sample of
finished product when so required.
Sec. 17.125 Adoption of formulas and processes.
(a) Adoption of predecessor's formulas. If there is a change in the
proprietorship of a nonbeverage plant and the successor desires to use
the predecessor's formulas at the same location, the successor may, in
lieu of submitting new formulas in its own name, adopt any or all of
the formulas of the predecessor by filing a notice of
[[Page 31419]]
adoption with the regional director (compliance). The notice shall be
filed with the first claim relating to any of the adopted formulas. The
notice shall list, by name and serial number, all formulas to be
adopted, and shall state that the products will be manufactured in
accordance with the adopted formulas and processes. The notice shall be
accompanied by a certified copy of the articles of incorporation or
other document(s) necessary to prove the transfer of ownership. The
manufacturer shall retain a copy of the notice with the related
formulas.
(b) Adoption of manufacturer's own formulas from a different
location. A manufacturer's own formulas may be adopted for use at
another of the manufacturer's plants. Further, a wholly owned
subsidiary may adopt the formulas of the parent company, and vice
versa. The procedure for such adoption shall be by filing a letterhead
notice, accompanied by two photocopies of each formula to be adopted,
with the Alcohol and Tobacco Laboratory for transmittal to the regional
director (compliance). The notice shall list the numbers of all
formulas to be adopted and shall indicate the plant where each was
originally approved and the plant(s) where each is to be adopted. Some
evidence of the relationship between the plants involved in the
adoption shall be attached to the notice. The notice shall be
referenced in Part IV of the supporting data (ATF Form 5154.2) filed
with the first claim relating to the adopted formula(s).
Sec. 17.126 Formulas for intermediate products.
(a) The manufacturer shall submit a formula on ATF Form 5154.1 to
the Alcohol and Tobacco Laboratory for each self-manufactured
ingredient made with taxpaid spirits and intended for the
manufacturer's own use in nonbeverage products, unless the formula for
any such ingredient is fully expressed as part of the approved formula
for each nonbeverage product in which that ingredient is used, or
unless the formula for the ingredient is contained in one of the
pharmaceutical publications listed in Sec. 17.132.
(b) Upon receipt of Form 5154.1 covering a self-manufactured
ingredient made with taxpaid spirits, the formula shall be examined
under Sec. 17.131. If the formula is approved for drawback, the
ingredient shall be treated as a finished nonbeverage product for
purposes of this part, rather than as an intermediate product,
notwithstanding its use by the manufacturer. (For example, see
Sec. 17.152(d).) If the formula is disapproved for drawback, the
ingredient may be treated as an intermediate product in accordance with
this part. Requirements pertaining to intermediate products are found
in Sec. 17.185(b).
(c) If there is a change in the composition of an intermediate
product, the manufacturer shall submit an amended or revised formula,
as provided in Sec. 17.122.
Sec. 17.127 Self-manufactured ingredients treated optionally as
unfinished nonbeverage products.
A self-manufactured ingredient made with taxpaid spirits, which
otherwise would be treated as an intermediate product, may instead be
treated as an unfinished nonbeverage product, if the ingredient's
formula is fully expressed as a part of the approved formula for the
nonbeverage product in which the ingredient will be used. A
manufacturer desiring to change the treatment of an ingredient from
``intermediate product'' to ``unfinished nonbeverage product'' (or vice
versa) may do so by resubmitting the applicable formula(s) on ATF Form
5154.1. Requirements pertaining to unfinished nonbeverage products are
found in Sec. 17.185(c).
Approval of Formulas
Sec. 17.131 Formulas on ATF Form 5154.1.
Upon receipt by the Alcohol and Tobacco Laboratory, formulas on ATF
Form 5154.1 shall be examined and, if found to be medicines, medicinal
preparations, food products, flavors, flavoring extracts, or perfume
which are unfit for beverage purposes and which otherwise meet the
requirements of law and this part, they shall be approved for drawback.
If the formulas do not meet the requirements of the law and regulations
for drawback products, they shall be disapproved.
Sec. 17.132 U.S.P., N.F., and H.P.U.S. preparations.
(a) General. Except as otherwise provided by paragraph (b) of this
section or by ATF ruling, formulas for compounds in which alcohol is a
prescribed quantitative ingredient, which are stated in the current
revisions or editions of the United States Pharmacopoeia (U.S.P.), the
National Formulary (N.F.), or the Homeopathic Pharmacopoeia of the
United States (H.P.U.S.), shall be considered as approved formulas and
may be used as formulas for drawback products without the filing of ATF
Form 5154.1.
(b) Exceptions. Alcohol (including dehydrated alcohol and
dehydrated alcohol injection), U.S.P.; alcohol and dextrose injection,
U.S.P.; and tincture of ginger, H.P.U.S., have been found to be fit for
beverage use and are disapproved for drawback. All attenuations of
other H.P.U.S. products diluted beyond one part in 10,000 (``4 x '')
are also disapproved for drawback, unless the manufacturer receives
approval for a formula submitted on Form 5154.1 in accordance with this
subpart. The formula for such attenuations shall be submitted with a
sample of the product and a statement explaining why it should be
classified as unfit for beverage use.
Sec. 17.133 Food product formulas.
Formulas for nonbeverage food products on ATF Form 5154.1 may be
approved if they are unfit for beverage purposes. Approval does not
authorize manufacture or sale contrary to State law. Examples of food
products that have been found to be unfit for beverage purposes are
stated below:
(a) Sauces or syrups. Sauces, or syrups consisting of sugar
solutions and distilled spirits, in which the alcohol content is not
more than 12 percent by volume and the sugar content is not less than
60 grams per 100 cubic centimeters.
(b) Brandied fruits. Brandied fruits consisting of solidly packaged
fruits, either whole or segmented, and distilled spirits products not
exceeding the quantity and alcohol content necessary for flavoring and
preserving. Generally, brandied fruits will be considered to have met
these standards if the container is well filled, the alcohol in the
liquid portion does not exceed 23 percent by volume, and the liquid
portion does not exceed 45 percent of the volume of the container.
(c) Candies. Candies with alcoholic fillings, if the fillings meet
the standards prescribed for sauces and syrups by paragraph (a) of this
section.
(d) Other food products. Food products such as mincemeat, plum
pudding, and fruit cake, where only sufficient distilled spirits are
used for flavoring and preserving; and ice cream and ices where only
sufficient spirits are used for flavoring purposes. Also food adjuncts,
such as preservatives, emulsifying agents, and food colorings, that are
unfit for beverage purposes and are manufactured and used, or sold for
use, in food.
Sec. 17.134 Determination of unfitness for beverage purposes.
The Director has responsibility for determining whether products
are fit or unfit for beverage purposes within the meaning of 26 U.S.C.
5131. This determination may be based either on the content and
description of the
[[Page 31420]]
ingredients as shown on ATF Form 5154.1, or on organoleptic
examination. In such examination, samples of products may be diluted
with water to an alcoholic concentration of 15% and tasted. Sale or use
for beverage purposes is indicative of fitness for beverage use.
Sec. 17.135 Use of specially denatured alcohol (S.D.A.).
