Manufacture of Cigarette Papers and Tubes and Recodification of Regulations Covering Manufacture of Tobacco Products and Cigarette Papers and Tubes (88D001)

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Parts 270, 275, 285, and 295

[T.D. 384]

Manufacture of Cigarette Papers and Tubes and Recodification of

Regulations Covering Manufacture of Tobacco Products and Cigarette

Papers and Tubes (88D001)

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

the Treasury.

ACTION: Final rule, Treasury decision.

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SUMMARY: ATF is revising and recodifying the regulations governing the

operations of cigarette papers and tubes manufacturers. These revisions

consist of a clear definition of the term ``set,'' as such term is

applied to cigarette papers. This term is clearly defined in ATF Ruling

81-2, A.T.F.Q.B. 1981-3 75, and is being incorporated in this final

rule to provide its ready reference. We have also eliminated obsolete

terms and updated the regulations through the use of modernized

language. ATF believes that these revisions will clarify requirements,

thus simplifying compliance and relieving some regulatory burden on the

industry.

EFFECTIVE DATE: October 17, 1996.

FOR FURTHER INFORMATION CONTACT:

Clifford A. Mullen, Wine, Beer and Spirits Regulations Branch, Bureau

of Alcohol, Tobacco and Firearms, Room 5000, 650 Massachusetts Avenue

NW, 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 regulations which are obsolete or burdensome and

those regulations 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 was instructed to propose changes to

its regulations as soon as possible.

The Bureau completed the page by page review of all regulations as

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

published a notice in the Federal Register requesting comments from the

public regarding which ATF regulations could be improved or eliminated.

As a result of both the Bureau's analysis of its regulations and the

public comments received, a number of regulatory initiatives were

developed which are intended to accomplish the President's goals.

However, no public comments were received on part 285. This final rule

implements one of the regulatory initiatives identified by ATF

personnel: to revise and recodify the regulations governing the

operations of cigarette papers and tubes manufacturers from part 285

into 27 CFR part 270, subpart K. This consolidation in one part of all

manufacturing regulations relating to tobacco products and cigarette

papers and tubes is consistent with the existing consolidated approach

in part 275 on the importation of these items.

Definitions

The Bureau held in ATF Ruling 81-2 that any packaging intended for

delivery to the consumer as a unit which contains more than 25

cigarette papers is taxable. The definition of the term ``sets'' is

being added to the definitions in Sec. 270.11. ATF Ruling 81-2 is

therefore obsolete since its provisions are covered by these

regulations.

Subpart K

Subpart K is added to part 270 and contains separate undesignated

center headings for the taxation of cigarette papers and cigarette

tubes, special (occupational) tax provisions, general administrative

provisions, qualification requirements for manufacturers, changes

subsequent to original qualification of manufacturers, bonds and

extensions of coverage of bonds, operations by manufacturers,

discontinuance of operations by manufacturers, and claims. Referring

the reader to this material by means of the undesignated center

headings will offer a more convenient method of locating this

information. As a result of these changes, references to part 285

contained in parts 275 and 295 have been amended to references to part

270.

Bonds and Extensions of Coverage of Bonds

Section 270.407 in subpart K has been amended to include the title

and new number of the ``Extension of Coverage of Bond'' form, ATF Form

2105 (5000.7).

Operations by Manufacturers

The Records, Reports and Inventory sections (Secs. 270.421-270.434)

of amended subpart K have also been amended to include new form

numbers. To assist the industry in the transition to the new numbering

system, the old form numbers will remain in these regulations. However,

immediately after the old form number, the new number will appear

enclosed in parentheses. These amendments do not make any substantive

changes and are only intended to improve the clarity of Title 27 CFR or

relieve regulatory requirements.

Paperwork Reduction Act

The provisions of the Paperwork Reduction Act of 1995, Pub. L. 104-

13, 44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR part

1320, do not apply to this notice because no new requirement to collect

information is imposed. This final rule only transfers 27 CFR part 285

to 27 CFR subpart K.

Regulatory Flexibility Act

The provisions of the Regulatory Flexibility Act relating to an

initial and final regulatory flexibility analysis (5 U.S.C. 604) are

not applicable to this final rule because the agency was not

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required to publish a notice of proposed rulemaking under 5 U.S.C. 553

or any other law. A copy of this final rule was submitted to the Chief

Counsel for Advocacy of the Small Business Administration for comment

on the impact of such regulation on small businesses in accordance with

26 U.S.C. 7805(f).

Executive Order 12866

It has been determined that this rule is not a significant

regulatory action because it will not: (1) Have an annual effect on the

economy of $100 million or more or adversely affect in a material way

the economy, a sector of the economy, productivity, competition, jobs,

the environment, public health or safety, or State, local or tribal

governments or communities; (2) Create a serious inconsistency or

otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impact of entitlements, grants, user

fees, or loan programs or the rights and obligations of recipients

thereof; or (4) Raise novel legal or policy issues arising out of legal

mandates, the President's priorities, or the principles set forth in

Executive Order 12866.

Administrative Procedures Act

Because this final rule merely makes technical amendments and

conforming changes to improve the clarity of the regulations, it is

found to be unnecessary and contrary to the public interest to issue

this final rule with notice and public procedure under 5 U.S.C. 553(b).

Similarity it is found to be unnecessary and contrary to the public

interest to subject this final rule to the effective date limitation of

5 U.S.C. 553(d).

Drafting Information

The principal drafter of this document is Clifford A. Mullen, Wine,

Beer and Spirits Regulations Branch, Bureau of Alcohol, Tobacco and

Firearms.

List of Subjects

27 CFR Part 270

Administrative practice and procedure, Authority delegations

(Government agencies), Claims, Electronic fund transfer, Excise taxes,

Labeling, Packaging and containers, Penalties, Reporting requirements,

Seizures and forfeitures, Surety bonds, Tobacco products.

27 CFR Part 275

Administrative practice and procedure, Authority delegations

(Government agencies), Cigarette papers and tubes, Claims, Electronic

fund transfer, Customs duties and inspection, Excise taxes, Imports,

Labeling, Packaging and containers, Penalties, Reporting requirements,

Seizures and forfeitures, Surety bonds, Tobacco products, U.S.

possessions, Warehouses.

27 CFR Part 285

Administrative practice and procedure, Authority delegations,

(Government agencies), Cigarette papers and tubes, Cigars, Cigarettes,

Claims, Electronic fund transfer, Excise taxes, Packaging and

containers, Penalties, Reporting and recordkeeping requirements,

Seizures and forfeitures, Surety bonds.

27 CFR Part 295

Administrative practice and procedure, Authority delegations

(Government agencies), Cigarette papers and tubes, Excise taxes,

Labeling, Packaging and containers, Tobacco products.

Authority and Issuance

Accordingly, ATF is amending Title 27 of the Code of Federal

Regulations as follows:

Sec. A. Title 27 CFR part 270 is amended as follows:

PART 270--MANUFACTURE OF TOBACCO PRODUCTS

Paragraph 1. The authority citation for part 270 continues to read

as follows:

Authority: 26 U.S.C. 5142, 5143, 5146, 5701, 5703-5705, 5711-

5713, 5721-5723, 5731, 5741, 5751, 5753, 5761-5763, 6061, 6065,

6109, 6151, 6301, 6302, 6311, 6313, 6402, 6404, 6423, 6676, 6806,

7011, 7212, 7325, 7342, 7502, 7503, 7606, 7805, 31 U.S.C. 9301,

9303, 9304, 9306.

Par. 2. Section 270.1 is revised to read as follows:

Sec. 270.1 Manufacture of tobacco products and cigarette papers and

tubes.

This part contains regulations relating to the manufacture of

tobacco products and cigarette papers and tubes; the payment by

manufacturers of tobacco products and cigarette papers and tubes of

internal revenue taxes imposed by 26 U.S.C. chapter 52; and the

qualification of and operations by manufacturers of tobacco products.

Par. 3. Section 270.11 is amended by adding and revising the

following definitions:

Sec. 270.11 Meaning of terms.

* * * * *

Cigarette paper. Paper, or any other material except tobacco,

prepared for use as a cigarette wrapper.

Cigarette papers. Taxable books or sets of cigarette papers, i.e.,

books or sets of cigarette papers containing more than 25 papers each.

Cigarette tube. Cigarette paper made into a hollow cylinder for use

in making cigarettes.

* * * * *

Factory. The premises of a manufacturer of tobacco products as

described in his permit issued under 26 U.S.C. chapter 52, or the

premises of a manufacturer of cigarette papers and tubes on which such

business is conducted.

* * * * *

Manufacturer of cigarette papers and tubes. Any person who makes up

cigarette paper into books or sets containing more than 25 papers each,

or into tubes, except for personal use or consumption.

* * * * *

Package. The immediate container in which tobacco products or

cigarette papers or tubes are put up in by the manufacturer and offered

for sale or delivery to the consumer.

