[Federal Register Volume 77, Number 236 (Friday, December 7, 2012)]
[Rules and Regulations]
[Pages 72939-72941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-29488]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Part 25

[Docket No. TTB-2012-0006; T.D. TTB-109; Re: Notice No. 131]
RIN 1513-AB94


Small Brewers Bond Reduction

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

ACTION: Temporary rule; Treasury decision.

-----------------------------------------------------------------------

SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau (TTB) amends its 
regulation that sets forth the penal sum for a brewer's bond where the 
excise tax liability of the brewer is reasonably expected to be not 
more than $50,000 in the current calendar year and the brewer was 
liable for not more than $50,000 in such taxes in the preceding 
calendar year. For a period of three years, the penal sum of the 
required bond will be $1,000 for such brewers who file excise tax 
returns and remit taxes quarterly. In a related proposed rule published 
elsewhere in this issue of the Federal Register, TTB is soliciting 
comments from all interested parties on this amended regulatory text, 
on whether TTB should permanently adopt this change, and on other 
proposed regulatory changes.

DATES: Effective Dates: This temporary rule is effective from December 
7, 2012 through December 7, 2015.

FOR FURTHER INFORMATION CONTACT: For questions concerning this 
document, contact Ramona Hupp, Regulations and Rulings Division, 
Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street NW., Box 12, 
Washington, DC 20005; telephone 202-453-1039, ext. 110; or by email at 
[email protected].
    For questions concerning tax payment procedures and quarterly 
filing procedures, contact the National Revenue Center, Alcohol and 
Tobacco Tax and Trade Bureau, 550 Main Street, Suite 8002, Cincinnati, 
OH 45202-5215; telephone toll free 1-877-882-3277; or by email at 
[email protected].

SUPPLEMENTARY INFORMATION: 

Background

TTB Authority

    Chapter 51 of the Internal Revenue Code of 1986 (IRC), pertains to 
the taxation of distilled spirits, wines, and beer (see title 26 of the 
United State Code (U.S.C.), chapter 51 (26 U.S.C. chapter 51)). With 
regard to beer, IRC section 5051 (26 U.S.C. 5051) imposes a Federal 
excise tax on all beer brewed or produced for consumption or sale 
within the United States or imported into the United States. The rate 
of the Federal excise tax on beer is $18 for every barrel containing 
not more than 31 gallons, and a like rate for any other quantity or for 
fractional parts of a barrel, with an exception that the rate of tax is 
$7 a barrel for the first 60,000 barrels of beer for a domestic brewer 
that does not produce more than 2 million barrels in a calendar year. 
Section 5054 (26 U.S.C. 5054) provides that, in general, the tax 
imposed on beer under section 5051 shall be determined at the time the 
beer is removed for consumption or sale, and shall be paid by the 
brewer in accordance with section 5061 (26 U.S.C. 5061).
    IRC section 5061 pertains to the time and method for filing tax 
returns and payment of the applicable excise taxes. Section 5061 states 
that Federal excise taxes on distilled spirits, wines, and beer shall 
be collected on the basis of a return, and that the Secretary of the 
Treasury (the Secretary) shall by regulation prescribe the period or 
event for which such return shall be filed.
    Section 5061(d)(1) generally requires that the taxes owed on 
alcohol beverages, including beer, withdrawn under bond, be paid no 
later than the 14th day after the last day of the semimonthly period 
during which the withdrawal occurs. Under a special rule, September has 
three return periods (Section 5061(d)(5)), resulting in a total of 25 
returns due each year. Section 5061(d)(4) provides an exception to the 
semimonthly rule for taxpayers who reasonably expect to be liable for 
not more than $50,000 in taxes with respect to beer imposed by 26 
U.S.C. 5051 and 7652 in a given calendar year and who had an excise tax 
liability of not more than $50,000 the previous calendar year. Under 
this provision, such taxpayers may pay the excise taxes on alcohol 
beverages withdrawn under bond on a quarterly basis.
    Throughout this preamble, TTB may refer to brewers who are eligible 
to file excise tax returns on a quarterly basis as ``small brewers.'' 
While there is no specific statutory or regulatory definition as to who 
is a ``small brewer,'' TTB believes that section 5061(d)(4) of the IRC, 
which provides an exception to the semimonthly rule for taxpayers whose 
annual alcohol excise tax liability is not expected to be more than 
$50,000, and who were liable for not more than $50,000 in such taxes in 
the preceding calendar year, provides a reasonable standard for 
determining when a brewer may be considered ``small''.
    Section 5401(b) of the IRC (26 U.S.C. 5401(b)) provides that all 
brewers shall obtain a bond to insure the payment of any taxes owed. 
The amount of such bond shall be ``in such reasonable penal sum'' as 
prescribed by the Secretary in regulations ``as necessary to protect 
and insure collection of the revenue.''
    The Alcohol and Tobacco Tax and Trade Bureau (TTB) administers 
chapter 51 of the IRC and its implementing regulations pursuant to 
section 1111(d) of the Homeland Security Act of 2002, codified at 6 
U.S.C. 531(d). The Secretary has delegated various authorities through 
Treasury Department Order 120-01 (Revised), dated January 21, 2003, to 
the TTB Administrator to perform the functions and duties in 
administration and enforcement of these laws. The TTB regulations that 
implement the provisions of sections 5051, 5054, 5061, and 5401, of the 
IRC as they relate to beer, are set forth in part 25 of title 27 of the 
Code of Federal Regulations (CFR).

