Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31399

§ 520.1484 Neomycin sulfate soluble

powder.

* * * * *

(c) * * *

(3) * * * Discontinue treatment

prior to slaughter as follows: For

sponsor 059130—cattle and goats, 30

days; swine and sheep, 20 days; for

sponsors 000009, 000069, 050604—

cattle (not for use in veal calves), 1 day;

sheep, 2 days; swine and goats, 3 days.

PART 556—TOLERANCES FOR

RESIDUES OF NEW ANIMAL DRUGS

IN FOOD

3. The authority citation for 21 CFR

part 556 continues to read as follows:

Authority: Secs. 402, 512, 701 of the

Federal Food, Drug, and Cosmetic Act (21

U.S.C. 342, 360b, 371).

4. Section 556.430 is revised to read

as follows:

§ 556.430 Neomycin.

A tolerance of 7.2 parts per million

(ppm) is established for residues of

parent neomycin (marker residue) in

uncooked edible kidney (target tissue),

7.2 ppm in fat, 3.6 ppm in liver, 1.2

ppm in muscle of cattle, swine, sheep,

and goats. A tolerance of 0.15 ppm is

established for neomycin in milk.

Dated: May 31, 1996.

Stephen F. Sundlof,

Director, Center for Veterinary Medicine.

[FR Doc. 96–15724 Filed 6–19–96; 8:45 am]

BILLING CODE 4160–01–F

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and

Firearms

27 CFR Parts 17, 19, 70, 170, 194, 197,

and 250

[T.D. ATF–379; Re Notice Nos. 634, 649,

748, and 758]

RIN 1512–AA20

Taxpaid Distilled Spirits Used in

Manufacturing Products Unfit for

Beverage Use (73R–24P)

AGENCY: Bureau of Alcohol, Tobacco

and Firearms (ATF), Department of the

Treasury.

ACTION: Final rule, Treasury decision.

SUMMARY: This final rule amends and

recodifies the regulations on taxpaid

distilled spirits used to manufacture

nonbeverage products. The regulations

formerly in 27 CFR part 197 (Drawback

on Distilled Spirits Used in

Manufacturing Nonbeverage Products)

are recodified as a new part, designated

27 CFR part 17. In conjunction with the

recodification, a number of changes to

the drawback regulations have been

made. Further, the regulations formerly

in 27 CFR part 170, subpart U

(Manufacture and Sale of Certain

Compounds, Preparations, and Products

Containing Alcohol) have been

distributed between 27 CFR part 19 and

the new part 17; and conforming

amendments have been made in 27 CFR

parts 70, 194, and 250. Significant

changes from prior regulations are

discussed below under SUPPLEMENTARY

INFORMATION.

EFFECTIVE DATE: This Treasury decision

is effective on August 19, 1996.

FOR FURTHER INFORMATION CONTACT:

Steve Simon, Wine, Beer, and Spirits

Regulations Branch, Bureau of Alcohol,

Tobacco and Firearms, 650

Massachusetts Avenue NW,

Washington, DC 20226; (202) 927–8210.

SUPPLEMENTARY INFORMATION:

Notices of Proposed Rulemaking

On July 29, 1987, ATF published

Notice No. 634 in the Federal Register

(52 FR 28286). That notice proposed the

recodification of regulations concerning

nonbeverage drawback, including

changes from the former regulations (27

CFR part 197). Public comment was

requested concerning the proposed

changes. A 90-day comment period was

provided, which ended on October 27,

1987. In response to Notice No. 634,

ATF received four written public

comments. In addition, some review

comments were received from ATF

personnel after the publication of Notice

No. 634.

On December 8, 1987, ATF solicited

additional public comments regarding

the nonbeverage drawback regulations.

On that date, ATF published Notice No.

649 (52 FR 46628), which requested

comments specifically relating to

drawback on nonbeverage products

brought into the U.S. from Puerto Rico

or the Virgin Islands. In conjunction, the

comment period for Notice No. 634 was

extended until January 8, 1988. No

additional comments concerning Notice

No. 634 were received pursuant to that

extension.

On August 31, 1992, ATF decided to

republish the proposed recodification

and amendment of 27 CFR part 197.

Notice No. 748 was published in the

Federal Register (57 FR 39536). Because

more than 4 years had elapsed since the

end of the previous comment periods,

the proposed regulations were

republished in their entirety, with some

additional changes, so that anyone else

who wished to comment on them would

have an opportunity to do so.

Notice No. 748 prescribed a 30-day

comment period, which was scheduled

to end on September 30, 1992. On

September 14, 1992, ATF was asked to

extend this comment period for an

additional 90 days. ATF partially

granted this request. On October 1,

1992, Notice No. 758 (57 FR 45357)

extended the comment period for Notice

No. 748 by an additional 30 days, until

October 30, 1992. The full 90-day

extension (as requested) was not

granted, because most of the same

regulatory issues had been previously

aired for public comment during a

sufficient length of time. Subsequent to

the official ending of the comment

period, comments that were received

while it was still practicable to consider

them were given consideration.

In response to Notices No. 748 and

758, comments were received by letter,

telephone, and personal visit from a

total of twelve persons representing

eleven entities (nine industry members

and two industry groups). These

comments are discussed carefully

below, following the discussion of

comments submitted previously under

Notice No. 634.

Public Comments on Notice No. 634

Comments relating to Notice No. 634

were received from four correspondents:

1. One commenter proposed that

§ 17.183 be liberalized to allow

manufacturers to sell or transport

byproducts from which alcohol may be

recovered, without removing the alcohol

or adding an appropriate substance to

prevent the recovery of residual alcohol.

The commenter was concerned

particularly about economic loss from

an inability to process ‘‘spent’’ vanilla

beans for food use applications.

ATF did not adopt this comment,

because potable alcohol recovered from

a nonbeverage manufacturer’s

byproduct would have been previously

subject to drawback; thus less than 10%

of the tax would remain paid. The

possible recovery of such potable

alcohol by unknown persons would

present an unacceptable jeopardy to the

revenue. Subject to formula approval

and/or approval of an alternative

procedure under § 17.3, ATF could

allow byproducts containing

recoverable alcohol to be subjected to

additional processing, on the

manufacturer’s premises, for food use

applications.

The basis for § 17.183 in this final rule

is ATF Ruling 81–8, 1981–4 QB 24. That

ruling provided a liberalized procedure

for the disposition of spent vanilla

beans, whereby they could be treated

with any substance that the

manufacturer deemed adequate to make
31400 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

recovery of potable alcohol impractical.

This procedure has been broadened in

§ 17.183 to apply to the disposition of

any byproduct from which alcohol can

be recovered. However, under the

broadened rule, prior approval from

ATF must be obtained for treatment

with substances not previously

authorized.

In § 17.183(c), certain substances are

authorized for treatment of spent vanilla

beans. No further authorization is

needed for the use of these substances,

when disposing of spent vanilla beans.

Approval is required if other substances

will be added to such beans, or if other

byproducts from which alcohol can be

recovered will be disposed of.

Manufacturers who have already

received approval for other methods of

disposal, not mentioned in § 17.183,

may continue to operate under such

approval.

2. Another commenter expressed

support for some of the proposals of

Notice No. 634, but he had reservations

about several others. He requested that

ATF review the nonbeverage industry’s

‘‘historical compliance track record’’

before imposing new recordkeeping

requirements concerning usage of

finished products (§ 17.166); he

questioned the revised definition of

‘‘distilled spirits’’ in § 17.11 as being

different from the definition of the same

term in 27 CFR part 5; and he sought a

‘‘transition period’’ for the

implementation of new language in

§ 17.161 (dealing with general

requirements for records).

ATF reviewed the compliance record

of the nonbeverage manufacturing

industry and determined that the new

records in § 17.166(b), concerning usage

of nonbeverage products, are needed to

verify that such products were

manufactured in the amount claimed.

The new records close a gap in the

recordkeeping system of the former part

197. (However, see the further

discussion of this issue below, in

conjunction with a comment submitted

pursuant to Notice No. 748.)

The revised definition of ‘‘distilled

spirits’’ was also kept unchanged,

because the revised definition is

consistent with the definition of

‘‘distilled spirits’’ in the Internal

Revenue Code (26 U.S.C. 5002(a)(8)).

The nonbeverage drawback regulations

are issued under the Internal Revenue

Code, while 27 CFR part 5 is a

regulation under the Federal Alcohol

Administration Act. The revised

definition in part 17 differs from the

former definition in part 197 only by the

deletion of the words ‘‘fully taxpaid or

tax determined at the distilled spirits

rate.’’ This change brings the definition

closer both to 26 U.S.C. 5002(a)(8) and

to the ordinary meaning of ‘‘distilled

spirits.’’ Whenever taxpaid distilled

spirits are specifically intended in part

17, the word ‘‘taxpaid’’ is stated. A new

definition of ‘‘taxpaid’’ is provided in

§ 17.11.

Finally, ATF determined that there is

no need for a transition period for

implementation of new language in

§ 17.161, because the only substantive

change brought about by that new

language is liberalizing. That change

makes it clear that normal business

records, including invoices and cost

accounting records, are adequate for

regulatory purposes if they contain the

required information. (ATF anticipates

that ordinarily no records besides these

normal business records need be

maintained for purposes of compliance

with the regulations.) Other new

language in § 17.161 does not impose a

substantive requirement, but simply

spells out the purposes of records.

3. A third commenter pointed out

what appeared to him to be

contradictions in the proposed

regulations. However, the apparent

contradictions were actually the result

of misunderstanding. In one instance,

the commenter confused the terms

‘‘eligible for drawback’’ and ‘‘subject to

drawback.’’ In order to prevent further

confusion of this sort, definitions of

both of these terms were included in

Notice No. 748 and remain in this final

rule (see § 17.11).

Another point of confusion concerned

the difference between spirits contained

in an intermediate product and spirits

consumed in the manufacture of such a

product. Spirits contained in an

intermediate product are eligible for

drawback, and become subject to

drawback when the intermediate

product is used in the manufacture of a

nonbeverage product. However, spirits

consumed in the manufacture of an

intermediate product (which are not

contained in that product when

completed) never become subject to

drawback. Drawback cannot be claimed

on such spirits (see §§ 17.154 and

17.155). Nevertheless, under §§ 17.127

and 17.185, a manufacturer may treat

the intermediate product as an

unfinished nonbeverage product; then

the consumed spirits may be included

in a drawback claim.

4. A fourth commenter took issue

with the standard used by ATF to

determine whether to grant drawback of

tax on spirits used in nonbeverage

products. He questioned the

requirement that products produced

with spirits must be ‘‘unfit for beverage

use.’’ The commenter asked that this be

changed to ‘‘sale and use for (non)

beverage purposes.’’

This commenter’s requested change

was not adopted, because the standard

that must be met in order to receive

drawback is expressly stated in the law

(26 U.S.C. 5131(a)). Drawback may be

granted only for ‘‘distilled spirits on

which the tax has been determined,

(used) in the manufacture or production

of medicines, medicinal preparations,

food products, flavors, flavoring

extracts, or perfume, which are unfit for

beverage purposes’’ (emphasis added).

Public Comments on Notice No. 748

The following paragraphs discuss the

suggested changes that were submitted

in response to Notice No. 748 (as

amended by Notice No. 758). The

comments are grouped topically, since

in some cases several commenters

proposed the same or similar

recommendations.

1. Section 17.136 states that ‘‘A

product is not a medicine, medicinal

preparation, food product, flavor,

flavoring extract, or perfume for

nonbeverage drawback if its formula

would violate a ban or restriction of the

U.S. Food and Drug Administration

(FDA) pertaining to such products.’’

This reflects a longstanding ATF policy.

See Rev. Rul. 58–350, 1958–2 CB 974;

see also various regional industry

memoranda in 1991 regarding FD&C

Red No. 3, and the following Industry

Circulars: 61–2, 62–33, 65–4, 70–12, 72–

8, 72–28, 72–29, 73–6, and 76–17.

However, a group of commenters

pointed out that the wording of § 17.136

could be interpreted to prevent

manufacturers from receiving drawback

on products intended for export to

countries with different food and drug

requirements. Further, certain products

for domestic use, such as tobacco flavors

and animal feed flavors, are not subject

to the same requirements as products

intended for internal human

consumption. Products may legally be

made for such uses even though banned

for human consumption.

ATF appreciates this comment. Since

the limitation of § 17.136 only applies to

products that violate FDA bans or

restrictions, it is not intended to prevent

drawback in the situations mentioned

by the commenters. In general, there

would be no FDA violations in those

situations. Therefore, language has been

added to § 17.136 in this final rule to

clarify this point.

2. Another suggestion pertained to

§ 17.166(b). This new regulation

requires records of ‘‘other disposition’’

of nonbeverage products—that is,

disposition other than by sale. Former

regulations in 27 CFR 197.130 only
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31401

required disposition records for

products disposed of by sale; § 17.166(b)

closes this gap in the recordkeeping

system.

However, a change in § 17.166(b)(1)

introduced by Notice No. 748, adding

some language which had not been

present in Notice No. 634, was a cause

of concern for several commenters. This

change added a proposed requirement

that would have applied whenever a

nonbeverage product is disposed of by

being used as an ingredient in other

products. The new language would have

required disposition records, in such

instances, to show the formula number

of every other product in which the first

product was used as an ingredient. The

commenters stated that a requirement to

show such formula numbers would be

onerous for many flavor companies who

frequently use their flavors as

ingredients in many other flavors.

The purpose of the proposed

requirement added by Notice No. 748

was to enable an ATF inspector to

follow the ‘‘audit trail’’ to the next

product and compare its batch records,

showing usage of the first product, with

the first product’s records of

disposition. This inspection technique

had been facilitated under the former

regulations in part 197 by a requirement

that supporting data (submitted with

each claim) show, for each product

manufactured, the formula number of

each nonbeverage or intermediate

product used as an ingredient. That

requirement was eliminated from the

simplified supporting data proposed by

Notice No. 748 (and adopted by this

final rule), but its absence would have

been more than made up for by the

proposed additional language in

§ 17.166(b)(1).

After carefully considering this public

comment, ATF has decided that the

benefits of the proposed additional

requirement in § 17.166(b)(1) may not be

commensurate with the added burden to

industry. Therefore, in this final rule,

§ 17.166(b)(1) reads as it did in Notice

No. 634, without the formula-number

requirement added by Notice No. 748.

However, ATF reserves the right to

examine this issue further and possibly

to propose another rulemaking, if

experience shows that the formulanumber requirement, or something

similar, is needed for adequate

administration of the law.

3. Two commenters requested

permission to continue using the old

supporting data, as prescribed under

Rev. Proc. 64–32, 1964–2 CB 951, and

former regulations (27 CFR 197.110–

197.119). Even though the new

supporting data prescribed by this final

rule is much simpler, some companies

have computerized their system, and it

would actually be a hardship for them

to have to change.

Section 17.147 allows modifications

of the supporting data to be used

without prior permission, if the

modified form contains all of the

required information. For the most part,

the old supporting data contains all of

the information required under this

final rule. There are only a few new

elements, which include: A certification

that required physical inventories have

been taken, separate data for different

effective tax rates and for Puerto Rican

and U.S. Virgin Islands spirits and

imported rum, and certain explanatory

information sometimes required in Part

IV of the new form. Therefore, drawback

claimants may continue to use the old

supporting data as long as the new

elements are included.

4. Another comment stated an

objection to the requirement for

physical inventories (§ 17.167). The

commenter claimed that physical

inventories were not required under

part 197. However, that is not so.

Physical inventories were mentioned in

§§ 197.116–197.119, with the intent that

they should be taken every claim

period. Such inventories are necessary

from time to time to ensure the accuracy

of the book account. In line with the

principles of the Administration’s

‘‘Reinventing Government’’ regulatory

initiative, ATF has determined that

claimants with bond coverage need not

be required to take a physical inventory

every month (as proposed in Notices

No. 634 and 748). Therefore, this final

rule provides for quarterly physical

inventories.

5. Some other suggested

improvements were related to the

proposed revision of the formula form

(previously numbered ATF F 1678, now

ATF F 5154.1). A draft version of this

form was published in the same issue of

the Federal Register as Notice No. 748

(see 57 FR 39564). First, the commenter

requested additional space for addresses

when a single form is filed for multiple

plants; but this is not necessary, since

adequate space is provided on the

reverse of the form. (The reverse was not

printed in the Federal Register, since it

is virtually a blank page.) If the reverse

is still not sufficient, a continuation on

plain paper is acceptable.

Also, the commenter suggested that

ATF F 5154.1 be redesigned for

computer-generated insertion of data.

However, he did not propose any

specific changes. If a claimant has a

specific proposal for a computergenerated form, it could be approved as

an alternate procedure under § 17.3. In

a separate project, ATF has developed a

computer program to facilitate the

preparation of nonbeverage product

formulas, which is available for use by

industry members. For more

information on this project, please

contact the ATF Laboratory or the

person listed above under FOR FURTHER

INFORMATION CONTACT.

6. Another suggestion proposed a

simplified procedure for alternation of

premises between a distilled spirits

plant and a nonbeverage product

manufacturing plant. This suggestion

cannot be considered at this time, since

it relates to other regulations that are not

the subject of this rulemaking. This

comment will be treated as a suggestion

for future amendment of 27 CFR part 19.

7. Another comment pointed out that

the last sentence of § 17.137 (requiring

qualification as a distilled spirits plant)

should be limited to products that are

disapproved as ‘‘fit for beverage use.’’

This comment is well taken. Under

§ 19.58, as amended by this final rule,

exemption from qualification

requirements is provided to

manufacturers of various products that

are unfit for beverage use, which

nevertheless would not be approved for

drawback because they are not

medicines, medicinal preparations,

flavors, flavoring extracts, food

products, or perfume. Therefore, the

suggested change has been made.

8. Several comments addressed the

procedure for determining whether

products are fit or unfit for beverage use

(§ 17.134). It was stated that the use of

an organoleptic examination (taste test)

performed by ATF is not sufficiently

objective and ‘‘can result in a very

arbitrary tasting method with

unpredictable results.’’

As an alternative to the method

currently used, one commenter

suggested the use of an independent

testing panel funded by industry. The

commenter opined that such a panel

might be more ‘‘objective’’ and might

alleviate the problem of delays in

formula approvals caused by a backlog

of submissions at the ATF Laboratory.

Interestingly, this particular idea

(absent the funding proposal) had been

previously considered by ATF pursuant

to a suggestion submitted by two ATF

employees. At that time, ATF

determined that the panel would have

to be restricted to analysis of samples,

since most industry members would be

opposed to allowing an independent

laboratory to see their formulas.

Additionally, it was determined that

training and certification by ATF would

be necessary, thus minimizing any time

and cost savings to the Government.

These findings are still considered to be

valid.
31402 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

Furthermore, ATF disagrees that a

panel funded by industry would be any

more objective than the taxpayer-funded

ATF Laboratory. On the contrary,

industry funding would seem to

introduce a possibility for bias not

currently present. ATF has no interest to

be served by approving or disapproving

any particular formula. Our only

interest is to administer the law on an

impartial basis. An element of

subjectivity (but not bias) is

unavoidably present due to the legal

requirement that products be ‘‘unfit for

beverage use.’’ This cannot be

eliminated merely by shifting the

responsibility for decision-making to

another entity. Therefore, ATF has

decided not to adopt this suggestion.

Another commenter proposed a

different alternative. This one suggested

that ATF incorporate a ‘‘standard

reference method’’ for organoleptic

examination based on a method

prescribed by the American Society for

Testing and Materials (ASTM). The

method recommended by the

commenter is as follows:

Samples: (1) Non-Beverage Test (NBT)

sample(s)—Formulate six or fewer samples

over a range of dilution levels of the NBT

component in 15% ethanol. (2) Non-Beverage

Reference (NBR) and Beverage Reference (BR)

samples—From the list of ingredients and

amounts in Table 1 (i.e. a table listing

ingredients and their quantities recognized

by ATF as usually sufficient to make

products unfit for beverage use), select and

formulate one sample for a NBR at 15%

ethanol. Reduce the amount of the respective

ingredient in the NBR sample to formulate a

BR sample that would be deemed potable.

Procedure: (1) Recruit a panel of at least 15

members previously screened as outlined

below.

(2) Each panelist is presented the NBR and

BR samples as examples of a nonpotable and

potable beverage, respectively.

(3) Each panelist is then presented in

random order each NBT sample for

comparison in acceptablility to the NBR and

BR sample.

(4) Each panelist responds to the question,

‘‘Is this sample more like the NBR or BR

sample in acceptability?’’

(5) Count the number of panelists scoring

each NBT sample as more like the BR sample

in acceptability.

(6) Use the statistical tables for the duo-trio

difference test (from ASTM ‘‘Manual on

Sensory Testing Methods, STP 434’’) to

conclude which NBT samples are potable.

Determine significance at the 95%

confidence level.

(7) Report the highest concentration of the

nonbeverage component that is significant as

an upper bound in concentration of the NBT

component for potability.

Panelist Screening: (1) Present both the

NBR and BR samples to a prospective

panelist.

(2) Ask the question, ‘‘Which sample is

more acceptable to you?’’

(3) Screen out any panelists which select

the NBR sample.

ATF has reviewed this proposed

method and finds it unacceptable for

several reasons. First, the method does

not test for the specific information

needed for drawback determinations

under 26 U.S.C. 5131. The proposal is,

in effect, a test for determining what

concentration of a single ‘‘component’’

is needed to render an ethanol solution

nonpotable. However, in making

drawback determinations, ATF is not

just interested in the contribution to

potability by a specific component;

rather, ATF is interested in the resulting

potability of a product, which may

contain many components. Further,

ATF is not interested in quantitating the

level of concentration at which a

solution becomes nonpotable; rather,

ATF is just interested in determining,

yes or no, whether a particular final

product is fit for beverage use. In other

words, the proposed method provides

extraneous, unnecessary information

while simultaneously failing to provide

the particular information that ATF

needs.

Secondly, the proposed method does

not even provide a definitive

determination whether a particular

sample is beverage or nonbeverage. It

only provides a determination whether

the sample is ‘‘more like’’ the ‘‘beverage

reference’’ or the ‘‘nonbeverage

reference.’’ If one of the two reference

samples is closer than the other to the

border separating beverage from

nonbeverage, the test sample may in fact

be ‘‘more like’’ one of them even though

it is on the opposite side of that border.

For example, imagine that on a scale of

1–100, the separation between beverage

and nonbeverage occurs at 50. If the

beverage reference is at 40 and the

nonbeverage reference is at 75, a test

sample at 55 will taste ‘‘more like’’ the

beverage reference even though the

sample is in fact nonbeverage.