* * * * *

Removal or remove. The removal of tobacco products or cigarette

papers or tubes from the factory or release from customs custody,

including the smuggling of other unlawful importation of such articles

into the United States.

* * * * *

Sets. Any collection, grouping, or packaging of cigarette papers

made up by any person for delivery to the consumer as a unit.

* * * * *

Par. 4. Subpart K is added to read as follows:

Subpart K--MANUFACTURE OF CIGARETTE PAPERS AND TUBES

Taxes

Sec.

270.351 Cigarette papers.

270.352 Cigarette tubes.

270.353 Persons liable for tax.

270.354 Determination of tax and method of payment.

270.355 Return of manufacturer.

270.356 Adjustments in the return of manufacturer.

270.357 Payment of tax by electronic fund transfer.

270.358 Assessment.

270.359 Employer identification number.

270.360 Application for employer identification number.

270.361 Execution and filing of Form SS-4.

Special (Occupational) Taxes

270.371 Liability for special tax.

270.372 Rate of special tax.

270.373 Special tax returns.

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270.374 Issuance, distribution, and examination of special tax

stamps.

270.375 Changes in special tax stamps.

General

270.382 Authority of ATF officers to enter premises.

270.383 Interference with administration.

270.384 Disposal of forfeited, condemned, and abandoned cigarette

papers and tubes.

270.385 Alternate methods or procedures.

270.386 Emergency variations from requirements.

270.387 Penalties and forfeitures.

Qualification Requirements for Manufacturers

Original Qualifications

270.391 Persons required to qualify.

270.392 Bond.

270.393 Power of attorney.

270.394 Notice of approval of bond.

Changes After Original Qualification

270.395 Change in name.

270.396 Change in proprietorship.

270.397 Change in location.

Bonds and Extensions of Coverage of Bonds

270.401 Corporate surety.

270.402 Two or more corporate sureties.

270.403 Deposit of securities in lieu of corporate surety.

270.404 Amount of bond.

270.405 Strengthening bond.

270.406 Superseding bond.

270.407 Extension of coverage of bond.

270.408 Approval of bond and extension of coverage of bond.

270.409 Termination of liability of surety under bond.

270.410 Release of pledged securities.

Operations by Manufacturers

Records

270.421 General.

Reports

270.422 General.

270.423 Opening.

270.424 Monthly.

270.425 Special.

270.426 Closing.

Inventories

270.431 General.

270.432 Opening.

270.433 Special.

270.434 Closing.

Document Retention

270.435 General.

Packages

270.441 General.

Miscellaneous Operations

270.451 Transfer in bond.

270.452 Release from customs custody.

270.453 Use of the United States.

270.454 Removal for export purposes.

Permanent Discontinuance of Business

270.461 Discontinuance of operations.

Claims by Manufacturers

General

270.471 Abatement.

270.472 Credit or refund.

270.474 Remission.

Lost or Destroyed

270.475 Action by claimant.

Withdrawn From the Market

270.476 Action by claimant.

270.477 Action by regional director (compliance).

270.478 Disposition of cigarette papers and tubes and schedule.

Sec. 270.351 Cigarette papers.

On each book or set of cigarette papers containing more than 25

papers, manufactured in or imported into the United States, the

following taxes are imposed by law:

(a) Cigarette papers removed before January 1, 1991, \1/2\ cent for

each 50 papers or fractional part thereof.

(b) Cigarette papers removed on or after January 1, 1991, and

before January 1, 1993, 0.625 cent for each 50 papers or fractional

part thereof.

(c) Cigarette papers removed on or after January 1, 1993, 0.75 cent

for each 50 papers or fractional part thereof.

(d) Where cigarette papers measure more than 6\1/2\ inches in

length, they shall be taxable at the above rates, counting each 2\3/4\

inches, or fraction thereof, of the length of each as one cigarette

paper.

(72 Stat. 1414; 26 U.S.C. 5701)

Sec. 270.352 Cigarette tubes.

On cigarette tubes, manufactured in or imported into the United

States, the following tax is imposed by law for each 50 tubes or

fractional part thereof:

(a) Cigarette tubes removed before January 1, 1991, 1 cent.

(b) Cigarette tubes removed on or after January 1, 1991 and before

January 1, 1993, 1.25 cents.

(c) Cigarette tubes removed on or after January 1, 1993, 1.5 cents.

(d) Where cigarette tubes measure more than 6\1/2\ inches in

length, they shall be taxable at the above rates, counting each 2\3/4\

inches, or fraction thereof, of the length of each as one cigarette

tube.

(72 Stat. 1414; 26 U.S.C. 5701)

Sec. 270.353 Persons liable for tax.

The manufacturer of cigarette papers and tubes shall be liable for

the taxes imposed on such articles by 26 U.S.C. 5701. When a

manufacturer of cigarette papers and tubes transfers such papers and

tubes without payment of tax, pursuant to 26 U.S.C. 5704 to the bonded

premises of another such manufacturer, a manufacturer of tobacco

products, or an export warehouse proprietor, the transferee shall

become liable for the tax upon receipt of such papers and tubes and the

transferor shall thereupon be relieved of liability for the tax. When

cigarette papers and tubes are released in bond from customs custody

for transfer to the bonded premises of a manufacturer of such papers

and tubes or a manufacturer of tobacco products, the transferee shall

become liable for the tax on the papers and tubes upon release from

customs custody. Any person who possesses cigarette papers and tubes in

violation of 26 U.S.C. 5751(a) (1) or (2), shall be liable for a tax

equal to the rate of tax applicable to such articles.

(72 Stat. 1417, 1424; 26 U.S.C. 5703, 5751)

Sec. 270.354 Determination of tax and method of payment.

Except for removals without payment of tax and transfers in bond,

as authorized by law, no cigarette papers and tubes shall be removed

until the taxes imposed by section 5701, I.R.C., have been determined.

The payment of taxes on cigarette papers and tubes which are removed on

determination of tax shall be made by return in accordance with the

provisions of this subpart.

(72 Stat. 1417; 26 U.S.C. 5703)

Sec. 270.355 Return of manufacturer.

(a) Requirement for filing. A manufacturer of cigarette papers and

tubes shall file, for each factory, a semimonthly tax return on ATF

Form 5000.24. A return shall be filed for each semimonthly return

period regardless of whether cigarette papers and tubes were removed

subject to tax or whether tax is due for that particular return period.

(b) Waiver from filing. The manufacturer need not file a return for

each semimonthly return period if:

(1) Cigarette papers and tubes were not removed subject to tax

during the period, and

(2) The regional director (compliance) has granted a waiver from

filing in response to a written request from the manufacturer.

(c) Semimonthly return periods. Except as provided by paragraph (g)

of this section, semimonthly return periods shall run from the first

day of the month through the 15th day of the month, and from the 16th

day of the month through the last day of the month.

(d) Preparation and filing. The return shall be executed and filed

with ATF in accordance with the instructions on the form.

(e) Remittance of tax. Except as provided in Sec. 270.357,

remittance of the tax, if any, shall accompany the return.

(f) Time for filing. Except as provided by paragraph (g) of this

section, for each

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semimonthly return period, the return shall be filed not later than the

14th day after the last day of the return period. If the due date falls

on a Saturday, Sunday, or legal holiday, the return and remittance

shall be due on the immediately preceding day which is not a Saturday,

Sunday or legal holiday.

(g) Special rule for taxes due for the month of September

(effective after December 31, 1994). (1) Except as provided in

paragraph (g)(2) of this section, the second semimonthly period for the

month of September shall be divided into two payment periods, from the

16th day through the 26th day, and from the 27th day through the 30th

day. The manufacturer shall file a return on Form 5000.24, and make

remittance, for the period September 16-26, no later than September 29.

The manufacturer shall file a return on Form 5000.24, and make

remittance, for the period September 27-30, no later than October 14.

(2) Taxpayment not by electronic fund transfer. In the case of

taxes not required to be remitted by electronic fund transfer as

prescribed by Sec. 270.357, the second semimonthly period of September

shall be divided into two payment periods, from the 16th day through

the 25th day, and the 26th day through the 30th day. The manufacturer

shall file a return on Form 5000.24, and remittance, for the period

September 16-25, no later than September 28. The manufacturer shall

file a return on Form 5000.24, and make remittance, for the period

September 26-30, no later than October 14.

(3) Amount of payment: Safe harbor rule. (i) Taxpayers are

considered to have met the requirements of paragraph (g)(1) of this

section, if the amount paid no later than September 29 is not less than

\11/15\ (73.3 percent) of the tax liability incurred for the

semimonthly period beginning on September 1 and ending on September 15,

and if any underpayment of tax is paid by October 14.

(ii) Taxpayers are considered to have met the requirements of

paragraph (g)(2) of this section, if the amount paid no later than

September 28 is not less than two-thirds (66.7 percent) of the tax

liability incurred for the semimonthly period beginning on September 1

and ending on September 15, and if any underpayment of tax is paid by

October 14.

