Implementation of Public Law 104-188, Section 1702, Amendments Related to Revenue Reconciliation Act of 1990 (96R-028P)

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

[T.D. ATF-390]

27 CFR Part 24

RIN 1512-AB65

Implementation of Public Law 104-188, Section 1702, Amendments

Related to Revenue Reconciliation Act of 1990 (96R-028P)

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

the Treasury.

ACTION: Temporary rule (Treasury decision).

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

SUMMARY: This temporary rule implements some of the provisions of the

Small Business Job Protection Act of 1996. The new law made changes to

the small producers' wine tax credit and wine bond provisions in the

Internal Revenue Code of 1986. The wine regulations are amended to

extend the application of the credit to ``transferees in bond''

(proprietors who store wine for a small producer but who do not hold

title to such wine) in certain circumstances, and to make conforming

changes to the bond computation instructions, which were also affected

by the law change. In the Proposed Rules section of this Federal

Register, ATF is also issuing a notice of proposed rulemaking inviting

comments on the temporary rule for a 60-day period following the

publication of this temporary rule.

EFFECTIVE DATES: The temporary regulations are retroactive to January

1, 1991. The regulations will remain in effect until superseded by

final regulations.

ADDRESSES: Send written comments to: Chief, Wine, Beer & Spirits

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

50221, Washington, DC 20091-0221.

FOR FURTHER INFORMATION CONTACT: Marjorie D. Ruhf, Wine, Beer & Spirits

Regulations Branch, 650 Massachusetts Avenue, NW., Washington, DC

20226, (202) 927-8230.

SUPPLEMENTARY INFORMATION:

Background

Tax Credits for Certain Proprietors of Bonded Wine Premises

The Revenue Reconciliation Act of 1990, Title XI of Public Law 101-

508, 104 Stat. 1388-400, was enacted on November 5, 1990. Section 11201

of this law increased the rate of tax on still wines and artificially

carbonated wines removed from bonded premises or Customs custody on or

after January 1, 1991. The tax rates on these products were increased

by 90 cents per wine gallon. The law did not increase the tax rate on

champagne and other sparkling wines.

In addition to the above-referenced increased rates of tax, section

11201 provided that small domestic producers of wine are entitled to a

credit of up to 90 cents per wine gallon on the first 100,000 gallons

of wine (other than champagne and other sparkling wines) removed for

consumption or sale during a calendar year. This credit may be taken by

a bonded wine premises proprietor who does not produce more than

250,000 gallons of wine in a given calendar year. The 90 cents per wine

gallon credit is equivalent to the amount by which the tax on wine was

increased by the Revenue Reconciliation Act of 1990. However, the full

credit of 90 cents per gallon is reduced 1 percent ($.009 per gallon)

for each thousand gallons of wine over 150,000 gallons which are

produced in a year, until the full increased tax rate is reached.

On December 11, 1990, ATF issued regulations implementing the small

producers' wine tax credit. See T.D. ATF-307, 55 FR 52723. The

regulations appearing at 27 CFR 24.278 implement the tax credit for

small domestic producers. The regulations in 27 CFR 24.279 explain the

procedure for making adjustments to tax returns as a result of claiming

an incorrect credit rate.

On August 9, 1991, ATF issued Industry Circular 91-9 to announce an

ATF ruling (subsequently published as ATF Ruling 92-1 (A.T.F.Q.B. 1992-

3, 55)), which held that the small producer's wine tax credit is

available only to eligible proprietors engaged in the business of

producing wine. A proprietor who has a basic permit to produce wine but

does not produce wine during a calendar year may not take the small

producers' wine tax credit on wine removed during such

[[Page 29664]]

calendar year. A proprietor who has obtained a new wine producers'

basic permit may not take the small producers' wine tax credit on wine

removed until wine is produced by such proprietor. The provisions of

that ruling are hereby incorporated into 27 CFR 24.278(a) and the

ruling is declared obsolete.

