Distribution and Use of Tax-Free Alcohol (95R-030P)

DEPARTMENT OF THE TREASURY

27 CFR Part 22

[Notice No. 828]

RIN 1512-AB51

Distribution and Use of Tax-Free Alcohol (95R-030P)

AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of

the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: Pursuant to the President's regulatory reform initiative, the

Bureau of Alcohol, Tobacco and Firearms (ATF) is proposing revisions in

this notice to eliminate and liberalize certain regulatory requirements

relating to tax-free alcohol. ATF believes that these proposed

revisions will greatly reduce and simplify the qualification process

governing the tax-free alcohol permit application process.

DATES: Written comments must be received on or before August 12, 1996.

ADDRESSES: Submit written comments to: Chief, Wine, Beer, and Spirits

[[Page 30020]]

Regulations Branch; Bureau of Alcohol, Tobacco and Firearms; P.O. Box

50221; Washington, DC 20091-0221. ATTN: Notice No. 828.

FOR FURTHER INFORMATION CONTACT: Mary A. Wood, Wine, Beer, and Spirits

Regulations Branch; Bureau of Alcohol, Tobacco and Firearms; 650

Massachusetts Avenue, NW; Washington, DC 20226; (202) 927-8210.

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. Depending upon the class

of the applicant, these registration requirements may include the

submission of a detailed application and 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 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.

For this reason, tax-free alcohol authorized uses and users are

limited or restricted under the law. Tax-free alcohol may not be

withdrawn and used for beverage purposes, in food products, or in any

preparation used in preparing beverage or food products. Tax-free

alcohol may not be sold, used in the manufacture of any product for

sale, or sold in any product resulting from the use of tax-free

alcohol. Finally, tax-free alcohol or products resulting from the use

of tax-free alcohol may not be removed from the permit premises.

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. These permittees are unique in that they are not engaged in the

business of selling tax-free alcohol or any product manufactured from

or containing tax-free alcohol. Any permittee who uses tax-free alcohol

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)(4).

ATF believes that the present bond requirements are unnecessary and

the qualification requirements can be effectively streamlined.

Therefore, ATF is proposing to delete the bond requirements and revise

the qualification requirements for obtaining a permit to withdraw and

use tax-free alcohol and is soliciting public comments on them.

Bonds and Consents of Surety

Section 5272 of the Internal Revenue Code of 1986 provides that

bond coverage may be required as part of the tax-free alcohol permit

qualification process. Subpart E of the implementing regulations at 27

CFR Part 22, requires every applicant, with certain exceptions, to

obtain a bond prior to the issuance of a permit. In 1985, the tax-free

regulations were revised and the exemption from bond coverage was

expanded. See, T.D. ATF-199, 50 Fed. Reg. 9152 (March 6, 1985). Under

those revisions, the percentage of users of tax-free alcohol who were

exempt from filing a surety bond increased from 36 percent under the

prior regulations to 75 percent under the adopted regulations.

Based on the post-1985 experience in administering Part 22, ATF

believes that bond coverage should no longer be required of any

applicant for a tax-free alcohol permit.

Additionally, ATF believes that elimination of the bond requirement

under Subpart E will result in substantially reduced administrative and

financial burdens on the tax-free alcohol permittees.

Qualification

Section 5271 of the Internal Revenue Code of 1986 requires the

submission of an application before a permit may be issued to procure

and use tax-free alcohol. Current regulations require the submission of

a detailed application with supporting data by all applicants. The

regional director (compliance) 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.

ATF believes that this waiver should be available to all applicants

when the regional director (compliance) concludes that the revenue is

adequately protected with respect to the person submitting the

application. ATF is, therefore, proposing that regulatory provisions be

made that will allow the regional director (compliance) to waive

detailed applications with supporting data for all applicants. The

regulations will continue to recognize the current waiver category of

applicants who are governmental entities and the waiver category based

on the 1,500 proof gallon annual withdrawal and usage is encompassed by

the proposed amended regulation.

Public Participation

ATF requests written comments from all interested persons. All

comments received on or before the closing date will be carefully

considered. Comments received after that date will be given the same

consideration if it is practical to do so, but assurance of

consideration cannot be given except as to comments received on or

before the closing date.