(4) Last day for payment. If the required due date for taxpayment

for the periods September 16-25 or September 16-26, as applicable,

falls on a Saturday, the return and remittance shall be due on the

immediately preceding day. If the required due date falls on a Sunday,

the return and remittance shall be due on the immediately following

day.

(Approved by the Office of Management and Budget under Control

Number 1512-0467).

Sec. 270.356 Adjustments in the return of manufacturer.

Adjustments may be made in Schedules A and B of the manufacturer's

semimonthly tax return, ATF Form 5000.24, as provided in this section.

Schedule A of the return will be used where an unintentional error in a

previous return resulted in an underpayment of tax. Schedule B of the

return will be used where an unintentional error in a previous return

resulted in an overpayment of tax, or where notice has been received

from the regional director (compliance) that a claim for allowance of

tax has been approved. In the case of an overpayment, the manufacturer

shall have the option of filing a claim on ATF Form 2635 (5620.8) for

refund or taking credit in Schedule B of the return, both subject to

the period of limitations prescribed in 26 U.S.C. 6511. Any adjustment

made in a return must be fully explained in the appropriate schedule or

in a statement attached to and made a part of the return in which such

adjustment is made.

(72 Stat. 1417, 68A Stat. 791; 26 U.S.C. 5703, 6402)

Sec. 270.357 Payment of tax by electronic fund transfer.

(a) General. (1) Each taxpayer who was liable, during a calendar

year, for a gross amount equal to or exceeding five millions dollars in

taxes on tobacco products, cigarette papers, and cigarette tubes

combining tax liabilities incurred under this part and part 275 of this

chapter, shall use a commercial bank in making payment by electronic

fund transfer (EFT) of taxes on tobacco products, cigarette papers, and

cigarette tubes during the succeeding calendar year. Payment of taxes

on tobacco products, cigarette papers, and cigarette tubes in any other

form of remittance, as authorized in Sec. 270.355, is not authorized

for a taxpayer who is required, by this section, to make remittances by

EFT. For purposes of this section, the dollar amount of tax liability

is defined as the gross tax liability on all taxable withdrawals and

importations (including tobacco products, cigarette papers, and

cigarette tubes brought into the United States from Puerto Rico or the

Virgin Islands) during the calendar year, without regard to any

drawbacks, credits, or refunds, for all premises from which such

activities are conducted by the taxpayer. Overpayments are not taken

into account in summarizing the gross tax liability.

(2) For the purposes of this section, a taxpayer includes a

controlled group of corporations, as defined in 26 U.S.C. 1563, and

implementing regulations in 26 CFR Secs. 1.563-1 through 1.1563-4.

Also, the rules for a ``controlled group of corporations'' apply in a

similar fashion to groups which include partnerships and/or sole

proprietorships. If one entity maintains more than 50% control over a

group consisting of corporations and one, or more, partnerships and/or

sole proprietorships, all of the members of the controlled group are

one taxpayer for the purpose of determining who is required to make

remittances by EFT.

(3) A taxpayer who is required by this section to make remittances

by EFT shall make a separate EFT remittance and file a separate return,

ATF Form 5000.24, for each factory from which cigarette papers or

cigarette tubes are withdrawn upon determination of tax.

(b) Requirements. (1) On or before January 10 of each calendar

year, except for a taxpayer already remitting the tax by EFT, each

taxpayer who was liable for a gross amount equal to or exceeding five

million dollars in taxes on tobacco products, cigarette papers, and

cigarette tubes combining tax liabilities incurred under this part and

part 275 of this chapter during the previous calendar year, shall

notify, in writing, the regional director (compliance), for each region

in which taxes are paid. The notice shall be an agreement to make

remittances by EFT.

(2) For each return filed in accordance with this part, the

taxpayer shall direct the taxpayer's bank to make an electronic fund

transfer in the amount of the taxpayment to the Department of the

Treasury's General Account or the Federal Reserve Bank of New York as

provided in paragraph (e) of this section. The request shall be made to

the bank early enough for the transfer to be made to the Treasury

Account by no later than the close of business on the last day for

filing the return, prescribed in Sec. 270.355. The request shall take

into account any time limit established by the bank.

(3) If a taxpayer was liable for less than five million dollars in

taxes on tobacco products, cigarette papers, and cigarette tubes

combining tax liabilities incurred under this part and part 275 of this

chapter during the preceding calendar year, the taxpayer may choose

either to continue remitting the tax as provided in this section or to

remit the tax with the return as prescribed by Sec. 270.355. Upon

filing the first return on

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which the taxpayer chooses to discontinue remitting the tax by EFT and

to begin remitting the tax with the tax return, the taxpayer shall

notify the regional director (compliance) by attaching a written

notification to ATF Form 5000.24, stating that no taxes are due by EFT,

because the tax liability during the preceding calendar year was less

than five million dollars, and that the remittance shall be filed with

the tax return.

c. Remittance. (1) Each taxpayer shall show on the return, ATF Form

5000.24, information about remitting the tax for that return period by

EFT and shall file the return with ATF, in accordance with the

instructions of ATF Form 5000.24.

(2) Remittances shall be considered as made when the taxpayment by

EFT is received by the Treasury Account. For purposes of this section,

a taxpayment by EFT shall be considered as received by the Treasury

Account when it is paid to a Federal Reserve Bank.

(3) When the taxpayer directs the bank to effect an EFT message as

required by paragraph (b)(2) of this section, any transfer data record

furnished to the taxpayer, through normal banking procedures, will

serve as the record of payment, and shall be retained as part of

required records.

(d) Failure to make a taxpayment by EFT. The taxpayer is subject to

a penalty imposed by 26 U.S.C. 5761, 6651, or 6656, as applicable, for

failure to make a taxpayment by EFT on or before the close of business

on the prescribed last day for filing.

(e) Procedure. Upon the notification required under paragraph

(b)(1) of this section, the regional director (compliance) will issue

to the taxpayer an AFT Procedure entitled Payment of Tax by Electronic

Fund Transfer. This publication outlines the procedure a taxpayer is to

follow when preparing returns and EFT remittances in accordance with

this part. The U.S. Customs Service will provide the taxpayer with

instructions for preparing EFT remittances for payments to be made to

the U.S. Customs Service.

(Approved by the Office of Management and Budget under control

number 1512-0457)

(Act of August 16, 1954, 68A Stat. 775, as amended (26 U.S.C. 6302);

sec. 202, Pub. L. 85-859, 72 Stat. 1417, as amended (26 U.S.C.

5703))

Sec. 270.358 Assessment.

Whenever any person required by law to pay tax on cigarette papers

and tubes fails to pay such tax, the tax shall be ascertained and

assessed against such person, subject to the limitations prescribed in

26 U.S.C. 6501. The tax so assessed shall be in addition to the

penalties imposed by law for failure to pay such tax when required.

Except in cases where delay may jeopardize collection of the tax, or

where the amount is nominal or the result of an evident mathematical

error, no such assessment shall be made until and after notice has been

afforded such person to show cause against assessment. The person will

be allowed 45 days from the date of such notice to show cause, in

writing, against such assessment.

(72 Stat. 1417; 26 U.S.C. 5703)

Sec. 270.359 Employer identification number.

The employer identification number (EIN) (defined at 26 CFR

301.7701-12) of a manufacturer of cigarette papers and/or tubes who has

been assigned such a number shall be shown on each semimonthly tax

return, ATF Form 5000.24, and special tax return (including amended

returns), ATF Form 5630.5, filed under this subpart. Failure of the

taxpayer to include the EIN on ATF Form 5000.24 may result in assertion

and collection of the penalty specified in Sec. 70.113 of this chapter.

Failure of the taxpayer to include the EIN on ATF Form 5630.5 may

result in the imposition of the penalty specified in 27 CFR 70.113 of

this chapter.

(75 Stat. 828; 26 U.S.C. 6109, 6676)

Sec. 270.360 Application for employer identification number.

Each manufacturer of cigarette papers and tubes who has neither

secured an EIN nor made application therefor shall file an application

on IRS Form SS-4. IRS Form SS-4 may be obtained from any service center

director or from any district director. Such application shall be filed

on or before the seventh day after the date on which any tax return

under this subpart is filed. Each manufacturer shall make application

for and shall be assigned only one EIN for all internal revenue

purposes.

(75 Stat. 828; 26 U.S.C. 6109)

Sec. 270.361 Execution and filing of Form SS-4.

The application on IRS form SS-4, together with any supplementary

statement, shall be prepared in accordance with the applicable form,

instructions, and regulations, and the data called for shall be set

forth fully and clearly. The application shall be filed with the

service center director serving the internal revenue district where the

applicant is required to file returns under this subpart, except that

hand-carried applications may be filed with the district director of

any such district as provided for in 26 CFR Sec. 301.6091-1. The

application shall be signed by:

(a) the individual if the person is an individual;

(b) the president, vice president, or other principal officer if

the person is a corporation;

(c) a responsible and duly authorized member or officer having

knowledge of its affairs if the person is a partnership or other

unincorporated organization; or

(d) the fiduciary if the person is a trust or estate.