Public Law 104-188

On August 20, 1996, the Small Business Job Protection Act of 1996,

Public Law 104-188, 110 Stat. 1755, was enacted. Section 1702 of the

Act contains amendments to the Revenue Reconciliation Act of 1990,

including some provisions which affect small wine producers. The law

provides that the amendments made by section 1702 shall take effect as

if included in the provision of the Revenue Reconciliation Act of 1990

to which such amendment relates. Section 11201 of the Revenue

Reconciliation Act, which contained the small producers' wine tax

credit provision, was effective for wine removed after January 1, 1991.

Accordingly, the amendments made in this regulation have been made

retroactive to January 1, 1991.

Before the enactment of Public Law 104-188, small wine producers

were eligible to take the small producers' wine tax credit only on wine

removed for consumption or sale by that producer; if the producer

transferred wine in bond to another bonded wine premises (a transferee

in bond) for storage pending subsequent removal by the transferee, then

the producer could not claim a credit on that wine, since the producer

had not removed the wine for consumption or sale. If the transferee was

not eligible for the small producers' wine tax credit (i.e., it did not

produce wine at all, or it produced more than 250,000 gallons of wine),

then there was no eligibility for the credit. Even if the transferee

produced wine and was eligible for credit in its own right, its

eligibility was limited to the first 100,000 gallons removed during the

year. In order to receive the credit, some small wineries began to

taxpay their wines at the time of removal, and store the wines taxpaid

instead of transferring them in bond.

Public Law No. 104-188 amended 26 U.S.C. 5041(c) to allow the

credit to be taken by ``transferees in bond'' on behalf of their small

producer clients. As amended, 26 U.S.C. 5041(c) provides that where

wine would be eligible for the small producer credit if removed by the

producer, and such wine is transferred in bond to another person (the

transferee) who removes such wine during such calendar year, the

transferee (and not the producer) may be eligible for the small

producer credit under certain prescribed circumstances. The law

requires that the producer must hold title to the wine at the time of

its removal and must provide to the transferee such information as is

necessary to properly determine the transferee's credit under this

paragraph. The statutory language thus limits the application of the

credit to transferees in bond receiving wine from the actual producer

of the wine in question, and not from a subsequent owner who may also

be a small producer. Production is already defined in 27 CFR 24.278 for

purposes of establishing eligibility for wine credit.

A definition of removals is hereby added in 27 CFR 24.278(e)(2). As

amended, 26 U.S.C. 5041(c)(6) provides that, when the producer elects

to transfer the credit, the transferee (and not the producer) will be

eligible for the credit. Therefore, the credit eligibility of the small

producer is still limited to the first 100,000 gallons removed for

consumption or sale during a calendar year, whether the removal is from

its own premises or from the premises of a transferee in bond using the

producer's credit on the producer's instructions.

Another condition of the new credit provision is that the producer

must give the transferee ``such information as is necessary to properly

determine the transferee's credit.'' A new regulation in 27 CFR

24.278(b)(2)(D) sets forth what information is required. The regulatory

requirement to transmit taxpayment instructions ``in writing'' may be

satisfied by any form of electronic transmission available to the

producer and transferee, as long as a permanent copy is filed with the

records required to be maintained in support of tax return and claim

information by both the producer and the transferee.

Liability for Additional Tax

Pursuant to 26 U.S.C. 5043, the proprietor of a bonded wine cellar

is liable for the tax on any wines removed from such premises. Section

5362(b) provides that wine may be withdrawn without payment of tax for

transfer in bond between bonded premises. When such a transfer occurs,

section 5043(a)(1)(A) provides that the liability for payment of the

tax shall become the liability of the transferee from the time of

removal of the wine from the transferor's premises, and the transferor

shall thereupon be relieved of such liability.

Thus, where a small producer transfers wine in bond to a bonded

wine cellar, and the bonded wine cellar thereupon removes the wine, it

is the transferee and not the transferor that is liable for the tax.