(a) Use of S.D.A. in nonbeverage or intermediate products--(1)
General. Except as provided in paragraph (b) of this section, the use
of specially denatured alcohol (S.D.A.) and taxpaid spirits in the same
product by a nonbeverage manufacturer is prohibited where drawback of
tax is claimed.
(2) Alternative formulations. No formula for a product on ATF Form
5154.1 shall be approved for drawback under this subpart if the
manufacturer also has on file an approved ATF Form 1479-A or Form
5150.19, Formula for Article Made With Specially Denatured Alcohol or
Rum, pertaining to the same product.
(b) Use of S.D.A. in ingredients--(1) Purchased ingredients.
Generally, purchased ingredients containing S.D.A. may be used in
nonbeverage or intermediate products. However, such ingredients shall
not be used in medicinal preparations or flavoring extracts intended
for internal human use, where any of the S.D.A. remains in the finished
product.
(2) Self-manufactured ingredients. Self-manufactured ingredients
may be made with S.D.A. and used in nonbeverage or intermediate
products, provided--
(i) No taxpaid spirits are used in manufacturing such ingredients;
and
(ii) All S.D.A. is recovered or dissipated from such ingredients
prior to their use in nonbeverage or intermediate products. (Recovery
of S.D.A. shall be in accordance with subpart K of part 20 of this
chapter; recovered S.D.A., with or without its original denaturants,
shall not be reused in nonbeverage or intermediate products.)
(Sec. 201, Pub. L. 85-859, 72 Stat. 1372, as amended (26 U.S.C.
5273))
Sec. 17.136 Compliance with Food and Drug Administration requirements.
A product is not a medicine, medicinal preparation, food product,
flavor, flavoring extract, or perfume for nonbeverage drawback if its
formula would violate a ban or restriction of the U.S. Food and Drug
Administration (FDA) pertaining to such products. If FDA bans or
restricts the use of any ingredient in such a way that further
manufacture of a product in accordance with its formula would violate
the ban or restriction, then the manufacturer shall change the formula
and resubmit it on ATF Form 5154.1 to the Alcohol and Tobacco
Laboratory. This section does not preclude approval for products
manufactured solely for export or for uses other than internal human
consumption (e.g. tobacco flavors or animal feed flavors) in accordance
with laws and regulations administered by FDA. Under Sec. 17.123,
manufacturers may be required to demonstrate compliance with FDA
requirements applicable to this section.
Sec. 17.137 Formulas disapproved for drawback.
A formula may be disapproved for drawback either because it does
not prescribe appropriate ingredients in sufficient quantities to make
the product unfit for beverage use, or because the product is neither a
medicine, a medicinal preparation, a food product, a flavor, nor a
flavoring extract. The formula for a disapproved product may be used as
an intermediate product formula under Sec. 17.126. No drawback will be
allowed on distilled spirits used in a disapproved product, unless that
product is later used in the manufacture of an approved nonbeverage
product. In the case of a product that is disapproved because it is fit
for beverage use, any further use or disposition of such a product,
other than as an intermediate product in accordance with this part,
subjects the manufacturer to the qualification requirements of parts 1
and 19 of this chapter.
Subpart G--Claims for Drawback
Sec. 17.141 Drawback.
Upon the filing of a claim as provided in this subpart, drawback
shall be allowed to any person who meets the requirements of this part.
Drawback shall be paid at the rate specified by 26 U.S.C. 5134 on each
proof gallon of distilled spirits on which the tax has been paid or
determined and which have been used in the manufacture of nonbeverage
products. The drawback rate is $1.00 less than the effective tax rate.
Drawback shall be allowed only to the extent that the claimant can
establish, by evidence satisfactory to the regional director
(compliance), the actual quantity of taxpaid or tax-determined
distilled spirits used in the manufacture of the product, and the
effective tax rate applicable to those spirits. Special tax as a
manufacturer of nonbeverage products shall be paid before drawback is
allowed.
Sec. 17.142 Claims.
(a) General. The manufacturer shall file claim for drawback with
the regional director (compliance) for the region in which the place of
manufacture is located. A separate claim shall be filed for each place
of business. Each claim shall pertain only to distilled spirits used in
the manufacture or production of nonbeverage products during any one
quarter of the tax year. Unless the manufacturer is eligible to file
monthly claims (see Secs. 17.143 and 17.144), only one claim per
quarter may be filed for each place of business. The regional director
(compliance) has the authority to approve or disapprove claims. Claims
shall be filed on ATF Form 2635 (5620.8), Claim--Alcohol and Tobacco
Taxes.
(b) Manufacturers who are also proprietors of distilled spirits
plants. If a manufacturer of nonbeverage products is owned and operated
by the same business entity that owns and operates a distilled spirits
plant, the manufacturer's claim for drawback may be filed for credit on
Form 2635 (5620.8). After the claim is approved, the distilled spirits
plant may use the claim as an adjustment decreasing the taxes due in
Schedule B of ATF Form 5000.24, Excise Tax Return. Adjustments
resulting from an approved drawback claim are not subject to interest.
This procedure may be utilized only if the manufacturer of nonbeverage
products and the distilled spirits plant have the same employer
identification number.
Sec. 17.143 Notice for monthly claims.
If the manufacturer has notified the regional director
(compliance), in writing, of an intention to file claims on a monthly
basis instead of a quarterly basis, and has filed a bond in compliance
with the provisions of this part, claims may be filed monthly instead
of quarterly. The election to file monthly claims shall not preclude a
manufacturer from filing a single claim covering an entire quarter, or
a single claim covering just two months of a quarter, or two claims
(one of them covering one month and the other covering two months). An
election for the filing of monthly claims may be withdrawn by the
manufacturer by filing a notice to that effect, in writing, with the
regional director (compliance).
Sec. 17.144 Bond for monthly claims.
Each person intending to file claims for drawback on a monthly
basis shall file with the regional director (compliance) an executed
bond on ATF Form 5154.3, conforming to the provisions of subpart E of
this part. A
[[Page 31421]]
monthly drawback claim shall not be allowed until bond coverage in a
sufficient amount has been approved by the regional director
(compliance). When the limit of liability under a bond given in less
than the maximum amount has been reached, further drawback on monthly
claims may be suspended until a strengthening or superseding bond in a
sufficient amount is furnished.
Sec. 17.145 Date of filing claim.
Quarterly claims for drawback shall be filed with the regional
director (compliance) within six months after the quarter in which the
distilled spirits covered by the claim were used in the manufacture of
nonbeverage products. Monthly claims for drawback may be filed at any
time after the end of the month in which the distilled spirits covered
by the claim were used in the manufacture of nonbeverage products, but
shall be filed not later than the close of the sixth month succeeding
the quarter in which the spirits were used.
Sec. 17.146 Information to be shown by the claim.
The claim shall set forth the following:
(a) Whether the special tax has been paid.
(b) That the distilled spirits on which drawback is claimed were
fully taxpaid or tax-determined at the effective tax rate applicable to
the distilled spirits.
(c) That the distilled spirits on which the drawback is claimed
were used in the manufacture of nonbeverage products.
