Production of Volatile Fruit-Flavor Concentrate (95R-026P)

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Part 18

[Notice No. 823]

RIN 1512-AB59

Production of Volatile Fruit-Flavor Concentrate (95R-026P)

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 to amend the

regulations in 27 CFR Part 18. The proposed amendment would

specifically authorize the transfer of volatile fruit-flavor

concentrate (VFFC) unfit for beverage use from one VFFC plant to

another for further processing. The proposed amendment would clarify

the regulations in order to allow greater flexibility in the production

processes of VFFC plants.

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

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

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

50221, Washington, DC 20091-0221. ATTN: Notice No. 823.

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

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

Massachusetts Avenue NW.ca a13jn2.071, Washington, DC 20226; (202) 927-

8210.

SUPPLEMENTARY INFORMATION:

Background

On February 21, 1995, President Clinton announced a regulatory

reform initiative. As part of this initiative, each Federal agency was

instructed to conduct a page by page review of all agency regulations

to identify those which are obsolete or burdensome and those whose

goals could be better achieved through the private sector, self-

regulation or state and local governments. In cases where the agency's

review disclosed regulations which should be revised or eliminated, the

agency would, as soon as possible, propose administrative changes to

its regulations.

The page by page review of all regulations was completed as

directed by the President. In addition, on April 13, 1995, the Bureau

published Notice No. 809 (60 FR 18783) in the Federal Register

requesting comments from the public regarding which ATF regulations

could be improved or eliminated. No comments were received regarding 27

CFR part 18, Production of Volatile Fruit-Flavor Concentrate; however,

ATF is proposing a clarifying amendment to this part based on a

variance request received from a volatile fruit-flavor concentrate

(VFCC) producer.

The Internal Revenue Code of 1986, 26 U.S.C. 5511, authorizes the

manufacture of volatile fruit-flavor concentrate by any process which

includes evaporations from the mash or juice of any fruit. Section 5511

also places certain restrictions on the manufacture of volatile fruit-

flavor concentrate. Pursuant to section 5511(1), the concentrate, and

the mash or juice from which it is produced, must contain no more

alcohol than is reasonably unavoidable in the manufacture of such

concentrate. Section 5511(2) provides that the concentrate must be

rendered unfit for use as a beverage before removal from the place of

manufacture; however, concentrate which is fit for beverage use and

which does not exceed 24 percent alcohol by volume may be transferred

to a bonded wine cellar for use in production of natural wine. Finally,

section 5511(3) authorizes the Secretary to prescribe such regulations

as are necessary for the protection of the revenue regarding

applications, records, reports, bonds, and other requirements with

respect to the production, removal, sale, transportation, and use of

concentrate and the mash or juice from which the concentrate is

produced.

Volatile fruit-flavor concentrate which is produced in accordance

with the requirements of the regulations is not subject to the

distilled spirits or wine excise tax. However, section 5001(a)(6)

provides for the imposition of tax on any volatile fruit-flavor

concentrate (or any fruit mash or juice from which such concentrate is

produced) containing one-half of 1 percent or more of alcohol by

volume, which is manufactured free from tax under section 5511, and is

then sold, transported, or used by any person in violation of Chapter

51 or the regulations promulgated thereunder.

Proposed Amendment

The current regulations in 27 CFR 18.54(a) allow the transfer of

volatile fruit-flavor concentrate (``concentrate'') which is unfit for

beverage use for any purpose authorized by law. However, ATF recently

received a request from a VFFC producer as to whether a concentrate

unfit for beverage use could be transferred from one VFFC plant to

another for further processing. Apparently it was more cost-effective

for the second VFFC plant to conduct the processing operation at issue.

While the transfer of the concentrate was clearly authorized by current

regulations, since the concentrate was unfit for beverage use, there

was nothing in the current regulations which specifically authorized

the second VFFC plant to receive concentrate for further processing.