Since the small producers' wine tax credit rate each year is based on

the level of production during the same calendar year, and the total

production is not known until the close of the year, adjustments to the

credit rate are sometimes needed. If ATF determines, for example, that

a transferee took the small producer credit for a certain quantity of

wine, and the small producer subsequently disqualified itself for the

credit by producing more than 250,000 wine gallons during that calendar

year, it is the transferee that will be responsible for paying the

additional tax liability and any applicable interest or penalties

arising out of such an underpayment of tax. Transferees may wish to

take this into account when making contractual arrangements with small

wine producers.

Increasing adjustments are required if a person produces more wine

than anticipated when the credit was computed, or if the person fails

to produce wine during the calendar year and loses eligibility for such

credit after claiming it. The regulations in 27 CFR 24.279(a) cover

increasing adjustments as they relate to the small producer's own

removals, and this section is being expanded to reflect adjustments to

credits taken by a transferee in bond. If excess credits are taken by

the transferee based on information received from a producer, the

transferee is responsible for making the necessary increasing

adjustment, with interest. The section on increasing adjustments is

also being amended to differentiate between the excess credits

discussed above, which are the result of a good faith estimate of

future production, and excess credits taken after the 100,000 gallon

maximum has been reached. The latter excess credits result from

careless recordkeeping of current removals, and not from an inability

to predict exact annual production. As revised, 27 CFR 24.279 notes

that the regional director (compliance) has the discretion to impose a

penalty on excess credits which result from carelessness.

A decreasing adjustment may be claimed if a person qualifies for

the credit but does not deduct it, or deducts less than the full credit

for which such person is eligible. Since the person who paid the tax

(in this case the transferee) must claim a refund or credit of such

tax, yet was most likely reimbursed for the tax by the producer, we

note that the provisions of 26 U.S.C. 6423 and 27 CFR part 70, subpart

E (recently recodified from 27 CFR part 170, subpart E) will apply to

such requests for refund. Using information provided by the producer,

[[Page 29665]]

the transferee must show (1) that the owner of the article (the

producer) has furnished the transferee with the amount claimed for

payment of the tax, (2) the owner has given its written consent to the

allowance of the credit or refund to the transferee, and (3) the owner

bore the ultimate burden of the tax (i.e., did not pass on the burden

of the tax to the consumer as part of the sale price of the product),

or unconditionally repaid the amount claimed to the person who bore the

ultimate burden of the tax. The procedure in 27 CFR 24.279(b) for

claiming credit or refund of taxes to reflect increases in small

producers' wine tax credit eligibility has been modified to take

transferees in bond into account.

Disclosure Issues

Both small wine producers and transferees in bond should note that

at times it will be necessary for ATF to disclose information

concerning the tax liability of the small wine producer to the

transferee who actually claimed the small producer credit, in order to

explain the basis for additional assessments or other adjustments to

the transferee's tax liability. In general, 26 U.S.C. 6103 prohibits

the disclosure of tax returns or return information to anyone other

than the taxpayer unless the taxpayer has consented to such a

disclosure. However, 26 U.S.C. 6103(h)(4)(C) allows the disclosure of a

return or return information in a Federal judicial or administrative

proceeding pertaining to tax administration, if such return or return

information directly relates to a transactional relationship between a

person who is a party to the proceeding and the taxpayer which directly

affects the resolution of an issue in the proceeding. It is ATF's

position that any audit or inspection of the transferee's tax liability

is an administrative proceeding pertaining to tax administration. Thus,

the law authorizes ATF to disclose to the transferee information

pertaining to the credit eligibility of the producer in cases where it

directly relates to credits taken by the transferee on the instructions

of the small producer, which directly affects the resolution of the

issue of the tax liability of the transferee. See generally First

Western Government Securities, Inc. v. United States, 796 F.2d 355

(10th Cir. 1986).

Claims for Refund or Credit

As previously noted, section 1702(i) of the Small Business Job

Protection Act of 1996 provides that the amendments made by section

1702 of the Act shall take effect as if included in the provision of

the Revenue Reconciliation Act of 1990 to which such amendment relates.

