[Federal Register Volume 67, Number 71 (Friday, April 12, 2002)]
[Rules and Regulations]
[Pages 17937-17939]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8523]


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DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Part 20

[T.D. ATF--476; Notice No. 923)
RIN 1512-AB57


Distribution and Use of Denatured Alcohol and Rum (2000R-291P)

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 part 20 of title 27 
of the Code of Federal Regulations by eliminating the requirement for 
users and dealers of specially denatured spirits (SDS) to file a bond. 
It also liberalizes certain qualification requirements relating to 
industrial alcohol user permits.

DATES: This rule is effective on June 11, 2002.

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 on Specially Denatured Spirits

    Specially denatured spirits (SDS) are alcohol or rum that have been 
treated with denaturants to make them unfit for beverage use. SDS 
include specially denatured alcohol (SDA) and specially denatured rum 
(SDR). A user purchases SDS to use in a process or in the manufacture 
of a substance, preparation, or product requiring SDS. SDS have many 
uses, such as:
     In laboratories as a solvent, for cleansing purposes, or 
in the preparation of indicator solutions and reagents.
     In the manufacture of such articles as perfumes, 
proprietary solvents, tobacco flavors, lotions, and sprays.
     In conversion processes to produce other substances, such 
as vinegar or ethyl acetate.
    An industrial alcohol user permit is needed to procure, use, 
recover, or deal in SDS. To obtain an industrial alcohol user permit, 
certain registration requirements must be met. These requirements may 
include the submission of a detailed application with supporting data, 
the payment of special (occupational) tax (SOT), and the acquisition of 
bond coverage. Once such registration requirements are met, the 
applicant is issued an industrial alcohol user permit and may commence 
conducting any of the uses authorized under the law and regulations for 
industrial alcohol user permittees. The permittee is allowed to 
purchase and acquire alcohol from a bonded dealer or a registered 
distilled spirits plant (DSP) free of the excise tax payments normally 
required by the DSP proprietor. For this reason, SDS authorized uses 
are limited or restricted under the law. Any permittee who uses SDS in 
a manner that violates the laws and regulations becomes liable for the 
tax and other provisions of the Internal Revenue Code of 1986, 26 
U.S.C. 5001(a)(5).

Notice of Proposed Rulemaking

    On July 17, 2001, ATF published a notice of proposed rulemaking 
(NPRM) Notice No. 923, to solicit public comment on proposed 
regulations that would eliminate the requirement for users or dealers 
of SDS to file a bond. ATF also proposed to liberalize certain 
qualification requirements relating to industrial alcohol user permits. 
The public was invited to submit written comments on this notice for a 
period of sixty (60) days ending September 17, 2001.

Comments on the NPRM

    We received two comments as a result of Notice No. 923. The first 
was from an industry member who agreed with our proposal but suggested 
that in addition to eliminating the requirement for users of SDS to 
file a bond, we should eliminate the same requirement for dealers of 
SDS. While the original notice may not be clear, the intent of our 
suggested language is to eliminate the bond requirement for both users 
and dealers. We have rewritten our background material to make that 
clarification.
    We received a second comment after the close of the comment period 
from the Surety Association of America opposing our proposal. The 
Association indicated that the bond requirement should not be 
eliminated because it provides two valuable services to ATF:

[[Page 17938]]

    (1) The bond is available to pay required taxes in the event the 
permit holder uses the SDS improperly; and
    (2) The surety provides pre-qualification so that ATF can be 
assured that, in the surety's estimation, the applicant is capable of 
complying with the terms of the permit.
    ATF agrees that bond requirements had reduced the risk of tax 
revenue losses. Our recent experience indicates that SDS users and 
dealers pose a minimal risk to the revenue. Further, the elimination of 
the bond requirement does not leave the ATF without a means to recover 
revenues. Any permit holder who uses SDS 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)(5).
    In summary, ATF has concluded that the bond requirement in 27 CFR 
part 20 is now unnecessary to protect the revenue, and the proposal to 
eliminate the bond requirement for users and dealers of SDS has been 
adopted in this final rule.

Bonds and Consents of Surety

    Section 5272 of the Internal Revenue Code of 1986 provides that 
bond coverage may be required as a part of the industrial alcohol user 
permit qualification process. Prior to 1985, the regulations required 
applicants (other than States, political subdivisions, and the District 
of Columbia) who wished to obtain more than 120 gallons of SDS per 
year, to submit an Industrial Alcohol Bond, ATF Form 5150.25. In 1985, 
the SDS regulations were revised and the exemption from bond coverage 
was expanded. See, T.D. ATF-199, (50 FR 9152), published on March 6, 
1985. Under those revisions, the percentage of users of SDS who were 
exempt from filing a surety bond increased from 43 percent, under the 
prior regulations, to 75 percent under the adopted regulations.
    Subpart E of 27 CFR part 20 still reflects that expansion today. 
Specifically, applicants (other than States, political subdivisions, 
and the District of Columbia) who wish to obtain more than 5,000 
gallons of SDS per year must, in addition to other requirements, submit 
an Industrial Alcohol Bond, ATF Form 5150.25.
    Based on the post-1985 experience in administering part 20, ATF has 
determined that bond coverage should no longer be required of any 
applicant for an industrial alcohol use permit. Additionally, ATF 
believes that elimination of the bond requirement under subpart E will 
result in substantially reduced administrative and financial burdens on 
industrial alcohol permittees. Therefore, ATF is eliminating the 
requirement for users and dealers of SDS to file a bond.