(75 Stat. 828; 26 U.S.C. 6109)

Special (Occupational) Taxes

Sec. 270.371 Liability for special tax.

(a) Manufacturer of cigarette papers and tubes. Every manufacturer

of cigarette papers and tubes shall pay a special (occupational) tax at

a rate specified by Sec. 270.372 of this part. The tax shall be paid on

or before July 1. On commencing business, the tax shall be computed

from the first day of the month in which liability is incurred, through

the following June 30. Thereafter, the tax shall be computed for the

entire year (July 1 through June 30).

(b) Each place of business taxable. A manufacturer of cigarette

papers and tubes incurs special tax liability at each place of business

in which an occupation subject to special tax is conducted. A place of

business means the entire office, plant or area of the business in any

one location under the same proprietorship. Passageways, streets,

highways, rail crossings, waterways, or partitions dividing the

premises are not sufficient separation to require additional special

tax, if the divisions of the premises are otherwise contiguous.

(26 U.S.C. 5143, 5731)

Sec. 270.372 Rate of special tax.

(a) General. Title 26 U.S.C. 5731(a)(2) imposes a special tax of

$1,000 per year on every manufacturer of cigarette papers and tubes.

(b) Reduced rate for small proprietors. Title 26 U.S.C. 5731(b)

provides for a reduced rate of $500 per year with respect to any

manufacturer of cigarette papers and tubes whose gross receipts (for

the most recent taxable year ending before the first day of the taxable

period to which the special tax imposed by Sec. 270.371 relates) are

less than $500,000. The ``taxable year'' to be used for determining

gross receipts is the taxpayer's income tax year. All gross receipts of

the taxpayer shall be included, not just the gross receipts of the

business subject to special tax. Proprietors of new businesses that

have not yet begun a taxable year, as well as proprietors of existing

businesses that have not yet ended a taxable year, who

[[Page 54089]]

commence a new activity subject to special tax, qualify for the reduced

special (occupational) tax rate, unless the business is a member of a

``controlled group''; in that case the rules of paragraph (c) of this

section shall apply.

(c) Controlled group. All persons treated as one taxpayer under 26

U.S.C. 5061(e)(3) shall be treated as one taxpayer for the purpose of

determining gross receipts under paragraph (b) of this section.

``Controlled group'' means a controlled group of corporations, as

defined in 26 U.S.C. 1563 and implementing regulations in 26 CFR

1.1563-1 through 1.1563-4. Also, the rules for a ``controlled group of

corporations'' apply in a similar fashion to groups which include

partnerships and/or sole proprietorships. If one entity maintains more

than 50% control over a group consisting of corporations and one, or

more, partnerships and/or sole proprietorships, all of the members of

the controlled group are one taxpayer for the purpose of this section.

(d) Short taxable year. Gross receipts for any taxable year of less

than 12 months shall be annualized by multiplying the gross receipts

for the short period by 12 and dividing the result by the number of

months in the short period as required by 26 U.S.C. 448(c)(3).

(e) Returns and allowances. Gross receipts for any taxable year

shall be reduced by returns and allowances made during such year under

26 U.S.C. 448(c)(3).

(26 U.S.C. 448, 5061, 5731)

Sec. 270.373 Special tax returns.

(a) General. Special tax shall be paid by return. The prescribed

return is ATF Form 5630.5, Special Tax Registration and Return. Special

tax returns, with payment of tax, shall be filed with ATF in accordance

with instructions on the form.

(b) Preparation of ATF Form 5630.5. All of the information called

for on ATF Form 5630.5 shall be provided including:

(1) The true name of the taxpayer.

(2) The trade name(s) (if any) of the business(es) subject to

special tax.

(3) The employer identification number (see Secs. 270.359-361).

(4) The exact location of the place of business, by name and number

of building or street, or if these do not exist, by some description in

addition to the post office address. In the case of one return for two

or more locations, the address to be shown shall be the taxpayer's

principal place of business (or principal office, in the case of a

corporate taxpayer).

(5) The class(es) of special tax to which the taxpayer is subject.

(6) Ownership and control information: That is, the name, position,

and residence address of every owner of the business and of every

person having power to control its management and policies with respect

to the activity subject to special tax. ``Owner of the business'' shall

include every partner, if the taxpayer is a partnership, and every

person owning 10% or more of its stock, if the taxpayer is a

corporation. However, the ownership and control information required by

this paragraph need not be stated if the same information has been

previously provided to ATF in connection with a permit application, and

if the information previously provided is still current.

(c) Multiple locations and/or classes of tax.

A taxpayer subject to special tax for the same period at more than

one location or for more than one class of tax shall--

(1) File one special tax return, ATF Form 5630.5, with payment of

tax, to cover all such locations and classes of tax; and

(2) Prepare, in duplicate, a list identified with the taxpayer's

name, address (as shown on ATF Form 5630.5), employer identification

number, and period covered by the return. The list shall show, by

State, the name, address, and tax class of each location for which

special tax is being paid. The original of the list shall be filed with

ATF in accordance with instructions on the return, and the copy shall

be retained at the taxpayer's principal place of business (or principal

office, in the case of a corporate taxpayer) for the period specified

in Sec. 270.371.

(d) Signing of ATF Forms 5630.5.--(1) Ordinary returns. The return

of an individual proprietor shall be signed by the individual. The

return of a partnership shall be signed by a general partner. The

return of a corporation shall be signed by any officer. In each case,

the person signing the return shall designate his or her capacity as

``individual owner,'' ``member of firm,'' or, in the case of a

corporation, the title of the officer.

(2) Fiduciaries. Receivers, trustees, assignees, executors,

administrators, and other legal representatives who continue the

business of a bankrupt, insolvent, deceased person, etc., shall

indicate the fiduciary capacity in which they act.

(3) Agent or attorney in fact. If a return is signed by an agent or

attorney in fact, the signature shall be preceded by the name of the

principal and followed by the title of the agent or attorney in fact. A

return signed by a person as agent will not be accepted unless there is

filed, with the ATF office with which the return is required to be

filed, a power of attorney authorizing the agent to perform the act.

(4) Perjury statement. ATF Forms 5630.5 shall contain or be

verified by a written declaration that the return has been executed

under the penalties of perjury.

Sec. 270.374 Issuance, distribution, and examination of special tax

stamps.

(a) Issuance of special tax stamps. Upon filing a properly executed

return on ATF Form 5630.5 together with the full remittance, the

taxpayer will be issued an appropriately designated special tax stamp.

If the return covers multiple locations, the taxpayer will be issued

one appropriately designated stamp for each location listed on the

attachment required by Sec. 270.373(c)(2), but showing, as to name and

address, only the name of the taxpayer and the address of the

taxpayer's principal place of business (or principal office in the case

of a corporate taxpayer).

(b) Distribution of special tax stamps for multiple locations. On

receipt of the special tax stamps, the taxpayer shall verify that there

is one stamp for each location listed on the attachment to ATF Form

5630.5. The taxpayer shall designate one stamp for each location and

type on each stamp the address of the business conducted at the

location for which that stamp is designated. The taxpayer shall then

forward each stamp to the place of business designated on the stamp.

(c) Examination of special tax stamps. All stamps denoting payment

of special tax shall be kept available for inspection by ATF officers,

at the location for which designated, during business hours.

(26 U.S.C. 5142, 5146, 6806)

Sec. 270.375 Changes in special tax stamps.

(a) Change in name. If there is a change in the corporate or firm

name, or in the trade name, as shown on ATF Form 5630.5, the

manufacturer shall file an amended special tax return as soon as

practicable after the change, covering the new corporate or firm name,

or trade names. No new special tax is required to be paid. The

manufacturer shall attach the special tax stamp for endorsement of the

change in name.

(b) Change in proprietorship.--(1) General. If there is a change in

the proprietorship of a cigarette papers and tubes factory, the

successor shall pay a

[[Page 54090]]

new special tax and obtain the required special tax stamps.

(2) Exemption for certain successors. Persons having the right of

succession provided for in paragraph (c) of this section may carry on

the business for the remainder of the period for which the special tax

was paid, without paying a new special tax, if within 30 days after the

date on which the successor begins to carry on the business, the

successor files a special tax return on ATF Form 5630.5 with ATF, which

shows the basis of succession. A person who is a successor to a

business for which special tax has been paid and who fails to register

the succession is liable for special tax computed from the first day of

the calendar month in which the successor began to carry on the

business.

(c) Persons having right of succession. Under the conditions

indicated in paragraph (b)(2) of this section, the right of succession

will pass to certain persons in the following cases:

(1) Death. The spouse or child, or executor, administrator, or

other legal representative of the taxpayer;

(2) Succession of spouse. A husband or wife succeeding to the

business of his or her spouse (living);

(3) Insolvency. A receiver or trustee in bankruptcy, or an assignee

for benefit of creditors;

(4) Withdrawal from firm. The partner or partners remaining after

death or withdrawal of a member.