Section 11201 of the Revenue Reconciliation Act, which contained the

small wine producer credit provision, was effective for wine removed

after January 1, 1991. Accordingly, the amendments made in this

regulation have been made retroactive to January 1, 1991. However,

since the law did not contain any language explicitly or implicitly

waiving the statute of limitations for filing claims for credit or

refund, the applicable statutory period provided for in 26 U.S.C. 6511

and 27 CFR 70.261 will still apply. See, e.g., United States v. Zacks,

375 U.S. 59 (1963). In most cases, this means that claims must be filed

within 3 years after the due date of the tax return to which they

relate.

Other Changes Made by the Small Business Job Protection Act of 1996

The cross reference to 26 U.S.C. 5041(e) in 26 U.S.C. 5061(b)(3)

was amended to read ``section 5041(f)'' because paragraph 5041(e) was

redesignated as 5041(f) when the wine credit provisions were added in

1990. No conforming changes to the regulations are needed.

Finally, the wine bond requirement was amended to note that the

appropriate credit should be taken into account in computing the penal

sum of the bond, and this document makes a conforming change to 27 CFR

24.148. We note that, pursuant to ATF Ruling 92-1 (A.T.F.Q.B. 1992-3,

55), now incorporated into 27 CFR 24.278(a), a new proprietor may not

take credit against wine tax until such proprietor actually produces

wine and establishes its eligibility as a small producer. Therefore,

new proprietors may be asked to file bonds at the full tax rate if they

plan to sell wine received in bond or transferred from a predecessor

before they produce wine and qualify for the small producers' wine tax

credit.

Regulatory Flexibility Act

It is hereby certified that these regulations will not have a

significant economic impact on a substantial number of small entities.

Accordingly, a regulatory flexibility analysis is not required. Any

revenue effects of this rulemaking on small businesses flow directly

from the underlying statute. Likewise, any secondary or incidental

effects, and any reporting, recordkeeping, or other compliance burdens

flow directly from the statute. Pursuant to 26 U.S.C. 7805(f), this

temporary regulation will be 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 temporary rule is not a

significant regulatory action as defined by Executive Order 12866,

because any economic effects flow directly from the underlying statute

and not from this temporary rule. Therefore, a regulatory assessment is

not required.

Paperwork Reduction Act

This regulation is being issued without prior notice and public

procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553).

For this reason, the new collection of information contained in this

regulation has been reviewed under the requirements of the Paperwork

Reduction Act of 1995 (44 U.S.C. 3507(j)) and, pending receipt and

evaluation of public comments, approved by the Office of Management and

Budget (OMB) under control number 1512-0540. An agency may not conduct

or sponsor, and a person is not required to respond to, a collection of

information unless it displays a valid control number assigned by the

Office of Management and Budget.

The collections of information in this regulation are in 27 CFR

24.278 and 24.279 (previously approved under OMB Control Number 1512-

0492). This information is required to advise the transferee of any

available credit, and to support entries on tax returns and claims.

This information will be used by the transferee and the small producer

to compute taxes or claims and may also be reviewed by ATF during an

audit to confirm that wine tax credits were properly taken. The

collections of information are required to obtain a benefit (reduced

rate of tax). The likely recordkeepers are businesses and small

businesses.

For further information concerning these collections of

information, and where to submit comments on the collections of

information, refer to the preamble to the cross reference notice of

proposed rulemaking published elsewhere in this issue of the Federal

Register.

Administrative Procedure Act

Because this document merely implements a law which is retroactive

to January 1, 1991, and because immediate guidance is necessary to

implement the provisions of the law, it is found to be impracticable to

issue this Treasury decision with notice and public procedure under 5

U.S.C. 553(b),

[[Page 29666]]

or subject to the effective date limitation in section 553(d).

Drafting Information: The principal author of this document is

Marjorie Ruhf, Wine, Beer & Spirits Regulations Branch, Bureau of

Alcohol, Tobacco and Firearms.

