[Federal Register Volume 66, Number 42 (Friday, March 2, 2001)]
[Rules and Regulations]
[Pages 13014-13015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5130]


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DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Part 22

[T.D. ATF-443; Ref: Notice No. 828]
RIN 1512-AB57


Distribution and Use of Tax-Free Alcohol (2000R-294P)

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 the regulations in 27 CFR part 22 by 
eliminating the requirement for users of tax-free alcohol to file a 
bond. It also liberalizes certain qualification requirements relating 
to tax-free alcohol user permits. ATF believes that these revisions 
will greatly reduce and simplify the qualification process for tax-free 
alcohol permits.

DATES: This rule is effective on May 1, 2001.

FOR FURTHER INFORMATION CONTACT: Lisa M. Gesser, Regulations Division, 
Bureau of Alcohol, Tobacco and Firearms, 650 Massachusetts Avenue NW., 
Washington, DC 20226, (202-927-9347) or e-mail at 
[email protected].

SUPPLEMENTARY INFORMATION:

Background

    There are certain registration requirements under the law and its 
implementing regulations that must be met prior to the issuance of a 
permit to withdraw and use tax-free alcohol. Once such registration 
requirements are met, the applicant is issued a tax-free alcohol users 
permit and may commence conducting any of the uses authorized under the 
law and regulations for tax-free alcohol permittees. The permittee is 
allowed to purchase and acquire alcohol from a registered distilled 
spirits plant (DSP) free of the excise tax payments normally required 
to be made by the DSP proprietor.
    Authorized users of tax-free alcohol include any State or political 
subdivision of a State, or the District of Columbia acquiring the 
alcohol for nonbeverage purposes. Tax-free alcohol may also be used by 
any educational organization (exempt from income tax), scientific 
university or college of learning, laboratory for use exclusively in 
scientific research, hospital, blood bank, sanitarium, pathological 
laboratory exclusively engaged in making analyses, or tests, for 
hospitals or sanitariums, or clinic operated for charity and not for 
profit.

Notice of Proposed Rulemaking

    On June 13, 1996, ATF published a notice of proposed rulemaking 
(Notice No. 828, 61 FR 30019) to solicit public comment on proposed 
regulations that would eliminate the bonding requirements for tax-free 
alcohol users. ATF also proposed to revise the qualification 
requirements for obtaining a permit to withdraw and use tax-free 
alcohol. The public was invited to submit written comments on this 
notice for a period of 60 (sixty) days ending August 12, 1996.

Comments on the NPRM

    In response to Notice 828, ATF received two written comments. 
Comments were received from: the Distilled Spirits Council of the 
United States (DISCUS), and the Surety Association of America.

Bonds and Consents of Surety

    As discussed in Notice No. 828, 26 U.S.C. 5272 provides that bond 
coverage may be required as part of the tax-free alcohol permit 
qualification process. Prior to 1985, the regulations in 27 CFR part 22 
required that every applicant, with certain exceptions, obtain a bond 
prior to issuance of a permit. Then, in 1985, the tax-free regulations 
were revised and the exemption from bond coverage was expanded. See 
T.D. ATF-199 (50 FR 9152). Under the revisions adopted in 1985, the 
percentage of users of tax-free alcohol who were exempt from filing a 
surety bond increased from 36 percent to 75 percent.
    Based on the post-1985 experience in administering part 22, ATF 
concluded that bond coverage should no longer be required of any 
applicant for a tax-free alcohol permit. ATF believed that elimination 
of the bond requirement in part 22 would result in substantially 
reduced administrative and financial burdens on the tax-free alcohol 
permittees. Accordingly, in Notice No. 828, ATF proposed to eliminate 
the requirement to obtain a bond.
    In response to this proposal, DISCUS submitted a comment stating 
that they support all efforts by ATF to eliminate unnecessary 
regulation and to reduce the administrative burdens imposed upon 
industry.
    The Surety Association of America commented against this proposal. 
They stated that ``the ATF is overlooking the importance of the bond 
requirement in preventing losses. The bond provision may be one of the 
primary reasons why the experience has been favorable, and without it, 
we believe the ATF runs the risk of losing tax revenue without a means 
of recapture.''
    While ATF agrees that bond requirements for tax-free alcohol users 
may have reduced the risk of tax revenue losses at some time in the 
past, our experience since 1985 indicates that tax-free alcohol users 
pose a minimal risk to the revenue. Further, the elimination of the 
bond requirement does not leave the ATF ``without a means of 
recapture.'' Any permittee who uses tax-free alcohol in a manner that 
violates the laws and regulations is still directly liable for the tax 
as provided in 26 U.S.C. 5001(a)(4).
    In summary, ATF has concluded that the bond requirement in 27 CFR 
part 22 is unnecessary to protect the revenue and the proposal to 
eliminate the bond requirement for tax-free alcohol users has been 
adopted in this final rule.