(d) Whether the nonbeverage products were manufactured in
compliance with quantitative formulas approved under subpart F of this
part. (If not, attach explanation.)
(e) That the data submitted in support of the claim are correct.
Sec. 17.147 Supporting data.
(a) Each claim for drawback shall be accompanied by supporting data
presented according to the format shown on ATF Form 5154.2, Supporting
Data for Nonbeverage Drawback Claims (or according to any other
suitable format which provides the same information). Modifications of
Form 5154.2 may be used without prior authorization, if the modified
format clearly shows all of the required information that is pertinent
to the manufacturing operation. Under Sec. 17.123, the regional
director (compliance) may require additional supporting data when
needed to determine the correctness of drawback claims.
(b) Separate data shall be shown for eligible distilled spirits
taxpaid at different effective tax rates. This requirement applies to
all eligible spirits, including eligible recovered alcohol and eligible
spirits contained in intermediate products.
(c) Separate data shall be shown for imported rum, spirits from
Puerto Rico containing at least 92% rum, and spirits from the U.S.
Virgin Islands containing at least 92% rum. The total number of proof
gallons of each such category used subject to drawback during the claim
period shall also be shown, with separate totals for each effective tax
rate. These amounts shall include eligible spirits and rum from
intermediate products or recovered alcohol.
(d) Any gain in eligible distilled spirits reported in the
supporting data shall be reflected by an equivalent deduction from the
amount of drawback claimed. Gains shall not be offset by known losses.
Sec. 17.148 Allowance of claims.
(a) General. Except in the case of fraudulent noncompliance, no
claim for drawback shall be denied for a failure to comply with either
26 U.S.C. 5131-5134 or the requirements of this part, if the claimant
establishes that spirits on which the tax has been paid or determined
were in fact used in the manufacture of medicines, medicinal
preparations, food products, flavors, flavoring extracts, or perfume,
which were unfit for beverage purposes.
(b) Penalty. Noncompliance with the requirements of 26 U.S.C. 5131-
5134 or of this part subjects the claimant to a civil penalty of $1,000
for each separate product, reflected in a claim for drawback, to which
the noncompliance relates, or the amount claimed for that product,
whichever is less, unless the claimant establishes that the
noncompliance was due to reasonable cause. Late filing of a claim
subjects the claimant to a civil penalty of $1,000 or the amount of the
claim, whichever is less, unless the claimant establishes that the
lateness was due to reasonable cause.
(c) Reasonable cause. Reasonable cause exists where a claimant
establishes it exercised ordinary business care and prudence, and still
was unable to comply with the statutory and regulatory requirements.
Ignorance of law or regulations, in and of itself, is not reasonable
cause. Each case is individually evaluated.
(Sec. 452, Pub. L. 98-369, 98 Stat. 819 (26 U.S.C. 5134(c))
Spirits Subject to Drawback
Sec. 17.151 Use of distilled spirits.
Distilled spirits are considered to have been used in the
manufacture of a product under this part if the spirits are consumed in
the manufacture, are incorporated into the product, or are determined
by ATF to have been otherwise utilized as an essential part of the
manufacturing process. However, spirits lost by causes such as
spillage, leakage, breakage or theft, and spirits used for purposes
such as rinsing or cleaning a system, are not considered to have been
used in the manufacture of a product.
Sec. 17.152 Time of use of spirits.
(a) General. Distilled spirits shall be considered used in the
manufacture of a product as soon as that product contains all the
ingredients called for by its formula.
(b) Spirits used in an ion exchange column. Distilled spirits used
in recharging an ion exchange column, the operation of which is
essential to the production of a product, shall be considered to be
used when the spirits are entered into the manufacturing system in
accordance with the product's formula.
(c) Products requiring additional processing or treatment. Further
manipulation of a product, such as aging or filtering, subsequent to
the mixing together of all of its ingredients, shall not postpone the
time when spirits are considered used, as determined under paragraph
(a) of this section. This is true even if at the time of use there has
not yet been a final determination of alcoholic content by assay. If,
however, it is later found necessary to add more distilled spirits to
standardize the product, such added spirits shall be considered as used
in the period during which they were added.
(d) Nonbeverage products used to manufacture other products.
Nonbeverage products may be used to manufacture other nonbeverage (or
intermediate) products. However, such subsequent usage of a nonbeverage
product shall not affect the time when the distilled spirits contained
therein are considered used. When distilled spirits are used in the
manufacture of a nonbeverage product, the time of use shall be the
point at which that product first contains all of its prescribed
ingredients, and such use shall not be determined by the time of any
subsequent usage of that product in another product.
Sec. 17.153 Recovered spirits.
(a) Recovery from intermediate products. Eligible spirits recovered
in the manufacture of intermediate products are not subject to drawback
until such recovered spirits are used in the manufacture of a
nonbeverage
[[Page 31422]]
product. (However, see Sec. 17.127 with respect to optional treatment
of ingredients as unfinished nonbeverage products, rather than as
intermediate products.) Spirits recovered in the manufacture of
intermediate products shall be reused only in the manufacture of
intermediate or nonbeverage products.
(b) Recovery from nonbeverage products. Distilled spirits recovered
in the manufacture of a nonbeverage product are considered as having
been used in the manufacture of that product. If the spirits were
eligible when so used, they became subject to drawback at that time.
Upon recovery, such spirits may be reused in the manufacture of
nonbeverage products, but shall not be reused for any other purpose.
When reused, such recovered spirits are not again eligible for drawback
and shall not be used in the manufacture of intermediate products.
(c) Cross references. For additional provisions respecting the
recovery of distilled spirits and related recordkeeping requirements,
see Secs. 17.168 and 17.183.
Sec. 17.154 Spirits contained in intermediate products.
Spirits contained in an intermediate product are not subject to
drawback until that intermediate product is used in the manufacture of
a nonbeverage product.
Sec. 17.155 Spirits consumed in manufacturing intermediate products.
Spirits consumed in the manufacture of an intermediate product--
which are not contained in the intermediate product at the time of its
use in nonbeverage products--are not subject to drawback. Such spirits
are not considered to have been used in the manufacture of nonbeverage
products. However, see Sec. 17.127 with respect to optional treatment
of ingredients as unfinished nonbeverage products, rather than as
intermediate products.
Subpart H--Records
Sec. 17.161 General.
Each person claiming drawback on taxpaid distilled spirits used in
the manufacture of nonbeverage products shall maintain records showing
the information required in this subpart. No particular form is
prescribed for these records, but the data required to be shown shall
be clearly recorded and organized to enable ATF officers to trace each
operation or transaction, monitor compliance with law and regulations,
and verify the accuracy of each claim. Ordinary business records,
including invoices and cost accounting records, are acceptable if they
show the required information or are annotated to show any such
information that is lacking. The records shall be kept complete and
current at all times, and shall be retained by the manufacturer at the
place covered by the special tax stamp for the period prescribed in
Sec. 17.170.
Sec. 17.162 Receipt of distilled spirits.