Penal Sum of the Brewer's Bond

    Penal sum amounts of the brewer's bond are set forth in 27 CFR 
25.93. For brewers filing tax returns and paying tax semimonthly, the 
penal sum of the bond must be equal to 10 percent of the maximum amount 
of tax that the brewer will become liable to pay during the calendar 
year. For brewers filing tax returns and paying tax quarterly, the 
penal sum of the bond must be equal to 29 percent of the maximum amount 
of tax which the brewer will become liable to pay during the calendar 
year. Under Sec.  25.93(c), the minimum bond amount is set at $1,000 
and the maximum bond amount is $500,000.
    TTB explained the rationale for the bond amount for quarterly 
taxpayers in a temporary rule, T.D. TTB-41, published in the Federal 
Register on February 2, 2006 (71 FR 5598), which implemented the 
quarterly tax payment procedures of section 5061(d)(4) of the

[[Page 72940]]

IRC. TTB permanently added the temporary rule to the regulations in 
T.D. TTB-94, published on August 24, 2011 (76 FR 52862). In T.D. TTB-
41, TTB stated that due to the longer deferral period between the 
accrual of the tax liability and the actual payment of tax, the 10 
percent bond coverage provided for semimonthly filers would be 
inadequate for small brewers who were eligible and opted to pay taxes 
quarterly.

Brewer's Bond Amount and Its Effect on Quarterly Filing

    In recent meetings, beer industry groups and individual brewers 
have informed TTB that, for small brewers, the increase of the penal 
sum amount to 29 percent of the brewer's expected maximum tax liability 
for the year has deterred such brewers from filing returns on a 
quarterly basis. A review of TTB's records provides data that support 
this conclusion. At the end of 2011, 2,026 brewers submitted tax 
returns to TTB, and 1,846 of those brewers paid less than $50,000 in 
excise tax annually and were eligible to file returns quarterly. 
Further, the majority of those 1,846 brewers paid much less than 
$50,000 in excise tax, given that 1,616 of those brewers (87.5 percent) 
paid annual taxes of $7,000 or less. TTB's records also show that of 
these 1,616 brewers, 841 (52 percent) filed semimonthly rather than 
quarterly tax returns.
    The effect of Sec.  25.93 is that a brewer who files returns 
quarterly instead of semimonthly may have to increase its bond 
coverage. For example, a small brewer with an annual Federal excise tax 
liability of $40,000 per year who files returns semimonthly must obtain 
bond coverage of $4,000 (10 percent of $40,000). If the same small 
brewer opts to file its tax returns quarterly rather than semimonthly, 
the brewer must increase its bond coverage to 29 percent of its maximum 
annual tax liability, which would result in a bond amount of $11,600.
    The effect of Sec.  25.93 also may mean that small brewers who want 
to file quarterly would be more than likely ineligible to obtain the 
minimum bond coverage under Sec.  25.93(c). For example, a small brewer 
with an annual Federal excise tax liability of $7,000 would have a 
semimonthly tax liability of less than $300 and would need to obtain 
only the minimum bond coverage of $1,000. If the same brewer opted to 
file returns quarterly rather than semimonthly, the quarterly tax 
liability would be $1,750, making the brewer ineligible for the minimum 
bond. Instead, the brewer must increase its bond coverage to 29 percent 
of its maximum annual tax liability, which would be $2,030.
    In the case of brewers who are eligible to file quarterly returns, 
TTB has revisited the issue of whether requiring a penal sum of at 
least 29 percent of a small brewer's maximum annual tax liability is 
necessary to establish a ``reasonable penal sum'' that adequately 
protects and insures collection of the revenue. TTB's tax return 
statistics reveal that the total sum of Federal excise tax collected 
from brewers who are liable for not more than $50,000 in taxes annually 
represents a small amount of the total sum of excise tax collected on 
beer each year. Small brewers paid approximately $11.5 million, or just 
over six percent, of the $177.8 million in Federal excise tax on beer 
collected in 2011. Similar collections occurred in 2010, with small 
brewers paying approximately $10.15 million, or 5.6 percent, of the 
$180.6 million in excise tax collected that year.

