[Federal Register Volume 70, Number 72 (Friday, April 15, 2005)]
[Rules and Regulations]
[Pages 19888-19890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-7582]


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DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Part 45

[T.D. TTB-26]
RIN 1513-AA99


Removal of Tobacco Products and Cigarette Papers and Tubes, 
Without Payment of Tax, for United States Use in Law Enforcement 
Activities

AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury.

ACTION: Temporary rule; solicitation of comments.

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SUMMARY: The Department of the Treasury and the Alcohol and Tobacco Tax 
and Trade Bureau adopt a temporary amendment to the regulations 
relating to the removal of tobacco products and cigarette papers and 
tubes, without payment of tax, for use of the United States. This 
amendment allows manufacturers of tobacco products and cigarette papers 
and tubes to remove these articles without payment of tax for use by 
Federal agencies in their law enforcement activities, and to exempt 
packages of those removed products from the tax-exempt labeling 
requirement. We take this action to timely meet the needs of Federal 
agency law enforcement operations, particularly investigations 
involving tobacco product diversion and smuggling.

DATES: This temporary rule is effective April 15, 2005. We must receive 
written comments on or before June 14, 2005.

ADDRESSES: You may send comments to any of the following addresses:
     Chief, Regulations and Procedures Division, Alcohol and 
Tobacco Tax and Trade Bureau, (Attn: T.D. TTB-26), P.O. Box 14412, 
Washington, DC 20044-4412.
     202-927-8525 (facsimile).
     [email protected] (e-mail).
     http://www.ttb.gov/tobacco/rules/index.htm. (An online 
comment form is posted with this temporary rule document on our Web 
site).
     http://www.regulations.gov (Federal e-rulemaking portal; 
follow instructions for submitting comments).
    You may view copies of this document and any comments we receive on 
this temporary rule by appointment at the TTB Library, 1310 G Street 
NW., Washington, DC 20220. To make an appointment, call 202-927-2400. 
You may also access copies of this document and any comments received 
online at http://www.ttb.gov/tobacco/rules/index.htm.

FOR FURTHER INFORMATION CONTACT: Linda Wade Chapman, Alcohol and 
Tobacco Tax and Trade Bureau, Regulations and Procedures Division, 1310 
G Street NW., Suite 200-E, Washington, DC 20220; telephone 202-927-
8210; or e-mail [email protected].

SUPPLEMENTARY INFORMATION:

Background

Statutory and Regulatory Provisions

    Section 5704(b) of the Internal Revenue Code of 1986 (26 U.S.C. 
5704(b)) provides that a manufacturer may, among other things, remove 
tobacco products and cigarette papers and tubes without payment of tax 
for use of the United States, in accordance with regulations prescribed 
by the Secretary of the Treasury. The regulations administered by the 
Alcohol and Tobacco Tax and Trade Bureau (TTB) include, in part 45 (27 
CFR part 45), provisions that implement this aspect of section 5704(b).
    Section 45.31 of the TTB regulations (27 CFR 45.31) sets forth two 
circumstances in which manufacturers of tobacco products and cigarette 
papers and tubes may remove those articles for sale or donation to 
Federal agencies without payment of Federal excise tax. Specifically:
     In the case of articles purchased by a Federal agency with 
funds appropriated by the U.S. Congress, the manufacturer may remove 
the articles for delivery to the Federal agency for gratuitous 
distribution under the supervision of the agency.
     In the case of articles purchased by a donor from a 
manufacturer or donated directly by a manufacturer, the manufacturer 
may remove the articles for delivery to a Federal agency for gratuitous 
distribution, under the supervision of the agency, to charges of the 
United States or to patients in a hospital or institution operated by a 
State Government or the District of Columbia where the Federal agency 
maintains a program for distribution to members or veterans of the 
armed forces of the United States in the hospital or institution.
    Section 45.31 further provides that tobacco products and cigarette 
papers and tubes removed under the provisions of part 45 may not be 
sold subsequent to removal.
    In addition, Sec.  45.46 of the TTB regulations (27 CFR 45.46) 
provides that every package of tobacco products and cigarette papers 
and tubes removed under part 45 must have the words ``Tax-Exempt. For 
Use of U.S. Not To Be Sold.'' adequately imprinted on the package or on 
a label securely affixed to the package.