Thirdly, the composition of the

proposed panel would not be

appropriate. As the example just given

shows, it is important for the panel to

understand the real difference between

beverage and nonbeverage, not merely

whether a sample is ‘‘more like’’ one or

the other. This implies a panel with

expertise, not just a panel of random

individuals. Though not explicitly

stated, it is implied that the proposed

method would utilize randomly selected

individuals. By contrast, the panelists

used by ATF are all university-trained

chemists, who receive a minimum of 1

year of special training at the ATF

Laboratory before their vote is given full

weight in drawback approval

determinations. This ensures maximum

consistency and continuity over time in

application of the ‘‘unfit for beverage

use’’ standard.

Because ATF uses expert panelists, it

is not necessary to empanel a minimum

of 15. In most cases, a panel of two is

sufficient for a definitive determination.

If a sample is at all borderline,

additional panelists are recruited up to

a maximum of 12. At least 2⁄3 of them

must agree that the sample is unfit for

beverage use. By this method, the eight

chemists of the ATF Laboratory’s

Nonbeverage Section (aided when

necessary by the eight chemists of the

Beverage Alcohol Section) are able to

examine about 2,400 samples per year.

This is in addition to their other work,

which includes chemical analyses and

examination of thousands of formulas

submitted without samples.

Therefore, although ATF appreciates

the effort put into devising the proposed

new method, we have concluded that it

is in no way superior to the method

currently being used.

Accordingly, § 17.134 is adopted by

this final rule without change from

Notice No. 748. ATF hopes that the

information in this section will be used

by manufacturers to identify and ‘‘weed

out’’ products that are clearly fit for

beverage use.

9. Finally, a commenter requested that

ATF publish, in § 17.137, a list of

ingredients and their quantities that are

recognized by the ATF Laboratory as

usually sufficient to make products

unfit for beverage use. The commenter

was referring to the following

Guidelines, which were distributed to

attendees at an ATF-sponsored industry

seminar:

Ingredient Amount

Citric Acid ...................... If ethanol less than 30%, acid = 0.1 × ethanol content (% v/v) + 0.5.

If ethanol greater than 30%, acid = 0.1 × ethanol content (% v/v).

Salt ................................ 3.2 grams salt per 100 ml at 45% ethanol (more for greater ethanol).

Vanillin .......................... 1 oz. per gallon at 30% ethanol.

Ethyl Vanillin ................. 0.4 oz. per gallon at 30% ethanol.
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31403

Ingredient Amount

Propylene Glycol ........... Equal amounts by volume of propylene glycol and ethanol.

Ethyl Acetate ................. 2.0% by volume at 90% ethanol.

Maltol ............................ 5% at 90% ethanol.

Essential Oils ................ Most are unfit at a level of 3% in 90% ethanol. An exception is anise oil which needs 4.2%. Many 1% solutions of essential oils are unfit.

Benzaldehyde ............... 1.2 oz. benzaldehyde or bitter almond oil per gallon at 90% ethanol.

ATF agrees that this information

should be widely distributed among

nonbeverage industry members;

however, the problem with publishing it

in the regulations is that it can only be

a guide, not applicable to all products.

If it were contained in regulations,

industry members would tend to

assume that if their products met the

guidelines, they would automatically be

approved for drawback. No such

guarantee can be provided. (For

example, products meeting the citric

acid guidelines may nonetheless be fit

for beverage use if they contain

sufficient sugar.) Therefore, ATF has

decided to publish this information as a

future Industry Circular, rather than as

an amendment to the regulations.

Other Changes From Former

Regulations

Other changes, proposed in Notice

No. 748, were not the subject of public

comment. Except as noted, they have

been adopted substantially as proposed.

1. Adoption of Rulings. The holdings

of certain Revenue Rulings and ATF

Rulings are reflected in the final

regulations, as follows: Rev. Rul. 55–

689, 1955–2 CB 729 (§ 17.187); Rev. Rul.

56–239, 1956–1 CB 715 (§ 17.135); Rev.

Rul. 56–314, 1956–2 CB 1023 (§ 17.137);

Rev. Rul. 56–335, 1956–2 CB 1024

(§ 17.181); Rev Rul. 56–336, 1956–2 CB

1023 (§ 17.182); Rev. Rul. 56–367, 1956–

2 CB 1026 (§ 17.135(b)(2)); Rev. Rul. 56–

394, 1956–2 CB 1021 (§ 17.152(c)); Rev.

Rul. 56–395, 1956–2 CB 1025 (§ 17.186);

Rev. Rul. 58–350, 1958–2 CB 974

(§ 17.136); Rev. Rul. 63–87, 1963–1 CB

384 (§§ 17.11: new definition of ‘‘food

products,’’ and 17.133(d)); Rev. Rul. 69–

138, 1969–1 CB 327 (§§ 17.126(b) and

17.152(a), (c), and (d)); ATF Rul. 73–1,

1973 ATF CB 85 (§ 17.133(b)); ATF Rul.

74–2, 1974 ATF CB 27 (§ 17.76); ATF

Rul. 76–17, 1976 ATF CB 85 (§§ 17.151

and 17.152(b)); ATF Rul. 76–19, 1976

ATF CB 86 (§§ 17.169 and 17.185(b));

ATF Rul. 77–27, 1977 ATF CB 165

(§ 17.122); and ATF Rul. 82–7, 1982–2

QB 46 (§ 17.11: new definition of

‘‘medicines’’).

Rev. Rul. 57–369, 1957–2 CB 948, has

been adopted in the instructions to the

revised ATF Form 5154.1 (formerly

Form 1678). Rev. Rul. 58–317, 1958–1

CB 586, is not reflected in the

regulations; it is obsolete since isoalcoholic elixir has been removed from

the National Formulary. Rev. Rul. 58–

428, 1958–2 CB 975, is also not reflected

in the regulations, because the repeal of

26 U.S.C. 5082 has removed its

authority. The holding of ATF Rul. 81–

8, 1981–4 QB 24, has been modified in

§ 17.183 (see discussion above, under

‘‘Public Comments on Notice No. 634’’).

Revenue Procedure 64–32, 1964–2 CB

951, has been replaced by the new

supporting data form (ATF Form

5154.2), per § 17.147.

2. Form number changes. The

prescribed form entitled ‘‘Formula and

Process for Nonbeverage Products’’ has

been revised and renumbered from 1678

to 5154.1. This will not require

resubmission of any formulas

previously approved on Form 1678.

Similarly, the form number of the

‘‘Bond for Drawback Under 26 U.S.C.

5131’’ is being changed from 1730 to

5154.3, but this will not require

resubmission of any bonds previously

approved.

3. Alternate methods or procedures. A

new section (§ 17.3) has been added to

provide for the employment of alternate

methods or procedures, if approved by

the Director pursuant to a showing of

the conditions stated in the regulation.

4. Incorporation by reference. Former

§ 197.3 is not included in this final rule,

because consultation with the Office of

the Federal Register indicated that the

use of the National Formulary, United

States Pharmacopeia, and Homeopathic

Pharmacopoeia of the United States

does not amount to an incorporation by

reference. Although § 17.132 makes a

‘‘reference’’ to these books, there is no

‘‘incorporation’’ of them into the

regulations. There is merely an

authorization, for manufacturers who so

choose, to utilize formulas from them as

approved formulas without the

necessity of submitting ATF Form

5154.1.

Incorporation by reference with the

approval of the Director of the Federal

Register under 5 U.S.C. 552(a)(1) is

intended to be a substitute for the

reprinting of material required to be

published in the Federal Register under

§ 552(a)(1)(A)–(E). However, the

authorization for manufacturers to make

use of the N.F., U.S.P., and H.P.U.S. on

a voluntary basis does not entail a

requirement for ATF to publish the

contents of those books in the Federal

Register. It is true that a manufacturer

who has chosen to adopt a formula from

the N.F., U.S.P., or H.P.U.S. may be

subject to a $1,000 fine if he

subsequently fails to follow it (§ 17.148).

However, the enforcement of this

requirement does not require

publication of that formula, any more

than similar enforcement of the

manufacturer’s own proprietary

formulas requires their publication. The

enforcement in each instance pertains to

the manufacturer’s choice of a formula,

rather than to the contents of the N.F.,

U.S.P., and H.P.U.S. per se.

5. Signature authority. Section 17.6,

generalized from certain provisions in

former §§ 197.30 and 197.67(a), states

the rule as to when evidence of

signature authority is required.

6. Delegations of authority.

Authorities vested in the Director by

part 17 may be delegated, through

delegation orders, to subordinate

officials. This possibility is reflected in

the definition of ‘‘Director’’ in § 17.11 by

addition of the words ‘‘or his or her

delegate.’’ ATF’s Alcohol and Tobacco

Laboratory is specified in §§ 17.121,

17.122, 17.126, 17.131, 17.132, and

17.136 as the recipient of certain

documents, such as formulas.

Accordingly, a new definition of

‘‘Alcohol and Tobacco Laboratory,’’

giving its address, is provided in

§ 17.11.

7. New and modified definitions. For

clarity, some new definitions are added

in § 17.11. Besides those mentioned

elsewhere in this preamble, there are

new definitions of ‘‘approved,’’ ‘‘CFR,’’

‘‘month,’’ ‘‘person,’’ ‘‘proof gallon,’’

‘‘quarter,’’ ‘‘recovered spirits,’’ and ‘‘this

chapter.’’ With respect to the definitions

of ‘‘month’’ and ‘‘quarter,’’ claimants

desiring to use slightly different time

periods may apply under § 17.3.

(Existing approvals remain in effect.)

The definitions of ‘‘director of the

service center,’’ ‘‘district director’’ (an

I.R.S. official), ‘‘total annual

withdrawals,’’ and ‘‘year’’ in former

§ 197.5 have been deleted as

unnecessary. The definitions of ‘‘used’’

and ‘‘time distilled spirits are used’’ are

in regulations §§ 17.151 and 17.152. The
31404 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

definition of ‘‘nonbeverage products’’ in

§ 17.11 has been modified to reflect the

addition of perfume to the list of

products that may be approved for

drawback. (Pub. L. 103–465, Sec.

136(a).) Elsewhere in this final rule,

wherever the types of nonbeverage

products are listed, this addition of

perfume is reflected as well. ATF is in

the process of delegating authority

under its new organizational structure;

however, this process is not yet

complete; therefore, the definition of

‘‘regional director (compliance)’’ and

the use of that term throughout this final

rule are retained.

8. Time for payment of special tax. A

sentence has been added in § 17.24 to

clarify when a payment of special tax is

considered late. Under 26 U.S.C. 5131,

special tax is a prerequisite for

drawback eligibility. Therefore, no

penalty under 26 U.S.C. 5134(c) will be

imposed as long as special tax is paid

before completion of final action on the

claim.

9. Retention of special tax stamps.

Former regulations did not specify a

retention period for special tax stamps.

These final regulations (§ 17.55) make

the retention period the same as for

other required records and documents

(generally 3 years). The retention period

for the list of multiple business

locations, which was 2 years under

former § 197.28, has also been made the

same as for other documents (§ 17.31).

10. Reincorporation. A new § 17.77

has been added, stating that when an

existing corporation or corporations are

reorganized into a new corporation, a

new special tax must be paid. This new

section is similar to regulations for

liquor dealers in § 194.163. Although

§ 17.77 states the general rule, there may

be exceptions. For instance, ATF has

ruled that a reorganization under 26

U.S.C. 368(a)(1)(F), consisting of a mere

change in identity, form, or place of

organization of one corporation,

however effected, does not require a

new special tax. If there is a question as

to whether a new special tax is required,

the ATF Tax Processing Center, (513)

684–6580, should be consulted.

11. Amount of bond for monthly

claims. The wording of former § 197.107

allowed for the possibility that the

amount (or ‘‘penal sum’’) of a bond

might be reduced due to frequent on-site

inspections. This concept has become

obsolete, since today no claimant is

regularly inspected as frequently as

quarterly. Therefore, under these final

regulations (§ 17.102), bonds for

monthly claims must cover the total

drawback claimed during any quarter. It

is not anticipated that this change will

affect the required bond coverage of any

current monthly claimant.

12. Time for filing formulas. Language

in former § 197.95, respecting time for

filing formulas, has been revised in

§ 17.121(b) to express more clearly the

statutory requirement of 26 U.S.C.

5131–5134. Both formula and claim

must be filed within ‘‘6 months next

succeeding the quarter in which the

distilled spirits covered by the claim

were used’’ (26 U.S.C. 5134(b)).

However, if there is any doubt about a

product’s eligibility for drawback, it is

preferable that the formula be filed and

approved before commencement of

manufacture.

13. Formulas for use at multiple

plants. The revised formula form (ATF

F 5154.1) permits a manufacturer to file

a single formula for use at more than

one plant, if the plants at which the

formula will be used are listed on the

form. This change is reflected in

§ 17.121(c).

14. Adoption of predecessor’s

formulas. Former § 197.99 allowed the

adoption of a predecessor’s formulas

(for continued use at the same plant,

when its ownership changes) by filing a

notice listing the formulas’ serial

numbers, names, and dates of approval.

This final rule (§ 17.125(a)) only

requires the notice of adoption to list

the names and serial numbers. The

notice must be filed with the regional

director (compliance). Further, since

copies of the articles of incorporation or

other documents are necessary to prove

the change of ownership, a sentence has

been added to include this general

requirement.

15. Adoption of manufacturer’s own

formulas from another plant. Adoption

of a company’s own formulas for use at

another of its plants, including adoption

by a parent company of formulas of its

wholly owned subsidiary, and vice

versa, is a new option provided by this

final rule. (See § 17.125(b).) Previous

regulations did not provide for this. The

procedure for this type of adoption is to

submit a letterhead notice to the ATF

Laboratory, accompanied by two

photocopies of the formula to be

adopted and some evidence of the

relationship between the plants. After

verifying the formulas, the ATF

Laboratory will forward the notice to the

regional director (compliance). The

adopting plant is also required to

reference the notice in its first claim

relating to the adopted formula(s).

16. Formulas for intermediate

products. ATF needs to know all

ingredients that will enter into the

finished nonbeverage product.

Therefore, these final regulations

(§ 17.126) require the submission of

formulas on ATF Form 5154.1 (formerly

1678) for intermediate products, unless

the formula for an intermediate product

is written as part of the approved

formula for the nonbeverage product(s)

in which the intermediate product will

be used. (If the formula for the

intermediate product is written as part

of the nonbeverage product’s formula,

the intermediate product is treated as an

unfinished nonbeverage product; see

discussion below.)

17. Self-manufactured ingredients

optionally treated either as intermediate

products or as unfinished nonbeverage

products. Spirits consumed in the

manufacture of intermediate products

are not subject to drawback, both under

former regulations (§ 197.119) and this

final rule (§ 17.155). If spirits are

recovered in the manufacture of

intermediate products, drawback may

be claimed, but only if and when the

spirits are subsequently reused in the

manufacture of a nonbeverage product

(§ 197.118 in former regulations and

§ 17.153(a) in this final rule). These

restrictions are necessary for protection

of the revenue, because when spirits are

consumed or recovered in the

manufacture of an intermediate product,

it could be difficult or impossible to

correlate the quantity of such spirits

with the production of a batch of

finished nonbeverage product in which

the intermediate was used.

However, in some instances, the

manufacture of an intermediate product

requires consumption of significant

quantities of spirits that are not

ultimately contained in that

intermediate product. The inability to

claim drawback on such spirits would

be a hardship. Therefore, manufacturers

have been permitted to resubmit their

formulas to show production of the

intermediate product as an integral part

of the formula for the related

nonbeverage product. If this is done, the

former intermediate product is regarded

instead as an unfinished nonbeverage

product; consequently, spirits

necessarily consumed (or recovered) in

its manufacture are regarded as

consumed (or recovered) in the

manufacture of a nonbeverage product

and are subject to drawback. This

procedure protects the Federal revenue,

because each batch of unfinished

nonbeverage product is restricted to use

in a specific batch of a predetermined

finished product and must be so used

within the time period specified in the

approved nonbeverage product’s

formula.

Although this procedure was

available under former regulations,

many manufacturers were not aware of

it, because it was not described in the
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31405

regulations. In order to inform

manufacturers of this procedure, it is

described in §§ 17.127 and 17.185 of

these final regulations. Manufacturers

are given the option to designate their

self-manufactured alcoholic ingredients

as either intermediate products or

unfinished nonbeverage products. There

are advantages and disadvantages that

go with each choice.

The advantage of designating an

ingredient as an unfinished nonbeverage

product is that spirits recovered or

consumed in the manufacture of the

ingredient are subject to drawback in

the same way as other spirits recovered

or consumed in the manufacture of

nonbeverage products. The

disadvantages of this designation are: (1)

Each batch of the ingredient must be

used within a limited time in a single

batch of a predetermined nonbeverage

product. (2) The ingredient cannot be

transferred to another plant under

§ 17.185(b). (This restriction is due to

the necessity of a single, unified batch

record, which must be maintained at the

place of production.)

Conversely, the advantages of

designating an ingredient as an

intermediate product are: (1) Several

batches may be accumulated, stored

indefinitely, and used in the

manufacture of any nonbeverage

product whose formula calls for their

use. Less (or more) than a full batch of

such a product may be used to produce

a batch of a finished nonbeverage

product. (2) Ingredients designated as

intermediate products may be

transferred to another branch or plant of

the same manufacturer under §§ 17.169

and 17.185. (3) For manufacturers who

already have intermediate product

formulas on file, another advantage of

the ‘‘intermediate product’’ designation

is that no new formula or procedural

changes would be required. But the

disadvantage of that designation is that

spirits consumed or recovered in

production of the intermediate product

may not be claimed for drawback.

18. Subpart U of 27 CFR part 170.

Subpart U of 27 CFR part 170, which

provided exemptions from special tax

and qualification requirements for

manufacturers and sellers of certain

products that are unfit for beverage use,

is being revoked, but the material from

that subpart has not been entirely

eliminated. Material related exclusively

to drawback manufacturers has been

incorporated in the new part 17. Some

material has been eliminated, either as

unnecessary or as covered by other

regulations. The remaining material has

been relocated into subpart D of part 19

(see new § 19.58; this section is grouped

under a new centerheading, ‘‘Activities

Not Subject to this Part,’’ along with

former § 19.69, which is redesignated as

§ 19.57). Conforming amendments have

also been made in 27 CFR parts 70 and

194. Former § 170.613(a)(6) (‘‘Salted

wines’’) was previously incorporated

into 27 CFR 24.215 by T.D. ATF–299 (55

FR 24974). Sections in part 17

containing language from former

subpart U of part 170 are: §§ 17.132,

17.133, and 17.168.

19. Submission of quantitative

formulas. This change strengthens

requirements respecting submission of

formulas for nonbeverage drawback

products. Regulations allow formulas

prescribed by the United States

Pharmacopeia (U.S.P.), the National

Formulary (N.F.), and the Homeopathic

Pharmacopoeia of the United States

(H.P.U.S.) to be used without the prior

filing and approval of quantitative

formulas. This procedure has been

allowed because of the descriptive

nature of these formulas and their

consistency over the years. At present,

however, the N.F. and U.S.P. are

deleting their requirements for specific

quantities of ingredients in some of their

formulas, except for the active

ingredients. Such non-descriptive

formulas are not adequate for regulatory

purposes, since alcohol is usually a

vehicle rather than an active ingredient

and is therefore not stated as a specific

quantity within such formulas.

Drawback of tax under 26 U.S.C. 5134

is claimed and allowed on exact

amounts of alcohol used in the

manufacture of nonbeverage products

according to the quantity specified in

the approved formula.

Therefore, § 17.132 in this final rule is

worded so that ATF may require

submission of quantitative formulas on

ATF Form 5154.1 (formerly 1678),

Formula and Process for Nonbeverage

Products, for preparations which appear

in the N.F., U.S.P., or H.P.U.S.

whenever it is determined that such

submission is necessary to maintain

control over alcohol used and to insure

that the products meet the statutory

requirements for drawback eligibility. It

is expected that the list of preparations

for which approval of quantitative

formulas will be required under this

regulation will be published as an ATF

ruling in the ATF Bulletin.

20. Drawback status of U.S.P., N.F.,

and H.P.U.S. preparations. Preparations

listed in the U.S.P., N.F., and H.P.U.S.

are generally exempt from the

requirement to file quantitative formulas

(former § 197.96; § 17.132 in this final

rule), but this exemption does not

necessarily entail approval for

drawback. The statutory standard of

‘‘unfit for beverage purposes’’ remains

and must be enforced (26 U.S.C.

5131(a)).

Former regulations in part 197 were

silent concerning the drawback status of

U.S.P., N.F., and H.P.U.S. products.

However, this issue should be

addressed, so that manufacturers may

properly plan. Therefore, § 17.132 in

this final rule states that formulas listed

in the U.S.P., N.F. and H.P.U.S. are

approved for drawback except as

otherwise provided by regulation or

ATF ruling. Alcohol, U.S.P. (including

dehydrated alcohol and dehydrated

alcohol injection), alcohol and dextrose

injection, U.S.P., and tincture of ginger,

H.P.U.S., are specifically declared in

this regulation to be fit for beverage use.

Similarly, H.P.U.S. preparations made

at dilutions higher than ‘‘4X’’ (i.e. one

part in 10,000) are presumed to be fit for

beverage use. Manufacturers of such

products may contest this presumption

by submitting appropriate evidence that

a specific product is unfit for beverage

use. The reason for the initial

presumption is that the ATF Laboratory

has determined that even for H.P.U.S.

products containing certain poisonous

materials, dilutions of greater than ‘‘4X’’

are fit for beverage use. ATF neither

confirms nor disputes the medicinal

value of such products, but the dilution

one part of active ingredients in 10,000

parts or more of alcohol and water has

been found to result in a product that

would be suitable for consumption as a

beverage. Therefore, it has been ATF’s

position to deny drawback for H.P.U.S.

products diluted to greater than ‘‘4X.’’

These final regulations reflect this

position in § 17.132(b).

21. Liquor-filled candies. Paragraph

(c) of § 17.133 states ATF’s longstanding

policy that candies with alcoholic

fillings may be regarded as nonbeverage

products only if the fillings meet the

requirements for alcoholic sauces, as

stated in § 17.133(a). Since some States

may prohibit or restrict the manufacture

or sale of liquor-filled candies, a

sentence in the introductory text of

§ 17.133 cautions applicants that

formula approval does not authorize

violation of State law.

22. Use or sale of products for

beverage purposes. The last sentence of

§ 17.134 (adapted from former

§§ 170.615 and 170.618) makes it clear

that drawback approval may be revoked

if a product is found being used or sold

for beverage purposes.