Qualification Requirements

    Section 5271 of the Internal Revenue Code of 1986 requires the 
submission of an application before a permit may be issued to procure 
or use tax-free alcohol. Regulations have required the submission of a 
detailed application with supporting data by all applicants. The 
appropriate ATF officer is authorized to waive some of the detailed 
data for applicants who are a State, political subdivisions thereof, or 
the District of Columbia or whose annual withdrawal and usage of tax-
free alcohol will not exceed 1,500 proof gallons.
    In Notice No. 828, ATF proposed that this waiver should be 
available to all applicants when the appropriate ATF officer concludes 
that the revenue is adequately protected with respect to the person 
submitting the application.
    In response to this proposal, the DISCUS submitted a comment that 
expressed their support. No one commented in opposition to this 
proposal. Accordingly, the proposal has been adopted in this final 
rule.

Regulatory Flexibility Act

    It is hereby certified that this regulation will not have a 
significant economic impact on a substantial number of small entities. 
The regulations will give ATF specific regulatory authority to relax 
and remove certain registration requirements. A

[[Page 13015]]

copy of the proposed rule was submitted to the Chief Counsel for 
Advocacy of the Small Business Administration in accordance with 26 
U.S.C. 7805(f). No comments were received.

Executive Order 12866

    It has been determined that this regulation is not a significant 
regulatory action as defined by Executive Order 12866. Therefore, a 
Regulatory Assessment is not required.

Paperwork Reduction Act

    The provisions of the Paperwork Reduction Act of 1995, 44 U.S.C. 
Chapter 35, and its implementing regulations, 5 CFR part 1320, do not 
apply to this final rule because there are no new reporting or 
recordkeeping requirements.

Drafting Information

    The principal author of this document is Lisa M. Gesser, 
Regulations Division, Bureau of Alcohol, Tobacco and Firearms.

List of Subjects in 27 CFR Part 22

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

Authority and Issuance

    Accordingly, title 27, Code of Federal Regulations part 22 is 
amended as follows:

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

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

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


Sec. 22.21  [Amended]

    Par. 2. Amend Sec. 22.21(a) by removing the word ``bonds'' from the 
first sentence.


Sec. 22.25  [Removed]

    Par. 3. Remove Sec. 22.25.


Sec. 22.26  [Redesignated]

    Par. 4. Redesignate Sec. 22.26 as Sec. 22.25.


Sec. 22.27  [Redesignated]

    Par. 5. Redesignate Sec. 22.27 as Sec. 22.26.


Sec. 22.43  [Amended]

    Par. 6. Amend Sec. 22.43 by revising paragraphs (a)(2) and (b) to 
read as follows:


Sec. 22.43  Exceptions to application requirements.

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


Sec. 22.59  [Amended]

    Par. 7. Amend Sec. 22.59 by removing the second sentence.


Sec. 22.60  [Amended]

    Par. 8. Amend Sec. 22.60 as follows:
    a. Remove paragraph (b);
    b. Redesignate paragraph (c) as paragraph (b); and
    c. Redesignate paragraph (d) as paragraph (c).


Sec. 22.62  [Amended]

    Par. 9. Amend Sec. 22.62 by removing the last sentence.


Sec. 22.63  [Amended]

    Par. 10. Amend Sec. 22.63 as follows:
    a. Remove the paragraph letter and title designation ``(a) 
Permit''; and
    b. Remove paragraph (b).


Sec. 22.68  [Amended]

    Par. 11. Amend Sec. 22.68 as follows:
    a. Remove the paragraph letter and title designation ``(a) 
Notice''; and
    b. Remove paragraph (b).

Subpart E--[Removed and Reserved]

    Par. 12. Remove and reserve Subpart E (Bonds and Consent of 
Surety).


Sec. 22.152  [Amended]

    Par. 13. Amend Sec. 22.152 as follows:
    a. Remove paragraph (b); and
    b. Redesignate paragraph (c) as paragraph (b).

Bradley A. Buckles,
Director.
    Approved: February 1, 2001.
Timothy E. Skud,
Acting Deputy Assistant Secretary (Regulatory, Tariff and Trade 
Enforcement).
[FR Doc. 01-5130 Filed 3-1-01; 8:45 am]
BILLING CODE 4810-31-P