(a) Distilled spirits received in tank cars, tank trucks, barrels,
or drums. For distilled spirits received in tank cars, tank trucks,
barrels, or drums, the manufacturer shall record, with respect to each
shipment received--
(1) The date of receipt;
(2) The name and address of the person from whom received;
(3) The serial number or other identification mark (if any) of each
tank car, tank truck, barrel, or drum;
(4) The name of the producer or warehouseman who paid or determined
the tax;
(5) The effective tax rate (if other than the rate prescribed by 26
U.S.C. 5001); and
(6) The kind, quantity, and proof (or alcohol percentage by volume)
of the spirits.
(b) Distilled spirits received in bottles. For distilled spirits
received in bottles, the manufacturer shall record--
(1) The date of receipt;
(2) The name and address of the seller;
(3) The serial number of each case, if the bottles are received in
cases;
(4) The name of the bottler;
(5) The effective tax rate (if other than the rate prescribed by 26
U.S.C. 5001); and
(6) The kind, quantity, and proof (or alcohol percentage by volume)
of the spirits.
(c) Distilled spirits received by pipeline. For distilled spirits
received by pipeline, the manufacturer shall record--
(1) The date of receipt;
(2) The name of the producer or warehouseman who paid or determined
the tax;
(3) The effective tax rate (if other than the rate prescribed by 26
U.S.C. 5001); and
(4) The kind, quantity, and proof (or alcohol percentage by volume)
of the spirits.
(d) Determination of quantity. At the time of receipt, each
manufacturer shall determine (preferably by weight) and record the
exact number of proof gallons of distilled spirits received. The amount
received in bottles may be determined by the required statements on the
labels. The amount received in sealed drums with no evidence of leakage
may be determined from the record of shipment, which is required by
Sec. 19.780 of this chapter to accompany spirits received from a
distilled spirits plant. If spirits are received in a tank car or tank
truck, and the result of the manufacturer's gauge of the spirits is
within 0.2 percent of the number of proof gallons reported on the
record of shipment required by Sec. 19.780, then the number of proof
gallons reported on that record may be recorded as the quantity
received. Nevertheless, the receiving gauge shall be noted on the
record of receipt. If, for any shipment, the amount recorded in the
manufacturer's records as the quantity received is greater than the
amount shown as taxpaid on the record required by Sec. 19.780, a
deduction equivalent to the excess shall be made from the amount of
drawback claimed in the manufacturer's claim covering that period. If
no claim is filed for that period, then the deduction shall be made in
the manufacturer's next claim. Losses in transit that exceed the 0.2
percent limitation provided in this paragraph shall be determined and
noted on the record of receipt. Such losses shall not be recorded as
distilled spirits received.
(e) Receipt of imported rum, or spirits from Puerto Rico or the
Virgin Islands. If spirits are received which contain at least 92% rum,
and which originate from Puerto Rico or the U.S. Virgin Islands, the
record of receipt shall indicate the place of origin. If rum is
received, the record shall indicate whether it is from Puerto Rico,
from the U.S. Virgin Islands, imported from other countries, or
domestic.
(f) Shipments from distilled spirits plants. If spirits are
received directly from the distilled spirits plant that paid or
determined the tax, the manufacturer shall retain the record of
shipment required by Sec. 19.780 of this chapter. To the extent that
the information on that record duplicates the requirements of this
section, retention of that record shall satisfy those requirements. If
there are differences between the information on the record of shipment
and the information required to be recorded by this section, the
requirements of this section may be met by appropriate annotations on
the record of shipment.
Sec. 17.163 Evidence of taxpayment of distilled spirits.
(a) Shipments from distilled spirits plants. For each shipment of
taxpaid spirits from the bonded premises of a distilled spirits plant,
the manufacturer shall obtain the record of shipment prepared by the
supplier under Sec. 19.780 of this chapter. This record shall be
retained with the commercial invoice (if
[[Page 31423]]
the latter is a separate document) as evidence of taxpayment of the
spirits. The record shall show the effective tax rate(s) (if other than
the rate prescribed by 26 U.S.C. 5001) applicable to the shipment.
(b) Purchases from wholesale and retail liquor dealers.
Manufacturers shall obtain commercial invoices or other documentation
pertaining to purchases of distilled spirits from wholesale and retail
liquor dealers (including such dealership operations when conducted in
conjunction with a distilled spirits plant). For spirits other than
alcohol, grain spirits, neutral spirits, distilled gin, or straight
whisky (as defined in the standards of identity prescribed by Sec. 5.22
of this chapter), the manufacturer of nonbeverage products shall obtain
evidence, from the producer or bottler of the spirits, as to the
effective tax rate paid thereon.
(c) Imported spirits. For imported spirits that were taxpaid
through Customs, evidence of such taxpayment (such as Customs Forms
7501 and 7505, receipted to indicate payment of tax, and the
certificate of effective tax rate computation, if applicable) shall be
secured from the importer and retained by the manufacturer.
(d) Evidence of effective tax rate. If the evidence of effective
tax rate, required by this section for distilled spirits products that
may contain wine or flavors, is not obtained, drawback shall only be
allowed based on the lowest effective tax rate possible for the kind of
distilled spirits product used.
Sec. 17.164 Production record.
(a) General. Each manufacturer shall keep a production record for
each batch of intermediate product and for each batch of nonbeverage
product. The production record shall be an original record made at the
time of production by a person (or persons) having actual knowledge
thereof. If any product is produced by a continuous process rather than
by batches, the production record shall pertain to the total quantity
of that product produced during each claim period.
(b) Information to be shown. The record shall show the name and
formula number of the product, the actual quantities of all ingredients
used in the manufacture of the batch (including the proof or alcohol
percentage by volume of all spirits), the date when eligible spirits
were considered used (see Sec. 17.152), the effective tax rate
applicable to those spirits (if other than the rate prescribed by 26
U.S.C. 5001), and the quantity of product produced. The alcohol content
of the product shall be shown if a test of alcohol content was made
(see paragraph (e) of this section). Usage of eligible and ineligible
spirits shall be shown separately. If spirits from Puerto Rico or the
U.S. Virgin Islands, containing at least 92% rum, were used, the record
shall indicate their place of origin. If rum was used, the record shall
indicate whether it was from Puerto Rico, from the U.S. Virgin Islands,
imported from other countries, or domestic. If spirits were recovered,
the production record shall so indicate, and the record required by
Sec. 17.168 shall be kept. If drawback is claimed on spirits consumed
as an essential part of the manufacture of a nonbeverage product, which
were not contained in that product at its completion, then the
production record shall show the quantity of spirits so consumed in the
manufacture of each batch.
(c) Specificity of information. The production record shall refer
to ingredients by the same names as are used for them in the product's
formula. This includes formulas submitted to ATF and formulas contained
in the publications listed in Sec. 17.132. Other names for the
ingredients may be added in the production record, if necessary for the
manufacturer's operations. Usage of ingredients (including spirits) may
be shown in units of weight or volume.
(d) Determining quantity of distilled spirits used. Each
manufacturer shall accurately determine, by weight or volume, and
record in the production records the quantity of all distilled spirits
used. When the quantity used is determined by volume, adjustments shall
be made if the temperature of the spirits is above or below 60 degrees
Fahrenheit. A table for correction of volume of spirituous liquors to
60 degrees Fahrenheit, Table 7 of the ``Gauging Manual,'' is available.