List of Subjects in 27 CFR Part 24

Administrative practice and procedure, Authority delegations,

Claims, Electronic fund transfers, Excise taxes, Exports, Food

additives, Fruit juices, Labeling, Liquors, Packaging and containers,

Reporting and recordkeeping requirements, Research, Scientific

equipment, Spices and flavoring, Surety bonds, Taxpaid wine bottling

house, Transportation, Vinegar, Warehouses, Wine.

Authority and Issuance

Chapter I of title 27, Code of Federal Regulations is amended as

follows:

PART 24--WINE

Paragraph 1. The authority citation for 27 CFR part 24 continues to

read as follows:

Authority: 5 U.S.C. 552(a); 26 U.S.C. 5001, 5008, 5041, 5042,

5044, 5061, 5062, 5081, 5111-5113, 5121, 5122, 5142, 5143, 5173,

5206, 5214, 5215, 5351, 5353, 5354, 5356, 5357, 5361, 5362, 5364-

5373, 5381-5388, 5391, 5392, 5511, 5551, 5552, 5661, 5662, 5684,

6065, 6091, 6109, 6301, 6302, 6311, 6651, 6676, 7011, 7302, 7342,

7502, 7503, 7606, 7805, 7851; 31 U.S.C. 9301, 9303, 9304, 9306.

Par. 2. Section 24.148 is revised to read as follows:

Sec. 24.148 Penal sums of bonds.

The penal sums of bonds prescribed in this part are as follows:

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

Penal sum

Bond Basis -------------------------

Minimum Maximum

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

(a) Wine Bond, AFT F 5120.36........ (1) Not less than the tax on all wine or spirits $1,000 $50,000

in transit or unaccounted for at any one time,

taking into account the appropriate small

producer's wine tax credit.

Where such liability exceeds $250,000........... ........... 100,000

(2) Where the unpaid tax amounts to more than 500 250,000

$500, not less than the amount of tax which, at

any one time, has been determined but not paid.

Except: $1,000 of the wine operations coverage

may be allocated to cover the amount of tax

which, at any one time, has been determined but

not paid, if the total operations coverage is

$2,000 or more.

(b) Wine Vinegar Plant Bond ATF F Not less than the tax on all wine on hand, in 1,000 100,000

5510.2*. transit, or unaccounted for at any one time.

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

* The proprietor of a bonded wine premises who operates an adjacent or contiguous wine vinegar plant with a Wine

Bond which does not cover the operation may file a consent of surety to extend the terms of the Wine Bond in

lieu of filing a wine vinegar plant bond.

(26 U.S.C. 5354, 5362)

Par. 3. Section 24.278 is revised and the OMB authorization number

is added to read as follows:

Sec. 24.278 Tax credit for certain small domestic producers.

(a) General. In the case of a person who produces not more than

250,000 gallons of wine during the calendar year, there shall be

allowed as a credit against any tax imposed by Title 26, U.S.C. (other

than Chapters 2, 21 and 22), an amount computed in accordance with

paragraph (d) of this section, on the first 100,000 gallons of wine

(other than champagne and other sparkling wine) removed during such

year for consumption or sale. Such credit applies only to wine which

has been produced at a qualified bonded wine premises in the United

States. The small wine producer's tax credit is available only to

eligible proprietors engaged in the business of producing wine. A

proprietor who has a basic permit to produce wine but does not produce

wine during a calendar year may not take the small producers' wine tax

credit on wine removed during such calendar year. A proprietor who has

obtained a new wine producers' basic permit may not take the small

producers' wine tax credit on wine removed until wine is produced by

such proprietor. ``Wine production operations'' include those

activities described in paragraph (e) of this section.