23. Manufacturers who are also users

of denatured alcohol. Since no tax is

paid on denatured spirits, it would be

conducive to fraud on the revenue for a

single manufacturer to produce the

same product out of both specially

denatured alcohol and taxpaid alcohol
31406 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

on which drawback may be claimed.

Section 17.135(a) prohibits this practice.

24. Claims for credit by manufacturers

of nonbeverage products. Drawback

manufacturers who also operate a

distilled spirits plant may find it more

convenient to claim nonbeverage

drawback in the form of a credit to offset

distilled spirits taxes owed by the

distilled spirits plant. Therefore,

§ 17.142(b) permits such a procedure.

25. Changes in supporting data

requirements. Under the regulations

published in this document, the

supporting data required to accompany

claims has been simplified. The new

supporting data is described by ATF

Form 5154.2, which is authorized by

these regulations. Use of this

Government form is not mandatory;

§ 17.147 permits the use of any

alternative format that clearly shows all

the required information.

The new supporting data has

eliminated material that is not necessary

to the processing of drawback claims.

Former Part II (‘‘Distilled Spirits

Received’’) is gone. So is former Part V

(‘‘Intermediate Products Account’’)

except for the totals in column (i),

which are incorporated into the

Distilled Spirits Account. Part III has

been shortened from 16 columns to 8,

and is redesignated as ‘‘Production of

Nonbeverage Products.’’ Most of the

simplification in Part III results from

elimination of detailed information on

use of specific finished products. Use of

eligible spirits will be reported in three

columns (‘‘Kind,’’ ‘‘Drawback Rate,’’

and ‘‘Amount’’), and use of ineligible

spirits will not be reported, except for

recovered spirits.

Information no longer reported in the

supporting data must still be recorded

in the manufacturer’s records, as

prescribed in subpart H of part 17. The

regional director (compliance) is

authorized, under §§ 17.147(a) and

17.123, to require additional supporting

data if necessary in a particular case.

Some new information has been

added to the supporting data.

Information about the place of origin of

Puerto Rican and Virgin Islands spirits

and other imported rum is required,

because ATF needs this information in

order to implement the Caribbean Basin

Economic Recovery Act (Pub. L. 98–67,

Title II). Separate reporting is required

for spirits taxpaid at different effective

tax rates through application of the wine

and flavor tax credit of 26 U.S.C. 5010,

because such spirits are subject to

drawback at different rates. (The

drawback rate is $1.00 less than the rate

at which distilled spirits tax was paid,

as provided in 26 U.S.C. 5134.)

26. Public Law 98–369. This

document reflects certain changes made

by Public Law 98–369 (Deficit

Reduction Act of 1984). Those changes

are: (1) Addition of 26 U.S.C. 5206(d),

relating to obliteration of marks, and (2)

imposition of a $1,000 penalty for

nonfraudulent violations of drawback

law and regulations, unless the

manufacturer establishes reasonable

cause for a violation. Sections affected

are: §§ 17.148 and 17.184.

With respect to the $1,000 penalty,

the statute requires that the penalty be

imposed ‘‘for each failure to comply’’

with law or regulations. This means that

a separate penalty can be imposed for

each product listed on a claim. For

example, if several products were not

manufactured according to formula, but

were still unfit for beverage use, a

$1,000 penalty could be imposed for

each nonconforming product. If the

amount claimed on any such product is

less than $1,000, the penalty is limited

to the amount claimed.

Recordkeeping violations can also

result in imposition of a penalty for

each separate product. However, if the

violations are so serious that they

prevent the manufacturer from

establishing either the unfitness of a

product for beverage use or the quantity

of the product that was made, then the

penalty provision would not apply.

Each claim must be considered on its

own merits, and the burden of proving

entitlement to drawback is always on

the manufacturer. If this burden is not

met with respect to any product, the

claim for drawback relating to that

product would be denied.

The preceding comments also apply

to products manufactured without

submission of a formula. If the

manufacturer can sustain the burden of

proof, the claim would be approved

subject to the penalty. However, without

a formula, it is unlikely that this burden

could be sustained other than by

examination of batch records. ATF is

not obliged to send an inspector to

examine batch records when a

manufacturer refuses to comply with the

requirement to submit a formula.

With respect to timely filing, a latefiled claim or formula counts as just one

‘‘failure to comply.’’ So if the only

noncompliance is lateness in filing a

claim, the maximum penalty would be

$1,000. Late-filed formulas result in a

separate penalty for each late formula.

Special tax paid subsequent to final

action on a claim also results in a $1,000

penalty. It should be noted that in no

case will a claim be paid more than 6

years after the quarter in which the

products were manufactured, due to the

statute of limitations of 28 U.S.C. 2401.

Finally, the penalty provision does

not apply in a case of fraud. Fraud is

considered to be a deliberate violation

with intent to deceive. If there is fraud,

the entire claim will be denied, and the

manufacturer may be subject to other

civil and criminal penalties as well.

27. Changes in recordkeeping

requirements. Items deleted from the

supporting data have been incorporated

into the records required by subpart H

of part 17 to be maintained at each

nonbeverage premises. Certain formerly

required records that are duplicative of

the information provided by the

supporting data have been deleted from

subpart H. The holding of Industry

Circular 79–5 with respect to records of

raw materials and finished products has

been clarified and incorporated in the

regulations (see §§ 17.164 and 17.165).

An amendment to § 19.780, specifying

that the record required by that section

must show the contents of each

container, will facilitate the use of that

record by nonbeverage manufacturers in

complying with § 17.162 in instances

where a shipment consists of nonuniform containers.

28. Gains in spirits received or on

hand. This final rule requires gains in

spirits received, as disclosed by the

receiving gauge, and gains in spirits on

hand, as disclosed by physical

inventory, to be deducted from the

claim covering the period in which the

gain occurs. Deduction is appropriate in

these circumstances, since a gain

indicates either receipt of ineligible

(untaxpaid) spirits or an excessive claim

in a previous period. Regulations stating

this requirement are in §§ 17.147(d),

17.162(d), and 17.167(a).

With respect to spirits received,

§ 17.162(d) sometimes allows a gain to

be avoided by recording the shipping

plant’s taxpayment gauge as the

quantity received. For spirits received in

a tank car or tank truck, this is only

allowed when the drawback

manufacturer’s receiving gauge is within

0.2% of the taxpayment gauge. (This

duplicates § 197.130a(a) in former

regulations.) If the taxpayment gauge

was inaccurate within the 0.2%

limitation, the discrepancy will tend to

resolve itself as a gain or loss on the

drawback manufacturer’s next physical

inventory.

If the gauge of spirits received in a

tank car or tank truck differs from the

taxpayment gauge by more than 0.2%,

the receiving gauge must be recorded in

the manufacturer’s records as the

quantity received. This rule is based on

the assumption that if the discrepancy

is that great, the receiving gauge is more

likely to be accurate. Under § 17.162(d),

any gain disclosed in such
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31407

circumstances must be immediately

recorded as such and deducted from the

manufacturer’s next claim.

29. Evidence of taxpayment. A new

provision in § 17.163 requires

manufacturers to obtain commercial

invoices or other documentation when

spirits are purchased from wholesale

and retail liquor dealers. This new

requirement will help provide evidence

of taxpayment of the spirits.

In addition, § 17.163 requires all

manufacturers to obtain evidence of the

effective tax rate paid on spirits other

than alcohol, grain spirits, neutral

spirits, distilled gin, and straight

whisky. Spirits other than those kinds

may contain wine and/or flavoring

material that brings the effective tax rate

below the normal distilled spirits rate

($13.50 per proof gallon). The effective

tax rate is significant for nonbeverage

drawback, because the drawback rate is

$1 less than the rate at which tax was

paid or determined (26 U.S.C. 5134(a)).

For shipments received from a

distilled spirits plant, an effective tax

rate below $13.50 per proof gallon must

be noted on the record of shipment

required by § 19.780 to be forwarded to

the nonbeverage manufacturer. For

spirits purchased from wholesale or

retail liquor dealers, the drawback

claimant must obtain the evidence of

effective tax rate from the bottler,

producer, or importer. If the required

evidence is not obtained, drawback will

only be allowed based on the lowest

effective tax rate possible for the kind of

distilled spirits product used.

30. Production (batch) records. Under

§ 17.164, the production records for

nonbeverage and intermediate products

generally must be kept by batch. To

enable an ATF officer to compare the

ingredients used in each batch with the

ingredients listed in the product’s

formula, the records must refer to

ingredients by the same names as are

used for them in the product’s formula.

Synonymous names may additionally be

shown. Alcohol usage may be shown by

weight or by volume, and the proof of

the spirits must also be shown.

The alcohol content of nonbeverage

products must be tested ‘‘at

representative intervals.’’ This

requirement is a variable, because the

appropriate interval will vary to a great

degree depending on the type of product

and the frequency with which it is

manufactured. The purpose of testing

alcohol content is to verify the accuracy

of the formula and to monitor

compliance with it. If a manufacturer

feels unsure of how frequently alcohol

content should be tested to accomplish

this purpose for a particular product,

advice may be requested from ATF.

Whenever the manufacturer does make

a test, the results must be recorded in

the production records.

31. Specifications for physical

inventories. These final regulations

(§ 17.167) specify that the ‘‘on hand’’

figures in the supporting data must be

verified by physical inventories ‘‘as of

the end of each quarter in which

nonbeverage products were

manufactured for purposes of

drawback.’’ The words ‘‘as of’’ indicate

that the inventory need not be taken

exactly at the end of the quarter; but if

it is taken at a slightly different time, the

data must be worked backward or

forward to the end of the quarterly

period. The regulations also authorize

the regional director (compliance) to

require physical inventories of

nonbeverage products and raw

ingredients whenever such inventories

are deemed necessary to ensure

compliance with regulations.

32. Recovered alcohol. Recordkeeping

requirements for recovered alcohol,

formerly in § 170.617(c), are

incorporated in new § 17.168. The

regulations as proposed in Notice No.

748 did not provide for destruction of

recovered alcohol, although permission

for such destruction could be granted

under § 17.3, subject to such

recordkeeping and other conditions as

the approving official might have

deemed appropriate. Since the need for

destruction of recovered alcohol is an

eventuality that can be expected to

occur from time to time, this final rule

provides a standard procedure to

replace the need for an application

under § 17.3. Section 17.168 provides

standard recordkeeping requirements

and § 17.183 requires a notification,

which will give ATF the option of

witnessing the destruction.

33. Records retention. Section 17.170

(corresponding to former § 197.133)

extends the records retention period

from 2 years to 3 years, for consistency

with other ATF regulations. This change

will ensure the availability of records to

support any action that may be taken

within the period of the statute of

limitations prescribed by 26 U.S.C.

6531. This section of law prescribes a 3-

year statute of limitations for most

offenses; but for certain offenses

involving fraud or willful violation, the

statute of limitations is 6 years.

Therefore, as in other ATF regulations,

§ 17.170 contains a provision that

permits the regional director

(compliance) to require a longer records

retention period, not to exceed an

additional 3 years.

34. Inspection of records. In addition

to the records specifically required by

regulations, ATF officers are authorized

under 26 U.S.C. 5133 (as delegates of

the Secretary of the Treasury) to inspect

any records ‘‘bearing upon the matters

required to be alleged’’ in drawback

claims. This authority is reiterated in

§ 17.171.

In carrying out this authority, ATF

will continue to protect proprietary

information. For example, the

production records in § 17.164 do not

require greater detail as to ingredients

than is shown on a product’s formula.

If some secret ingredients of a product

are referred to in general terms, such as

‘‘essential oils,’’ on the formula, then

the required production record for that

product would only need to show the

quantity of ‘‘essential oils’’ used in the

production of each batch. The

production record would not have to

specify the secret ingredients. If unusual

circumstances should require an ATF

officer to examine other records, such as

master formulas that do specify the

secret ingredients, § 17.171 does not

provide authority for copies of such

formulas to be made without the

consent of the proprietor. (However,

such copies could be required by the

Director or a regional director

(compliance) under § 17.123.)

The law, in 18 U.S.C. 1905 and 26

U.S.C. 7213, imposes criminal penalties

on any ATF officer who makes

unauthorized disclosure of confidential

business information obtained in the

course of his or her employment.

Further restrictions on disclosure are

found in 26 U.S.C. 6103, which

generally prohibits unauthorized

disclosure of returns and return

information. ‘‘Returns’’ and ‘‘return

information’’ in that section include

drawback claims and the records and

reports which support them.

35. Discontinuance of business. A

requirement has been added, in

§ 17.187, for notification to ATF when a

manufacturer permanently discontinues

business. This will enable ATF to

manage its files, and it is reasonable in

view of the conditional exemption from

basic permit and special (occupational)

tax requirements for the sale of alcohol

remaining on hand.

36. Nonbeverage products from Puerto

Rico and the Virgin Islands.

Amendments to 27 CFR 250.173 and

250.309 allow use of the new supporting

data form (ATF F 5154.2) and specify

that claims and bonds shall be filed

with the Chief, Puerto Rico Operations,

for nonbeverage products brought into

the U.S. from Puerto Rico and the Virgin

Islands. Although Notice No. 748 only

proposed to amend the place for filing

drawback claims, the place for filing

bonds should be amended as well, since

bonds and claims are filed at the same
31408 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

place. Other changes in part 250 are

miscellaneous technical and conforming

changes.

Distribution Table for Part 197

Former section New section

Subpart A

§ 197.1 ....................... § 17.1.

§ 197.2 ....................... § 17.2.

§ 197.3 ....................... Deleted.

Subpart B

§ 197.5: (generally) .... § 17.11.

‘‘Director of the Service Center’’.Deleted.

‘‘District Director’’ ...... Deleted.

‘‘Time distilled spirits

used’’.

§ 17.152(a).

‘‘Total annual withdrawals’’.Deleted.

‘‘Used’’ ....................... § 17.151.

‘‘Year’’ ........................ Deleted.

Subpart C

§ 197.25 ..................... § 17.21 & § 17.22.

§ 197.25a ................... § 17.22.

§ 197.26 ..................... § 17.23.

§ 197.27 ..................... § 17.24.

§ 197.28 ..................... § 17.31.

§ 197.29 ..................... § 17.32.

§ 197.29a(a) .............. § 17.41.

§ 197.29a(b) .............. § 17.42.

§ 197.29a(c) ............... § 17.43.

§ 197.30 (except last

sentence).

§ 17.33.

§ 197.30 (last sentence).Covered by § 17.6.

§ 197.31 ..................... § 17.34.

Subpart D

§ 197.40 ..................... § 17.51.

§ 197.40a ................... § 17.52.

§ 197.41 ..................... § 17.54.

§ 197.42 ..................... § 17.53.

§ 197.43 ..................... § 17.61.

§ 197.46 ..................... § 17.62.

§ 197.47 ..................... § 17.63.

§ 197.47a ................... § 17.55.

§ 197.48 ..................... § 17.71.

§ 197.49 ..................... § 17.72.

§ 197.50 ..................... § 17.73.

§ 197.51 ..................... § 17.74.

§ 197.52 ..................... § 17.81.

§ 197.53 ..................... § 17.82.

§ 197.54 ..................... § 17.83.

§ 197.57 ..................... § 17.91.

§ 197.58 ..................... § 17.92.

§ 197.59 ..................... § 17.93.

Subpart E

§ 197.65 ..................... § 17.101 (up to last

sentence).

§ 197.66 ..................... § 17.103.

§ 197.67 ..................... §§ 17.105, 17.6.

§ 197.68 ..................... § 17.104.

§ 197.69 ..................... § 17.106.

§ 197.70 ..................... § 17.144 (2nd sentence).

§ 197.71 ..................... § 17.101 (last sentence).

§ 197.72 ..................... § 17.107.

§ 197.73 ..................... § 17.108.

§ 197.75 ..................... § 17.111.

§ 197.76 ..................... § 17.112.

Distribution Table for Part 197—

Continued

Former section New section

§ 197.77 (except last

sentence).

§ 17.113.

§ 197.77 (last sentence).Covered by § 17.108

(last sentence).

§ 197.79 ..................... Covered by § 17.111.

§ 197.80 ..................... § 17.114.

Subpart F

§ 197.95 (sentences

1–2, 6, 8–9).

§ 17.121.

§ 197.95 (sentences 3

& 4).

§ 17.131.

§ 197.95 (5th sentence).§ 17.137.

§ 197.95 (7th sentence).§ 17.122.

§ 197.95 (last sentence).Deleted.

§ 197.96 ..................... § 17.132(a).

§ 197.97 ..................... § 17.123.

§ 197.98 ..................... § 17.124.

§ 197.99 ..................... § 17.125(a).

Subpart G

§ 197.105 ................... § 17.141.

§ 197.106 (up to proviso).§ 17.142(a).

§ 197.106 (proviso,

except next-to-last

sentence).

§ 17.143.

§ 197.106 (next-to-last

sentence).

§ 17.146(b).

§ 197.107 (except first

& last sentences).

§ 17.102.

§ 197.107 (first & last

sentences).

§ 17.144 (first & last

sentences).

§ 197.108 ................... § 17.145.

§ 197.109 ................... § 17.146(a).

§ 197.110 ................... § 17.147.

§ 197.111 ................... New supporting data

form.

§ 197.112–113 ........... § 17.162(a).

§ 197.114 ................... § 17.162(b).

§ 197.115 ................... § 17.147 & new supporting data form.

§ 197.116 (except last

sentence).

New supporting data

form.

§ 197.116 (last sentence); also

§ 197.117 (2nd sentence), § 197.118

(2nd sentence), &

§ 197.119 (2nd sentence).

§ 17.167(a).

§ 197.117 (first sentence).New supporting data

form.

§ 197.117 (3rd & 4th

sentences).

§ 17.153(b).

§ 197.117 (last sentence).§ 17.153(c).

§ 197.118 (first sentence).New supporting data

form.

§ 197.118 (last sentence).§ 17.153(a).

§ 197.119 (first sentence).Deleted; covered by

new supporting

data form and

§ 17.164(b).

§ 197.119 (last sentence).§ 17.155.

Distribution Table for Part 197—

Continued

Former section New section

Subpart H

§ 197.130 (introduction).§ 17.161 (first sentence).

§ 197.130(a)–(d) ........ Covered by

§ 17.162(a)–(c).

§ 197.130(e)–(g) ........ § 17.164(b).

§ 197.130(h)–(j) ......... § 17.166(a).

§ 197.130a(a) ............ § 17.162(d).

§ 197.130a(b) ............ § 17.164(d).

§ 197.130b ................. § 17.163 (a) & (c).

§ 197.131 ................... § 17.166(c).

§ 197.132 (except last

clause).

§ 17.161 (from 2nd

sentence to end).

§ 197.132 (last

clause).

Covered by § 17.171.

§ 197.133 (except last

sentence).

§ 17.170.

§ 197.133 (last sentence).§ 17.171.

Derivation Table for Part 17

New section Source

Subpart A

§ 17.1 ......................... § 197.1.

§ 17.2 ......................... § 197.2.

§ 17.3 ......................... NEW.

§ 17.4 ......................... NEW.

§ 17.5 ......................... NEW.

§ 17.6 ......................... NEW (cf. §§ 197.30

and 197.67(a)).

Subpart B

§ 17.11: (generally) ... § 197.5.

‘‘Alcohol & Tobacco Laboratory’’.NEW.

‘‘Approved’’ ........ NEW.

‘‘CFR’’ ................ NEW.

‘‘Eligible’’ ............ NEW.

‘‘Food products’’ Rev. Rul. 63–87.

‘‘Medicines’’ ........ ATF Rul. 82–7.

‘‘Month’’ .............. NEW.

‘‘Person’’ ............ NEW.

‘‘Proof gallon’’ .... NEW.

‘‘Quarter’’ ............ NEW.

‘‘Recovered spirits’’.NEW.

‘‘Subject to drawback’’.NEW.

‘‘Taxpaid’’ ........... NEW.

‘‘This chapter’’ .... NEW.

Subpart C

§ 17.21 ....................... § 197.25.

§ 17.22 ....................... § 197.25a.

§ 17.23 ....................... § 197.26.

§ 17.24 ....................... § 197.27.

§ 17.31 ....................... § 197.28.

§ 17.32 ....................... § 197.29.

§ 17.33 ....................... § 197.30.

§ 17.34 ....................... § 197.31.

§ 17.41 ....................... § 197.29a(a).

§ 17.42 ....................... § 197.29a(b).

§ 17.43 ....................... § 197.29a(c).

Subpart D

§ 17.51 ....................... § 197.40.

§ 17.52 ....................... § 197.40a.
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31409

Derivation Table for Part 17—

Continued

New section Source

§ 17.53 ....................... § 197.42.

§ 17.54 ....................... § 197.41.

§ 17.55 ....................... § 197.47a.

§ 17.61 ....................... § 197.43.

§ 17.62 ....................... § 197.46.

§ 17.63 ....................... § 197.47.

§ 17.71 ....................... § 197.48.

§ 17.72 ....................... § 197.49.

§ 17.73 ....................... § 197.50.

§ 17.74 ....................... § 197.51.

§ 17.75 ....................... NEW.

§ 17.76 ....................... ATF Rul. 74–2.

§ 17.77 ....................... NEW.

§ 17.81 ....................... § 197.52.

§ 17.82 ....................... § 197.53.

§ 17.83 ....................... § 197.54.

§ 17.91 ....................... § 197.57.

§ 17.92 ....................... § 197.58.

§ 17.93 ....................... § 197.59.

Subpart E

§ 17.101 ..................... §§ 197.65 & 197.71.

§ 17.102 ..................... § 197.107 (except first

& last sentences).

§ 17.103 ..................... § 197.66.

§ 17.104 ..................... § 197.68.

§ 17.105 ..................... § 197.67.

§ 17.106 ..................... § 197.69.

§ 17.107 ..................... § 197.72.

§ 17.108 ..................... § 197.73.

§ 17.111 ..................... §§ 197.75 & 197.79.

§ 17.112 ..................... § 197.76.

§ 17.113 ..................... § 197.77.

§ 17.114 ..................... § 197.80.

Subpart F

§ 17.121 ..................... § 197.95 (sentences

1–2, 6, 8–9).

§ 17.122 ..................... § 197.95 (7th sentence) & ATF Rul.

77–27.

§ 17.123 ..................... § 197.97.

§ 17.124 ..................... § 197.98.

§ 17.125(a) ................ § 197.99.

§ 17.125(b) ................ NEW.

§ 17.126(a) ................ NEW.

§ 17.126(b) ................ Rev. Rul. 69–138.

§ 17.127 ..................... NEW.

§ 17.131 ..................... § 197.95 (3rd & 4th

sentences).

§ 17.132(a) ................ § 197.96.

§ 17.132(b) ................ § 170.616.

§ 17.133 ..................... § 170.613(a) (7)–(9),

Rev. Rul. 63–87 &

ATF Rul. 73–1.