The Proposed Regulatory Amendment

    After discussions with beer industry members and a review of excise 
tax return data, TTB believes that given the relatively low risk to the 
revenue, a penal sum of $1,000 for bonds obtained by small brewers is 
reasonably sufficient to protect and insure collection of the revenue. 
TTB also believes that amending the regulatory requirements regarding 
the penal sum of brewers bonds may result in an increase in quarterly 
filings and tax payments. In addition, TTB believes an increase in 
quarterly filings and tax payments will lessen costs and increase 
efficiencies for both TTB and industry members.
    To encourage a greater number of eligible small brewers to file 
excise tax returns and pay taxes quarterly rather than semimonthly, 
this temporary rule amends 27 CFR 25.93(a) to add a three-year 
exception to the current penal sum of the brewer's bond. During this 
three-year period, for brewers who are eligible to and choose to file 
their tax returns quarterly, the penal sum of the brewer's bond will be 
a flat $1,000. The temporary rule's three-year period will allow TTB to 
determine if the adjustment to the bond amount results in increased 
quarterly tax filing and payment by eligible brewers, and also will 
allow TTB to confirm the presumption that a $1,000 penal sum of the 
bond is sufficient to protect and insure collection of the revenue. 
This temporary rule does not prohibit brewers who are eligible to file 
quarterly from filing semimonthly or maintaining their current bond 
amounts.

Public Participation

    To submit comments on these regulations, please refer to Notice No. 
131, the notice of proposed rulemaking on this subject published in the 
Proposed Rules section of this issue of the Federal Register.

Regulatory Flexibility Act

    Because this regulation does not impose a collection of information 
on small entities, the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.) do not apply. Pursuant to section 7805(f) of the 
Internal Revenue Code, TTB will submit this temporary rule to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on the impact of the temporary regulations.

Executive Order 12866

    It has been determined that this temporary rule is not a 
significant regulatory action as defined in E.O. 12866. Therefore, a 
regulatory assessment is not necessary.

Paperwork Reduction Act

    There is no new collection of information imposed by this Treasury 
decision. There is no change in the reporting or recordkeeping burden 
resulting from a reduced penal sum for certain small taxpayers.

Inapplicability of Prior Notice and Comment and Delayed Effective Date 
Procedures

    TTB is issuing this temporary final rule without prior notice and 
comment pursuant to authority under section 4(a) of the Administrative 
Procedure Act (5 U.S.C. 553(b)). This provision authorizes an agency to 
issue a rule without prior notice and comment when the agency for good 
cause finds that those procedures are ``impracticable, unnecessary, or 
contrary to the public interest.'' We believe prior notice and comment 
is unnecessary because we expect the affected public will benefit 
immediately from a reduced bond amount and be encouraged to lessen 
their reporting burdens. TTB does not believe there will be any 
objection to this rule since it is optional and reduces regulatory 
burdens.
    Pursuant to the provisions of 5 U.S.C. 553(d)(1) and (d)(3), TTB is 
issuing this regulatory amendment without a delayed effective date. As 
provided for in section 553(d)(1), this amendment lowers the bond 
requirement for small brewers, thereby relieving a restriction which 
may have prevented such brewers from choosing to pay their taxes 
quarterly. TTB also has determined that good cause exists to provide 
industry

[[Page 72941]]

members with immediate relief from the penal sum requirements under the 
existing regulations, in accordance with section 553(d)(3).

Drafting Information

    Gerald M. Isenberg and Ramona Hupp of the Regulations and Rulings 
Division, Alcohol and Tobacco Tax and Trade Bureau, drafted this 
document.

List of Subjects in 27 CFR Part 25

    Beer, Excise taxes, Reporting and recordkeeping requirements, 
Surety bonds.

Amendments to the Regulations

    Accordingly, for the reasons set forth in the preamble, TTB amends 
27 CFR, chapter I, part 25 as set forth below.

PART 25--BEER

0
1. The authority citation for part 25 continues to read as follows:

    Authority:  19 U.S.C. 81c; 26 U.S.C. 5002, 5051-5054, 5056, 
5061, 5121, 5122-5124, 5222, 5401-5403, 5411-5417, 5551, 5552, 5555, 
5556, 5671, 5673, 5684, 6011, 6061, 6065, 6091, 6109, 6151, 6301, 
6302, 6311, 6313, 6402, 6651, 6656, 6676, 6806, 7342, 7606, 7805; 31 
U.S.C. 9301, 9303-9308.

0
2. Amend Sec.  25.93 by:
0
a. Amending paragraph (a)(2) by removing the word ``For'' in the first 
sentence after the heading and replacing it with the words ``Except as 
provided in paragraph (a)(3) of this section, for''; and
0
b. Adding a new paragraph (a)(3) to read as follows:


Sec.  25.93  Penal sum of bond.

    (a) * * *
    (3) Exception. For a period of three years beginning December 7, 
2012 for brewers filing tax returns and remitting taxes quarterly under 
Sec.  25.164(c)(2), the penal sum of the brewer's bond is $1,000 on 
beer:
    (i) Removed for transfer to the brewery from other breweries owned 
by the same brewer;
    (ii) Removed without payment of tax for export or for use as 
supplies on vessels and aircraft;
    (iii) Removed without payment of tax for use in research, 
development, or testing; and
    (iv) Removed for consumption or sale.
* * * * *

    Signed: September 18, 2012.
John J. Manfreda,
Administrator.
    Approved: September 28, 2012.
Timothy E. Skud,
Deputy Assistant Secretary (Tax, Trade, and Tariff Policy).
[FR Doc. 2012-29488 Filed 12-6-12; 8:45 am]
BILLING CODE 4810-31-P