See subpart E of part 30 of this chapter and Sec. 30.67. Losses after
receipt due to leakage, spillage, evaporation, or other causes not
essential to the manufacturing process shall be accurately recorded in
the manufacturer's permanent records at the time such losses are
determined.
(e) Tests of alcohol content. At representative intervals, the
manufacturer shall verify the alcohol content of nonbeverage products.
The results of such tests shall be recorded.
Sec. 17.165 Receipt of raw ingredients.
For raw ingredients destined to be used in nonbeverage or
intermediate products, the manufacturer shall record, for each shipment
received--
(a) The date of receipt;
(b) The quantity received; and
(c) The identity of the supplier.
Sec. 17.166 Disposition of nonbeverage products.
(a) Shipments. For each shipment of nonbeverage products, the
manufacturer shall record--
(1) The formula number of the product;
(2) The date of shipment;
(3) The quantity shipped; and
(4) The identity of the consignee.
(b) Other disposition. For other dispositions of nonbeverage
products, the manufacturer shall record--
(1) The type of disposition;
(2) The date of disposition; and
(3) The quantity of each product so disposed of.
(c) Exception. The manufacturer need not keep the records required
by paragraphs (a) and (b) of this section for any nonbeverage product
which either contains less than 3 percent of distilled spirits by
volume, or is sold by the producer directly to the consumer in retail
quantities. However, when needed for protection of the revenue, the
regional director (compliance) may at any time require the keeping of
these records upon giving at least five days' notice to the
manufacturer.
Sec. 17.167 Inventories.
(a) Distilled spirits. The ``on hand'' figures reported in Part II
of ATF Form 5154.2 shall be verified by physical inventories taken as
of the end of each quarter in which nonbeverage products were
manufactured for purposes of drawback. Spirits taxpaid at different
effective tax rates shall be inventoried separately. The inventory
record shall show the date inventory was taken, the person(s) by whom
it was taken, subtotals for each product inventoried, and any gains or
losses disclosed; and shall be retained with the manufacturer's
records. The manufacturer shall explain in Part IV of the supporting
data (Form 5154.2) any discrepancy between the amounts on hand as
disclosed by physical inventory and the amounts indicated by the
manufacturer's records. Any gain in eligible spirits disclosed by
inventory requires an equivalent deduction from the claim with which
the inventory is reported. Gains shall not be offset by known losses.
If no claim is filed for a quarter (nor for any monthly period
therein), then no physical inventory is required for that quarter.
(b) Raw ingredients and nonbeverage products. When necessary for
ensuring compliance with regulations and protection of the revenue, the
regional director (compliance) may require a manufacturer to take
physical inventories of finished nonbeverage products, and/or raw
ingredients
[[Page 31424]]
intended for use in the manufacture of nonbeverage or intermediate
products. The results of such inventories shall be recorded in the
manufacturer's records. Any discrepancy between the amounts on hand as
disclosed by physical inventory and such amounts as indicated by the
manufacturer's records shall also be recorded with an explanation of
its cause.
Sec. 17.168 Recovered spirits.
(a) Each manufacturer intending to recover distilled spirits under
the provisions of this part shall first notify the regional director
(compliance). Any apparatus used to separate alcohol is subject to the
registration requirements of 26 U.S.C. 5179 and subpart C of part 170
of this chapter. Recovery operations shall only be conducted on the
premises covered by the manufacturer's special tax stamp.
(b) The manufacturer shall keep a record of the distilled spirits
recovered and the subsequent use to which such spirits are put. The
record shall show--
(1) The date of recovery;
(2) The commodity or process from which the spirits were recovered;
(3) The amount in proof gallons, or by weight and proof (or alcohol
percentage by volume) of distilled spirits recovered;
(4) The amount in proof gallons, or by weight and proof (or alcohol
percentage by volume) of recovered distilled spirits reused;
(5) The commodity in which the recovered distilled spirits were
reused; and
(6) The date of reuse.
(c) Whenever recovered spirits are destroyed (see Sec. 17.183), the
record shall further show--
(1) The reason for the destruction;
(2) The date, time, location, and manner of destruction;
(3) The number of proof gallons destroyed; and
(4) The name of the individual who accomplished or supervised the
destruction.
Sec. 17.169 Transfer of intermediate products.
When intermediate products are transferred as permitted by
Sec. 17.185(b), supporting records of such transfers shall be kept at
the shipping and receiving plants, showing the date and quantity of
each product transferred.
Sec. 17.170 Retention of records.
Each manufacturer shall retain for a period of not less than 3
years all records required by this part, a copy of all claims and
supporting data filed in support thereof, all commercial invoices or
other documents evidencing taxpayment or tax-determination of domestic
spirits, all documents evidencing taxpayment of imported spirits, and
all bills of lading received which pertain to shipments of spirits. In
addition, a copy of each formula submitted on ATF Form 5154.1 shall be
retained at each factory where the formula is used, for not less than 3
years from the date of filing of the last claim for drawback under the
formula. A copy of an approval to use an alternate method or procedure
shall be retained as long as the manufacturer employs the method or
procedure, and for 3 years thereafter. Further, the regional director
(compliance) may require these records, forms, and documents to be
retained for an additional period of not more than 3 years in any case
where he or she deems such retention to be necessary or advisable for
protection of the revenue.
Sec. 17.171 Inspection of records.
All of the records, forms, and documents required to be retained by
Sec. 17.170 shall be kept at the place covered by the special tax stamp
and shall be readily available during the manufacturer's regular
business hours for examination and copying by ATF officers. At the same
time, any other books, papers, records or memoranda in the possession
of the manufacturer, which have a bearing upon the matters required to
be alleged in a claim for drawback, shall be available for inspection
by ATF officers.
(Sec. 5133, 68A Stat. 623 (26 U.S.C. 5133); sec. 201, Pub. L. 85-
859, 72 Stat. 1348 (26 U.S.C. 5146)).
Subpart I--Miscellaneous Provisions
Sec. 17.181 Exportation of medicinal preparations and flavoring
extracts.
Medicinal preparations and flavoring extracts, approved for
drawback under the provisions of this part, may be exported subject to
19 U.S.C. 1313(d), which authorizes export drawback equal to the entire
amount of internal revenue tax found to have been paid on the domestic
alcohol used in the manufacture of such products. (Note: Export
drawback is not allowed for imported alcohol under this provision of
customs law.) Claims for such export drawback shall be filed in
accordance with the applicable regulations of the U.S. Customs Service.
Such claims may cover either the full rate of tax which has been paid
on the alcohol, if no nonbeverage drawback has been claimed thereon, or
else the remainder of the tax if nonbeverage drawback under 26 U.S.C.
5134 has been or will be claimed.
Sec. 17.182 Drawback claims by druggists.