§ 17.134 ..................... NEW.

§ 17.135 ..................... Rev. Ruls. 56–239 &

56–367.

§ 17.136 ..................... Rev. Rul. 58–350.

§ 17.137 ..................... § 197.95 (5th sentence) & Rev. Rul.

56–314.

Subpart G

§ 17.141 ..................... § 197.105.

§ 17.142(a) ................ § 197.106 (up to proviso) & ATF Order

1100.95A.

§ 17.142(b) ................ NEW.

§ 17.143 ..................... § 197.106 (proviso,

except next-to-last

sentence).

Derivation Table for Part 17—

Continued

New section Source

§ 17.144 ..................... §§ 197.70 & 197.107

(first & last sentence).

§ 17.145 ..................... § 197.108.

§ 17.146 ..................... §§ 197.106 (next-tolast sentence) &

197.109.

§ 17.147(a) ................ § 197.110.

§ 17.147(b) ................ § 197.115 (last sentence).

§ 17.147 (c) & (d) ...... NEW.

§ 17.148 ..................... NEW.

§ 17.151 ..................... § 197.11 (‘‘Used’’).

§ 17.152(a) ................ § 197.11 (‘‘Time distilled spirits are

used’’).

§ 17.152(b) ................ ATF Rul. 76–17.

§ 17.152(c) ................ Rev. Ruls. 56–394 &

69–138.

§ 17.152(d) ................ Rev. Rul. 69–138.

§ 17.153 ..................... §§ 197.117 (last three

sentences) &

197.118 (last sentence).

§ 17.154 ..................... § 197.11 (‘‘Intermediate products’’).

§ 17.155 ..................... § 197.119 (last sentence).

Subpart H

§ 17.161 ..................... §§ 197.130 (introduction) & 197.132 (except last clause).

§ 17.162(a) ................ §§ 197.112–113 &

197.130 (a)–(d).

§ 17.162(b) ................ §§ 197.114 & 197.130

(a)–(d).

§ 17.162(c) ................ NEW.

§ 17.162(d) ................ § 197.130a(a).

§ 17.163 (a) & (c) ...... § 197.130b.

§ 17.163(b) ................ NEW.

§ 17.164 ..................... §§ 197.130 (e)–(g) &

197.130a(b).

§ 17.165 ..................... Industry Circular 79–

5.

§ 17.166(a) ................ § 197.130 (h)–(j).

§ 17.166(b) ................ NEW.

§ 17.166(c) ................ § 197.131.

§ 17.167(a) ................ §§ 197.116–119.

§ 17.167(b) ................ Industry Circular 79–

5.

§ 17.168 ..................... § 170.617(c).

§ 17.169 ..................... NEW.

§ 17.170 ..................... § 197.133 (except last

sentence).

§ 17.171 ..................... § 197.132 (last two

clauses), § 197.133

(last sentence) &

Industry Circular

79–5.

Subpart I

§ 17.181 ..................... Rev. Rul. 56–335.

§ 17.182 ..................... Rev. Rul. 56–336.

§ 17.183 ..................... ATF Rul. 81–8 (modified).

§ 17.184 ..................... NEW.

§ 17.185 (a) & (c) ...... NEW.

§ 17.185(b) ................ ATF Rul. 76–19.

§ 17.186 ..................... Rev. Rul. 56–395.

Derivation Table for Part 17—

Continued

New section Source

§ 17.187 ..................... Rev. Rul. 55–689.

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.

Paperwork Reduction Act

The collections of information

contained in this final regulation have

been submitted to the Office of

Management and Budget (OMB) in

accordance with the Paperwork

Reduction Act of 1980 (44 U.S.C.

3504(h)) and approved under control

numbers 1512–0078, 1512–0079, 1512–

0095, 1512–0141, 1512–0188, 1512–

0378, 1512–0379, 1512–0472, 1512–

0492, 1512–0500, and 1512–0514. The

likely respondents and recordkeepers

are businesses or other for-profit

institutions, including small businesses

or organizations.

The collection of information under

control number 1512–0078 is in

§ 17.106. This information is required

by ATF to obtain the surety’s agreement

to any changes in the terms of bonds.

The collections of information under

control number 1512–0079 are in

§§ 17.6 and 17.105. This information is

required when agents obtain authority

to sign official documents on behalf of

the principal.

The collections of information under

control number 1512–0095 are in

§§ 17.121, 17.126, 17.127, 17.132, and

17.136. This information is required by

ATF to describe the formulas for

nonbeverage and intermediate products.

The information is used to ensure that

drawback products meet the statutory

requirements for approval as being

medicines, medicinal preparations, food
31410 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

products, flavors, flavoring extracts, or

perfume that are unfit for beverage use.

The collections of information under

control number 1512–0141 are in

§§ 17.92, 17.93, 17.142, 17.145, and

17.146. The information on this claim

form must be submitted to ATF by

manufacturers claiming nonbeverage

drawback or refund of special

(occupational) tax. The information is

used to determine whether the claim is

valid.

The collection of information under

control number 1512–0188 is in § 17.6.

The information on this form provides

ATF with notification of corporate

officials authorized to sign documents

on behalf of the corporation.

The collections of information under

control number 1512–0378 are in

§§ 17.3, 17.54, 17.111, 17.112, 17.122–

17.125, 17.143, 17.168(a), 17.183, and

17.187. This control number covers

miscellaneous information required by

ATF on an irregular basis to ensure

compliance with law and regulations or

to grant permission for the use of

optional procedures.

The collections of information under

control number 1512–0379 are in

§§ 17.161–17.167, 17.168(b), 17.169,

17.170, 17.182, and 17.186. This

information is required to support

claims for drawback. The records kept

by manufacturers at their plants are

used by ATF inspectors conducting onsite inspections.

The collections of information under

control number 1512–0472 are in

§§ 17.31–17.34, 17.41, 17.53, 17.61,

17.63, 17.71, and 17.74. The information

on this special tax return is required

when paying special (occupational) tax.

The collections of information under

control number 1512–0492 are in

§§ 17.42, 17.43, 17.52, and 17.55. This

control number pertains to records

associated with the preparation and

filing of the special tax return. The

collections of information under control

number 1512–0500 are in §§ 17.31–

17.34, 17.41, and 17.53. This

requirement is the same special tax

return covered by control number 1512–

0472, except that the form is modified

(simplified) for use by renewal

taxpayers.

The collection of information under

control number 1512–0514 is in

§§ 17.147 and 17.182. This collection of

information consists of supporting data

required to accompany claims for

drawback. The supporting data

submitted to ATF is used to make a

preliminary verification of claims before

they are paid.

The estimated total number of

respondents and recordkeepers affected

by these collections of information is

611. The estimated average annual

burden is approximately 36 hours per

respondent or recordkeeper. (This figure

represents the additional time that

would be required, beyond what a

manufacturer would customarily spend

on recordkeeping in the ordinary course

of his business.) Comments on these

collections of information, including

comments relating to the accuracy of the

burden estimate and suggestions for

reducing this burden, were requested by

Notices No. 634 and 748. Public

comments pertaining to the collections

of information prescribed by this final

rule are discussed above, under the

headings ‘‘Public Comments on Notice

No. 634’’ and ‘‘Public Comments on

Notice No. 748.’’ 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 OMB.

Regulatory Flexibility Act

The provisions of the Regulatory

Flexibility Act relating to a final

regulatory flexibility analysis (5 U.S.C.

603, 604) are applicable to this final

rule. A final regulatory flexibility

analysis has been prepared and reads as

follows:

I. Rationale for Agency Action

The law (26 U.S.C. 5131–5134)

authorizes a drawback of internal

revenue tax on alcohol used in the

manufacture of certain nonbeverage

products. This drawback shall be

granted by the Department of the

Treasury on receipt of a proper claim.

To determine whether a claim is proper,

regulations may require certain records

to be kept and reports to be submitted

by those claiming drawback, in order to

establish their eligibility. That is, it

must be shown that the alcohol on

which drawback is claimed: (A) Was

actually used, (B) was used in the

manufacture of the particular products

for which drawback is authorized, and

(C) was originally taxpaid.

The regulations dealing with

nonbeverage drawback are therefore

issued under this primary rationale: to

protect the revenue. However, this

rationale is modified by a secondary

rationale, which is: to require only those

items of information to be submitted or

to be recorded which are actually

necessary to establish eligibility for

drawback. With respect to those items

required to be submitted to the Bureau

of Alcohol, Tobacco and Firearms

(ATF), only those should be submitted

which are actually used to maintain

control over the approval of claims.

With respect to those records required

to be maintained at the claimant’s

premises, the claimant’s own record

system should be utilized at all possible

times to avoid duplication.

II. Objective and Legal Basis for the

Rule

A. Objective basis. The objective basis

of these regulations is that a dual

control system is used to verify the

propriety of claims: Initially, a sampling

procedure in the regional office is used

to screen the claims before they are

paid; subsequently, periodic field

inspections at the manufacturing

premises provide the opportunity to

audit more detailed records.

At the regional offices, not every item

on every report is checked every time;

however, a sufficient number are

checked in order to insure that there is

no likelihood of fraud. Those reports

which are checked must contain

sufficient information to reveal

undisguised fraud and/or honest

mistakes. The information submitted

should also permit detection of any

problems which would result in

scheduling an on-site inspection sooner

than would otherwise be planned.

During on-site inspections, ATF

officers examine original batch records

to verify compliance with approved

formulas. A physical inventory is taken

and records are examined to see

whether they agree with the inventory.

If necessary, a claim adjustment may be

required.

B. Legal basis. The legal basis of these

regulations is found in 26 U.S.C. 5131–

5134 and 7805. These laws give the

Secretary of the Treasury broad

discretion to promulgate regulations,

but the regulations must be limited to

the function of revenue protection.

Treasury Department Order No. 120–01

(dated June 6, 1972, effective July 1,

1972) delegated to the Bureau of

Alcohol, Tobacco and Firearms the

function of prescribing and

administering such regulations.

C. Estimate of number of small

entities affected and types. It is

estimated that this document will affect

about 611 small entities which use

taxpaid alcohol to manufacture

nonbeverage products.

III. Detailed Estimate and Description

of the Reporting, Recordkeeping and

Compliance Requirements

A. Reporting requirements. The most

significant reporting requirements of

this document pertain to the supporting

data that is required to accompany each

claim. The supporting data must

include information regarding: the

amount of taxpaid alcohol received, the

amount of each product produced, the

amount of taxpaid alcohol used and the
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31411

product in which used, the amount of

alcohol recovered (if any), the amount of

tax claimed as drawback, the amount of

alcohol on hand at the beginning and

end of each claim period, and an

explanation of any discrepancies

disclosed by physical inventory. Other

reports which are required less

frequently include: Statements of

formula and process (which are

necessary to establish that the products

being manufactured are of the types for

which drawback is authorized under

law), bonds and consents of surety in

the case of claimants filing monthly

claims, samples of the product if needed

to determine its nonbeverage character,

a special tax return and registration (as

required by law in 26 U.S.C. 5131–

5132), an application for an employer

identification number in order to

identify the special taxpayer, and

information relating to any changes in

the location or control of the business.

If no drawback is claimed, then none of

the requirements need be complied

with. The reporting requirements affect

all classes of nonbeverage drawback

manufacturers. Some knowledge of

chemistry is helpful in preparing the

required formulas for submission, and

an elementary knowledge of

bookkeeping is needed to maintain the

required accounts for submission.

B. Recordkeeping requirements. The

recordkeeping requirements of this

regulation are designed to be

supplementary to the reporting

requirements. The records support and

amplify the statements given in the

required reports. Ultimately, the

purpose is to facilitate verification of the

amount of drawback claimed. No

particular form of record is required;

rather, the records may be kept in any

format, so long as the information is

clearly expressed. For the most part,

these required records are merely

ordinary business records which the

manufacturer would normally maintain

in the course of his business. However,

it is still necessary for regulations to

specify that these records must be kept;

otherwise, a claimant under

investigation might falsely deny keeping

the records, and if there were no

requirement that the records be kept,

then it would be difficult to prove any

violation against such a person. The

records which this regulation requires

claimants to keep are: Copies of the

reports submitted, records of disposition

of nonbeverage products, records of raw

materials received, accounting for

recovered alcohol, invoices of

purchases, evidence of taxpayment, and

batch records of ingredients used in

each production batch. The regional

director (compliance) may also require a

manufacturer to keep inventory records

of raw materials and nonbeverage

products. All classes of nonbeverage

drawback manufacturers are affected by

these recordkeeping requirements. An

elementary knowledge of bookkeeping

is needed to prepare and record the

prescribed accounts.

C. Compliance requirements. The

compliance requirements of this

regulation are: To retain the special tax

stamp at the place of business as

evidence of payment of special tax; to

observe the statutory time restrictions

for filing of claims (six months

following the close of the quarter within

which the alcohol was used); to retain

the required records for a period of at

least 3 years; to obliterate taxpayment

marks on emptied containers of distilled

spirits (as required by 26 U.S.C. 5206);

to use intermediate products, and

alcohol recovered from nonbeverage

products, for no purpose other than to

manufacture nonbeverage products; to

transfer intermediate products to no one

except another branch or plant of the

same manufacturer; to refrain from

transferring unfinished nonbeverage

products to any other premises; and to

refrain from selling or transferring any

recovered alcohol or material from

which alcohol can be recovered, except

as provided by regulation. All classes of

nonbeverage drawback manufacturers

are affected by these requirements. No

special skills are needed for compliance.

IV. Conflicting, Duplicative or

Overlapping Federal Rules

Some of the requirements of these

regulations may overlap requirements of

the Internal Revenue Service (IRS). The

reason for this is that the IRS requires

certain financial and cost accounting

records in order to establish income tax

liability, and in some cases the same

information may be required by this part

in order to establish eligibility for

drawback of excise tax. In case of such

overlap, the proprietor would not be

required to keep two separate sets of

records; the same set of records could

suffice to meet the requirements of both

ATF and IRS regulations. There is no

additional burden, because these

records are merely those which anyone

would keep in the ordinary course of

business. The Food and Drug

Administration (FDA) may also require

certain records which duplicate or

overlap the records required by these

regulations. Such FDA records will also

satisfy the ATF requirement, due to the

fact that these regulations do not specify

any particular format for the records, so

long as the information is clearly

presented and available to ATF

inspectors.

V. Alternatives

A. Multitiering. This concept is not

used, because the large majority of

manufacturers of nonbeverage products

are small entities. Consequently, the

regulatory requirements have been

specifically designed in consideration of

the needs of small establishments.

Larger establishments should also be

able to comply with these requirements

without particular difficulties.

B. Simplification of requirements. The

requirements as they are established are

felt to be at the minimum. These

requirements are necessary in order to

protect the revenue and detect fraud

against the Treasury. In most cases, of

course, no fraud exists. But the

requirements must be imposed equally

on all claimants, so that if and when

fraud exists, it will be detected. This is

the statutory mandate of 26 U.S.C. 5132.

C. Performance standards. This

concept was utilized as much as

possible. For example, an ATF form for

‘‘supporting data’’ reports is provided—

but the format presented on that form is

not required. (Any desired format may

be used if it provides the necessary

information.) Similarly, the required

records also may be kept in any

convenient format. However, the needs

of the Government, with respect to

expeditious processing of claims and tax

payments, mandate prescription of

specific forms for submission of

drawback claims and payment of special

tax. A specific form is also prescribed

for formula submission, in order to

facilitate communication concerning the

formula among the applicable ATF

offices as well as between ATF and the

claimant. A special regulations section

authorizes variation from most

requirements if good cause can be

shown for a variation.

D. Exemption of small entities. The

law does not authorize exemption of

any entity from the requirements.

VI. Issues Raised by Comments

No comments directed to the issues

addressed in the Initial Regulatory

Flexibility Analyses of Notices No. 634

and 748 have been received from the

public or the Chief Counsel for

Advocacy of the Small Business

Administration.

Drafting Information

The principal drafter of this document

was Steven C. Simon of the Wine, Beer,

and Spirits Regulations Branch, Bureau

of Alcohol, Tobacco and Firearms.
31412 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

List of Subjects

27 CFR Parts 17 and 197

Alcohol and alcoholic beverages,

Authority delegations (Government

agencies), Claims, Drugs, Excise taxes,

Foods, Reporting and recordkeeping

requirements, Spices and flavorings,

Surety bonds.

27 CFR Part 19

Administrative practice and

procedure, Alcohol and alcoholic

beverages, Authority delegations

(Government agencies), Chemicals,

Claims, Customs duties and inspection,

Electronic fund transfers, Excise taxes,

Exports, Gasohol, Imports, Labeling,

Liquors, Packaging and containers,

Puerto Rico, Reporting and

recordkeeping requirements, Research,

Security measures, Spices and

flavorings, Stills, Surety bonds,

Transportation, Vinegar, Virgin Islands,

Warehouses, Wine.

27 CFR Part 70

Administrative practice and

procedure, Alcohol and alcoholic

beverages, Authority delegations

(Government agencies), Claims, Excise

taxes, Firearms and ammunition,

Government employees, Law

enforcement, Law enforcement officers,

Penalties, Seizures and forfeitures,

Surety bonds, Tobacco.

27 CFR Part 170

Alcohol and alcoholic beverages,

Authority delegations (Government

agencies), Claims, Customs duties and

inspection, Disaster assistance, Excise

taxes, Labeling, Liquors, Penalties,

Reporting and recordkeeping

requirements, Surety bonds, Wine.

27 CFR Part 194

Alcohol and alcoholic beverages,

Authority delegations (Government

agencies), Beer, Claims, Excise taxes,

Exports, Labeling, Liquors, Packaging

and containers, Penalties, Reporting and

recordkeeping requirements, Wine.

27 CFR Part 250

Administrative practice and

procedure, Alcohol and alcoholic

beverages, Authority delegations

(Government agencies), Beer, Claims,

Customs duties and inspection, Drugs,

Electronic funds transfers, Excise taxes,

Foods, Liquors, Packaging and

containers, Puerto Rico, Reporting and

recordkeeping requirements, Spices and

flavorings, Surety bonds,

Transportation, Virgin Islands,

Warehouses, Wine.

Issuance

Accordingly, title 27 of the Code of

Federal Regulations is amended as

follows:

Paragraph A. Title 27 CFR part 17 is

added to read as follows:

PART 17—DRAWBACK ON TAXPAID

DISTILLED SPIRITS USED IN

MANUFACTURING NONBEVERAGE

PRODUCTS

Subpart A—General Provisions

Sec.

17.1 Scope of regulations.

17.2 Forms prescribed.

17.3 Alternate methods or procedures.

17.4 OMB control numbers assigned under

the Paperwork Reduction Act.

17.5 Products manufactured in Puerto Rico

or the Virgin Islands.

17.6 Signature authority.

Subpart B—Definitions

17.11 Meaning of terms.

Subpart C—Special Tax

17.21 Payment of special tax.

17.22 Rate of special tax

17.23 Special tax for each place of business.

17.24 Time for payment of special tax.

Special Tax Returns

17.31 Filing of return and payment of

special tax.

17.32 Completion of ATF Form 5630.5.

17.33 Signature on returns, ATF Form

5630.5.

17.34 Verification of returns.

Employer Identification Number

17.41 Requirement for employer

identification number.

17.42 Application for employer

identification number.

17.43 Preparation and filing of Form SS–4.

Subpart D—Special Tax Stamps

17.51 Issuance of stamps.

17.52 Distribution of stamps for multiple

locations.

17.53 Correction of errors on stamps.

17.54 Lost or destroyed stamps.

17.55 Retention of special tax stamps.

Change in Location

17.61 General.

17.62 Failure to register.

17.63 Certificates in lieu of lost stamps.

Change in Control

17.71 General.

17.72 Right of succession.

17.73 Failure to register.

17.74 Certificates in lieu of lost stamps.

17.75 Formation of partnership or

corporation.

17.76 Addition or withdrawal of partners.

17.77 Reincorporation.

Change in Name or Style

17.81 General.

17.82 Change in capital stock.

17.83 Sale of stock.

Refund of Special Tax

17.91 Absence of liability, refund of special

tax.

17.92 Filing of refund claim.

17.93 Time limit for filing refund claim.

Subpart E—Bonds and Consents of

Sureties

17.101 General.

17.102 Amount of bond.

17.103 Bonds obtained from surety

companies.

17.104 Deposit of collateral.

17.105 Filing of powers of attorney.

17.106 Consents of surety.

17.107 Strengthening bonds.

17.108 Superseding bonds.

Termination of Bonds

17.111 General.

17.112 Notice by surety of termination of

bond.

17.113 Extent of release of surety from

liability under bond.

17.114 Release of collateral.

Subpart F—Formulas and Samples

17.121 Product formulas.

17.122 Amended or revised formulas.

17.123 Statement of process.

17.124 Samples.

17.125 Adoption of formulas and processes.

17.126 Formulas for intermediate products.

17.127 Self-manufactured ingredients

treated optionally as unfinished

nonbeverage products.

Approval of Formulas

17.131 Formulas on ATF Form 5154.1.

17.132 U.S.P., N.F., and H.P.U.S.

preparations.

17.133 Food product formulas.

17.134 Determination of unfitness for

beverage purposes.

17.135 Use of specially denatured alcohol

(S.D.A.).

17.136 Compliance with Food and Drug

Administration requirements.

17.137 Formulas disapproved for drawback.

Subpart G—Claims for Drawback

17.141 Drawback.

17.142 Claims.

17.143 Notice for monthly claims.

17.144 Bond for monthly claims.

17.145 Date of filing claim.

17.146 Information to be shown by the

claim.

17.147 Supporting data.

17.148 Allowance of claims.

Spirits Subject to Drawback

17.151 Use of distilled spirits.

17.152 Time of use of spirits.

17.153 Recovered spirits.

17.154 Spirits contained in intermediate

products.

17.155 Spirits consumed in manufacturing

intermediate products.

Subpart H—Records

17.161 General.

17.162 Receipt of distilled spirits.

17.163 Evidence of taxpayment of distilled

spirits.

17.164 Production record.

17.165 Receipt of raw ingredients.
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31413

17.166 Disposition of nonbeverage

products.

17.167 Inventories.

17.168 Recovered spirits.

17.169 Transfer of intermediate products.

17.170 Retention of records.

17.171 Inspection of records.

Subpart I—Miscellaneous Provisions

17.181 Exportation of medicinal

preparations and flavoring extracts.

17.182 Drawback claims by druggists.

17.183 Disposition of recovered alcohol and

material from which alcohol can be

recovered.

17.184 Distilled spirits container marks.

17.185 Requirements for intermediate

products and unfinished nonbeverage

products.

17.186 Transfer of distilled spirits to other

containers.