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, 
deal in, or use SDS. Current regulations require the submission of a 
detailed application with supporting data by all applicants. The 
appropriate ATF officer is authorized to waive some of the application 
and supporting data requirements for applicants who are a State, 
political subdivisions thereof, or the District of Columbia, or whose 
annual withdrawal and sale or usage of SDS will not exceed 5,000 proof 
gallons.
    ATF has determined 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 and that there is no hindrance to the effective 
administration of part 20. Therefore, ATF is amending the regulations 
to allow the appropriate ATF officer to waive detailed applications 
with supporting data for all applicants.

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 rule because there are no new reporting or recordkeeping 
requirements.

Regulatory Flexibility Act

    It is hereby certified that these regulations will not have a 
significant economic impact on a substantial number of small entities. 
The regulations will simplify the qualification process for an 
industrial alcohol user permit by eliminating the requirement to obtain 
a bond. A 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

    This regulation is not a significant regulatory action as defined 
by Executive Order 12866. Accordingly, this rule is not subject to the 
analysis required by this Executive Order.

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 20

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

Authority and Issuance

    For the reasons set forth in the preamble, ATF is amending title 27 
of the Code of Federal Regulations, chapter 1, as follows:

PART 20--DISTRIBUTION AND USE OF DENATURED ALCOHOL AND RUM

    Paragraph 1. The authority citation for 27 CFR part 20 continues to 
read as follows:

    Authority: 26 U.S.C. 5001, 5206, 5214, 5271-5275, 5311, 5552, 
5555, 5607, 6065, 7805.


Sec. 20.3  [Amended]

    Par. 2. Amend Sec. 20.3 by removing the reference to ``31 CFR Part 
225--Acceptance of Bonds, Notes, or Other Obligations Issued or 
Guaranteed by the United States as Security in Lien of Surety or 
Sureties on Penal Bonds.''


Sec. 20.21  [Amended]

    Par. 3. Amend Sec. 20.21(a) by removing the word ``bonds'' from the 
first sentence.


Sec. 20.22  [Amended]

    Par. 4. Amend Sec. 20.22 as follows:
    a. Remove paragraph (a)(3); and
    b. Redesignate paragraph (a)(4) as paragraph (a)(3).


Sec. 20.26  [Removed]

    Par. 5. Remove Sec. 20.26.

    Par. 6. Amend Sec. 20.43 by revising paragraphs (a)(2) and (b) to 
read as follows:


Sec. 20.43  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 appropriate ATF officer determines that 
the conditions

[[Page 17939]]

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. 20.56(a)(2).

    Par. 7. Revise the second sentence of Sec. 20.58 to read as 
follows:


Sec. 20.58  Adoption of documents by a fiduciary.

    * * * The fiduciary may adopt the formulas and statements of 
process of the predecessor. * * *


Sec. 20.59  [Amended]

    Par. 8. Amend Sec. 20.59 as follows:
    a. Remove paragraph (b);
    b. Redesignate paragraph (c) as paragraph (b); and
    c. Redesignate paragraph (d) as paragraph (c).


Sec. 20.61  [Amended]

    Par. 9. Amend Sec. 20.61 by removing the last sentence of the text.


Sec. 20.62  [Amended]

    Par. 10. Amend Sec. 20.62 as follows:
    a. Remove the paragraph letter and title designation ``(a) Permit'; 
and
    b. Remove paragraph (b).


Sec. 20.68  [Amended]

    Par. 11. Amend Sec. 20.68 as follows:
    a. Remove paragraph (b); and
    b. Redesignate paragraph (c) as paragraph (b).

Subpart E--[Removed]

    Par. 12. Remove and reserve Subpart E--Bonds and Consents of 
Surety.

    Par. 13. Revise paragraph (c) of Sec. 20.175 to read as follows:


Sec. 20.175  Shipment for account of another dealer.

* * * * *
    (a) The dealer who ordered the shipment shall be liable for the tax 
while the specially denatured spirits are in transit and the person 
actually shipping the specially denatured spirits shall not be liable.


Sec. 20.177  [Amended]

    Par. 14. Amend paragraph (b) of Sec. 20.177 by removing the word 
``bonded'' in the first sentence.


Sec. 20.232  [Amended]

    Par. 15. Amend Sec. 20.232 as follows:
    a. Remove paragraph (b); and
    b. Redesignate paragraph (c) as paragraph (b).


Sec. 20.241  [Amended]

    Par. 16. Amend Sec. 20.241 by removing the words ``and filing of a 
bond are'' and add, in their place, the word ``is.''

    Signed: February 11, 2002.
Bradley A. Buckles,
Director.
    Approved: March 11, 2002.
Timothy E. Skud,
Acting Deputy Assistant Secretary (Regulatory, Tariff and Trade 
Enforcement).
[FR Doc. 02-8523 Filed 4-11-02; 8:45 am]
BILLING CODE 4810-31-P