(b) Special rules relating to eligibility for wine credit--(1)

Controlled groups. For purposes of this section and Sec. 24.279, the

term ``person'' includes a controlled group of corporations, as defined

in 26 U.S.C. 1563(a), except that the phrase ``more than 50 percent''

shall be substituted for the phrase ``at least 80 percent'' wherever it

appears. Also, the rules for a ``controlled group of corporations''

apply in a similar fashion to groups which include partnerships and/or

sole proprietorships. Production and removals of all members of a

controlled group are treated as if they were the production and

removals of a single taxpayer for the purpose of determining what

credit may be used by a person.

(2) Credit for transferees in bond. A person other than an eligible

small producer (hereafter in this paragraph referred to as the

``transferee'') shall be allowed the credit under paragraph (a) of this

section which would be allowed to the producer if the wine removed by

the transferee had been removed by the producer on that date, under the

following conditions:

(i) Wine produced by any person would be eligible for any credit

under this section if removed by such person during the calendar year,

(ii) Wine produced by such person is removed during such calendar

year by the transferee to whom such wine was transferred in bond and

who is liable for the tax imposed by this section with respect to such

wine, and

(iii) Such producer holds title to such wine at the time of its

removal and provides to the transferee such information as is necessary

to properly determine the transferee's credit under this paragraph.

(iv) At the time of taxable removal, the following information

shall be provided to the transferee by the producer, in writing, and

the producer and transferee shall each retain a copy with the record of

taxpaid removal from bond required by Sec. 24.310:

(A) The names of the producer and transferee;

(B) The quantity and tax class of the wines to be shipped;

(C) The date of removal from bond for consumption or sale;

(D) A confirmation that the producer is eligible for credit, with

the credit rate to which the wines are entitled; and

(E) A confirmation that the subject shipment is within the first

100,000 gallons of eligible wine removed by (or on behalf of) the

producer for the calendar year.

[[Page 29667]]

(c) Time for determining and allowing credit. The credit allowable

by paragraph (a) of this section shall be determined at the same time

as the tax is determined under 26 U.S.C. 5041(a), and shall be

allowable at the time any tax described in paragraph (a) of this

section is payable. The credit allowable by this section is treated as

if it constituted a reduction in the rate of such tax.

(d) Computation of credit. The credit which may be taken on the

first 100,000 gallons of wine (other than champagne and other sparkling

wine) removed for consumption or sale by an eligible person during a

calendar year shall be computed as follows:

(1) For persons who produce 150,000 gallons or less of wine during

the calendar year, the credit is $0.90 per gallon for wine eligible for

such credit at the time it is removed for consumption or sale;

(2) For persons who produce more than 150,000 gallons but not more

than 250,000 gallons during the calendar year, the credit shall be

reduced 1 percent ($0.009) for every 1,000 gallons produced in excess

of 150,000 gallons. For example, the credit which would be taken by a

person who produced 159,500 gallons of wine would be reduced by 9

percent, or $0.081, for a net credit against the tax of $0.819 per

gallon for the first 100,000 gallons of wine removed for consumption or

sale.

(e) Definitions--(1) Production. For the purpose of determining if

a person's production is within the 250,000 gallon limitation, in

addition to wine produced by fermentation, production includes any

increases in the volume of such wine due to the winery operations of

amelioration, wine spirits addition, sweetening, and the production of

formula wine. Production of champagne and other sparkling wines is not

excluded for purposes of determining whether total production of a

winery exceeds 250,000 gallons. Production includes all wine produced

at qualified bonded wine premises within the United States and wine

produced outside the United States by such person.

(2) Removals. For the purpose of determining if a person's removals

are within the 100,000 gallon limitation, removals include wine removed

from all qualified bonded wine premises within the United States by

such person. Wine removed by a transferee in bond under the provisions

Sec. 24.278(b)(2) will be counted as a removal by the small producer

who owns such wine, and not by the transferee in bond.