17.187 Discontinuance of business.

Authority: 26 U.S.C. 5010, 5131-5134,

5143, 5146, 5206, 5273, 6011, 6065, 6091,

6109, 6151, 6402, 6511, 7011, 7213, 7652,

7805; 31 U.S.C. 9301, 9303, 9304, 9306.

Subpart A—General Provisions

§ 17.1 Scope of regulations.

The regulations in this part apply to

the manufacture of medicines,

medicinal preparations, food products,

flavors, flavoring extracts, and perfume

that are unfit for beverage use and are

made with taxpaid distilled spirits. The

regulations cover the following topics:

obtaining drawback of internal revenue

tax on distilled spirits used in the

manufacture of nonbeverage products;

the payment of special (occupational)

taxes in order to be eligible to receive

drawback; and bonds, claims, formulas

and samples, losses, and records to be

kept pertaining to the manufacture of

nonbeverage products.

§ 17.2 Forms prescribed.

(a) The Director is authorized to

prescribe all forms, including bonds and

records, required by this part. All of the

information called for in each form shall

be furnished as indicated by the

headings on the form and the

instructions on or pertaining to the

form. In addition, information called for

in each form shall be furnished as

required by this part.

(b) Requests for forms should be

mailed to the ATF Distribution Center,

PO Box 5950, Springfield, Virginia

22150–5950.

§ 17.3 Alternate methods or procedures.

(a) General. The Director may approve

the use of an alternate method or

procedure in lieu of a method or

procedure prescribed in this part if he

or she finds that—

(1) Good cause has been shown for the

use of the alternate method or

procedure;

(2) The alternate method or procedure

is within the purpose of, and consistent

with the effect intended by, the method

or procedure prescribed by this part,

and affords equivalent security to the

revenue; and

(3) The alternate method or procedure

will not be contrary to any provision of

law, and will not result in any increase

in cost to the Government or hinder the

effective administration of this part.

(b) Application. A letter of application

to employ an alternate method or

procedure shall be submitted 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.

(c) Approval. No alternate method or

procedure shall be employed until the

application has been approved by the

Director. The Director shall not approve

any alternate method relating to the

giving of any bond or to the assessment,

payment, or collection of any tax. The

manufacturer shall, during the period of

authorization, comply with the terms of

the approved application and with any

conditions thereto stated by the Director

in the approval. Authorization for any

alternate method or procedure may be

withdrawn by written notice from the

Director whenever in his or her

judgment the revenue is jeopardized,

the effective administration of this part

is hindered, or good cause for the

authorization no longer exists. The

manufacturer shall retain, in the records

required by § 17.170, any authorization

given by the Director under this section.

§ 17.4 OMB control numbers assigned

under the Paperwork Reduction Act.

(a) Purpose. This section collects and

displays the control numbers assigned

to the information collection

requirements of this part by the Office

of Management and Budget under the

Paperwork Reduction Act of 1980,

Public Law 96–511.

(b) OMB control number 1512–0078.

OMB control number 1512–0078 is

assigned to the following section in this

part: § 17.106.

(c) OMB control number 1512–0079.

OMB control number 1512–0079 is

assigned to the following sections in

this part: §§ 17.6 and 17.105.

(d) OMB control number 1512–0095.

OMB control number 1512–0095 is

assigned to the following sections in

this part: §§ 17.121, 17.126, 17.127,

17.132, and 17.136.

(e) OMB control number 1512–0141.

OMB control number 1512–0141 is

assigned to the following sections in

this part: §§ 17.92, 17.93, 17.142,

17.145, and 17.146.

(f) OMB control number 1512–0188.

OMB control number 1512–0188 is

assigned to the following section in this

part: § 17.6.

(g) OMB control number 1512–0378.

OMB control number 1512–0378 is

assigned to the following sections in

this part: §§ 17.3, 17.54, 17.111, 17.112,

17.122, 17.123, 17.124, 17.125, 17.143,

17.168(a), 17.183, and 17.187.

(h) OMB control number 1512–0379.

OMB control number 1512–0379 is

assigned to the following sections in

this part: §§ 17.161, 17.162, 17.163,

17.164, 17.165, 17.166, 17.167,

17.168(b), 17.169, 17.170, 17.182, and

17.186.

(i) OMB control number 1512–0472.

OMB control number 1512–0472 is

assigned to the following sections in

this part: §§ 17.31, 17.32, 17.33, 17.34,

17.41, 17.53, 17.61, 17.63, 17.71, and

17.74.

(j) OMB control number 1512–0492.

OMB control number 1512–0492 is

assigned to the following sections in

this part: §§ 17.42, 17.43, 17.52, and

17.55.

(k) OMB control number 1512–0500.

OMB control number 1512–0500 is

assigned to the following sections in

this part: §§ 17.31, 17.32, 17.33, 17.34,

17.41, and 17.53.

(l) OMB control number 1512–0514.

OMB control number 1512–0514 is

assigned to the following sections in

this part: §§ 17.147 and 17.182.

§ 17.5 Products manufactured in Puerto

Rico or the Virgin Islands.

For additional provisions regarding

drawback on distilled spirits contained

in medicines, medicinal preparations,

food products, flavors, flavoring

extracts, or perfume which are unfit for

beverage purposes and which are

brought into the United States from

Puerto Rico or the U.S. Virgin Islands,

see part 250, subparts I and Ob, of this

chapter.

§ 17.6 Signature authority.

No claim, bond, tax return, or other

required document executed by a

person as an agent or representative is

acceptable unless a power of attorney or

other proper notification of signature

authority has been filed with the ATF

office where the required document

must be filed. The ATF officer with

whom the claim or other required

document is filed may, when he or she

considers it necessary, require

additional evidence of the authority of

the agent or representative to execute

the document. Except as otherwise

provided by this part, powers of
31414 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

attorney shall be filed on ATF Form

1534 (5000.8), Power of Attorney.

Notification of signature authority of

partners, officers, or employees may be

given by filing a copy of corporate or

partnership documents, minutes of a

meeting of the board of directors, etc.

For corporate officers or employees,

ATF Form 5100.1, Signing Authority for

Corporate Officials, may be used. For

additional provisions regarding powers

of attorney, see § 17.105 and 26 CFR

part 601, subpart E.

Subpart B—Definitions

§ 17.11 Meaning of terms.

As used in this part, unless the

context otherwise requires, terms have

the meanings given in this section.

Words in the plural form include the

singular, and vice versa, and words

indicating the masculine gender include

the feminine. The terms ‘‘includes’’ and

‘‘including’’ do not exclude things not

listed which are in the same general

class.

Alcohol and Tobacco Laboratory. The

Alcohol and Tobacco Laboratory,

Bureau of Alcohol, Tobacco and

Firearms, 1401 Research Boulevard,

Rockville, Maryland 20850.

Approved, or approved for drawback.

When used with reference to products

and their formulas, this term means that

drawback may be claimed on eligible

spirits used in such products in

accordance with this part.

ATF officer. An officer or employee of

the Bureau of Alcohol, Tobacco and

Firearms (ATF) authorized to perform

any function relating to the

administration or enforcement of this

part.

CFR. The Code of Federal

Regulations.

Director. The Director, Bureau of

Alcohol, Tobacco and Firearms, the

Department of the Treasury,

Washington, DC 20226; or his or her

delegate.

Distilled spirits, or spirits. That

substance known as ethyl alcohol,

ethanol, spirits, or spirits of wine in any

form (including all dilutions and

mixtures thereof, from whatever source

or by whatever process produced).

Effective tax rate. The net tax rate,

after reduction for any credit allowable

under 26 U.S.C. 5010 for wine and

flavor content, at which the tax imposed

on distilled spirits by 26 U.S.C. 5001 or

7652 is paid or determined. For distilled

spirits with no wine or flavors content,

the effective tax rate equals the rate of

tax imposed by 26 U.S.C. 5001 or 7652.

Eligible, or eligible for drawback.

When used with reference to spirits, this

term designates taxpaid spirits which

have not yet been used in nonbeverage

products.

Filed. Subject to the provisions of

§§ 70.305 and 70.306 of this chapter, a

claim for drawback or other document

or payment submitted under this part is

generally considered to have been

‘‘filed’’ when it is received by the office

of the proper Government official; but if

an item is mailed timely with postage

prepaid, then the United States

postmark date is treated as the date of

filing.

Food products. Includes food

adjuncts, such as preservatives,

emulsifying agents, and food colorings,

which are manufactured and used, or

sold for use, in food.

Intermediate products. Products to

which all three of the following

conditions apply: they are made with

taxpaid distilled spirits, they have been

disapproved for drawback, and they are

made by the manufacturer exclusively

for its own use in the manufacture of

nonbeverage products approved for

drawback. However, ingredients treated

as unfinished nonbeverage products

under § 17.127 are not considered to be

intermediate products.

Medicines. Includes laboratory stains

and reagents for use in medical

diagnostic procedures.

Month. A calendar month.

Nonbeverage products. Medicines,

medicinal preparations, food products,

flavors, flavoring extracts, or perfume,

which are manufactured using taxpaid

distilled spirits, and which are unfit for

use for beverage purposes.

Person. An individual, trust, estate,

partnership, association, company, or

corporation.

Proof gallon. A gallon of liquid at 60

degrees Fahrenheit, which contains 50

percent by volume of ethyl alcohol

having a specific gravity of 0.7939 at 60

degrees Fahrenheit (referred to water at

60 degrees Fahrenheit as unity), or the

alcoholic equivalent thereof.

Quarter. A 3-month period beginning

January 1, April 1, July 1, or October 1.

Recovered spirits. Taxpaid spirits that

have been salvaged, after use in the

manufacture of a product or ingredient,

so that the spirits are reusable.

Regional director (compliance). The

principal ATF regional official

responsible for administering

regulations in this part, or his or her

delegate.

Special tax. The special

(occupational) tax on manufacturers of

nonbeverage products, imposed by 26

U.S.C. 5131.

Subject to drawback. This term is

used with reference to spirits. Eligible

spirits become ‘‘subject to drawback’’

when they are used in the manufacture

of a nonbeverage product. When spirits

have become ‘‘subject to drawback,’’

they may be included in the

manufacturer’s claim for drawback of

tax covering the period in which they

were first used.

Tax year. The period from July l of

one calendar year through June 30 of the

following year.

Taxpaid. When used with respect to

distilled spirits, this term shall mean

that all taxes imposed on such spirits by

26 U.S.C. 5001 or 7652 have been

determined or paid as provided by law.

This chapter. Chapter I of title 27 of

the Code of Federal Regulations.

U.S.C. The United States Code.

Subpart C—Special Tax

§ 17.2l Payment of special tax.

Each person who uses taxpaid

distilled spirits in the manufacture or

production of nonbeverage products

shall pay special tax as specified in

§ 17.22 in order to be eligible to receive

drawback on the spirits so used. Special

tax shall be paid for each tax year

during which spirits were used in the

manufacture of a product covered by a

drawback claim. If a claim is filed

covering taxpaid distilled spirits used

during the preceding tax year, and

special tax has not been paid for the

preceding tax year, then special tax for

the preceding tax year shall be paid.

Regardless of the portion of a tax year

covered by a claim, the full annual

special tax shall be paid. The

manufacturer is not required to pay the

special tax if drawback is not claimed.

§ 17.22 Rate of special tax.

Effective January 1, 1988, the rate of

special tax is $500 per tax year for all

persons claiming drawback on distilled

spirits used in the manufacture or

production of nonbeverage products.

§ 17.23 Special tax for each place of

business.

A separate special tax shall be paid

for each place where distilled spirits are

used in the manufacture or production

of nonbeverage products, except for any

such place in a tax year for which no

claim is filed, or no drawback is paid,

on spirits used at that place.

§ 17.24 Time for payment of special tax.

Special tax may be paid in advance of

actual use of distilled spirits. Special tax

shall be paid before a claimant may

receive drawback. Special tax may be

paid without penalty under 26 U.S.C.

5134(c) at any time prior to completion

of final action on the claim.
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31415

Special Tax Returns

§ 17.31 Filing of return and payment of

special tax.

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.

(26 U.S.C. 609l, 6151)

§ 17.32 Completion of ATF Form 5630.5.

(a) General. All of the information

called for on 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 §§ 17.41–43).

(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 of special tax to which

the taxpayer is subject.

(6) Ownership and control

information: 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, and if the information

previously provided is still current.

(b) Multiple locations. 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 the Form 5630.5),

employer identification number, and

period covered by the return. The list

shall show, by States, 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 § 17.170.

(26 U.S.C. 6011, 7011)

§ 17.33 Signature on returns, ATF Form

5630.5.

The return of an individual proprietor

shall be signed by the proprietor; the

return of a partnership shall be signed

by a general partner; and the return of

a corporation shall be signed by a

corporate officer. All signatures must be

original; photocopies are not acceptable.

In each case, the person signing the

return shall designate his or her

capacity, as ‘‘individual owner,’’

‘‘member of partnership,’’ or, in the case

of a corporation, the title of the officer.

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.

§ 17.34 Verification of returns.

ATF Forms 5630.5 shall contain or be

verified by a written declaration that the

return is made under the penalties of

perjury.

(68A Stat. 749 (26 U.S.C. 6065))

Employer Identification Number

§ 17.41 Requirement for employer

identification number.

The employer identification number

(defined in 26 CFR 301.7701–12) of the

taxpayer who has been assigned such a

number shall be shown on each special

tax return (ATF Form 5630.5), including

amended returns filed under this

subpart. Failure of the taxpayer to

include the employer identification

number on Form 5630.5 may result in

assertion and collection of the penalty

specified in § 70.113 of this chapter.

(Secs. 1(a), (b), Pub. L. 87–397, 75 Stat. 828

(26 U.S.C. 6109, 6723))

§ 17.42 Application for employer

identification number.

(a) An employer identification

number is assigned pursuant to

application on IRS Form SS–4,

Application for Employer Identification

Number, filed by the taxpayer. Form

SS–4 may be obtained from any office

of the Internal Revenue Service.

(b) Each taxpayer who files a return

on ATF Form 5630.5 shall make

application on IRS Form SS–4 for an

employer identification number, unless

he or she has already been assigned

such a number or made application for

one. The application on Form SS–4

shall be filed on or before the seventh

day after the date on which the first

return on Form 5630.5 is filed.

(c) Each taxpayer shall make

application for and shall be assigned

only one employer identification

number, regardless of the number of

places of business for which the

taxpayer is required to file Form 5630.5.

(Sec. 1(a), Pub. L. 87–397, 75 Stat. 828 (26

U.S.C. 6109))

§ 17.43 Preparation and filing of Form SS–

4.

The taxpayer shall prepare and file

the application on IRS Form SS–4,

together with any supplementary

statement, in accordance with

instructions on the form or issued in

respect to it.

(Sec. 1(a), Pub. L. 87–397, 75 Stat. 828 (26

U.S.C. 6109))

Subpart D—Special Tax Stamps

§ 17.51 Issuance of stamps.

Each manufacturer of nonbeverage

products, upon filing a properly

executed return on ATF Form 5630.5,

together with the proper tax payment in

the full amount due, shall be issued a

special tax stamp designated

‘‘Manufacturer of Nonbeverage

Products.’’ This special tax stamp shall

not be sold or otherwise transferred to

another person (except as provided in

§§ 17.71 and 17.72). If the Form 5630.5

submitted with the tax payment covers

multiple locations, the taxpayer shall be

issued one appropriately designated

stamp for each location listed in the

attachment to Form 5630.5 required by

§ 17.32(b)(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).

§ 17.52 Distribution of stamps for multiple

locations.

On receipt of the special tax stamps,

the taxpayer shall verify that a stamp

has been obtained for each location

listed on the retained copy of the

attachment to ATF Form 5630.5

required by § 17.32(b)(2). The taxpayer

shall designate one stamp for each

location and shall type on it the trade

name (if different from the name in

which the stamp was issued) and

address of the business conducted at the

location for which the stamp is

designated. The taxpayer shall then

forward each stamp to the place of

business designated on the stamp.

§ 17.53 Correction of errors on stamps.

(a) Single location. On receipt of a

special tax stamp, the taxpayer shall
31416 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

examine it to ensure that the name and

address are correctly stated. If an error

has been made, the taxpayer shall return

the stamp to ATF at the address shown

thereon, with a statement showing the

nature of the error and setting forth the

proper name or address. On receipt of

the stamp and statement, the data shall

be compared with that on ATF Form

5630.5, and if an error on the part of

ATF has been made, the stamp shall be

corrected and returned to the taxpayer.

If the Form 5630.5 agrees with the data

on the stamp, the taxpayer shall be

required to file a new Form 5630.5,

designated ‘‘Amended Return,’’

disclosing the proper name and address.

(b) Multiple locations. If an error is

discovered on a special tax stamp

obtained under the provisions of

§ 17.32(b), relating to multiple locations,

and if the error concerns any of the

information contained in the attachment

to Form 5630.5, the taxpayer shall

return the stamp, with a statement

showing the nature of the error and the

correct data, to his or her principal

office. The data on the stamp shall then

be compared with the taxpayer’s copy of

the attachment to Form 5630.5, retained

at the principal office. If the error is in

the name and address and was made by

the taxpayer, the taxpayer shall correct

the stamp and return it to the designated

place of business. If the error was made

in the attachment to Form 5630.5, the

taxpayer shall file with ATF an

amended Form 5630.5 and an amended

attachment with a statement showing

the error.

§ 17.54 Lost or destroyed stamps.

If a special tax stamp is lost or

accidentally destroyed, the taxpayer

shall immediately notify the regional

director (compliance). On receipt of this

notification, the regional director

(compliance) shall issue to the taxpayer

a ‘‘Certificate in Lieu of Lost or

Destroyed Special Tax Stamp.’’ The

taxpayer shall keep the certificate

available for inspection in the same

manner as prescribed for a special tax

stamp in § 17.55.

§ 17.55 Retention of special tax stamps.

Taxpayers shall keep their special tax

stamps at the place of business covered

thereby for the period specified in

§ 17.170, and shall make them available

for inspection by any ATF officer during

business hours.

(Title II, sec. 201, Pub. L. 85–859, 72 Stat.

1348 (26 U.S.C. 5146))

Change in Location

§ 17.61 General.

A manufacturer who, during a tax

year for which special tax has been

paid, moves its place of manufacture to

a place other than that specified on the

related special tax stamp, shall register

the change with ATF within 90 days

after the move to the new premises, by

executing a new return on ATF Form

5630.5, designated as ‘‘Amended

Return.’’ This Amended Return shall set

forth the time of the move and the

address of the new location. The

taxpayer shall also submit the special

tax stamp to ATF, for endorsement of

the change in location.

(Title II, sec. 201, Pub. L. 85–859, 72 Stat.

1374 (26 U.S.C. 5143))

§ 17.62 Failure to register.

A manufacturer who fails to register a

change of location with ATF, as

required by § 17.61, shall pay a new

special tax for the new location if a

claim for drawback is filed on distilled

spirits used at the new location during

the tax year for which the original

special tax was paid.

§ 17.63 Certificates in lieu of lost stamps.

The provisions of §§ 17.61 and 17.62

apply to certificates issued in lieu of lost

or destroyed special tax stamps.

Change in Control

§ 17.71 General.

Certain persons, other than the person

who paid the special tax, may qualify

for succession to the same privileges

granted by law to the taxpayer, to cover

the remainder of the tax year for which

the special tax was paid. Those who

may qualify are specified in § 17.72. To

secure these privileges, the successor or

successors shall file with ATF, within

90 days after the date on which the

successor or successors assume control,

a return on ATF Form 5630.5, showing

the basis of the succession.

§ 17.72 Right of succession.

Under the conditions set out in

§ 17.71, persons listed below have the

right of succession:

(a) The surviving spouse or child, or

executor, administrator, or other legal

representative of a taxpayer.

(b) A husband or wife succeeding to

the business of his or her living spouse.

(c) A receiver or trustee in

bankruptcy, or an assignee for the

benefit of creditors.

(d) The members of a partnership

remaining after the death or withdrawal

of a general partner.

§ 17.73 Failure to register.

A person eligible for succession to the

privileges of a taxpayer, in accordance

with §§ 17.71 and 17.72, who fails to

register the succession with ATF, as

required by § 17.71, shall pay a new

special tax if a claim for drawback is

filed on distilled spirits used by the

successor during the tax year for which

the original special tax was paid.

§ 17.74 Certificates in lieu of lost stamps.

The provisions of §§ 17.71–73 apply

to certificates issued in lieu of lost or

destroyed special tax stamps.

§ 17.75 Formation of partnership or

corporation.

If one or more persons who have paid

special tax form a partnership or

corporation, as a separate legal entity, to

take over the business of manufacturing

nonbeverage products, the new firm or

corporation shall pay a new special tax

in order to be eligible to receive

drawback.

§ 17.76 Addition or withdrawal of partners.

(a) General partners. When a business

formed as a partnership, subject to

special tax, admits one or more new

general partners, the new partnership

shall pay a new special tax in order to

be eligible to receive drawback.

Withdrawal of general partners is

covered by § 17.72(d).

(b) Limited partners. Changes in the

membership of a limited partnership

requiring amendment of the certificate

but not dissolution of the partnership

are not changes that incur liability to

additional special tax.

§ 17.77 Reincorporation.

When a new corporation is formed to

take over and conduct the business of

one or more corporations that have paid

special tax, the new corporation shall

pay special tax and obtain a stamp in its

own name.

Change in Name or Style

§ 17.81 General.

A person who paid special tax is not

required to pay a new special tax by

reason of a mere change in the trade

name or style under which the business

is conducted, nor by reason of a change

in management which involves no

change in the proprietorship of the

business.

§ 17.82 Change in capital stock.

A new special tax is not required by

reason of a change of name or increase

in the capital stock of a corporation, if

the laws of the State of incorporation

provide for such changes without

creating a new corporation.

§ 17.83 Sale of stock.

A new special tax is not required by

reason of the sale or transfer of all or a

controlling interest in the capital stock

of a corporation.
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31417

Refund of Special Tax

§ 17.91 Absence of liability, refund of

special tax.

The special tax paid may be refunded

if it is established that the taxpayer did

not file a claim for drawback for the

period covered by the special tax stamp.

If a claim for drawback is filed, the

special tax may be refunded if no

drawback is paid or allowed for the

period covered by the stamp.

§ 17.92 Filing of refund claim.

Claim for refund of special tax shall

be filed on ATF Form 2635 (5620.8),

Claim—Alcohol, Tobacco and Firearms

Taxes. The claim shall be filed with the

Chief, Tax Processing Center, PO Box

145433, Cincinnati, OH 45203. The

claim shall set forth in detail sufficient

reasons and supporting facts to inform

the regional director (compliance) of the

exact basis of the claim. The special tax

stamp shall be attached to the claim.