(d) Change in location. If there is a change in location of a

taxable place of business, the manufacturer shall within 30 days after

the change, file with ATF an amended special tax return covering the

new location. The manufacturer shall attach the special tax stamp or

stamps for endorsement of the change in location. No new special tax is

required to be paid. However, if the manufacturer does not file the

amended return within 30 days, the manufacturer is required to pay a

new special tax and obtain a new special tax stamp.

(26 U.S.C. 5143, 7011)

General

Sec. 270.382 Authority of ATF officers to enter premises.

Any ATF officer may enter in the daytime any premises where

cigarette papers and tubes are produced or kept, so far as it may be

necessary for the purpose of examining such articles. When such

premises are open at night, any ATF officer may enter them, while so

open, in the performance of his or her official duties. The owner of

such premises, or person having the superintendence of the same, who

refuses to admit any ATF officer or permit any AFT officer to examine

such cigarette papers and tubes shall be liable to the penalties

prescribed by law for the offense.

(68A Stat. 872; 903 26 U.S.C. 7342, 7606)

Sec. 270.383 Interference with administration.

Whoever, corruptly or by force or threats of force, endeavors to

hinder or obstruct the administration of this subpart, or endeavors to

intimidate or impede any ATF officer acting in an official capacity, or

forcibly rescues or attempts to rescue or causes to be rescued any

property, after it has been duly seized for forfeiture to the United

States in connection with a violation or intended violation of this

subpart, shall be liable to the penalties prescribed by law.

(68A Stat. 855; 26 U.S.C. 7212)

Sec. 270.384 Disposal of forfeited, condemned, and abandoned cigarette

papers and tubes.

Forfeited, condemned, or abandoned cigarette papers or tubes in the

custody of a Federal, State, or local officer upon which the Federal

tax has not been paid shall not be sold or caused to be sold for

consumption in the United States if, in the opinion of the officer, the

sale of such papers and tubes will not bring a price equal to the tax

due and payable, and the expenses incident to the sale. Where the

cigarette papers or tubes are not sold the officer may deliver them to

a Federal or State institution (if they are fit for consumption) or

cause their destruction by burning completely or by rendering them

unfit for consumption. Where such papers or tubes are sold, release by

the officer having custody shall be made only after such papers and

tubes are properly packaged and taxpaid. A receipt from the regional

director (compliance) evidencing payment of tax on such papers or tubes

shall be presented to the officer having custody of the articles, which

tax shall be considered part of the sales price. Where cigarette papers

or tubes which have been packaged under the provisions of part 295 of

this chapter are to be released after payment of tax, the purchaser

shall appropriately mark each package ``Federal Tax Paid (date)''

before the officer having custody of the papers or tubes releases them.

However, the articles may be released without such marking of the

packages if the purchaser is a qualified manufacturer of cigarette

papers and tubes and does not intend to place such papers or tubes on

the domestic market for taxable articles but will otherwise dispose of

them. A written statement of notification of disposal by destruction or

return to bond through claim for refund, shall be filed, in original

only, with the officer having custody of the articles. In the case of

cigarette papers and tubes forfeited under the internal revenue laws,

the sale shall be subject to the provisions of part 72 of this chapter.

(68A Stat. 870, as amended, 72 Stat. 1425, as amended; 26 U.S.C.

7325, 5753)

Sec. 270.385 Alternate methods or procedures.

A manufacturer of cigarette papers and tubes, on specific approval

by the Director as provided in this section, may use an alternate

method or procedure in lieu of a method or procedure specifically

prescribed in this subpart. The Director may approve an alternate

method or procedure, subject to stated conditions, when the Director

finds that--

(a) Good cause has been shown for the use of the alternate method

or procedure,

(b) The alternate method or procedure is within the purpose of, and

consistent with the effect intended by, the specifically prescribed

method or procedure, and affords equivalent security to the revenue,

and

(c) The alternate method or procedure will not be contrary to any

provision of law, and will not result in an increase in cost to the

Government or hinder the effective administration of this subpart.

No alternate method or procedure relating to the giving of any bond

or to the assessment, payment, or collection of tax, shall be

authorized under this section. A manufacturer who desires to employ an

alternate method or procedure shall submit a written application, in

triplicate, to the regional director (compliance) for transmittal to

the Director. The application shall specifically describe the proposed

alternate method or procedure, and shall set forth the reasons

therefor. Alternate methods or procedures shall not be employed until

the application has been approved by the Director. The manufacturer

shall, during the period of authorization of an alternate method or

procedure, comply with the terms of the approved application.

Authorization for any alternate method or procedure may be withdrawn

whenever, in the judgment of the Director, the revenue is jeopardized

or the effective administration of this part is hindered. Any

authorization of the Director under this section shall be retained as

part of the manufacturer's record in accordance with this subpart.

[[Page 54091]]

Sec. 270.386 Emergency variations from requirements.

The Director may approve methods of operation other than as

specified in this subpart, where it is determined that an emergency

exists and the proposed variations from the specified requirements are

necessary, and the proposed variations--

(a) Will afford the security and protection to the revenue intended

by the prescribed specifications;

(b) Will not hinder the effective administration of this subpart;

and

(c) Will not be contrary to any provision of law. Variations from

requirements granted under this section are conditioned on compliance

with the procedures, conditions, and limitations set forth in the

approval of the application. Failure to comply in good faith with such

procedures, conditions and limitations shall automatically terminate

the authority for such variations and the manufacturer thereupon shall

fully comply with the prescribed requirements of regulations from which

the variations were authorized. Authority for any variation may be

withdrawn whenever in the judgment of the Director the revenue is

jeopardized or the effective administration of this subpart is hindered

by the continuation of such variation. Where a manufacturer desires to

employ such variation, the manufacturer shall submit a written

application to do so (in triplicate) to the regional director

(compliance) for transmittal to the Director. The application shall

describe the proposed variations and set forth the reasons therefor.

Variations shall not be employed until the application has been

approved. In accordance with this subpart, any authorization of the

Director under this section shall be retained as part of the

manufacturer's records.

Sec. 270.387 Penalties and forfeitures.

Anyone who fails to comply with the provisions of this subpart

becomes liable to the civil and criminal penalties, and forfeitures,

provided by law.

(72 Stat. 1425, 1426; 26 U.S.C. 5761, 5762, 5763)

Qualification Requirements for Manufacturers

Original Qualifications

Sec. 270.391 Persons required to qualify.

Every person who makes up cigarette paper into books or sets

containing more than 25 papers each, or into tubes, except for his or

her own personal use or consumption, shall first qualify as a

manufacturer of cigarette papers and tubes in accordance with the

provisions of this subpart.

(72 Stat. 1421; 26 U.S.C. 5711)

Sec. 270.392 Bond.

Every person, before commencing business as a manufacturer of

cigarette papers and tubes, shall file a bond on ATF Form 2102

(5210.1). Such bond shall be filed in accordance with the applicable

provisions of subpart G of this part and conditioned upon compliance

with the provisions of 26 U.S.C. Chapter 52, and regulations

thereunder, including, but not limited to, the timely payment of taxes

imposed by such chapter and penalties and interest in connection

therewith for which the manufacturer may become liable to the United

States.

(72 Stat. 1421; 26 U.S.C. 5711)

Sec. 270.393 Power of attorney.

If the bond or any other document required under this part is

signed by an attorney in fact for an individual, partnership,

association, company, or corporation, by one of the partners for a

partnership, or by one of the members of an association, a power of

attorney on ATF Form 1534 (5000.8) shall be furnished to the regional

director (compliance). If such bond or other document is signed on

behalf of a corporation by an officer thereof, it must be supported by

duly authenticated extracts of the stockholders' meeting, by-laws, or

directors' meeting authorizing such officer to execute such document

for the corporation. ATF Form 5000.8 or support of authority does not

have to be filed again with a regional director (compliance) where such

form or support has previously been submitted to that regional director

(compliance) and is still in effect.

(72 Stat. 1421; 26 U.S.C. 5711)

Sec. 270.394 Notice of approval of bond.

If the bond required under this subpart is approved by the regional

director (compliance), a number will be assigned to the factory of the

manufacturer of cigarette papers and tubes for internal revenue

purposes. The regional director (compliance) will immediately notify

the manufacturer, in writing, of the bond approval, in order that the

manufacturer may commence operations.

(72 Stat. 1421; 26 U.S.C. 5711)

Changes after Original Qualifications

Sec. 270.395 Change in name.

Where there is a change in the individual, trade, or corporate name

of a manufacturer of cigarette papers and tubes, the manufacturer

shall, within 30 days of the change, furnish the regional director

(compliance) a written notice of such change.

(72 Stat. 1422; 26 U.S.C. 5722)

Sec. 270.396 Change in proprietorship.