The Need for Regulatory Change

    Individuals and criminal organizations continue to engage in 
criminal activities involving diversion of tobacco products from the 
legal market and the smuggling of genuine and counterfeit tobacco 
products. These activities often violate the Contraband Cigarette 
Trafficking Act (18 U.S.C. 2341 et seq.), the Jenkins Act (15 U.S.C. 
375 et seq.), or other statutory provisions, endanger the public, and 
jeopardize Federal, State, and local government revenues. For example, 
in 2002, a U.S. district court in North Carolina convicted several 
people of smuggling large quantities of cigarettes from that State for 
resale in higher-tax States in order to raise funds for a foreign 
terrorist organization. In addition, in January 2004, an indictment 
returned in El Paso, Texas, in response to a criminal investigation 
charged a criminal group with smuggling over 107 million counterfeit 
and properly trademarked cigarettes across the southern U.S. border, 
thereby costing the Federal government and three State governments over 
$8 million in lost tax revenue.
    On numerous occasions, Federal law enforcement agencies--including 
the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco, 
Firearms, and Explosives, and the Bureau of Immigration and Customs 
Enforcement--have used non-taxpaid tobacco products provided by a 
manufacturer in undercover, sting, or other law enforcement activities. 
Many tobacco product manufacturers are willing to provide Federal 
agencies with tobacco products for use in law enforcement activities, 
and we believe they should be able to remove those products without 
payment of tax under 26 U.S.C. 5704(b). However, because Sec.  45.31 
does not specifically authorize the tax-free removal of such goods for 
Federal law enforcement purposes, these Federal agencies must ask the 
manufacturer to apply to TTB for

[[Page 19889]]

approval of an alternate method or procedure under Sec.  45.21 of the 
TTB regulations (27 CFR 45.21) to remove the tobacco products without 
payment of tax and without the required tax-exempt label.
    Section 45.21 permits TTB to approve variances from methods or 
procedures specifically prescribed in part 45, provided that good cause 
exists for the variance and that the variance is consistent with the 
purpose and intended effect of the prescribed method or procedure. In 
addition, the variance must afford equivalent security to the revenue, 
not be contrary to law, not result in increased cost to the Government, 
or hinder administration of part 45. In the case of law enforcement 
activities, the variances relate to the limited uses and the post-
removal sale prohibition prescribed in Sec.  45.31 and the tax-exempt 
label requirement in Sec.  45.46.
    TTB has found that requests from manufacturers for tax-free 
removals for Federal agencies' law enforcement activities meet the 
criteria for a variance under Sec.  45.21. Consequently, we routinely 
grant written requests for these variances on a case-by-case basis. 
While we attempt to issue these variances as quickly as possible, this 
case-by-case written approval process often is counter-productive in 
the context of a fast-moving criminal investigation and unnecessarily 
adds to the administrative workload of TTB and the cooperating tobacco 
manufacturers.
    Accordingly, we believe that it is appropriate to amend the 
regulations to remove this administrative bottleneck. We also believe 
that, for the reasons stated below, it is in the public interest to 
implement these regulatory changes immediately as a temporary rule with 
provision for the submission of public comments, which we will consider 
before adoption of a final rule in this matter. This temporary rule 
will eliminate the need for manufacturers of tobacco products and 
cigarette papers and tubes to obtain a variance to remove their 
products without payment of tax for use in a Federal law enforcement 
operation. These changes will save Federal law enforcement agencies 
valuable time in conducting their investigations and will not 
jeopardize the general public or the revenue.
    The supplying of tobacco products and cigarette papers and tubes by 
manufacturers to Federal agencies will continue to be voluntary, and 
these changes in the regulations do not impose additional cost, 
compliance, or reporting burdens on manufacturers. In addition, the 
temporary regulation does not preclude manufacturers from selling 
tobacco products, without payment of tax, for use in a Federal law 
enforcement operation.