(f) Preparation of tax return. A person who is eligible for the

credit shall show the amount of wine tax before credit on the Excise

Tax Return, ATF F 5000.24, and enter the quantity of wine subject to

credit and the applicable credit rate as the explanation for an

adjusting entry in Schedule B of the return for each tax period. Where

a person does not use the credit authorized by this section to directly

reduce the rate of Federal excise tax on wine, that person shall report

on ATF F 5000.24 where such credit will be, or has been, applied. Where

a transferee in bond takes credit on behalf of one or more small

producers, the names of such producers, their credit rate, and the

total credit taken on behalf of each during the tax return period shall

be shown in schedule B.

(g) Denial of deduction. Any deduction under 26 U.S.C. chapters 1-

6, with respect to any tax against which the credit is allowed under

paragraph (a) of this section shall only be for the amount of such tax

as reduced by such credit.

(h) Exception to credit. The regional director (compliance) shall

deny any tax credit taken under paragraph (a) of this section where it

is determined that the allowance of such credit would benefit a person

who would otherwise fail to qualify for the use of such credit. (26

U.S.C. 5041(c).)

(Approved by the Office of Management and Budget under control

number 1512-0540)

Par. 4. Section 24.279 is revised and the OMB authorization number

is added to read as follows:

Sec. 24.279 Tax adjustments related to wine credit.

(a) Increasing adjustments. Persons who produce more wine than the

amount used in computation of the credit, or who lose eligibility by

not producing during a calendar year, must make increasing tax

adjustments. Where an increasing adjustment to a person's tax return is

necessary as a result of an incorrect credit rate claimed pursuant to

Sec. 24.278, such adjustment shall be made on Excise Tax Return, ATF F

5000.24, no later than the return period in which production (or the

production of the controlled group of which the person is a member)

exceeds the amount used in computation of the credit. If the adjustment

is due to failure to produce, it shall be made no later than the last

return period of the calendar year. The adjustment is the difference

between the credit taken for prior return periods in that year and the

appropriate credit for such return periods. The person shall make tax

adjustments for all bonded wine premises where excessive credits were

taken against tax that year, and shall include interest payable. In the

case of a person who continued to deduct credit after reaching the

100,000 gallon maximum during the calendar year, the adjustment is the

full amount of excess credit taken, and shall include interest payable

under 26 U.S.C. 6601 from the date on which the excess credit was

taken, and may include the penalty payable under 26 U.S.C. 6662, at the

discretion of the regional director (compliance). The regional director

(compliance) will provide information, when requested, regarding

interest rates applicable to specific time periods, and any applicable

penalties. In the case of a controlled group of bonded wine premises

who took excess credits, all member proprietors who took incorrect

credits shall make tax adjustments as determined in this section. In

the case of a small producer who instructed a transferee in bond to

take credit as authorized by Sec. 24.278(b)(2), and subsequently

determines the credit was less or not applicable, such producer shall

immediately inform the transferee in bond, in writing, of the correct

credit information. The transferee shall make any increasing adjustment

on its next tax return based on revised credit information given by the

producer or by an ATF officer.

(b) Decreasing adjustments. Where a person fails to deduct the

credit, or deducts less than the appropriate credit provided for by

Sec. 24.278, during the calendar year, a claim may be filed for refund

of tax excessively paid. Such claims will be filed in accordance with

Sec. 24.69 of this part. In the case of wine removed on behalf of a

small producer by a transferee in bond, if the transferee in bond was

instructed to deduct credit and failed to deduct credit or deducted

less than the appropriate credit and was later reimbursed for the tax

by such producer, such transferee may file the claim. The provisions of

26 U.S.C. 6423 and 27 CFR part 70, subpart F, will apply, and the

producer and transferee in bond must show the conditions of

Sec. 24.278(b)(2) were met. (26 U.S.C. 5041(c).)

(Approved by the Office of Management and Budget under control

number 1512-0492)

Signed: December 23, 1996.

John W. Magaw,

Director.

Approved: January 3, 1997.

Dennis M. O'Connell,

Acting Deputy Assistant Secretary (Regulatory, Tariff and Trade

Enforcement).

[FR Doc. 97-14308 Filed 5-30-97; 8:45 am]

BILLING CODE 4810-31-P