Where there is to be any change in proprietorship (including a

change in the identity of the members of a partnership or association,

but excluding any change in stock ownership in a corporation) of the

business of a manufacturer of cigarette papers and tubes, the proposed

successor shall, before commencing operations, qualify as a

manufacturer of cigarette papers and tubes, in accordance with this

part. If such manufacturer promptly files the required documentation

with the regional director (compliance), an administrator, executor,

receiver, trustee, assignee, or other fiduciary successor may liquidate

the business without qualifying as a manufacturer. The manufacturer

must promptly file with the regional director (compliance) a statement

of the intent to liquidate and furnish a certified copy of the order of

the court, or other pertinent documents. These documents must show the

appointment and qualification of any administrator, executor, receiver,

trustee, assignee, or other fiduciary, together with an extension of

coverage of the predecessor's bond executed by the administrator,

executor, receiver, trustee, assignee, or other fiduciary and the

surety, in accordance with the provisions of Sec. 270.407. The

predecessor shall make a closing inventory and closing report in

accordance with the provisions of Secs. 270.434 and 270.426,

respectively, and the successor shall make an opening inventory and

opening report, in accordance with the provision of Secs. 270.432 and

270.423, respectively.

(72 Stat. 1421, 1422; 26 U.S.C. 5711, 5721, and 5722)

Sec. 270.397 Change in location.

Whenever a manufacturer of cigarette papers and tubes contemplates

a change in location of a factory within the same region, the

manufacturer shall, before commencing operations at the new location,

file an extension of coverage of bond in accordance with the provisions

of Sec. 270.407. Whenever a manufacturer of cigarette papers and tubes

contemplates changing the location of a factory to another region, the

manufacturer shall, before commencing operations at the new location,

qualify as a manufacturer in the new region, in accordance with the

applicable provisions of this subpart, and make a closing inventory and

closing report, in

[[Page 54092]]

accordance with the provisions of Secs. 270.434 and 270.426,

respectively.

(72 Stat. 1421, 1422; 26 U.S.C. 5711, 5721, and 5722)

Bonds and Extensions of Coverage of Bonds

Sec. 270.401 Corporate surety.

(a) Surety bonds required by this subpart may be given only with

corporate sureties holding certificates of authority from, and subject

to any limitations prescribed by the Secretary of the Treasury as set

forth in the current revision of Treasury Department Circular No. 570

(Companies Holding Certificates of Authority as Acceptable Sureties on

Federal Bonds and as Acceptable Reinsuring Companies). The surety shall

have no interest whatever in the business covered by the bond.

(b) Each bond and each extension of coverage of bond shall at the

time of filing be accompanied by a power of attorney authorizing the

agent or officer who executed the bond to so act on behalf of the

surety. The regional director (compliance) who is authorized to approve

the bond may, whenever deemed necessary, require additional evidence of

the authority of the agent or officer to execute the bond or extension

of coverage of bond. The power of attorney shall be prepared on a form

provided by the surety company and executed under the corporate seal of

the company. If the power of attorney submitted is other than a

manually signed document, it shall be accompanied by a certificate of

its validity.

(c) Treasury Department Circular No. 570 is published in the

Federal Register annually as of the first workday in July. As they

occur, interim revisions of the circular are published in the Federal

Register. Copies may be obtained from the Surety Bond Branch, Financial

Management Service, Department of the Treasury, Washington, D.C. 20220.

(July 30, 1947, ch. 390, 61 Stat. 648, as amended (31 U.S.C. 9304,

9306); sec. 202. Pub. L. 85-859, 72 Stat. 1421, as amended (26

U.S.C. 5711))

Sec. 270.402 Two or more corporate sureties.

A bond executed by two or more corporate sureties shall be the

joint and several liability of the principal and the sureties. However,

each corporate surety may limit its liability in terms upon the face of

the bond in a definite, specific amount, which amount shall not exceed

the limitations prescribed for such corporate surety by the Secretary,

as set forth in the current revision of Treasury Department Circular

570 (Companies Holding Certificates of Authority as Acceptable Sureties

on Federal Bonds and as Acceptable Reinsuring Companies). (See

Sec. 270.401(c)) When the sureties so limit their liability, the

aggregate of such limited liabilities must equal the required amount of

the bond.

(July 30, 1947, ch. 390, 61 Stat. 648, as amended (31 U.S.C. 9304,

9306); sec. 202. Pub. L. 85-859, 72 Stat. 1421, as amended (26

U.S.C. 5711))

Sec. 270.403 Deposit of securities in lieu of corporate surety.

In lieu of corporate surety, the manufacturer of cigarette papers

and tubes may pledge and deposit, as security for the bond, securities

which are transferable and are guaranteed as to both interest and

principal by the United States, in accordance with the provisions of 31

CFR Part 225--Acceptance of Bonds, Notes or Other Obligations Issued or

Guaranteed by the United States as Security in Lieu of Surety or

Sureties on Penal Bonds.

(61 Stat. 650, 72 Stat. 1421, 31 U.S.C. 9301, 9303, 26 U.S.C. 5711,

5 U.S.C. 552(a) (80 Stat. 383, as amended))

Sec. 270.404 Amount of bond.

The amount of the bond of a manufacturer of cigarette papers and

tubes shall be not less than the maximum amount of the tax liability on

the cigarette papers and tubes manufactured in the factory, received

without payment of tax from other factories, and released without

payment of tax from customs custody as provided in Sec. 270.452, during

any month. In the case of a manufacturer commencing business, the

production, receipts from other factories, and releases from customs

custody, without payment of tax, shall be estimated for the purpose of

this section. The amount of any such bond (or the total amount where

strengthening bonds are filed) shall not exceed $20,000, nor be less

than $1,000.

(72 Stat. 1421; 26 U.S.C. 5711)

Sec. 270.405 Strengthening bond.

Where the regional director (compliance) determines that the amount

of the bond, under which a manufacturer of cigarette papers and tubes

is currently carrying on such business, no longer adequately protects

the revenue, the regional director (compliance) may require the

manufacturer to file a strengthening bond in an appropriate amount with

the same surety as that on the bond already in effect, in lieu of a

superseding bond to cover the full liability on the basis of

Sec. 270.404. The regional director (compliance) shall refuse to

approve any strengthening bond where any notation is made thereon which

is intended or which may be construed as a release of any former bond,

or as limiting the amount of either bond to less than its full amount.

(72 Stat. 1421; 26 U.S.C. 5711)

Sec. 270.406 Superseding bond.

A manufacturer of cigarette papers and tubes shall file a new bond

to supersede the current bond immediately when:

(a) The corporate surety on the current bond becomes insolvent,

(b) The regional director (compliance) approves a request from the

surety of the current bond to terminate liability under the bond,

(c) Payment of any liability under a bond is made by the surety

thereon, or

(d) The regional director (compliance) considers such a superseding

bond necessary for the protection of the revenue.

(72 Stat. 1421; 26 U.S.C. 5711)

Sec. 270.407 Extension of coverage of bond.

An extension of the coverage of bond filed under this subpart shall

be manifested on ATF Form 2105 (5000.7), Extension of Coverage of Bond,

by the manufacturer of cigarette papers and tubes and by the surety on

the bond with the same formality and proof of authority as required for

the execution of the bond.

(72 Stat. 1421; 26 U.S.C. 5711)

Sec. 270.408 Approval of bond and extension of coverage of bond.

No person shall commence operations under any bond, nor extend

operations, until such person receives from the regional director

(compliance) notice of approval of the bond or an appropriate extension

of coverage of the bond required under this subpart. Upon receipt of an

approved bond or extension of coverage of bond from the regional

director (compliance), such bond or extension of coverage of bond shall

be retained by the manufacturer of cigarette papers and tubes in

factory and shall be made available for inspection by any ATF officer

upon request.

(72 Stat. 1421; 26 U.S.C. 5711)

Sec. 270.409 Termination of liability of surety under bond.

The liability of a surety on any bond required by this subpart

shall be terminated only as to operations on and after the effective

date of a superseding bond, or the date of approval of the

discontinuance of operations by the manufacturer of cigarette papers

and tubes, or otherwise in accordance with the termination provisions

of the bond. The surety shall remain bound in

[[Page 54093]]

respect of any liability for unpaid taxes, penalties and interest, not

in excess of the amount of the bond, incurred by the manufacturer while

the bond is in force.

(72 Stat. 1421; 26 U.S.C. 5711)

Sec. 270.410 Release of pledged securities.

Securities of the United States pledged and deposited as provided

in Sec. 270.403 shall be released only in accordance with the

provisions of 31 CFR Part 225. Such securities will not be released by

the regional director (compliance) until liability under the bond for

which they were pledged has been terminated. When the regional director

(compliance) is satisfied that they may be released, the regional

director (compliance) shall fix the date or dates on which a part or

all of such securities may be released. At any time prior to the

release of such securities, the regional director (compliance) may

extend the date of release for such additional length of time as is

deemed necessary.

(61 Stat. 650, 72 Stat. 1421; 31 U.S.C. 9301, 9303; 26 U.S.C. 5711)

Operations By Manufacturers

Records

Sec. 270.421 General.