ATF will not recognize any material as confidential. Any material

which the commenter considers to be confidential or inappropriate for

disclosure should not be included in the comment. The name of the

person submitting the comment is not exempt from disclosure.

Any interested person who desires an opportunity to comment orally

at a public hearing should submit his or her request, in writing, to

the Director within the 60-day comment period. The Director, however,

reserves the right to determine, in light of all circumstances, whether

a public hearing will be scheduled.

Written comments will be available for public inspection during

normal business hours at the following address: ATF Reading Room,

Office of Public Affairs and Disclosure, Room 6480, 650 Massachusetts

Avenue, NW, Washington, DC.

Regulatory Flexibility Act

It is hereby certified that this proposed 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. The regulations

will not increase recordkeeping or reporting requirements. Accordingly,

a regulatory flexibility analysis is not required because the proposal,

if promulgated as a final rule, will not have a significant economic

impact on a substantial number of small entities.

Executive Order 12866

It has been determined that this proposed regulation is not a

significant regulatory action as defined in

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Executive Order 12866. Accordingly, this proposal is not subject to the

analysis required by this Executive Order.

Paperwork Reduction Act

The provisions of the Paperwork Reduction Act of 1980, Pub. L. 96-

511, 44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR Part

1320, do not apply to this notice because no new information collection

requirements are being proposed.

The existing collections of information contained in this notice of

proposed rulemaking have been previously reviewed and approved by the

Office of Management and Budget in accordance with the requirements of

the Paperwork Reduction Act of 1980 (44 U.S.C. 3504(h) under control

numbers 1512-0334 and 1512-0335.

Drafting Information: The principal drafter of this document is

Mary A. Wood of the Wine, Beer, and Spirits Regulations Branch,

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

ATF is proposing to amend Part 22 in Title 27 of the Code of

Federal Regulations 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. Section 22.21(a) is amended by removing the word ``bonds,''

from the first sentence.

Sec. 22.25 [Removed]

Par. 3. Section 22.25 is removed.

Sec. 22.26 [Redesignated]

Par. 4. Section 22.26 is redesignated as Sec. 22.25.

Sec. 22.27 [Redesignated]

Par. 5. Section 22.27 is redesignated as Sec. 22.26.

Sec. 22.43 [Amended]

Par. 6. In Sec. 22.43, paragraphs (a)(2) and (b) are revised as

follows:

Sec. 22.43 Exceptions to application requirements.

(a) * * *

(2) Applications, Form 5150.22, filed by applicants where the

regional director (compliance) 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 regional director (compliance) 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. In Sec. 22.59, the second sentence of the section is

removed.

Sec. 22.60 [Amended]

Par. 8. Section 22.60 is amended as follows:

1. Paragraph (b) is removed.

2. Paragraph (c) is redesignated as paragraph (b).

3. Paragraph (d) is redesignated as paragraph (c).

Sec. 22.62 [Amended]

Par. 9. Section 22.62 is amended by the removal of the last

sentence in the section.

Sec. 22.63 [Amended]

Par. 10. Section 22.63 is amended as follows:

1. Paragraph (b) is removed.

2. The paragraph letter and title ``(a) Permit.'' designation is

removed.

Sec. 22.68 [Amended]

Par. 11. Section 22.68 is amended as follows:

1. Paragraph (b) is removed.

2. The paragraph letter and title ``(a) Notice.'' designation is

removed.

Subpart E [Removed and Reserved]

Par. 12. Subpart E (Bonds and Consent of Surety) is removed and

reserved.

Sec. 22.152 [Amended]

Par. 13. Section 22.152 is amended as follows:

1. Paragraph (b) is removed.

2. Paragraph (c) is redesignated as paragraph (b).

Signed: May 8, 1996.

Bradley A. Buckles,

Acting Director.

Approved: May 24, 1996.

John P. Simpson.

Deputy Assistant Secretary (Regulatory, Tariff and Trade Enforcement).

[FR Doc. 96-14850 Filed 6-12-96; 8:45 am]

BILLING CODE 4810-13-U