(68A Stat. 791 (26 U.S.C. 6402))

§ 17.93 Time limit for filing refund claim.

A claim for refund of special tax shall

not be allowed unless filed within three

years after the payment of the tax.

(68A Stat. 808 (26 U.S.C. 6511))

Subpart E—Bonds and Consents of

Sureties

§ 17.101 General.

A bond shall be filed by each person

claiming drawback on a monthly basis.

Persons who claim drawback on a

quarterly basis are not required to file

bonds. Bonds shall be prepared and

executed on ATF Form 5154.3, Bond for

Drawback Under 26 U.S.C. 5131, in

accordance with the provisions of this

part and the instructions printed on the

form. The bond requirement of this part

shall be satisfied either by bonds

obtained from authorized surety

companies or by deposit of collateral

security. Regional directors

(compliance) are authorized to approve

all bonds and consents of surety

required by this part.

§ 17.102 Amount of bond.

The bond shall be a continuing one,

in an amount sufficient to cover the

total drawback to be claimed on spirits

used during any quarter. However, the

amount of any bond shall not exceed

$200,000 nor be less than $1,000.

§ 17.103 Bonds obtained from surety

companies.

(a) The bond may be obtained from

any surety company authorized by the

Secretary of the Treasury to be a surety

on Federal bonds. Surety companies so

authorized are listed in the current

revision of Department of the Treasury

Circular 570 (Companies Holding

Certificates of Authority as Acceptable

Sureties on Federal Bonds and as

Acceptable Reinsuring Companies), and

subject to such amendatory circulars as

may be issued from time to time. Bonds

obtained from surety companies are also

governed by the provisions of 31 U.S.C.

9304, and 31 CFR part 223.

(b) A bond executed by two or more

surety companies shall be the joint and

several liability of the principal and the

sureties; however, each surety company

may limit its liability, in terms upon the

face of the bond, to a definite, specified

amount. This amount shall not exceed

the limitations prescribed for each

surety company by the Secretary, as

stated in Department of the Treasury

Circular 570. If the sureties limit their

liability in this way, the total of the

limited liabilities shall equal the

required amount of the bond.

(c) Department of the Treasury

Circular No. 570 is published in the

Federal Register annually on the first

workday in July. As they occur, interim

revisions of the circular are published in

the Federal Register. Copies of the

circular may be obtained from: Surety

Bond Branch, Financial Management

Service, Department of the Treasury,

Washington, DC 20227.

(Sec. 1, Pub. L. 97–258, 96 Stat. 1047 (31

U.S.C. 9304))

§ 17.104 Deposit of collateral.

Except as otherwise provided by law

or regulations, bonds or notes of the

United States, or other obligations

which are unconditionally guaranteed

as to both interest and principal by the

United States, may be pledged and

deposited by principals as collateral

security in lieu of bonds obtained from

surety companies. Deposit of collateral

security is governed by the provisions of

31 U.S.C. 9303, and 31 CFR part 225.

(Sec. 1, Pub. L. 97–258, 96 Stat. 1046 (31

U.S.C. 9301, 9303))

§ 17.105 Filing of powers of attorney.

(a) Surety companies. The surety

company shall prepare and submit with

each bond, and with each consent to

changes in the terms of a bond, a power

of attorney in accordance with § 17.6,

authorizing the agent or officer who

executed the bond or consent to act in

this capacity on behalf of the surety.

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 other

than a manually signed original is

submitted, it shall be accompanied by

certification of its validity.

(b) Principal. The principal shall

execute and file with the regional

director (compliance) a power of

attorney, in accordance with § 17.6, for

every person authorized to execute

bonds on behalf of the principal.

(Sec. 1, Pub. L. 97–258, 96 Stat. 1047 (31

U.S.C. 9304, 9306))

§ 17.106 Consents of surety.

The principal and surety shall execute

on ATF Form 1533 (5000.18), Consent

of Surety, any consents of surety to

changes in the terms of bonds. Form

1533 (5000.18) shall be executed with

the same formality and proof of

authority as is required for the

execution of bonds.

§ 17.107 Strengthening bonds.

Whenever the amount of a bond on

file and in effect becomes insufficient,

the principal may give a strengthening

bond in a sufficient amount, provided

the surety is the same as on the bond

already on file and in effect; otherwise

a superseding bond covering the entire

liability shall be filed. Strengthening

bonds, filed to increase the bond

liability of the surety, shall not be

construed in any sense to be substitute

bonds, and the regional director

(compliance) shall not approve a

strengthening bond containing any

notation which may be interpreted as a

release of any former bond or as limiting

the amount of either bond to less than

its full amount.

§ 17.108 Superseding bonds.

(a) The principal on any bond filed

pursuant to this part may at any time

replace it with a superseding bond.

(b) Executors, administrators,

assignees, receivers, trustees, or other

persons acting in a fiduciary capacity

continuing or liquidating the business of

the principal, shall execute and file a

superseding bond or obtain the consent

of the surety or sureties on the existing

bond or bonds.

(c) When, in the opinion of the

regional director (compliance), the

interests of the Government demand it,

or in any case where the security of the

bond becomes impaired in whole or in

part for any reason whatever, the

principal shall file a superseding bond.

A superseding bond shall be filed

immediately in case of the insolvency of

the surety. If a bond is found to be not

acceptable or for any reason becomes

invalid or of no effect, the principal

shall immediately file a satisfactory

superseding bond.

(d) A bond filed under this section to

supersede an existing bond shall be

marked by the obligors at the time of

execution, ‘‘Superseding Bond.’’ When
31418 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

such a bond is approved, the

superseded bond shall be released as to

transactions occurring wholly

subsequent to the effective date of the

superseding bond, and notice of

termination of the superseded bond

shall be issued, as provided in § 17.111.

Termination of Bonds

§ 17.111 General.

(a) Bonds on ATF Form 5154.3 shall

be terminated by the regional director

(compliance), as to liability on

drawback allowed after a specified

future date, in the following

circumstances:

(1) Pursuant to a notice by the surety

as provided in § 17.112.

(2) Following approval of a

superseding bond, as provided in

§ 17.108.

(3) Following notification by the

principal of an intent to discontinue the

filing of claims on a monthly basis.

(b) However, the bond shall not be

terminated until all outstanding liability

under it has been discharged. Upon

termination, the regional director

(compliance) shall mark the bond

‘‘canceled,’’ followed by the date of

cancellation, and shall issue a notice of

termination of bond. A copy of this

notice shall be given to the principal

and to each surety.

§ 17.112 Notice by surety of termination of

bond.

A surety on any bond required by this

part may at any time, in writing, notify

the principal and the regional director

(compliance) in whose office the bond

is on file that the surety desires, after a

date named, to be relieved of liability

under the bond. Unless the notice is

withdrawn, in writing, before the date

named in it, the notice shall take effect

on that date. The date shall not be less

than 60 days after the date on which

both the notice and proof of service on

the principal have been received by the

regional director (compliance). The

surety shall deliver one copy of the

notice to the principal and the original

to the regional director (compliance).

The surety shall also file with the

regional director (compliance) an

acknowledgment or other proof of

service on the principal.

§ 17.113 Extent of release of surety from

liability under bond.

The rights of the principal as

supported by the bond shall cease as of

the date when termination of the bond

takes effect, and the surety shall be

relieved from liability for drawback

allowed on and after that date. Liability

for drawback previously allowed shall

continue until the claims for such

drawback have been properly verified

by the regional director (compliance)

according to law and this part.

§ 17.114 Release of collateral.

The release of collateral security

pledged and deposited to satisfy the

bond requirement of this part is

governed by the provisions of 31 CFR

part 225. When the regional director

(compliance) determines that there is no

outstanding liability under the bond,

and is satisfied that the interests of the

Government will not be jeopardized, the

security shall be released and returned

to the principal.

(Sec. 1, Pub. L. 97–258, 96 Stat. 1046 (31

U.S.C. 9301, 9303))

Subpart F—Formulas and Samples

§ 17.121 Product formulas.

(a) General. Except as provided in

§§ 17.132 and 17.182, manufacturers

shall file quantitative formulas for all

preparations for which they intend to

file drawback claims. Such formulas

shall state the quantity of each

ingredient, and shall separately state the

quantity of spirits to be recovered or to

be consumed as an essential part of the

manufacturing process.

(b) Filing. Formulas shall be filed with

the Alcohol and Tobacco Laboratory on

ATF Form 5154.1, Formula and Process

for Nonbeverage Products. Filing shall

be accomplished no later than 6 months

after the end of the quarter in which

taxpaid distilled spirits were first used

to manufacture the product for purposes

of drawback. If a product’s formula is

disapproved, no drawback shall be

allowed on spirits used to manufacture

that product, unless it is later used as an

intermediate product, as provided in

§ 17.137.

(c) Numbering. The formulas shall be

serially numbered by the manufacturer,

commencing with number 1 and

continuing thereafter in numerical

sequence. However, a new formula for

use at several plants shall be given the

highest number next in sequence at any

of those plants. The numbers that were

skipped at the other plants shall not be

used subsequently.

(d) Distribution and retention of

approved formulas. One copy of each

approved Form 5154.1 shall be returned

to the manufacturer. The formulas

returned to manufacturers shall be kept

in serial order at the place of

manufacture, as provided in § 17.170,

and shall be made available to ATF

officers for examination in the

investigation of drawback claims.

§ 17.122 Amended or revised formulas.

Except as provided in this section,

amended or revised formulas are

considered to be new formulas and shall

be numbered accordingly. Minor

changes may be made to a current

formula on ATF Form 5154.1 with

retention of the original formula

number, if approval is obtained from the

Director. In order to obtain approval to

make a minor formula change, the

person holding the Form 5154.1 shall

submit a letter of application to the

Alcohol and Tobacco Laboratory,

indicating the formula change and

requesting that the proposed change be

considered a minor change. Each such

application shall clearly identify the

original formula by number, date of

approval, and name of product. The

application shall indicate whether the

product is, has been, or will be used in

alcoholic beverages, and shall specify

whether the proposed change is

intended as a substitution or merely as

an alternative for the original formula.

No changes may be made to current

formulas without specific ATF approval

in each case.

§ 17.123 Statement of process.

Any person claiming drawback under

the regulations in this part may be

required, at any time, to file a statement

of process, in addition to that required

by ATF Form 5154.1, as well as any

other data necessary for consideration of

the claim for drawback. When pertinent

to consideration of the claim,

submission of copies of the commercial

labels used on the finished products

may also be required.

§ 17.124 Samples.

Any person claiming drawback or

submitting a formula for approval under

the regulations in this part may be

required, at any time, to submit a

sample of each nonbeverage or

intermediate product for analysis. If the

product is manufactured with a mixture

of oil or other ingredients, the

composition of which is unknown to the

claimant, a 1-ounce sample of the

mixture shall be submitted with the

sample of finished product when so

required.

§ 17.125 Adoption of formulas and

processes.

(a) Adoption of predecessor’s

formulas. If there is a change in the

proprietorship of a nonbeverage plant

and the successor desires to use the

predecessor’s formulas at the same

location, the successor may, in lieu of

submitting new formulas in its own

name, adopt any or all of the formulas

of the predecessor by filing a notice of
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31419

adoption with the regional director

(compliance). The notice shall be filed

with the first claim relating to any of the

adopted formulas. The notice shall list,

by name and serial number, all formulas

to be adopted, and shall state that the

products will be manufactured in

accordance with the adopted formulas

and processes. The notice shall be

accompanied by a certified copy of the

articles of incorporation or other

document(s) necessary to prove the

transfer of ownership. The manufacturer

shall retain a copy of the notice with the

related formulas.

(b) Adoption of manufacturer’s own

formulas from a different location. A

manufacturer’s own formulas may be

adopted for use at another of the

manufacturer’s plants. Further, a wholly

owned subsidiary may adopt the

formulas of the parent company, and

vice versa. The procedure for such

adoption shall be by filing a letterhead

notice, accompanied by two

photocopies of each formula to be

adopted, with the Alcohol and Tobacco

Laboratory for transmittal to the regional

director (compliance). The notice shall

list the numbers of all formulas to be

adopted and shall indicate the plant

where each was originally approved and

the plant(s) where each is to be adopted.

Some evidence of the relationship

between the plants involved in the

adoption shall be attached to the notice.

The notice shall be referenced in Part IV

of the supporting data (ATF Form

5154.2) filed with the first claim relating

to the adopted formula(s).

§ 17.126 Formulas for intermediate

products.

(a) The manufacturer shall submit a

formula on ATF Form 5154.1 to the

Alcohol and Tobacco Laboratory for

each self-manufactured ingredient made

with taxpaid spirits and intended for the

manufacturer’s own use in nonbeverage

products, unless the formula for any

such ingredient is fully expressed as

part of the approved formula for each

nonbeverage product in which that

ingredient is used, or unless the formula

for the ingredient is contained in one of

the pharmaceutical publications listed

in § 17.132.

(b) Upon receipt of Form 5154.1

covering a self-manufactured ingredient

made with taxpaid spirits, the formula

shall be examined under § 17.131. If the

formula is approved for drawback, the

ingredient shall be treated as a finished

nonbeverage product for purposes of

this part, rather than as an intermediate

product, notwithstanding its use by the

manufacturer. (For example, see

§ 17.152(d).) If the formula is

disapproved for drawback, the

ingredient may be treated as an

intermediate product in accordance

with this part. Requirements pertaining

to intermediate products are found in

§ 17.185(b).

(c) If there is a change in the

composition of an intermediate product,

the manufacturer shall submit an

amended or revised formula, as

provided in § 17.122.

§ 17.127 Self-manufactured ingredients

treated optionally as unfinished

nonbeverage products.

A self-manufactured ingredient made

with taxpaid spirits, which otherwise

would be treated as an intermediate

product, may instead be treated as an

unfinished nonbeverage product, if the

ingredient’s formula is fully expressed

as a part of the approved formula for the

nonbeverage product in which the

ingredient will be used. A manufacturer

desiring to change the treatment of an

ingredient from ‘‘intermediate product’’

to ‘‘unfinished nonbeverage product’’

(or vice versa) may do so by

resubmitting the applicable formula(s)

on ATF Form 5154.1. Requirements

pertaining to unfinished nonbeverage

products are found in § 17.185(c).

Approval of Formulas

§ 17.131 Formulas on ATF Form 5154.1.

Upon receipt by the Alcohol and

Tobacco Laboratory, formulas on ATF

Form 5154.1 shall be examined and, if

found to be medicines, medicinal

preparations, food products, flavors,

flavoring extracts, or perfume which are

unfit for beverage purposes and which

otherwise meet the requirements of law

and this part, they shall be approved for

drawback. If the formulas do not meet

the requirements of the law and

regulations for drawback products, they

shall be disapproved.

§ 17.132 U.S.P., N.F., and H.P.U.S.

preparations.

(a) General. Except as otherwise

provided by paragraph (b) of this section

or by ATF ruling, formulas for

compounds in which alcohol is a

prescribed quantitative ingredient,

which are stated in the current revisions

or editions of the United States

Pharmacopoeia (U.S.P.), the National

Formulary (N.F.), or the Homeopathic

Pharmacopoeia of the United States

(H.P.U.S.), shall be considered as

approved formulas and may be used as

formulas for drawback products without

the filing of ATF Form 5154.1.

(b) Exceptions. Alcohol (including

dehydrated alcohol and dehydrated

alcohol injection), U.S.P.; alcohol and

dextrose injection, U.S.P.; and tincture

of ginger, H.P.U.S., have been found to

be fit for beverage use and are

disapproved for drawback. All

attenuations of other H.P.U.S. products

diluted beyond one part in 10,000

(‘‘4×’’) are also disapproved for

drawback, unless the manufacturer

receives approval for a formula

submitted on Form 5154.1 in

accordance with this subpart. The

formula for such attenuations shall be

submitted with a sample of the product

and a statement explaining why it

should be classified as unfit for beverage

use.

§ 17.133 Food product formulas.

Formulas for nonbeverage food

products on ATF Form 5154.1 may be

approved if they are unfit for beverage

purposes. Approval does not authorize

manufacture or sale contrary to State

law. Examples of food products that

have been found to be unfit for beverage

purposes are stated below:

(a) Sauces or syrups. Sauces, or

syrups consisting of sugar solutions and

distilled spirits, in which the alcohol

content is not more than 12 percent by

volume and the sugar content is not less

than 60 grams per 100 cubic

centimeters.

(b) Brandied fruits. Brandied fruits

consisting of solidly packaged fruits,

either whole or segmented, and distilled

spirits products not exceeding the

quantity and alcohol content necessary

for flavoring and preserving. Generally,

brandied fruits will be considered to

have met these standards if the

container is well filled, the alcohol in

the liquid portion does not exceed 23

percent by volume, and the liquid

portion does not exceed 45 percent of

the volume of the container.

(c) Candies. Candies with alcoholic

fillings, if the fillings meet the standards

prescribed for sauces and syrups by

paragraph (a) of this section.

(d) Other food products. Food

products such as mincemeat, plum

pudding, and fruit cake, where only

sufficient distilled spirits are used for

flavoring and preserving; and ice cream

and ices where only sufficient spirits are

used for flavoring purposes. Also food

adjuncts, such as preservatives,

emulsifying agents, and food colorings,

that are unfit for beverage purposes and

are manufactured and used, or sold for

use, in food.

§ 17.134 Determination of unfitness for

beverage purposes.

The Director has responsibility for

determining whether products are fit or

unfit for beverage purposes within the

meaning of 26 U.S.C. 5131. This

determination may be based either on

the content and description of the
31420 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

ingredients as shown on ATF Form

5154.1, or on organoleptic examination.

In such examination, samples of

products may be diluted with water to

an alcoholic concentration of 15% and

tasted. Sale or use for beverage purposes

is indicative of fitness for beverage use.

§ 17.135 Use of specially denatured

alcohol (S.D.A.).

(a) Use of S.D.A. in nonbeverage or

intermediate products—(1) General.

Except as provided in paragraph (b) of

this section, the use of specially

denatured alcohol (S.D.A.) and taxpaid

spirits in the same product by a

nonbeverage manufacturer is prohibited

where drawback of tax is claimed.

(2) Alternative formulations. No

formula for a product on ATF Form

5154.1 shall be approved for drawback

under this subpart if the manufacturer

also has on file an approved ATF Form

1479–A or Form 5150.19, Formula for

Article Made With Specially Denatured

Alcohol or Rum, pertaining to the same

product.

(b) Use of S.D.A. in ingredients—(1)

Purchased ingredients. Generally,

purchased ingredients containing S.D.A.

may be used in nonbeverage or

intermediate products. However, such

ingredients shall not be used in

medicinal preparations or flavoring

extracts intended for internal human

use, where any of the S.D.A. remains in

the finished product.

(2) Self-manufactured ingredients.

Self-manufactured ingredients may be

made with S.D.A. and used in

nonbeverage or intermediate products,

provided—

(i) No taxpaid spirits are used in

manufacturing such ingredients; and

(ii) All S.D.A. is recovered or

dissipated from such ingredients prior

to their use in nonbeverage or

intermediate products. (Recovery of

S.D.A. shall be in accordance with

subpart K of part 20 of this chapter;

recovered S.D.A., with or without its

original denaturants, shall not be reused

in nonbeverage or intermediate

products.)

(Sec. 201, Pub. L. 85–859, 72 Stat. 1372, as

amended (26 U.S.C. 5273))

§ 17.136 Compliance with Food and Drug

Administration requirements.

A product is not a medicine,

medicinal preparation, food product,

flavor, flavoring extract, or perfume for

nonbeverage drawback if its formula

would violate a ban or restriction of the

U.S. Food and Drug Administration

(FDA) pertaining to such products. If

FDA bans or restricts the use of any

ingredient in such a way that further

manufacture of a product in accordance

with its formula would violate the ban

or restriction, then the manufacturer

shall change the formula and resubmit

it on ATF Form 5154.1 to the Alcohol

and Tobacco Laboratory. This section

does not preclude approval for products

manufactured solely for export or for

uses other than internal human

consumption (e.g. tobacco flavors or

animal feed flavors) in accordance with

laws and regulations administered by

FDA. Under § 17.123, manufacturers

may be required to demonstrate

compliance with FDA requirements

applicable to this section.

§ 17.137 Formulas disapproved for

drawback.

A formula may be disapproved for

drawback either because it does not

prescribe appropriate ingredients in

sufficient quantities to make the product

unfit for beverage use, or because the

product is neither a medicine, a

medicinal preparation, a food product, a

flavor, nor a flavoring extract. The

formula for a disapproved product may

be used as an intermediate product

formula under § 17.126. No drawback

will be allowed on distilled spirits used

in a disapproved product, unless that

product is later used in the manufacture

of an approved nonbeverage product. In

the case of a product that is disapproved

because it is fit for beverage use, any

further use or disposition of such a

product, other than as an intermediate

product in accordance with this part,

subjects the manufacturer to the

qualification requirements of parts 1

and 19 of this chapter.

Subpart G—Claims for Drawback

§ 17.141 Drawback.

Upon the filing of a claim as provided

in this subpart, drawback shall be

allowed to any person who meets the

requirements of this part. Drawback

shall be paid at the rate specified by 26

U.S.C. 5134 on each proof gallon of

distilled spirits on which the tax has

been paid or determined and which

have been used in the manufacture of

nonbeverage products. The drawback

rate is $1.00 less than the effective tax

rate. Drawback shall be allowed only to

the extent that the claimant can

establish, by evidence satisfactory to the

regional director (compliance), the

actual quantity of taxpaid or taxdetermined distilled spirits used in the

manufacture of the product, and the

effective tax rate applicable to those

spirits. Special tax as a manufacturer of

nonbeverage products shall be paid

before drawback is allowed.

§ 17.142 Claims.

(a) General. The manufacturer shall

file claim for drawback with the

regional director (compliance) for the

region in which the place of

manufacture is located. A separate claim

shall be filed for each place of business.

Each claim shall pertain only to

distilled spirits used in the manufacture

or production of nonbeverage products

during any one quarter of the tax year.

Unless the manufacturer is eligible to

file monthly claims (see §§ 17.143 and

17.144), only one claim per quarter may

be filed for each place of business. The

regional director (compliance) has the

authority to approve or disapprove

claims. Claims shall be filed on ATF

Form 2635 (5620.8), Claim—Alcohol

and Tobacco Taxes.

(b) Manufacturers who are also

proprietors of distilled spirits plants. If

a manufacturer of nonbeverage products

is owned and operated by the same

business entity that owns and operates

a distilled spirits plant, the

manufacturer’s claim for drawback may

be filed for credit on Form 2635

(5620.8). After the claim is approved,

the distilled spirits plant may use the

claim as an adjustment decreasing the

taxes due in Schedule B of ATF Form

5000.24, Excise Tax Return.