Drawback of tax under 26 U.S.C. 5134 is allowable on taxpaid
distilled spirits used in compounding prescriptions by druggists who
have paid the special tax prescribed by 26 U.S.C. 5131. The
prescriptions so compounded shall be shown in the supporting data by
listing the first and last serial numbers thereof. The amount of
taxpaid spirits used in each prescription need not be shown, but such
prescriptions shall be made available for examination by ATF officers.
If refills have been made of prescriptions received in a previous claim
period, their serial numbers shall be recorded separately. Druggists
claiming drawback as authorized by this section are subject to all the
applicable requirements of this part, except those requiring the filing
of quantitative formulas.
Sec. 17.183 Disposition of recovered alcohol and material from which
alcohol can be recovered.
(a) Recovered alcohol. Manufacturers of nonbeverage products shall
not sell or transfer recovered spirits to any other premises without
ATF authorization under Sec. 17.3. If recovered spirits are stored
pending reuse, storage facilities shall be adequate to protect the
revenue. If recovered spirits are destroyed, the record required by
Sec. 17.168(c) must be kept. Spirits recovered from intermediate
products may be destroyed without notice to ATF. Spirits recovered from
nonbeverage products may be destroyed pursuant to a notice filed with
the regional director (compliance) at least 12 days prior to the date
of destruction. The notice shall state the reason for the destruction,
the intended date of destruction, and the approximate quantity
involved. The regional director (compliance) may impose specific
conditions, including requiring that the destruction be witnessed by an
ATF officer. Unless the manufacturer is otherwise advised by the
regional director (compliance) before the date specified in the notice,
the destruction may proceed as planned.
(b) By-product material (general). By-product material from which
alcohol can be recovered shall not be sold or transferred unless the
alcohol has been removed or an approved substance has been added to
prevent recovery of residual alcohol. Material from which alcohol can
be recovered may also be destroyed on the manufacturer's premises by a
suitable method. Except as provided in paragraph (c) of this section,
prior written approval shall be obtained from the regional director
(compliance) as to the adequacy, under this section, of any substance
proposed
[[Page 31425]]
to be added to prevent recovery of alcohol, or of any proposed method
of destruction.
(c) Spent vanilla beans. Specific approval from the regional
director (compliance) is not required when spent vanilla beans
containing residual alcohol are destroyed on the manufacturer's
premises by burning, or when they are removed from those premises after
treatment with sufficient kerosene, mineral spirits, rubber hydrocarbon
solvent, or gasoline to prevent recovery of residual alcohol.
Sec. 17.184 Distilled spirits container marks.
All marks required by Part 19 of this chapter shall remain on
containers of taxpaid distilled spirits until the contents are emptied.
Whenever such a container is emptied, such marks shall be completely
obliterated.
(Sec. 454, Pub. L. 98-369, 98 Stat. 820 (26 U.S.C. 5206(d)))
Sec. 17.185 Requirements for intermediate products and unfinished
nonbeverage products.
(a) General. Self-manufactured ingredients made with taxpaid
spirits may be accounted for either as intermediate products or as
unfinished nonbeverage products. The manufacturer may choose either
method of accounting for such self-manufactured ingredients (see
Sec. 17.127). However, the method selected determines the requirements
that will apply to those ingredients, as prescribed in paragraphs (b)
and (c) of this section.
(b) Intermediate products. Intermediate products shall be used
exclusively in the manufacture of nonbeverage products. Intermediate
products may be accumulated and stored indefinitely and may be used in
any nonbeverage product whose formula calls for such use. Intermediate
products shall be manufactured by the same entity that manufactures the
finished nonbeverage products. Intermediate products shall not be sold
or transferred between separate and distinct entities. However, they
may be transferred to another branch or plant of the same manufacturer,
for use there in the manufacture of approved nonbeverage products. (See
Sec. 17.169 for recordkeeping requirement.) For the purposes of this
section, the phrase ``separate and distinct entities'' includes parent
and subsidiary corporations, regardless of any corporate (or other)
relationship, and even if the stock of both the manufacturing firm and
the receiving firm is owned by the same persons.
(c) Unfinished nonbeverage products. An unfinished nonbeverage
product shall only be used in the particular nonbeverage product for
which it was manufactured, and shall be entirely so used within the
time limit stated in the approved ATF Form 5154.1. Spirits dissipated
or recovered in the manufacture of unfinished nonbeverage products
shall be regarded as having been dissipated or recovered in the
manufacture of nonbeverage products. Spirits contained in such
unfinished products shall be accounted for in the supporting data under
Sec. 17.147 and inventoried under Sec. 17.167 as ``in process'' in
nonbeverage products. Production of unfinished nonbeverage products
shall be recorded as an integral part of the production records for the
related nonbeverage products. Unfinished nonbeverage products shall not
be transferred to other premises.
Sec. 17.186 Transfer of distilled spirits to other containers.
A manufacturer may transfer taxpaid distilled spirits from the
original package to other containers at any time for the purpose of
facilitating the manufacture of products unfit for beverage use.
Containers into which distilled spirits have been transferred under
this section shall bear a label identifying their contents as taxpaid
distilled spirits, and shall be marked with the serial number of the
original package from which the spirits were withdrawn.
Sec. 17.187 Discontinuance of business.
The manufacturer shall notify ATF when business is to be
discontinued. Upon discontinuance of business, a manufacturer's entire
stock of taxpaid distilled spirits on hand may be sold in a single sale
without the necessity of qualifying as a wholesaler under part 1 of
this chapter or paying special tax as a liquor dealer under part 194 of
this chapter. The spirits likewise may be returned to the person from
whom purchased, or they may be destroyed or given away.
PART 19--[AMENDED]
Paragraph B. The regulations in 27 CFR part 19 are amended as
follows:
1. The authority citation for part 19 continues to read as follows:
Authority: 19 U.S.C. 81c, 1311; 26 U.S.C. 5001, 5002, 5004-5006,
5008, 5010, 5041, 5061, 5062, 5066, 5081, 5101, 5111-5113, 5142,
5143, 5146, 5171-5173, 5175, 5176, 5178-5181, 5201-5204, 5206, 5207,
5211-5215, 5221-5223, 5231, 5232, 5235, 5236, 5241-5243, 5271, 5273,
5301, 5311-5313, 5362, 5370, 5373, 5501-5505, 5551-5555, 5559, 5561,
5562, 5601, 5612, 5682, 6001, 6065, 6109, 6302, 6311, 6676, 6806,
7011, 7510, 7805; 31 U.S.C. 9301, 9303, 9304, 9306.
2. Part 19, subpart D, is amended to add Secs. 19.57-19.58 grouped
under an undesignated center heading, to read as follows:
* * * * *
Subpart D--Administrative and Miscellaneous Provisions
Sec.
Activities Not Subject to This Part
19.57 Recovery and reuse of denatured spirits in manufacturing
processes.
19.58 Use of taxpaid distilled spirits to manufacture products
unfit for beverage use.
* * * * *
Subpart D--Administrative and Miscellaneous Provisions
Activities Not Subject to This Part
Sec. 19.57 Recovery and reuse of denatured spirits in manufacturing
processes.