Every manufacturer of cigarette papers and tubes shall keep records

of the daily operations and transactions, which shall reflect the date

and number of books or sets of cigarette papers of each different

numerical content and the date and number of cigarette tubes:

(a) Manufactured;

(b) Received, without payment of tax from another factory, an

export warehouse, customs custody, or by withdrawal from the market;

(c) Removed subject to tax;

(d) Removed, without payment of tax, for export purposes, use of

the transfer in bond pursuant to Sec. 270.451; or

(e) Lost or destroyed.

The entries for each day in the records maintained or kept under

this subpart will be considered timely if made by the close of the

business day following that on which the operations or transactions

occur. No particular form of records is prescribed, but the information

required shall be readily ascertainable from the records kept.

(72 Stat. 1423; 26 U.S.C. 5741)

Reports

Sec. 270.422 General.

Every manufacturer of cigarette papers and tubes shall make a

report, on ATF Form 2138 (5230.3), to the regional director

(compliance), of the number of books or sets of cigarette papers of

each different numerical content and the number of cigarette tubes

manufactured, received, removed, and lost or destroyed. The report

shall be made at the times specified in this subpart and shall be made

whether or not any operations or transactions occurred during the

period covered by the report. A copy of each report shall be retained

by the manufacturer in accordance with the provisions of this subpart.

(72 Stat. 1422; 26 U.S.C. 5722)

Sec. 270.423 Opening.

An opening report, covering the period from the date of the opening

inventory to the end of the month, shall be made on or before the 10th

day following the end of the month in which the business was commenced.

(72 Stat. 1422; 26 U.S.C. 5722)

Sec. 270.424 Monthly.

A report for each calendar month shall be made on or before the

20th day of the next succeeding month.

(72 Stat. 1422; 26 U.S.C. 5722)

Sec. 270.425 Special.

A special report, covering the unreported period to the day

preceding the date of any special inventory required by an ATF officer,

shall be made with such inventory. Another report, covering the period

from the date of the special inventory to the end of the month, shall

be made on or before the 14th day following the end of the month in

which the inventory was made.

(72 Stat. 1422; 26 U.S.C. 5722)

Sec. 270.426 Closing.

A closing report, covering the period from the first of the month

to the date of the closing inventory, shall be made with such

inventory.

(72 Stat. 1422; 26 U.S.C. 5722)

Inventories

Sec. 270.431 General.

Every manufacturer of cigarette papers and tubes shall provide a

true and accurate inventory, on ATF Form 2132 (5230.2), to the regional

director (compliance), of the number of books or sets of cigarette

papers of each different numerical content and the number of cigarette

tubes held at the times specified in this subpart. Such inventory shall

be subject to verification by an ATF officer. A copy of each inventory

shall be retained by the manufacturer in accordance with this subpart.

(72 Stat. 1422; 26 U.S.C. 5721)

Sec. 270.432 Opening.

An opening inventory shall be made by the manufacturer of cigarette

papers and tubes at the time of first commencing business.

(72 Stat. 1422; 26 U.S.C. 5721)

Sec. 270.433 Special.

A special inventory shall be made by the manufacturer of cigarette

papers and tubes when required by any ATF officer.

(72 Stat. 1422; 26 U.S.C. 5721)

Sec. 270.434 Closing.

A closing inventory shall be made by the manufacturer of cigarette

papers and tubes when a change in proprietorship occurs, or when the

manufacturer changes location of the factory to another region, or

concludes business. Where a change in proprietorship occurs, the

closing inventory shall be made as of the day preceding the date of the

opening inventory of the successor.

(72 Stat. 1422; 26 U.S.C. 5721)

Document Retention

Sec. 270.435 General.

All records and reports required to be kept or maintained under

this subpart, including copies of authorizations, inventories, reports,

returns, and claims filed with verified supporting schedules, shall be

retained by the manufacturer for three years following the close of the

calendar year in which filed or made, or in the case of an

authorization, for three years following the close of the calendar year

in which the operation under such authorization is concluded. Such

records shall be made available for inspection by any ATF officer upon

request.

(72 Stat. 1423; 26 U.S.C. 5741)

Packages

Sec. 270.441 General.

All cigarette papers and tubes shall, before removal subject to

tax, be put up by the manufacturer in packages which shall be of such

construction as will securely contain the papers or tubes therein. No

package of cigarette papers or tubes shall have contained therein,

attached thereto, or stamped, marked, written, or printed thereon:

(a) Any certificate, coupon, or other device purporting to be or to

represent a ticket, chance, share, or an interest in, or dependent on,

the event of a lottery,

(b) Any indecent or immoral picture, print, or representation, or

(c) Any statement or indication that United States tax has been

paid.

(72 Stat. 1422; 26 U.S.C. 5723)

[[Page 54094]]

Miscellaneous Operations

Sec. 270.451 Transfer in bond.

A manufacturer of cigarette papers and tubes may transfer such

papers and tubes, under bond, without payment of tax, to the bonded

premises of any manufacturer of cigarette papers and tubes, or to the

bonded premises of a manufacturer of tobacco products solely for use in

the manufacture of cigarettes. The transfer of cigarette papers and

tubes, without payment of tax, to the bonded premises of an export

warehouse proprietor shall be in accordance with the provisions of part

290 of this chapter.

(72 Stat. 1418, as amended; 26 U.S.C. 5704)

Sec. 270.452 Release from customs custody.

Cigarette papers and tubes which were made in the United States,

exported, and subsequently returned to the United States, may be

removed from customs custody for transfer to the premises of a

manufacturer without payment of the internal revenue tax, upon

compliance with part 275 of this chapter.

(72 Stat. 1418; 26 U.S.C. 5704)

Sec. 270.453 Use of the United States.

A manufacturer of cigarette papers and tubes may remove cigarette

papers and tubes covered under bond, without payment of tax, for use of

the United States. Such removal shall be in accordance with the

provisions of part 295 of this chapter.

(72 Stat. 1418; 26 U.S.C. 5704)

Sec. 270.454 Removal for export purposes.

The removal of cigarette papers and tubes, without payment of tax,

for shipment to a foreign country, Puerto Rico, the Virgin Islands, or

a possession of the United States, or for consumption beyond the

jurisdiction of the internal revenue laws of the United States, shall

be in accordance with the provisions of part 290 of this chapter.

(72 Stat. 1418; 26 U.S.C. 5704)

Permanent Discontinuance of Business

Sec. 270.461 Discontinuance of operations.

Every manufacturer of cigarette papers and tubes who desires to

discontinue operations and close out a factory shall dispose of all

cigarette papers and tubes on hand, in accordance with this subpart,

and make a closing inventory and closing report, in accordance with the

provisions of Secs. 270.434 and 270.426, respectively.

(72 Stat. 1422; 26 U.S.C. 5721, 5722)

Claims By Manufacturers

General

Sec. 270.471 Abatement.

A claim for abatement of the unpaid portion of the assessment of

any tax on cigarette papers and tubes, or any liability in respect

thereof, may be allowed to the extent that such assessment is excessive

in amount, is assessed after the expiration of the applicable period of

limitation, or is erroneously or illegally assessed. Any claim under

this section shall be prepared on ATF Form 2635 (5620.8), in duplicate,

and shall set forth the particulars under which the claim is filed. The

original of the claim, accompanied by such evidence as is necessary to

establish to the satisfaction of the regional director (compliance)

that the claim is valid, shall be filed with the regional director

(compliance) for the region in which the tax or liability was assessed.

(68A Stat. 792, 6404)

Sec. 270.472 Allowance.

Relief from the payment of tax on cigarette papers and tubes may be

extended to a manufacturer by allowance of the tax where the cigarette

papers and tubes, after removal from the factory upon determination of

tax and prior to the payment of such tax, are lost (otherwise than by

theft) or destroyed by fire, casualty, or act of God, while in the

possession or ownership of the manufacturer who removed such articles,

or are withdrawn by the manufacturer from the market. Any claim for

allowance under this section shall be filed on ATF Form 2635 (5620.8)

with the regional director (compliance) for the region in which the

articles were removed, shall be executed under penalties and perjury

and shall show the date the cigarette papers and tubes were removed

from the factory. A claim relating to articles lost or destroyed shall

be supported as prescribed in Sec. 270.475. In the case of a claim

relating to cigarette papers or tubes withdrawn from the market the

schedule prescribed in Sec. 270.476 shall be filed with the regional

director (compliance) for the region in which the articles are

assembled. The manufacturer may not anticipate allowance of a claim by

making the adjusting entry in a tax return pending consideration and

action on the claim. Cigarette papers and tubes to which such a claim

relates must be shown as removed on determination of tax in the return

covering the period during which such articles were so removed. Upon

action on the claim by the regional director (compliance) a copy of ATF

Form 2635 (5620.8) will be returned to the manufacturer as notice of

such action. This copy of ATF Form 2635 (5620.8), with the copy of any

verified supporting schedules, shall be retained by the manufacturer.