Discussion of the Temporary Amendments

    The amendments set forth in this document include a revision of 
Sec.  45.31, which divides the section into paragraphs (a) and (b) in 
order to accommodate the new provision allowing removals without 
payment of tax for Federal law enforcement use and in order to improve 
the readability of the section. Paragraph (a) includes the terms of the 
existing first two sentences of the text as well as the new Federal law 
enforcement removal provision. Paragraph (b) repeats the sale 
prohibition terms of the last sentence of the existing text, but 
includes an exception for Federal law enforcement removals under 
paragraph (a)(3) when a sale is a necessary part of the law enforcement 
activity.
    In addition, we amend Sec.  45.46 by adding an exception clause at 
the beginning of the text for articles removed pursuant to Sec.  
45.31(a)(3). This exception is necessary because the tax-exempt label 
required by Sec.  45.46 could interfere with the Federal agency's law 
enforcement efforts.

Public Participation

Submitting Comments

    We invite comments from interested members of the public on this 
temporary rule. Please provide specific information in support of your 
comments, and submit your comments by the closing date shown above in 
this notice. Your comments must reference T.D. TTB-26 and must include 
your name and mailing address. Your comments must be legible and 
written in language acceptable for public disclosure. We do not 
acknowledge receipt of comments, and we consider all comments as 
originals. You may submit comments in one of five ways:
     Mail: You may send written comments to TTB at the address 
listed in the ADDRESSES section.
     Facsimile: You may submit comments by facsimile 
transmission to 202-927-8525. Faxed comments must--
    (1) Be on 8.5- by 11-inch paper;
    (2) Contain a legible, written signature; and
    (3) Be no more than five pages long. This limitation assures 
electronic access to our equipment. We will not accept faxed comments 
that exceed five pages.
     E-mail: You may e-mail comments to [email protected]. Comments 
transmitted by electronic mail must--
    (1) Contain your e-mail address;
    (2) Reference this notice number on the subject line; and
    (3) Be legible when printed on 8.5- by 11-inch paper.
     Online form: We provide a comment form with the online 
copy of this temporary rule document on our Web site at http://www.ttb.gov/tobacco/rules/index.htm. Select the ``Send comments via e-
mail'' link under this document number.
     Federal e-Rulemaking Portal: To submit comments to us via 
the Federal e-rulemaking portal, visit http://www.regulations.gov and 
follow the instructions for submitting comments.
    You may also write to the Administrator before the comment closing 
date to ask for a public hearing. The Administrator reserves the right 
to determine, in light of all circumstances, whether to hold a public 
hearing.

Confidentiality

    All submitted material is part of the public record and subject to 
disclosure. Do not enclose any material in your comments that you 
consider confidential or inappropriate for public disclosure.

Public Disclosure

    You may view copies of this temporary rule document and any 
comments we receive by appointment at the TTB Library at 1310 G Street, 
NW., Washington, DC 20220. You may also obtain copies at 20 cents per 
8.5- x 11-inch page. Contact our librarian at the above address or 
telephone 202-927-2400 to schedule an appointment or to request copies 
of comments.
    For your convenience, we will post this document and any comments 
we receive on this temporary rule on the TTB Web site. We may omit 
voluminous attachments or material that we consider unsuitable for 
posting. In all cases, the full comment will be available in the TTB 
Library. To access the online copy of this temporary rule and any 
posted comments, visit http://www.ttb.gov/tobacco/rules/index.htm. 
Select the ``View Comments'' link under this document number to view 
the posted comments.

Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for a 
temporary rule, the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.) do not apply.

Executive Order 12866

    This temporary rule is not a significant regulatory action as 
defined by Executive Order 12866. Therefore, it requires no regulatory 
analysis.

[[Page 19890]]

Inapplicability of Prior Notice and Comment and Delayed Effective Date 
Procedures

    This temporary rule merely implements an existing agency practice 
by facilitating the removal, without Federal tax, of tobacco products 
and cigarette papers and tubes for the use of Federal agencies in law 
enforcement operations. The regulatory changes address immediate needs 
of Federal law enforcement agencies and relieve an existing 
administrative burden on TTB and tobacco industry members. In addition, 
the supplying of tobacco products and cigarette papers and tubes by 
manufacturers to Federal agencies continues to be voluntary, and this 
regulatory change would only ease an existing burden on manufacturers 
who wish to provide their products for this purpose. Accordingly, 
pursuant to 5 U.S.C. 553(b)(B), we have determined that prior public 
notice and comment procedures on this regulation are unnecessary and 
contrary to the public interest. For the same reasons, pursuant to 5 
U.S.C. 553(d) (1) and (3), we find that there is good cause for 
dispensing with a delayed effective date.

Drafting Information

    The principle author of this document is Linda Wade Chapman, 
Regulations and Procedures Division, Alcohol and Tobacco Tax and Trade 
Bureau.

List of Subjects in 27 CFR Part 45

    Authority delegations (Government agencies), Cigars and cigarettes, 
Excise taxes, Labeling, Packaging and containers, Reporting and 
recordkeeping requirements, Tobacco.

Amendments to the Regulations

0
For the reasons discussed in the preamble, we amend part 45 of the TTB 
regulations (27 CFR part 45) as follows:

PART 45--REMOVAL OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND 
TUBES, WITHOUT PAYMENT OF TAX, FOR USE OF THE UNITED STATES

0
1. The authority citation for part 45 continues to read as follows:

    Authority: 26 U.S.C. 5703, 5704, 5705, 5723, 5741, 5751, 5762, 
5763, 6313, 7212, 7342, 7606, 7805, 44 U.S.C. 3504(h).


0
2. Revise the section heading and text of Sec.  45.31 to read as 
follows:


Sec.  45.31  Removals for delivery to a Federal agency.

    (a) Removal of articles. A manufacturer may remove tobacco products 
or cigarette papers and tubes without payment of tax, in accordance 
with this part, for delivery to a Federal agency if:
    (1) The removed articles were purchased by the Federal agency with 
funds appropriated by the Congress of the United States and are for 
gratuitous distribution under the supervision of the Federal agency;
    (2) The removed articles were purchased by a donor from the 
manufacturer, or donated directly by the manufacturer, for gratuitous 
distribution under the supervision of the Federal agency to:
    (i) Charges of the United States; or
    (ii) Patients in a hospital or institution operated by the 
Government of a State or the District of Columbia where the Federal 
agency maintains a program for distribution to members or veterans of 
the armed forces of the United States in the hospital or institution; 
or
    (3) The removed articles are intended for use by the Federal agency 
in an investigation or other Federal law enforcement activity.
    (b) Sale prohibited. Except in the case of articles described in 
paragraph (a)(3) of this section where a sale is incident to the 
Federal law enforcement activity, tobacco products and cigarette papers 
and tubes removed under this section may not be sold after their 
removal.

0
3. Amend Sec.  45.46 by removing the word ``Every'' and adding, in its 
place, the words ``Except in the case of articles described in Sec.  
45.31(a)(3), every''.

    Signed: January 31, 2005.
John J. Manfreda,
Administrator.
    Approved: February 16, 2005.
Timothy E. Skud,
Deputy Assistant Secretary, (Tax, Trade, and Tariff Policy).
[FR Doc. 05-7582 Filed 4-14-05; 8:45 am]
BILLING CODE 4810-31-P