The following persons are not, by reason of the activities listed
below, subject to the provisions of this part, but they shall comply
with the provisions of part 20 of this chapter relating to the use and
recovery of spirits or denatured spirits:
(a) Manufacturers who use denatured spirits, or articles or
substances containing denatured spirits, in a process wherein any part
or all of the spirits, including denatured spirits, are recovered.
(b) Manufacturers who use denatured spirits in the production of
chemicals which do not contain spirits but which are used on the permit
premises in the manufacture of other chemicals resulting in spirits as
a by-product.
(c) Manufacturers who use chemicals or substances which do not
contain spirits or denatured spirits (but which were manufactured with
specially denatured spirits) in a process resulting in spirits as a by-
product.
(Sec 201, Pub. L. 85-859, 72 Stat. 1372, as amended (26 U.S.C.
5273))
Sec. 19.58 Use of taxpaid distilled spirits to manufacture products
unfit for beverage use.
(a) General. Apothecaries, pharmacists, and manufacturers are not
required to qualify as processors under 26 U.S.C. 5171 before
manufacturing or compounding the following products, if the tax has
been paid or determined on all of the distilled spirits contained
therein:
(1) Medicines, medicinal preparations, food products, flavors,
flavoring extracts, and perfume, conforming to the standards for
approval of nonbeverage drawback products found in Secs. 17.131-17.137
of this chapter, whether or not drawback is
[[Page 31426]]
actually claimed on those products. Except as provided in paragraph (c)
of this section, a formula need not be submitted if drawback is not
desired.
(2) Patented, patent, and proprietary medicines that are unfit for
use for beverage purposes.
(3) Toilet, medicinal, and antiseptic preparations and solutions
that are unfit for use for beverage purposes.
(4) Laboratory reagents, stains, and dyes that are unfit for use
for beverage purposes.
(5) Flavoring extracts, syrups, and concentrates that are unfit for
use for beverage purposes.
(b) Exceptions; products classed as beverages. Products specified
under part 17 of this chapter as being fit for beverage use are
alcoholic beverages. Bitters, patent medicines, and similar alcoholic
preparations which are fit for beverage purposes, although held out as
having certain medicinal properties, are also alcoholic beverages. Such
products are required to be manufactured on the bonded premises of a
distilled spirits plant, and are subject to the provisions of this
part.
(c) Formulas and samples; when required. On request of the
Director, or when in doubt as to the classification of a product, the
manufacturer shall submit to the Director the formula for and a sample
of the product for examination to verify the manufacturer's claim of
exemption from qualification requirements.
(d) Change of formula; when required. If the regional director
(compliance) finds at any time that any product manufactured under
paragraph (a) of this section is being used for beverage purposes, or
for mixing with beverage spirits other than by a processor, he or she
shall notify the manufacturer to desist from manufacturing the product
until the formula is changed to make the product not susceptible of
beverage use and the change is approved by the Director. (However, the
provisions of this paragraph shall not prohibit such products, which
are unfit for beverage use, from being used in small quantities for
flavoring drinks at the time of serving for immediate consumption.)
Where, pursuant to notice, the manufacturer does not desist, or the
formula is not so modified as to make the product unsusceptible of
beverage use, the manufacturer shall immediately qualify as a
processor.
(Sec. 805, Pub. L. 96-39, 93 Stat. 275, 278 (26 U.S.C. 5002, 5171))
Sec. 19.69 [Removed]
3. Section 19.69 is removed.
4. Section 19.780(c) (4) and (5) are revised to read as follows:
Sec. 19.780 Record of distilled spirits shipped to manufacturers of
nonbeverage products.
* * * * *
(c) * * *
(4) Kind, proof, and quantity of distilled spirits in each
container;
(5) Number of containers of each size;
* * * * *
PART 70--[AMENDED]
Paragraph C. The regulations in 27 CFR part 70 are amended as
follows:
1. The authority citation for part 70 is revised to read as
follows:
Authority: 5 U.S.C. 301 and 552; 26 U.S.C. 4181, 4182, 5146,
5203, 5207, 5275, 5367, 5415, 5504, 5555, 5684(a), 5741, 5761(b),
5802, 6020, 6021, 6064, 6102, 6155, 6159, 6201, 6203, 6204, 6301,
6303, 6311, 6313, 6314, 6321, 6323, 6325, 6326, 6331-6343, 6401-
6404, 6407, 6416, 6423, 6501-6503, 6511, 6513, 6514, 6532, 6601,
6602, 6611, 6621, 6622, 6651, 6653, 6656-6658, 6665, 6671, 6672,
6701, 6723, 6801, 6862, 6863, 6901, 7011, 7101, 7102, 7121, 7122,
7207, 7209, 7214, 7304, 7401, 7403, 7406, 7423, 7424, 7425, 7426,
7429, 7430, 7432, 7502, 7503, 7505, 7506, 7513, 7601-7606, 7608-
7610, 7622, 7623, 7653, 7805.
2. The concluding text of Sec. 70.321(a) is amended to read as
follows:
Sec. 70.321 Registration of persons paying a special tax.
(a) Persons required to register. * * *
* * * * *
For provisions with respect to the registration of persons subject
to the special tax imposed by section 5131, relating to the tax on
persons claiming drawback on distilled spirits used in the manufacture
of certain nonbeverage products, see section 5132 of the Internal
Revenue Code and 27 CFR part 17 (Drawback on Taxpaid Distilled Spirits
Used in Manufacturing Nonbeverage Products).
* * * * *
Sec. 70.411 [Amended]
3. Section 70.411 is amended by removing paragraphs (c)(2)(v) and
(c)(2)(vii), redesignating existing paragraph (c)(2)(vi) as paragraph
(c)(2)(v), and by adding a new paragraph (c)(2)(vi) to read as follows:
* * * * *
(c) * * *
(2) * * *
(vi) Floor stocks tax on alcoholic beverages and imported perfumes
held for sale on January 1, 1991.
* * * * *
4. Section 70.411(c)(17) is amended by replacing the words ``Part
197'' with the words ``part 17''.
5. Section 70.414(j) is revised to read as follows:
Sec. 70.414 Preparation and filing of claims.
* * * * *
(j) Distilled spirits used in nonbeverage products. Procedural
instructions in respect of claims for drawback of excise tax and claims
for refund of special (occupational) tax, submitted by persons using
distilled spirits in the manufacture of medicines, medicinal
preparations, food products, flavors, flavoring extracts, or perfume,
which are unfit for beverage purposes, are contained in part 17 of
title 27 CFR.
* * * * *
PART 170--[AMENDED]
Paragraph D. The regulations in 27 CFR part 170 are amended as
follows:
1. The authority citation for part 170 is revised to read as
follows:
Authority: 26 U.S.C. 5001, 5002, 5064, 5101, 5102, 5179, 5291,
5301, 5362, 5601, 5615, 5687, 7805; 31 U.S.C. 9304, 9306.