Adjustments resulting from an approved

drawback claim are not subject to

interest. This procedure may be utilized

only if the manufacturer of nonbeverage

products and the distilled spirits plant

have the same employer identification

number.

§ 17.143 Notice for monthly claims.

If the manufacturer has notified the

regional director (compliance), in

writing, of an intention to file claims on

a monthly basis instead of a quarterly

basis, and has filed a bond in

compliance with the provisions of this

part, claims may be filed monthly

instead of quarterly. The election to file

monthly claims shall not preclude a

manufacturer from filing a single claim

covering an entire quarter, or a single

claim covering just two months of a

quarter, or two claims (one of them

covering one month and the other

covering two months). An election for

the filing of monthly claims may be

withdrawn by the manufacturer by

filing a notice to that effect, in writing,

with the regional director (compliance).

§ 17.144 Bond for monthly claims.

Each person intending to file claims

for drawback on a monthly basis shall

file with the regional director

(compliance) an executed bond on ATF

Form 5154.3, conforming to the

provisions of subpart E of this part. A
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31421

monthly drawback claim shall not be

allowed until bond coverage in a

sufficient amount has been approved by

the regional director (compliance).

When the limit of liability under a bond

given in less than the maximum amount

has been reached, further drawback on

monthly claims may be suspended until

a strengthening or superseding bond in

a sufficient amount is furnished.

§ 17.145 Date of filing claim.

Quarterly claims for drawback shall

be filed with the regional director

(compliance) within six months after

the quarter in which the distilled spirits

covered by the claim were used in the

manufacture of nonbeverage products.

Monthly claims for drawback may be

filed at any time after the end of the

month in which the distilled spirits

covered by the claim were used in the

manufacture of nonbeverage products,

but shall be filed not later than the close

of the sixth month succeeding the

quarter in which the spirits were used.

§ 17.146 Information to be shown by the

claim.

The claim shall set forth the

following:

(a) Whether the special tax has been

paid.

(b) That the distilled spirits on which

drawback is claimed were fully taxpaid

or tax-determined at the effective tax

rate applicable to the distilled spirits.

(c) That the distilled spirits on which

the drawback is claimed were used in

the manufacture of nonbeverage

products.

(d) Whether the nonbeverage products

were manufactured in compliance with

quantitative formulas approved under

subpart F of this part. (If not, attach

explanation.)

(e) That the data submitted in support

of the claim are correct.

§ 17.147 Supporting data.

(a) Each claim for drawback shall be

accompanied by supporting data

presented according to the format

shown on ATF Form 5154.2, Supporting

Data for Nonbeverage Drawback Claims

(or according to any other suitable

format which provides the same

information). Modifications of Form

5154.2 may be used without prior

authorization, if the modified format

clearly shows all of the required

information that is pertinent to the

manufacturing operation. Under

§ 17.123, the regional director

(compliance) may require additional

supporting data when needed to

determine the correctness of drawback

claims.

(b) Separate data shall be shown for

eligible distilled spirits taxpaid at

different effective tax rates. This

requirement applies to all eligible

spirits, including eligible recovered

alcohol and eligible spirits contained in

intermediate products.

(c) Separate data shall be shown for

imported rum, spirits from Puerto Rico

containing at least 92% rum, and spirits

from the U.S. Virgin Islands containing

at least 92% rum. The total number of

proof gallons of each such category used

subject to drawback during the claim

period shall also be shown, with

separate totals for each effective tax rate.

These amounts shall include eligible

spirits and rum from intermediate

products or recovered alcohol.

(d) Any gain in eligible distilled

spirits reported in the supporting data

shall be reflected by an equivalent

deduction from the amount of drawback

claimed. Gains shall not be offset by

known losses.

§ 17.148 Allowance of claims.

(a) General. Except in the case of

fraudulent noncompliance, no claim for

drawback shall be denied for a failure to

comply with either 26 U.S.C. 5131–5134

or the requirements of this part, if the

claimant establishes that spirits on

which the tax has been paid or

determined were in fact used in the

manufacture of medicines, medicinal

preparations, food products, flavors,

flavoring extracts, or perfume, which

were unfit for beverage purposes.

(b) Penalty. Noncompliance with the

requirements of 26 U.S.C. 5131–5134 or

of this part subjects the claimant to a

civil penalty of $1,000 for each separate

product, reflected in a claim for

drawback, to which the noncompliance

relates, or the amount claimed for that

product, whichever is less, unless the

claimant establishes that the

noncompliance was due to reasonable

cause. Late filing of a claim subjects the

claimant to a civil penalty of $1,000 or

the amount of the claim, whichever is

less, unless the claimant establishes that

the lateness was due to reasonable

cause.

(c) Reasonable cause. Reasonable

cause exists where a claimant

establishes it exercised ordinary

business care and prudence, and still

was unable to comply with the statutory

and regulatory requirements. Ignorance

of law or regulations, in and of itself, is

not reasonable cause. Each case is

individually evaluated.

(Sec. 452, Pub. L. 98–369, 98 Stat. 819 (26

U.S.C. 5134(c))

Spirits Subject to Drawback

§ 17.151 Use of distilled spirits.

Distilled spirits are considered to

have been used in the manufacture of a

product under this part if the spirits are

consumed in the manufacture, are

incorporated into the product, or are

determined by ATF to have been

otherwise utilized as an essential part of

the manufacturing process. However,

spirits lost by causes such as spillage,

leakage, breakage or theft, and spirits

used for purposes such as rinsing or

cleaning a system, are not considered to

have been used in the manufacture of a

product.

§ 17.152 Time of use of spirits.

(a) General. Distilled spirits shall be

considered used in the manufacture of

a product as soon as that product

contains all the ingredients called for by

its formula.

(b) Spirits used in an ion exchange

column. Distilled spirits used in

recharging an ion exchange column, the

operation of which is essential to the

production of a product, shall be

considered to be used when the spirits

are entered into the manufacturing

system in accordance with the product’s

formula.

(c) Products requiring additional

processing or treatment. Further

manipulation of a product, such as

aging or filtering, subsequent to the

mixing together of all of its ingredients,

shall not postpone the time when spirits

are considered used, as determined

under paragraph (a) of this section. This

is true even if at the time of use there

has not yet been a final determination

of alcoholic content by assay. If,

however, it is later found necessary to

add more distilled spirits to standardize

the product, such added spirits shall be

considered as used in the period during

which they were added.

(d) Nonbeverage products used to

manufacture other products.

Nonbeverage products may be used to

manufacture other nonbeverage (or

intermediate) products. However, such

subsequent usage of a nonbeverage

product shall not affect the time when

the distilled spirits contained therein

are considered used. When distilled

spirits are used in the manufacture of a

nonbeverage product, the time of use

shall be the point at which that product

first contains all of its prescribed

ingredients, and such use shall not be

determined by the time of any

subsequent usage of that product in

another product.

§ 17.153 Recovered spirits.

(a) Recovery from intermediate

products. Eligible spirits recovered in

the manufacture of intermediate

products are not subject to drawback

until such recovered spirits are used in

the manufacture of a nonbeverage
31422 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

product. (However, see § 17.127 with

respect to optional treatment of

ingredients as unfinished nonbeverage

products, rather than as intermediate

products.) Spirits recovered in the

manufacture of intermediate products

shall be reused only in the manufacture

of intermediate or nonbeverage

products.

(b) Recovery from nonbeverage

products. Distilled spirits recovered in

the manufacture of a nonbeverage

product are considered as having been

used in the manufacture of that product.

If the spirits were eligible when so used,

they became subject to drawback at that

time. Upon recovery, such spirits may

be reused in the manufacture of

nonbeverage products, but shall not be

reused for any other purpose. When

reused, such recovered spirits are not

again eligible for drawback and shall not

be used in the manufacture of

intermediate products.

(c) Cross references. For additional

provisions respecting the recovery of

distilled spirits and related

recordkeeping requirements, see

§§ 17.168 and 17.183.

§ 17.154 Spirits contained in intermediate

products.

Spirits contained in an intermediate

product are not subject to drawback

until that intermediate product is used

in the manufacture of a nonbeverage

product.

§ 17.155 Spirits consumed in

manufacturing intermediate products.

Spirits consumed in the manufacture

of an intermediate product—which are

not contained in the intermediate

product at the time of its use in

nonbeverage products—are not subject

to drawback. Such spirits are not

considered to have been used in the

manufacture of nonbeverage products.

However, see § 17.127 with respect to

optional treatment of ingredients as

unfinished nonbeverage products, rather

than as intermediate products.

Subpart H—Records

§ 17.161 General.

Each person claiming drawback on

taxpaid distilled spirits used in the

manufacture of nonbeverage products

shall maintain records showing the

information required in this subpart. No

particular form is prescribed for these

records, but the data required to be

shown shall be clearly recorded and

organized to enable ATF officers to trace

each operation or transaction, monitor

compliance with law and regulations,

and verify the accuracy of each claim.

Ordinary business records, including

invoices and cost accounting records,

are acceptable if they show the required

information or are annotated to show

any such information that is lacking.

The records shall be kept complete and

current at all times, and shall be

retained by the manufacturer at the

place covered by the special tax stamp

for the period prescribed in § 17.170.

§ 17.162 Receipt of distilled spirits.

(a) Distilled spirits received in tank

cars, tank trucks, barrels, or drums. For

distilled spirits received in tank cars,

tank trucks, barrels, or drums, the

manufacturer shall record, with respect

to each shipment received—

(1) The date of receipt;

(2) The name and address of the

person from whom received;

(3) The serial number or other

identification mark (if any) of each tank

car, tank truck, barrel, or drum;

(4) The name of the producer or

warehouseman who paid or determined

the tax;

(5) The effective tax rate (if other than

the rate prescribed by 26 U.S.C. 5001);

and

(6) The kind, quantity, and proof (or

alcohol percentage by volume) of the

spirits.

(b) Distilled spirits received in bottles.

For distilled spirits received in bottles,

the manufacturer shall record—

(1) The date of receipt;

(2) The name and address of the

seller;

(3) The serial number of each case, if

the bottles are received in cases;

(4) The name of the bottler;

(5) The effective tax rate (if other than

the rate prescribed by 26 U.S.C. 5001);

and

(6) The kind, quantity, and proof (or

alcohol percentage by volume) of the

spirits.

(c) Distilled spirits received by

pipeline. For distilled spirits received

by pipeline, the manufacturer shall

record—

(1) The date of receipt;

(2) The name of the producer or

warehouseman who paid or determined

the tax;

(3) The effective tax rate (if other than

the rate prescribed by 26 U.S.C. 5001);

and

(4) The kind, quantity, and proof (or

alcohol percentage by volume) of the

spirits.

(d) Determination of quantity. At the

time of receipt, each manufacturer shall

determine (preferably by weight) and

record the exact number of proof gallons

of distilled spirits received. The amount

received in bottles may be determined

by the required statements on the labels.

The amount received in sealed drums

with no evidence of leakage may be

determined from the record of

shipment, which is required by § 19.780

of this chapter to accompany spirits

received from a distilled spirits plant. If

spirits are received in a tank car or tank

truck, and the result of the

manufacturer’s gauge of the spirits is

within 0.2 percent of the number of

proof gallons reported on the record of

shipment required by § 19.780, then the

number of proof gallons reported on that

record may be recorded as the quantity

received. Nevertheless, the receiving

gauge shall be noted on the record of

receipt. If, for any shipment, the amount

recorded in the manufacturer’s records

as the quantity received is greater than

the amount shown as taxpaid on the

record required by § 19.780, a deduction

equivalent to the excess shall be made

from the amount of drawback claimed

in the manufacturer’s claim covering

that period. If no claim is filed for that

period, then the deduction shall be

made in the manufacturer’s next claim.

Losses in transit that exceed the 0.2

percent limitation provided in this

paragraph shall be determined and

noted on the record of receipt. Such

losses shall not be recorded as distilled

spirits received.

(e) Receipt of imported rum, or spirits

from Puerto Rico or the Virgin Islands.

If spirits are received which contain at

least 92% rum, and which originate

from Puerto Rico or the U.S. Virgin

Islands, the record of receipt shall

indicate the place of origin. If rum is

received, the record shall indicate

whether it is from Puerto Rico, from the

U.S. Virgin Islands, imported from other

countries, or domestic.

(f) Shipments from distilled spirits

plants. If spirits are received directly

from the distilled spirits plant that paid

or determined the tax, the manufacturer

shall retain the record of shipment

required by § 19.780 of this chapter. To

the extent that the information on that

record duplicates the requirements of

this section, retention of that record

shall satisfy those requirements. If there

are differences between the information

on the record of shipment and the

information required to be recorded by

this section, the requirements of this

section may be met by appropriate

annotations on the record of shipment.

§ 17.163 Evidence of taxpayment of

distilled spirits.

(a) Shipments from distilled spirits

plants. For each shipment of taxpaid

spirits from the bonded premises of a

distilled spirits plant, the manufacturer

shall obtain the record of shipment

prepared by the supplier under § 19.780

of this chapter. This record shall be

retained with the commercial invoice (if
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31423

the latter is a separate document) as

evidence of taxpayment of the spirits.

The record shall show the effective tax

rate(s) (if other than the rate prescribed

by 26 U.S.C. 5001) applicable to the

shipment.

(b) Purchases from wholesale and

retail liquor dealers. Manufacturers

shall obtain commercial invoices or

other documentation pertaining to

purchases of distilled spirits from

wholesale and retail liquor dealers

(including such dealership operations

when conducted in conjunction with a

distilled spirits plant). For spirits other

than alcohol, grain spirits, neutral

spirits, distilled gin, or straight whisky

(as defined in the standards of identity

prescribed by § 5.22 of this chapter), the

manufacturer of nonbeverage products

shall obtain evidence, from the producer

or bottler of the spirits, as to the

effective tax rate paid thereon.

(c) Imported spirits. For imported

spirits that were taxpaid through

Customs, evidence of such taxpayment

(such as Customs Forms 7501 and 7505,

receipted to indicate payment of tax,

and the certificate of effective tax rate

computation, if applicable) shall be

secured from the importer and retained

by the manufacturer.

(d) Evidence of effective tax rate. If

the evidence of effective tax rate,

required by this section for distilled

spirits products that may contain wine

or flavors, is not obtained, drawback

shall only be allowed based on the

lowest effective tax rate possible for the

kind of distilled spirits product used.

§ 17.164 Production record.

(a) General. Each manufacturer shall

keep a production record for each batch

of intermediate product and for each

batch of nonbeverage product. The

production record shall be an original

record made at the time of production

by a person (or persons) having actual

knowledge thereof. If any product is

produced by a continuous process

rather than by batches, the production

record shall pertain to the total quantity

of that product produced during each

claim period.

(b) Information to be shown. The

record shall show the name and formula

number of the product, the actual

quantities of all ingredients used in the

manufacture of the batch (including the

proof or alcohol percentage by volume

of all spirits), the date when eligible

spirits were considered used (see

§ 17.152), the effective tax rate

applicable to those spirits (if other than

the rate prescribed by 26 U.S.C. 5001),

and the quantity of product produced.

The alcohol content of the product shall

be shown if a test of alcohol content was

made (see paragraph (e) of this section).

Usage of eligible and ineligible spirits

shall be shown separately. If spirits from

Puerto Rico or the U.S. Virgin Islands,

containing at least 92% rum, were used,

the record shall indicate their place of

origin. If rum was used, the record shall

indicate whether it was from Puerto

Rico, from the U.S. Virgin Islands,

imported from other countries, or

domestic. If spirits were recovered, the

production record shall so indicate, and

the record required by § 17.168 shall be

kept. If drawback is claimed on spirits

consumed as an essential part of the

manufacture of a nonbeverage product,

which were not contained in that

product at its completion, then the

production record shall show the

quantity of spirits so consumed in the

manufacture of each batch.

(c) Specificity of information. The

production record shall refer to

ingredients by the same names as are

used for them in the product’s formula.

This includes formulas submitted to

ATF and formulas contained in the

publications listed in § 17.132. Other

names for the ingredients may be added

in the production record, if necessary

for the manufacturer’s operations. Usage

of ingredients (including spirits) may be

shown in units of weight or volume.

(d) Determining quantity of distilled

spirits used. Each manufacturer shall

accurately determine, by weight or

volume, and record in the production

records the quantity of all distilled

spirits used. When the quantity used is

determined by volume, adjustments

shall be made if the temperature of the

spirits is above or below 60 degrees

Fahrenheit. A table for correction of

volume of spirituous liquors to 60

degrees Fahrenheit, Table 7 of the

‘‘Gauging Manual,’’ is available. See

subpart E of part 30 of this chapter and

§ 30.67. Losses after receipt due to

leakage, spillage, evaporation, or other

causes not essential to the

manufacturing process shall be

accurately recorded in the

manufacturer’s permanent records at the

time such losses are determined.

(e) Tests of alcohol content. At

representative intervals, the

manufacturer shall verify the alcohol

content of nonbeverage products. The

results of such tests shall be recorded.

§ 17.165 Receipt of raw ingredients.

For raw ingredients destined to be

used in nonbeverage or intermediate

products, the manufacturer shall record,

for each shipment received—

(a) The date of receipt;

(b) The quantity received; and

(c) The identity of the supplier.

§ 17.166 Disposition of nonbeverage

products.

(a) Shipments. For each shipment of

nonbeverage products, the manufacturer

shall record—

(1) The formula number of the

product;

(2) The date of shipment;

(3) The quantity shipped; and

(4) The identity of the consignee.

(b) Other disposition. For other

dispositions of nonbeverage products,

the manufacturer shall record—

(1) The type of disposition;

(2) The date of disposition; and

(3) The quantity of each product so

disposed of.

(c) Exception. The manufacturer need

not keep the records required by

paragraphs (a) and (b) of this section for

any nonbeverage product which either

contains less than 3 percent of distilled

spirits by volume, or is sold by the

producer directly to the consumer in

retail quantities. However, when needed

for protection of the revenue, the

regional director (compliance) may at

any time require the keeping of these

records upon giving at least five days’

notice to the manufacturer.

§ 17.167 Inventories.

(a) Distilled spirits. The ‘‘on hand’’

figures reported in Part II of ATF Form

5154.2 shall be verified by physical

inventories taken as of the end of each

quarter in which nonbeverage products

were manufactured for purposes of

drawback. Spirits taxpaid at different

effective tax rates shall be inventoried

separately. The inventory record shall

show the date inventory was taken, the

person(s) by whom it was taken,

subtotals for each product inventoried,

and any gains or losses disclosed; and

shall be retained with the

manufacturer’s records. The

manufacturer shall explain in Part IV of

the supporting data (Form 5154.2) any

discrepancy between the amounts on

hand as disclosed by physical inventory

and the amounts indicated by the

manufacturer’s records. Any gain in

eligible spirits disclosed by inventory

requires an equivalent deduction from

the claim with which the inventory is

reported. Gains shall not be offset by

known losses. If no claim is filed for a

quarter (nor for any monthly period

therein), then no physical inventory is

required for that quarter.

(b) Raw ingredients and nonbeverage

products. When necessary for ensuring

compliance with regulations and

protection of the revenue, the regional

director (compliance) may require a

manufacturer to take physical

inventories of finished nonbeverage

products, and/or raw ingredients
31424 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

intended for use in the manufacture of

nonbeverage or intermediate products.

The results of such inventories shall be

recorded in the manufacturer’s records.

Any discrepancy between the amounts

on hand as disclosed by physical

inventory and such amounts as

indicated by the manufacturer’s records

shall also be recorded with an

explanation of its cause.

§ 17.168 Recovered spirits.

(a) Each manufacturer intending to

recover distilled spirits under the

provisions of this part shall first notify

the regional director (compliance). Any

apparatus used to separate alcohol is

subject to the registration requirements

of 26 U.S.C. 5179 and subpart C of part

170 of this chapter. Recovery operations

shall only be conducted on the premises

covered by the manufacturer’s special

tax stamp.

(b) The manufacturer shall keep a

record of the distilled spirits recovered

and the subsequent use to which such

spirits are put. The record shall show—

(1) The date of recovery;

(2) The commodity or process from

which the spirits were recovered;

(3) The amount in proof gallons, or by

weight and proof (or alcohol percentage

by volume) of distilled spirits recovered;

(4) The amount in proof gallons, or by

weight and proof (or alcohol percentage

by volume) of recovered distilled spirits

reused;

(5) The commodity in which the

recovered distilled spirits were reused;

and

(6) The date of reuse.

(c) Whenever recovered spirits are

destroyed (see § 17.183), the record shall

further show—

(1) The reason for the destruction;

(2) The date, time, location, and

manner of destruction;

(3) The number of proof gallons

destroyed; and

(4) The name of the individual who

accomplished or supervised the

destruction.

§ 17.169 Transfer of intermediate

products.

When intermediate products are

transferred as permitted by § 17.185(b),

supporting records of such transfers

shall be kept at the shipping and

receiving plants, showing the date and

quantity of each product transferred.

§ 17.170 Retention of records.

Each manufacturer shall retain for a

period of not less than 3 years all

records required by this part, a copy of

all claims and supporting data filed in

support thereof, all commercial invoices

or other documents evidencing

taxpayment or tax-determination of

domestic spirits, all documents

evidencing taxpayment of imported

spirits, and all bills of lading received

which pertain to shipments of spirits. In

addition, a copy of each formula

submitted on ATF Form 5154.1 shall be

retained at each factory where the

formula is used, for not less than 3 years

from the date of filing of the last claim

for drawback under the formula. A copy

of an approval to use an alternate

method or procedure shall be retained

as long as the manufacturer employs the

method or procedure, and for 3 years

thereafter. Further, the regional director

(compliance) may require these records,

forms, and documents to be retained for

an additional period of not more than 3

years in any case where he or she deems

such retention to be necessary or

advisable for protection of the revenue.

§ 17.171 Inspection of records.

All of the records, forms, and

documents required to be retained by

§ 17.170 shall be kept at the place

covered by the special tax stamp and

shall be readily available during the

manufacturer’s regular business hours

for examination and copying by ATF

officers. At the same time, any other

books, papers, records or memoranda in

the possession of the manufacturer,

which have a bearing upon the matters

required to be alleged in a claim for

drawback, shall be available for

inspection by ATF officers.

(Sec. 5133, 68A Stat. 623 (26 U.S.C. 5133);

sec. 201, Pub. L. 85–859, 72 Stat. 1348 (26

U.S.C. 5146)).

Subpart I—Miscellaneous Provisions

§ 17.181 Exportation of medicinal

preparations and flavoring extracts.