The existing regulations in section 18.51 allow proprietors to

receive processing material which is produced elsewhere, subject to

certain restrictions

[[Page 30018]]

and recordkeeping requirements. However, the term ``processing

material'' is defined in section 18.11 to mean ``[t]he fruit mash or

juice from which concentrate is produced.'' This definition does not

include concentrate intended for further processing. The regulations in

section 18.56 authorize a VFFC producer to accept the return of a

shipment of concentrate shipped by it, and provide recordkeeping and

reporting requirements regarding the returned concentrate. However,

these regulations do not specifically authorize the proprietor to

accept concentrate from another proprietor for further processing.

In response to the request from the VFFC producer, ATF determined

that nothing in the Internal Revenue Code or existing regulations

precludes one VFFC proprietor from accepting concentrate from another

VFFC proprietor for further processing. However, since the existing

regulations do not specifically authorize such an operation, ATF is

proposing to amend section 18.56 to specifically allow a proprietor to

accept concentrate which is unfit for beverage use for further

processing. Such concentrate will be subject to the existing

recordkeeping and reporting requirements for concentrate which is

returned to the proprietor. ATF believes that the proposed amendment

will clarify to VFFC proprietors that the transfer of concentrate from

one plant to another for further processing is allowed, as long as the

concentrate meets the definition of a concentrate unfit for beverage

use at the time it leaves the place of manufacture. This liberalizing

amendment will allow VFFC proprietors greater flexibility in production

operations without jeopardizing the revenue in any way.

Other Possible Changes

ATF also solicits public comment concerning other possible changes

to the regulations in Part 18, such as amendments which would authorize

VFFC plants to alternate the use of their premises so as to operate

temporarily as a distilled spirits plant, bonded winery, or other

regulated facility. Comments on this proposal, as well as any other

suggestions, are welcome.

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 a 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, if

implemented as a final rule, will not have a significant economic

impact on a substantial number of small entities. The proposed

amendment would liberalize the regulations to add a provision that will

allow for the transfer of concentrate from one VFFC plant to another

for further processing. 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.

Pursuant to section 7805(f) of the Internal Revenue Code, this

proposed regulation has been submitted to the Chief Counsel for

Advocacy of the Small Business Administration for comment on its impact

on small business.

Executive Order 12866

It has been determined that this proposed regulation is not a

significant regulatory action as defined in Executive Order 12866.

Accordingly, this proposal is not subject to the analysis required by

this Executive Order.

Paperwork Reduction Act

Under the Paperwork Reduction Act of 1995, no persons are required

to respond to a collection of information unless it displays a valid

OMB control number. The collections of information contained in the

regulations proposed to be amended by this notice have been previously

reviewed and approved by the Office of Management and Budget in

accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 3504(h))

under control numbers 1512-0046 and 1512-0098. The proposed amendment

is not expected to result in any change in the total number of burden

hours.

Drafting Information: The principal author 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 18

Administrative practice and procedure, Authority delegations,

Excise taxes, Exports, Labeling, Reporting requirements, Security

measures, Spices and flavorings, Stills, and Surety bonds.

Authority and Issuance

ATF is proposing to amend Part 18 in Title 27 of the Code of

Federal Regulations as follows:

PART 18--PRODUCTION OF VOLATILE FRUIT-FLAVOR CONCENTRATE

Par. 1. The authority citation for Part 18 continues to read as

follows:

Authority: 26 U.S.C. 5001, 5172, 5178, 5179, 5203, 5511, 5552,

6065, 7805; 44 U.S.C. 3504(h).

Par. 2. Section 18.56 is revised to read as follows:

Sec. 18.56 Receipt of concentrate.

(a) General. The proprietor of a concentrate plant may accept the

return of concentrate that it shipped. In addition, concentrate that is

unfit for beverage use may be received from another concentrate plant

for further processing in accordance with this part.

(b) Record of concentrate received. When concentrate is received,

the proprietor shall record the receipt, including the name of the

consignor and a notation regarding any loss in transit or other

discrepancy.

(c) Report of concentrate received. The quantity of concentrate

received shall be reported on an unused line on the annual report, ATF

Form 1695 (5520.2).

(Approved by the Office of Management and Budget under control

numbers 1512-0046 and 1512-0098).

Signed: May 20, 1996.

John W. Magaw,

Director.

Approved: May 24, 1996.

John P. Simpson,

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

[FR Doc. 96-14860 Filed 6-12-96; 8:45 am]

BILLING CODE 4810-31-U