When such notification of allowance of the claim or any part thereof is

received prior to the time the return covering the tax on the cigarette

papers or tubes to which the claim relates is to be filed, the

manufacturer may make an adjusting entry and explanatory statement in

that tax return. Where the notice of allowance is received after the

filing of the return and taxpayment of the cigarette papers or tubes to

which the claim relates, the manufacturer may make an adjusting entry

and explanatory statement in the next tax return(s) to the extent

necessary to take credit in the amount of the allowance.

(72 Stat. 1419, as amended, 26 U.S.C. 5705)

Sec. 270.473 Credit or refund.

The taxes paid on cigarette papers and tubes may be credited or

refunded (without interest) to a manufacturer on proof satisfactory to

the regional director (compliance) that the claimant manufacturer paid

the tax on cigarette papers and tubes lost (otherwise than by theft) or

destroyed, by fire, casualty, or act of God, while in the possession or

ownership of such manufacturer, or withdrawn by the manufacturer from

the market. Any claim for credit or refund under this section shall be

prepared on ATF Form 2635 (5620.8), in duplicate. Claims shall include

a statement that the tax imposed on cigarette papers and tubes by 26

U.S.C. 7652 or Chapter 52, was paid in respect to the cigarette papers

or tubes covered by the claim, and that the articles were lost,

destroyed, or withdrawn from the market within 6 months preceding the

date the claim is filed. A claim for credit or refund relating to

articles lost or destroyed shall be supported as prescribed in

Sec. 270.475, and a claim relating to articles withdrawn from the

market shall be accompanied by a schedule prepared and verified as

prescribed in Secs. 270.476, and 270.477. The original and one copy of

ATF Form 2635 (5620.8), shall be filed with the regional director

(compliance) for the region in which the tax was paid, or where the tax

was paid in more than one region with the regional director

(compliance) for any one of the regions in which the tax was paid. Upon

action by the regional director (compliance) on a claim for credit, a

copy of ATF Form 2635 (5620.8) will be returned to the manufacturer as

notification of

[[Page 54095]]

allowance or disallowance of the claim or any part thereof. This copy,

with the copy of any verified supporting schedules, shall be retained

by the manufacturer. When the manufacturer is notified of allowance of

the claim for credit or any part thereof, the manufacturer shall make

an adjusting entry and explanatory statement in the next tax return(s)

to the extent necessary to take credit in the amount of the allowance.

The manufacturer may not anticipate allowance of a claim by taking

credit on a tax return prior to consideration and action on such claim.

The duplicate of a claim for refund or credit, with a copy of any

verified supporting schedules, shall be retained by the manufacturer.

(72 Stat. 1419, as amended, 26 U.S.C. 5705)

Sec. 270.474 Remission.

Remission of the tax liability on cigarette papers and tubes may be

extended to the manufacturer liable for the tax where cigarette papers

and tubes in bond are lost (other than by theft) or destroyed, by fire,

casualty, or act of God, while in the possession or ownership of such

manufacturer. Where cigarette papers and tubes are so lost or destroyed

the manufacturer shall report promptly such fact, and the

circumstances, to the regional director (compliance) for the region in

which the factory is located. If the manufacturer wishes to be relieved

of the tax liability, a claim on ATF Form 2635 (5620.8), in duplicate,

shall also be prepared, setting forth the nature, date, place, and

extent of the loss or destruction. The original and one copy of the

claim, accompanied by such evidence as is necessary to establish to the

satisfaction of the regional director (compliance) that the claim is

valid, shall be filed with the regional director (compliance) for the

region in which the factory is located. Upon action on the claim by the

regional director (compliance), the copy of ATF Form 2635 (5620.8) will

be returned to the manufacturer as notice of such action, which copy

shall be retained by the manufacturer.

(72 Stat. 1419, as amended, 26 U.S.C. 5707)

Lost or Destroyed

Sec. 270.475 Action by claimant.

Where cigarette papers and tubes are lost (other than by theft) or

destroyed, by fire, casualty, or act of God, and the manufacturer

desires to file claim under the provisions of Sec. 270.472 or

Sec. 270.473, the manufacturer shall indicate on the claim the nature,

date, and extent of such loss or destruction. The claim shall be

accompanied by such evidence as necessary to establish to the

satisfaction of the regional director (compliance) that the claim is

valid.

(72 Stat. 1419; 26 U.S.C. 5705)

Withdrawn From the Market.

Sec. 270.476 Action by Claimant.

Where cigarette papers and tubes are withdrawn from the market and

the manufacturer desires to file claim under the provisions of

Sec. 270.472 or Sec. 270.473, the manufacturer shall assemble the

articles in or adjacent to a factory if they are to be retained in or

received into such factory, or at any suitable place if they are to be

destroyed. The manufacturer shall group the articles according to the

rate of tax applicable thereto, and shall prepare and submit a schedule

of the articles, on ATF Form 3069 (5200.7) in accordance with the

instructions, on the form. All copies of the schedule shall be

forwarded to the regional director (compliance) for the region in which

the articles are assembled.

(72 Stat. 1419; 26 U.S.C. 5705)

Sec. 270.477 Action by regional director (compliance).

Upon receipt of a schedule of cigarette papers and tubes withdrawn

from the market, the regional director (compliance) may assign an ATF

officer to verify the schedule and supervise disposition of the

cigarette papers and tubes, or may authorize the manufacturer to

dispose of the articles without supervision by so stating on the

original and one copy of the schedule returned to the manufacturer.

(72 Stat. 1419; 26 U.S.C. 5705)

Sec. 270.478 Disposition of cigarette papers and tubes and schedule.

When so authorized, as evidenced by the regional director's

(compliance) statement on the schedule, the manufacturer shall dispose

of the cigarette papers and tubes as specified in the schedule. After

the articles are disposed of, the manufacturer shall execute a

certificate on both copies of the schedule received from the regional

director (compliance), to show the disposition and the date of

disposition of the articles. In connection with a claim for credit or

refund, the manufacturer shall attach the original of the schedule to

the claim for credit or refund, ATF Form 2635 (5620.8), filed under

Sec. 270.473. When an ATF officer is assigned to verify the schedule

and supervise disposition of the cigarette papers and tubes, such

officer shall, upon completion of the assignment, execute a certificate

on all copies of the schedule to show the disposition and the date of

disposition of the articles. In connection with a claim for allowance,

the officer shall return one copy of the schedule to the manufacturer

for the record, and in connection with a claim for credit or refund,

the officer shall return the original and one copy of the schedule to

the manufacturer, the original of which the manufacturer shall attach

to the claim filed under Sec. 270.473.

(72 Stat. 1419, as amended; 26 U.S.C. 26 U.S.C. 5705)

Sec. B. The regulations in 27 CFR part 275 are amended as follows:

PART 275--IMPORTATION OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND

TUBES

Paragraph 1. The authority citation for part 275 continues to read

as follows:

Authority: 26 U.S.C. 5701, 5703-5705, 5708, 5722, 5723, 5741,

5761-5763, 6301, 6302, 6313, 6404, 7101, 7212, 7342, 7606, 7652; 31

U.S.C. 9301, 9303, 9304, 9306.

Sec. 275.63 [Amended]

Par. 2. Section 275.63(a) is amended by removing ``parts 270 and

285'' and adding ``part 270''.

Sec. 275.85 [Amended]

Par. 3. Section 275.85 concluding text is amended by removing

``part 270 and part 285'' and adding ``part 270''.

Par. 4. Section 275.85a(b) is amended by removing ``part 270 or

285'' and adding ``part 270''.

Sec. 275.86 [Amended]

Par. 5. Section 275.86 is amended by removing ``parts 270 and 285''

and adding ``part 270''.

Sec. 275.115 [Amended]

Par. 6. Section 275.115a (a)(1) and (b)(1) are amended by removing

``parts 270 and 285'' and adding ``part 270''.

Sec. 275.137 [Amended]

Par. 7. Section 275.137 introductory text is amended by removing

``parts 270 and 285'' and adding ``part 270''.

Sec. 275.140 [Amended]

Par. 8. Section 275.140 is amended by removing ``part 285'' and

adding ``part 270''.

Sec. C. The regulations in 27 CFR part 285 are amended as follows:

PART 285--MANUFACTURE OF CIGARETTE PAPERS AND TUBES

PART 285--[REMOVED AND RESERVED]

Paragraph 1. Part 285 is removed and reserved.

[[Page 54096]]

Sec. D. The regulations in 27 CFR part 295 are amended as follows:

PART 295--REMOVAL OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND

TUBES, WITHOUT PAYMENT OF TAX FOR USE OF THE UNITED STATES

Paragraph 1. The authority citation for part 295 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).

Par. 2. Section 295.34 is amended by removing the phrase ``or Part

285''.

Signed: June 10, 1996.

John W. Magaw,

Director.

Approved: July 29, 1996.

Dennis M. O'Donnell,

Acting Deputy Assistant Secretary (Regulatory, Tariff and Trade

Enforcement).

[FR Doc. 96-26305 Filed 10-16-96; 8:45 am]

BILLING CODE 4810-31-M