Medicinal preparations and flavoring

extracts, approved for drawback under

the provisions of this part, may be

exported subject to 19 U.S.C. 1313(d),

which authorizes export drawback equal

to the entire amount of internal revenue

tax found to have been paid on the

domestic alcohol used in the

manufacture of such products. (Note:

Export drawback is not allowed for

imported alcohol under this provision

of customs law.) Claims for such export

drawback shall be filed in accordance

with the applicable regulations of the

U.S. Customs Service. Such claims may

cover either the full rate of tax which

has been paid on the alcohol, if no

nonbeverage drawback has been

claimed thereon, or else the remainder

of the tax if nonbeverage drawback

under 26 U.S.C. 5134 has been or will

be claimed.

§ 17.182 Drawback claims by druggists.

Drawback of tax under 26 U.S.C. 5134

is allowable on taxpaid distilled spirits

used in compounding prescriptions by

druggists who have paid the special tax

prescribed by 26 U.S.C. 5131. The

prescriptions so compounded shall be

shown in the supporting data by listing

the first and last serial numbers thereof.

The amount of taxpaid spirits used in

each prescription need not be shown,

but such prescriptions shall be made

available for examination by ATF

officers. If refills have been made of

prescriptions received in a previous

claim period, their serial numbers shall

be recorded separately. Druggists

claiming drawback as authorized by this

section are subject to all the applicable

requirements of this part, except those

requiring the filing of quantitative

formulas.

§ 17.183 Disposition of recovered alcohol

and material from which alcohol can be

recovered.

(a) Recovered alcohol. Manufacturers

of nonbeverage products shall not sell or

transfer recovered spirits to any other

premises without ATF authorization

under § 17.3. If recovered spirits are

stored pending reuse, storage facilities

shall be adequate to protect the revenue.

If recovered spirits are destroyed, the

record required by § 17.168(c) must be

kept. Spirits recovered from

intermediate products may be destroyed

without notice to ATF. Spirits recovered

from nonbeverage products may be

destroyed pursuant to a notice filed

with the regional director (compliance)

at least 12 days prior to the date of

destruction. The notice shall state the

reason for the destruction, the intended

date of destruction, and the approximate

quantity involved. The regional director

(compliance) may impose specific

conditions, including requiring that the

destruction be witnessed by an ATF

officer. Unless the manufacturer is

otherwise advised by the regional

director (compliance) before the date

specified in the notice, the destruction

may proceed as planned.

(b) By-product material (general). Byproduct material from which alcohol

can be recovered shall not be sold or

transferred unless the alcohol has been

removed or an approved substance has

been added to prevent recovery of

residual alcohol. Material from which

alcohol can be recovered may also be

destroyed on the manufacturer’s

premises by a suitable method. Except

as provided in paragraph (c) of this

section, prior written approval shall be

obtained from the regional director

(compliance) as to the adequacy, under

this section, of any substance proposed
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31425

to be added to prevent recovery of

alcohol, or of any proposed method of

destruction.

(c) Spent vanilla beans. Specific

approval from the regional director

(compliance) is not required when spent

vanilla beans containing residual

alcohol are destroyed on the

manufacturer’s premises by burning, or

when they are removed from those

premises after treatment with sufficient

kerosene, mineral spirits, rubber

hydrocarbon solvent, or gasoline to

prevent recovery of residual alcohol.

§ 17.184 Distilled spirits container marks.

All marks required by Part 19 of this

chapter shall remain on containers of

taxpaid distilled spirits until the

contents are emptied. Whenever such a

container is emptied, such marks shall

be completely obliterated.

(Sec. 454, Pub. L. 98–369, 98 Stat. 820 (26

U.S.C. 5206(d)))

§ 17.185 Requirements for intermediate

products and unfinished nonbeverage

products.

(a) General. Self-manufactured

ingredients made with taxpaid spirits

may be accounted for either as

intermediate products or as unfinished

nonbeverage products. The

manufacturer may choose either method

of accounting for such selfmanufactured ingredients (see § 17.127).

However, the method selected

determines the requirements that will

apply to those ingredients, as prescribed

in paragraphs (b) and (c) of this section.

(b) Intermediate products.

Intermediate products shall be used

exclusively in the manufacture of

nonbeverage products. Intermediate

products may be accumulated and

stored indefinitely and may be used in

any nonbeverage product whose

formula calls for such use. Intermediate

products shall be manufactured by the

same entity that manufactures the

finished nonbeverage products.

Intermediate products shall not be sold

or transferred between separate and

distinct entities. However, they may be

transferred to another branch or plant of

the same manufacturer, for use there in

the manufacture of approved

nonbeverage products. (See § 17.169 for

recordkeeping requirement.) For the

purposes of this section, the phrase

‘‘separate and distinct entities’’ includes

parent and subsidiary corporations,

regardless of any corporate (or other)

relationship, and even if the stock of

both the manufacturing firm and the

receiving firm is owned by the same

persons.

(c) Unfinished nonbeverage products.

An unfinished nonbeverage product

shall only be used in the particular

nonbeverage product for which it was

manufactured, and shall be entirely so

used within the time limit stated in the

approved ATF Form 5154.1. Spirits

dissipated or recovered in the

manufacture of unfinished nonbeverage

products shall be regarded as having

been dissipated or recovered in the

manufacture of nonbeverage products.

Spirits contained in such unfinished

products shall be accounted for in the

supporting data under § 17.147 and

inventoried under § 17.167 as ‘‘in

process’’ in nonbeverage products.

Production of unfinished nonbeverage

products shall be recorded as an integral

part of the production records for the

related nonbeverage products.

Unfinished nonbeverage products shall

not be transferred to other premises.

§ 17.186 Transfer of distilled spirits to

other containers.

A manufacturer may transfer taxpaid

distilled spirits from the original

package to other containers at any time

for the purpose of facilitating the

manufacture of products unfit for

beverage use. Containers into which

distilled spirits have been transferred

under this section shall bear a label

identifying their contents as taxpaid

distilled spirits, and shall be marked

with the serial number of the original

package from which the spirits were

withdrawn.

§ 17.187 Discontinuance of business.

The manufacturer shall notify ATF

when business is to be discontinued.

Upon discontinuance of business, a

manufacturer’s entire stock of taxpaid

distilled spirits on hand may be sold in

a single sale without the necessity of

qualifying as a wholesaler under part 1

of this chapter or paying special tax as

a liquor dealer under part 194 of this

chapter. The spirits likewise may be

returned to the person from whom

purchased, or they may be destroyed or

given away.

PART 19—[AMENDED]

Paragraph B. The regulations in 27

CFR part 19 are amended as follows:

1. The authority citation for part 19

continues to read as follows:

Authority: 19 U.S.C. 81c, 1311; 26 U.S.C.

5001, 5002, 5004–5006, 5008, 5010, 5041,

5061, 5062, 5066, 5081, 5101, 5111–5113,

5142, 5143, 5146, 5171–5173, 5175, 5176,

5178–5181, 5201–5204, 5206, 5207, 5211–

5215, 5221–5223, 5231, 5232, 5235, 5236,

5241–5243, 5271, 5273, 5301, 5311–5313,

5362, 5370, 5373, 5501–5505, 5551–5555,

5559, 5561, 5562, 5601, 5612, 5682, 6001,

6065, 6109, 6302, 6311, 6676, 6806, 7011,

7510, 7805; 31 U.S.C. 9301, 9303, 9304, 9306.

2. Part 19, subpart D, is amended to

add §§ 19.57–19.58 grouped under an

undesignated center heading, to read as

follows:

* * * * *

Subpart D—Administrative and

Miscellaneous Provisions

Sec.

Activities Not Subject to This Part

19.57 Recovery and reuse of denatured

spirits in manufacturing processes.

19.58 Use of taxpaid distilled spirits to

manufacture products unfit for beverage

use.

* * * * *

Subpart D—Administrative and

Miscellaneous Provisions

Activities Not Subject to This Part

§ 19.57 Recovery and reuse of denatured

spirits in manufacturing processes.

The following persons are not, by

reason of the activities listed below,

subject to the provisions of this part, but

they shall comply with the provisions of

part 20 of this chapter relating to the use

and recovery of spirits or denatured

spirits:

(a) Manufacturers who use denatured

spirits, or articles or substances

containing denatured spirits, in a

process wherein any part or all of the

spirits, including denatured spirits, are

recovered.

(b) Manufacturers who use denatured

spirits in the production of chemicals

which do not contain spirits but which

are used on the permit premises in the

manufacture of other chemicals

resulting in spirits as a by-product.

(c) Manufacturers who use chemicals

or substances which do not contain

spirits or denatured spirits (but which

were manufactured with specially

denatured spirits) in a process resulting

in spirits as a by-product.

(Sec 201, Pub. L. 85–859, 72 Stat. 1372, as

amended (26 U.S.C. 5273))

§ 19.58 Use of taxpaid distilled spirits to

manufacture products unfit for beverage

use.

(a) General. Apothecaries,

pharmacists, and manufacturers are not

required to qualify as processors under

26 U.S.C. 5171 before manufacturing or

compounding the following products, if

the tax has been paid or determined on

all of the distilled spirits contained

therein:

(1) Medicines, medicinal

preparations, food products, flavors,

flavoring extracts, and perfume,

conforming to the standards for

approval of nonbeverage drawback

products found in §§ 17.131–17.137 of

this chapter, whether or not drawback is
31426 Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations

actually claimed on those products.

Except as provided in paragraph (c) of

this section, a formula need not be

submitted if drawback is not desired.

(2) Patented, patent, and proprietary

medicines that are unfit for use for

beverage purposes.

(3) Toilet, medicinal, and antiseptic

preparations and solutions that are unfit

for use for beverage purposes.

(4) Laboratory reagents, stains, and

dyes that are unfit for use for beverage

purposes.

(5) Flavoring extracts, syrups, and

concentrates that are unfit for use for

beverage purposes.

(b) Exceptions; products classed as

beverages. Products specified under part

17 of this chapter as being fit for

beverage use are alcoholic beverages.

Bitters, patent medicines, and similar

alcoholic preparations which are fit for

beverage purposes, although held out as

having certain medicinal properties, are

also alcoholic beverages. Such products

are required to be manufactured on the

bonded premises of a distilled spirits

plant, and are subject to the provisions

of this part.

(c) Formulas and samples; when

required. On request of the Director, or

when in doubt as to the classification of

a product, the manufacturer shall

submit to the Director the formula for

and a sample of the product for

examination to verify the

manufacturer’s claim of exemption from

qualification requirements.

(d) Change of formula; when required.

If the regional director (compliance)

finds at any time that any product

manufactured under paragraph (a) of

this section is being used for beverage

purposes, or for mixing with beverage

spirits other than by a processor, he or

she shall notify the manufacturer to

desist from manufacturing the product

until the formula is changed to make the

product not susceptible of beverage use

and the change is approved by the

Director. (However, the provisions of

this paragraph shall not prohibit such

products, which are unfit for beverage

use, from being used in small quantities

for flavoring drinks at the time of

serving for immediate consumption.)

Where, pursuant to notice, the

manufacturer does not desist, or the

formula is not so modified as to make

the product unsusceptible of beverage

use, the manufacturer shall immediately

qualify as a processor.

(Sec. 805, Pub. L. 96–39, 93 Stat. 275, 278 (26

U.S.C. 5002, 5171))

§ 19.69 [Removed]

3. Section 19.69 is removed.

4. Section 19.780(c) (4) and (5) are

revised to read as follows:

§ 19.780 Record of distilled spirits shipped

to manufacturers of nonbeverage products.

* * * * *

(c) * * *

(4) Kind, proof, and quantity of

distilled spirits in each container;

(5) Number of containers of each size;

* * * * *

PART 70—[AMENDED]

Paragraph C. The regulations in 27

CFR part 70 are amended as follows:

1. The authority citation for part 70 is

revised to read as follows:

Authority: 5 U.S.C. 301 and 552; 26 U.S.C.

4181, 4182, 5146, 5203, 5207, 5275, 5367,

5415, 5504, 5555, 5684(a), 5741, 5761(b),

5802, 6020, 6021, 6064, 6102, 6155, 6159,

6201, 6203, 6204, 6301, 6303, 6311, 6313,

6314, 6321, 6323, 6325, 6326, 6331–6343,

6401–6404, 6407, 6416, 6423, 6501–6503,

6511, 6513, 6514, 6532, 6601, 6602, 6611,

6621, 6622, 6651, 6653, 6656–6658, 6665,

6671, 6672, 6701, 6723, 6801, 6862, 6863,

6901, 7011, 7101, 7102, 7121, 7122, 7207,

7209, 7214, 7304, 7401, 7403, 7406, 7423,

7424, 7425, 7426, 7429, 7430, 7432, 7502,

7503, 7505, 7506, 7513, 7601–7606, 7608–

7610, 7622, 7623, 7653, 7805.

2. The concluding text of § 70.321(a)

is amended to read as follows:

§ 70.321 Registration of persons paying a

special tax.

(a) Persons required to register. * * *

* * * * *

For provisions with respect to the

registration of persons subject to the

special tax imposed by section 5131,

relating to the tax on persons claiming

drawback on distilled spirits used in the

manufacture of certain nonbeverage

products, see section 5132 of the

Internal Revenue Code and 27 CFR part

17 (Drawback on Taxpaid Distilled

Spirits Used in Manufacturing

Nonbeverage Products).

* * * * *

§ 70.411 [Amended]

3. Section 70.411 is amended by

removing paragraphs (c)(2)(v) and

(c)(2)(vii), redesignating existing

paragraph (c)(2)(vi) as paragraph

(c)(2)(v), and by adding a new paragraph

(c)(2)(vi) to read as follows:

* * * * *

(c) * * *

(2) * * *

(vi) Floor stocks tax on alcoholic

beverages and imported perfumes held

for sale on January 1, 1991.

* * * * *

4. Section 70.411(c)(17) is amended

by replacing the words ‘‘Part 197’’ with

the words ‘‘part 17’’.

5. Section 70.414(j) is revised to read

as follows:

§ 70.414 Preparation and filing of claims.

* * * * *

(j) Distilled spirits used in

nonbeverage products. Procedural

instructions in respect of claims for

drawback of excise tax and claims for

refund of special (occupational) tax,

submitted by persons using distilled

spirits in the manufacture of medicines,

medicinal preparations, food products,

flavors, flavoring extracts, or perfume,

which are unfit for beverage purposes,

are contained in part 17 of title 27 CFR.

* * * * *

PART 170—[AMENDED]

Paragraph D. The regulations in 27

CFR part 170 are amended as follows:

1. The authority citation for part 170

is revised to read as follows:

Authority: 26 U.S.C. 5001, 5002, 5064,

5101, 5102, 5179, 5291, 5301, 5362, 5601,

5615, 5687, 7805; 31 U.S.C. 9304, 9306.

§§ 170.611–170.618 Subpart U [Removed

and reserved]

2. Subpart U is removed and reserved.

PART 194—[AMENDED]

Paragraph E. The regulations in 27

CFR part 194 are amended as follows:

1. The authority citation for part 194

is revised to read as follows:

Authority: 26 U.S.C. 5001, 5002, 5111–

5117, 5121–5124, 5142, 5143, 5145, 5146,

5206, 5207, 5301, 5352, 5555, 5613, 5681,

5691, 6001, 6011, 6061, 6065, 6071, 6091,

6109, 6151, 6311, 6314, 6402, 6511, 6601,

6621, 6651, 6657, 7011, 7805.

2. Section 194.33(b) is revised to read

as follows:

§ 194.33 Sales of alcoholic compounds,

preparations, or mixtures containing

distilled spirits, wines, or beer.

* * * * *

(b) Products unfit for beverage use.

Products meeting the requirements for

exemption from qualification under the

provisions of § 19.58 of this chapter

shall be deemed to be unfit for beverage

purposes for the purposes of this part.

§ 194.191 [Amended]

3. Section 194.191(a) is amended by

replacing the words ‘‘Part 170’’ with the

words ‘‘§ 19.58’’.

PART 197—[REMOVED]

Paragraph F. Title 27 CFR part 197 is

removed.

PART 250—[AMENDED]

Paragraph G. The regulations in 27

CFR part 250 are amended as follows:

1. The authority citation for part 250

continues to read as follows:
Federal Register / Vol. 61, No. 120 / Thursday, June 20, 1996 / Rules and Regulations 31427

Authority: 19 U.S.C. 81c; 26 U.S.C. 5001,

5007, 5008, 5010, 5041, 5051, 5061, 5081,

5111, 5112, 5114, 5121, 5122, 5124, 5131–

5134, 5141, 5146, 5207, 5232, 5271, 5276,

5301, 5314, 5555, 6001, 6301, 6302, 6804,

7101, 7102, 7651, 7652, 7805; 27 U.S.C. 203,

205; 31 U.S.C. 9301, 9303, 9304, 9306.

§ 250.11 [Amended]

2. The definition of ‘‘Chief, Puerto

Rico Operations’’ in § 250.11 is

amended by replacing the words ‘‘Room

329’’ with the words ‘‘Room 659’’.

3. The definition of ‘‘Eligible article’’

in § 250.11 is amended by replacing the

words ‘‘flavor or flavoring extract’’ with

the words ‘‘flavor, flavoring extract or

perfume’’.

§ 250.51 [Amended]

4. Paragraph (a) of § 250.51 is

amended by replacing the words ‘‘part

197’’ with the words ‘‘part 17’’.

5. Paragraph (c) of § 250.51 is

amended by replacing the words

‘‘5530.5 (1678)’’ with the words ‘‘5154.1

(formerly 1678)’’.

§ 250.171 [Amended]

6. The second sentence of § 250.171 is

amended by replacing the words ‘‘part

197’’ with the words ‘‘part 17’’.

7. Section 250.172 is revised to read

as follows:

§ 250.172 Bonds.

(a) General. Persons bringing eligible

articles into the United States from

Puerto Rico and intending to file

monthly claims for drawback under the

provisions of this subpart shall obtain a

bond on Form 5154.3. When the limit of

liability under a bond given in less than

the maximum amount has been reached,

further drawback on monthly claims

may be suspended until a strengthening

or superseding bond in a sufficient

amount has been furnished. For

provisions relating to bonding

requirements, subpart E of part 17 of

this chapter is incorporated in this part,

but references therein to a regional

director (compliance) shall apply, for

purposes of this part, to the Chief,

Puerto Rico Operations.

(b) Approval required. No person

bringing eligible articles into the United

States from Puerto Rico may file

monthly claims for drawback under the

provisions of this subpart until bond on

Form 5154.3 has been approved by the

Chief, Puerto Rico Operations. Bonds

approved by a regional director

(compliance) prior to the effective date

of this provision shall remain in effect.

8. In § 250.173, the first sentence of

paragraph (a), the introductory text of

paragraph (c), and the first sentence of

paragraph (d) are revised to read as

follows:

§ 250.173 Claims for drawback.

(a) General. Persons bringing eligible

articles into the United States from

Puerto Rico shall file claim for

drawback on Form 2635 (5620.8) with

the Chief, Puerto Rico

Operations. * * *

* * * * *

(c) Supporting data. Each claim shall

be accompanied by supporting data as

specified in this paragraph. ATF Form

5154.2, Supporting Data for

Nonbeverage Drawback Claims, may be

used, or the claimant may use any

suitable format that provides the

following information:

* * * * *

(d) Date of filing claim. Quarterly

claims for drawback shall be filed with

the Chief, Puerto Rico Operations,

within the 6 months next succeeding

the quarter in which the eligible

products covered by the claim were

brought into the United States. * * *

§ 250.221 [Amended]

9. Paragraph (a) of § 250.221 is

amended by replacing the words ‘‘part

197’’ with the words ‘‘part 17’’.

10. Paragraph (c) of § 250.221 is

amended by replacing the words

‘‘5530.5 (1678)’’ with the words ‘‘5154.1

(formerly 1678)’’.

§ 250.307 [Amended]

11. The second sentence of § 250.307

is amended by replacing the words

‘‘Part 197’’, wherever they occur, with

the words ‘‘part 17’’.

12. Section 250.308 is revised to read

as follows:

§ 250.308 Bonds.

(a) General. Persons bringing eligible

articles into the United States from the

Virgin Islands and intending to file

monthly claims for drawback under the

provisions of this subpart shall obtain a

bond on Form 5154.3. When the limit of

liability under a bond given in less than

the maximum amount has been reached,

further drawback on monthly claims

may be suspended until a strengthening

or superseding bond in a sufficient

amount has been furnished. For

provisions relating to bonding

requirements, subpart E of part 17 of

this chapter is incorporated in this part,

but references therein to a regional

director (compliance) shall apply, for

purposes of this part, to the Chief,

Puerto Rico Operations.

(b) Approval required. No person

bringing eligible articles into the United

States from the Virgin Islands may file

monthly claims for drawback under the

provisions of this subpart until bond on

Form 5154.3 has been approved by the

Chief, Puerto Rico Operations. Bonds

approved by a regional director

(compliance) prior to the effective date

of this provision shall remain in effect.

13. In § 250.309, the first sentence of

paragraph (a), the introductory text of

paragraph (c), paragraph (c)(1) in its

entirety, and the first sentence of

paragraph (d) are revised to read as

follows:

§ 250.309 Claims for drawback.

(a) General. Persons bringing eligible

articles into the United States from the

Virgin Islands shall file claim for

drawback on Form 2635 (5620.8) with

the Chief, Puerto Rico

Operations. * * *

* * * * *

(c) Supporting data. Each claim shall

be accompanied by supporting data as

specified in this paragraph. ATF Form

5154.2, Supporting Data for

Nonbeverage Drawback Claims, may be

used, or the claimant may use any

suitable format that provides the

following information:

(1) The control number of the Special

Tax Stamp and the tax year for which

issued;

* * * * *

(d) Date of filing claim. Quarterly

claims for drawback shall be filed with

the Chief, Puerto Rico Operations,

within the 6 months next succeeding

the quarter in which the eligible

products covered by the claim were

brought into the United States. * * *

Signed: April 5, 1996.

Bradley A. Buckles,

Acting Director.

Approved: May 9, 1996.

John P. Simpson,

Deputy Assistant Secretary, (Regulatory,

Tariff and Trade Enforcement).

[FR Doc. 96–14881 Filed 6–19–96; 8:45 am]

BILLING CODE 4810–31–P

DEPARTMENT OF LABOR

Occupational Safety and Health

Administration

29 CFR Parts 1910, 1915 and 1926

RIN 1218–AB53

Consolidation of Repetitive Provisions;

Technical Amendments

AGENCY: Occupational Safety and Health

Administration, Department of Labor.

ACTION: Final rule; technical

amendments and recodifications.

SUMMARY: As part of a line-by-line

review of its standards, the

Occupational Safety and Health

Administration (OSHA) is consolidating