Secs. 170.611-170.618 Subpart U [Removed and reserved]
2. Subpart U is removed and reserved.
PART 194--[AMENDED]
Paragraph E. The regulations in 27 CFR part 194 are amended as
follows:
1. The authority citation for part 194 is revised to read as
follows:
Authority: 26 U.S.C. 5001, 5002, 5111-5117, 5121-5124, 5142,
5143, 5145, 5146, 5206, 5207, 5301, 5352, 5555, 5613, 5681, 5691,
6001, 6011, 6061, 6065, 6071, 6091, 6109, 6151, 6311, 6314, 6402,
6511, 6601, 6621, 6651, 6657, 7011, 7805.
2. Section 194.33(b) is revised to read as follows:
Sec. 194.33 Sales of alcoholic compounds, preparations, or mixtures
containing distilled spirits, wines, or beer.
* * * * *
(b) Products unfit for beverage use. Products meeting the
requirements for exemption from qualification under the provisions of
Sec. 19.58 of this chapter shall be deemed to be unfit for beverage
purposes for the purposes of this part.
Sec. 194.191 [Amended]
3. Section 194.191(a) is amended by replacing the words ``Part
170'' with the words ``Sec. 19.58''.
PART 197--[REMOVED]
Paragraph F. Title 27 CFR part 197 is removed.
PART 250--[AMENDED]
Paragraph G. The regulations in 27 CFR part 250 are amended as
follows:
1. The authority citation for part 250 continues to read as
follows:
[[Page 31427]]
Authority: 19 U.S.C. 81c; 26 U.S.C. 5001, 5007, 5008, 5010,
5041, 5051, 5061, 5081, 5111, 5112, 5114, 5121, 5122, 5124, 5131-
5134, 5141, 5146, 5207, 5232, 5271, 5276, 5301, 5314, 5555, 6001,
6301, 6302, 6804, 7101, 7102, 7651, 7652, 7805; 27 U.S.C. 203, 205;
31 U.S.C. 9301, 9303, 9304, 9306.
Sec. 250.11 [Amended]
2. The definition of ``Chief, Puerto Rico Operations'' in
Sec. 250.11 is amended by replacing the words ``Room 329'' with the
words ``Room 659''.
3. The definition of ``Eligible article'' in Sec. 250.11 is amended
by replacing the words ``flavor or flavoring extract'' with the words
``flavor, flavoring extract or perfume''.
Sec. 250.51 [Amended]
4. Paragraph (a) of Sec. 250.51 is amended by replacing the words
``part 197'' with the words ``part 17''.
5. Paragraph (c) of Sec. 250.51 is amended by replacing the words
``5530.5 (1678)'' with the words ``5154.1 (formerly 1678)''.
Sec. 250.171 [Amended]
6. The second sentence of Sec. 250.171 is amended by replacing the
words ``part 197'' with the words ``part 17''.
7. Section 250.172 is revised to read as follows:
Sec. 250.172 Bonds.
(a) General. Persons bringing eligible articles into the United
States from Puerto Rico and intending to file monthly claims for
drawback under the provisions of this subpart shall obtain a bond on
Form 5154.3. When the limit of liability under a bond given in less
than the maximum amount has been reached, further drawback on monthly
claims may be suspended until a strengthening or superseding bond in a
sufficient amount has been furnished. For provisions relating to
bonding requirements, subpart E of part 17 of this chapter is
incorporated in this part, but references therein to a regional
director (compliance) shall apply, for purposes of this part, to the
Chief, Puerto Rico Operations.
(b) Approval required. No person bringing eligible articles into
the United States from Puerto Rico may file monthly claims for drawback
under the provisions of this subpart until bond on Form 5154.3 has been
approved by the Chief, Puerto Rico Operations. Bonds approved by a
regional director (compliance) prior to the effective date of this
provision shall remain in effect.
8. In Sec. 250.173, the first sentence of paragraph (a), the
introductory text of paragraph (c), and the first sentence of paragraph
(d) are revised to read as follows:
Sec. 250.173 Claims for drawback.
(a) General. Persons bringing eligible articles into the United
States from Puerto Rico shall file claim for drawback on Form 2635
(5620.8) with the Chief, Puerto Rico Operations. * * *
* * * * *
(c) Supporting data. Each claim shall be accompanied by supporting
data as specified in this paragraph. ATF Form 5154.2, Supporting Data
for Nonbeverage Drawback Claims, may be used, or the claimant may use
any suitable format that provides the following information:
* * * * *
(d) Date of filing claim. Quarterly claims for drawback shall be
filed with the Chief, Puerto Rico Operations, within the 6 months next
succeeding the quarter in which the eligible products covered by the
claim were brought into the United States. * * *
Sec. 250.221 [Amended]
9. Paragraph (a) of Sec. 250.221 is amended by replacing the words
``part 197'' with the words ``part 17''.
10. Paragraph (c) of Sec. 250.221 is amended by replacing the words
``5530.5 (1678)'' with the words ``5154.1 (formerly 1678)''.
Sec. 250.307 [Amended]
11. The second sentence of Sec. 250.307 is amended by replacing the
words ``Part 197'', wherever they occur, with the words ``part 17''.
12. Section 250.308 is revised to read as follows:
Sec. 250.308 Bonds.
(a) General. Persons bringing eligible articles into the United
States from the Virgin Islands and intending to file monthly claims for
drawback under the provisions of this subpart shall obtain a bond on
Form 5154.3. When the limit of liability under a bond given in less
than the maximum amount has been reached, further drawback on monthly
claims may be suspended until a strengthening or superseding bond in a
sufficient amount has been furnished. For provisions relating to
bonding requirements, subpart E of part 17 of this chapter is
incorporated in this part, but references therein to a regional
director (compliance) shall apply, for purposes of this part, to the
Chief, Puerto Rico Operations.
(b) Approval required. No person bringing eligible articles into
the United States from the Virgin Islands may file monthly claims for
drawback under the provisions of this subpart until bond on Form 5154.3
has been approved by the Chief, Puerto Rico Operations. Bonds approved
by a regional director (compliance) prior to the effective date of this
provision shall remain in effect.
13. In Sec. 250.309, the first sentence of paragraph (a), the
introductory text of paragraph (c), paragraph (c)(1) in its entirety,
and the first sentence of paragraph (d) are revised to read as follows:
Sec. 250.309 Claims for drawback.
(a) General. Persons bringing eligible articles into the United
States from the Virgin Islands shall file claim for drawback on Form
2635 (5620.8) with the Chief, Puerto Rico Operations. * * *
* * * * *
(c) Supporting data. Each claim shall be accompanied by supporting
data as specified in this paragraph. ATF Form 5154.2, Supporting Data
for Nonbeverage Drawback Claims, may be used, or the claimant may use
any suitable format that provides the following information:
(1) The control number of the Special Tax Stamp and the tax year
for which issued;
* * * * *
(d) Date of filing claim. Quarterly claims for drawback shall be
filed with the Chief, Puerto Rico Operations, within the 6 months next
succeeding the quarter in which the eligible products covered by the
claim were brought into the United States. * * *
Signed: April 5, 1996.
Bradley A. Buckles,
Acting Director.
Approved: May 9, 1996.
John P. Simpson,
Deputy Assistant Secretary, (Regulatory, Tariff and Trade Enforcement).
[FR Doc. 96-14881 Filed 6-19-96; 8:45 am]
BILLING CODE 4810-31-P