53964 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

72Public Law 104–121, Title II, 110 Stat. 857 

(1996). 

1996,72 a rule is ‘‘major’’ if it has 

resulted, or is likely to result in: 

• An annual effect on the U.S. 

economy of $100 million or more; 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment, or innovation. 

We request comment on whether the 

proposed amendments to Exchange Act 

Rule 14a–16 would be a ‘‘major rule’’ for 

purposes of the Small Business 

Regulatory Enforcement Fairness Act. 

We solicit comment and empirical data 

on: 

• The potential effect on the U.S. 

economy on an annual basis; 

• Any potential increase in costs or 

prices for consumers or individual 

industries; and 

• Any potential effect on competition, 

investment, or innovation. 

IX. Statutory Authority and Text of 

Rule and Form Amendments 

We are proposing the amendments 

pursuant to Sections 6, 7, 10, and 19 of 

the Securities Act of 1933, as amended, 

Sections 3(b), 13, 14, 15, and 23(a) of the 

Securities Exchange Act of 1934, as 

amended, and Sections 8, 20(a), 24(a), 

24(g), 30, and 38 of the Investment 

Company Act of 1940, as amended. 

List of Subjects in 17 CFR Parts 230 and 

240 

Reporting and recordkeeping 

requirements, Securities. 

For the reasons set out in the 

preamble, Title 17, Chapter II of the 

Code of Federal Regulation is proposed 

to be amended as follows. 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

1. The authority citation for Part 230 

continues to read in part as follows: 

Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 

77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 

78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 

78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a– 

30, and 80a–37, unless otherwise noted. 

* * * * * 

2. Amend § 230.498 by revising 

paragraph (f)(2) to read as follows: 

§ 230.498 Summary Prospectuses for 

open-end management investment 

companies. 

* * * * * 

(f) * * * 

(2) Greater prominence. If paragraph 

(c) or (d) of this section is relied on with 

respect to a Fund, the Fund’s Summary 

Prospectus shall be given greater 

prominence than any materials that 

accompany the Fund’s Summary 

Prospectus, with the exception of other 

Summary Prospectuses, Statutory 

Prospectuses, or a Notice of Internet 

Availability of Proxy Materials under 

§ 240.14a–16 of this chapter. 

* * * * * 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

3. The authority citation for Part 240 

continues to read in part as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 

78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p, 

78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a– 

20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4, 

80b–11, and 7201 et seq.; and 18 U.S.C. 1350, 

unless otherwise noted. 

* * * * * 

4. Amend § 240.14a–16 by: 

a. Revising paragraph (d)(1). 

b. Redesignating paragraphs (d)(2) 

through (d)(8) as paragraphs (d)(5) 

through (d)(11); 

c. Adding new paragraphs (d)(2) 

through (d)(4); 

d. Removing the word ‘‘and’’ at the 

end of paragraph (f)(2)(ii); 

e. Revising paragraph (f)(2)(iii); 

f. Adding paragraph (f)(2)(iv); and 

g. Revising paragraph (l)(2)(ii). 

The revisions and additions read as 

follows: 

§ 240.14a-16 Internet availability of proxy 

materials. 

* * * * * 

(d) * * * 

(1) A prominent legend in bold-face 

type that states ‘‘Important Notice 

Regarding the Availability of Proxy 

Materials for the Shareholder Meeting 

To Be Held on [insert meeting date]’’; 

(2) An indication that the 

communication presents only an 

overview of the more complete proxy 

materials, which contain important 

information and are available on the 

Internet or by mail and encouraging a 

security holder to access and review the 

proxy materials before voting; 

(3) The Internet Web site address 

where the proxy materials are available; 

(4) Instructions regarding how a 

security holder may request a paper or 

e-mail copy of the proxy materials at no 

charge, including the date by which 

they should make the request to 

facilitate timely delivery, and an 

indication that they will not otherwise 

receive a paper or e-mail copy; 

* * * * * 

(f) * * * 

(2) * * * 

(iii) In the case of an investment 

company registered under the 

Investment Company Act of 1940, the 

company’s prospectus, a summary 

prospectus that satisfies the 

requirements of § 230.498(b) of this 

chapter, or a report that is required to 

be transmitted to stockholders by 

section 30(e) of the Investment 

Company Act (15 U.S.C. 80a–29(e)) and 

the rules thereunder; and 

(iv) An explanation of the process of 

receiving and reviewing the proxy 

materials and voting as detailed in this 

section. 

* * * * * 

(l) * * * 

(2) * * * 

(ii) The date on which it files its 

definitive proxy statement with the 

Commission, provided its preliminary 

proxy statement is filed no later than 10 

calendar days after the date that the 

registrant files its definitive proxy 

statement. 

* * * * * 

Dated: October 14, 2009. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–25232 Filed 10–20–09; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Bureau of Customs and Border 

Protection 

DEPARTMENT OF THE TREASURY 

19 CFR PARTS 162 and 163 

[USCBP–2009–0029] 

RIN 1505–AC00 

Use of Sampling Methods and 

Offsetting of Overpayments and OverDeclarations in CBP Audit Procedures; 

Sampling Under Prior Disclosure 

AGENCY: Customs and Border Protection, 

Department of Homeland Security; 

Department of the Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document proposes to 

amend the Customs and Border 

Protection (CBP) regulations to provide 

further guidance for the use of sampling 

methods in CBP audits and prior 

disclosure cases. It also provides 

guidance for the offsetting of 

overpayments and over-declarations 

when an audit involves a calculation of 

lost revenue or monetary penalties 


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Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 53965 

under 19 U.S.C. 1592. The proposed 

amendment also includes the deletion 

of a superfluous term from the audit 

procedures regulations. 

DATES: Written comments must be 

received on or before December 21, 

2009. 

ADDRESSES: You may submit comments, 

identified by docket number, by one of 

the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments 

via docket number USCBP–2009–0029. 

• Mail: Trade and Commercial 

Regulations Branch, Regulations and 

Rulings, U.S. Customs and Border 

Protection, 799 9th Street, NW. (Mint 

Annex), Washington, DC 20229. 

Instructions: All submissions received 

must include the agency name and 

docket number for this rulemaking. All 

comments received will be posted 

without change to http:// 

www.regulations.gov, including any 

personal information provided. For 

detailed instructions on submitting 

comments and additional information 

on the rulemaking process, see the 

‘‘Public Participation’’ heading of the 

SUPPLEMENTARY INFORMATION section of 

this document. 

Docket: For access to the docket to 

read background documents or 

comments received, go to http:// 

www.regulations.gov. Submitted 

comments may also be inspected during 

regular business days between the hours 

of 9 a.m. and 4:30 p.m. at the Trade and 

Commercial Regulations Branch, 

Regulations and Rulings, U.S. Customs 

and Border Protection, 799 9th Street, 

NW., 5th Floor, Washington, DC. 

Arrangements to inspect submitted 

comments should be made in advance 

by calling Mr. Joseph Clark at (202) 325– 

0118. 

FOR FURTHER INFORMATION CONTACT: For 

Legal Aspects: Alan Cohen, Penalties 

Branch, Regulations and Rulings, Office 

of International Trade (202) 325–0062; 

For Audit and Operational Aspects: 

Matthew Krimski, Regulatory Audit, 

Office of International Trade, (202) 863– 

6004. 

SUPPLEMENTARY INFORMATION: This 

proposed rule is organized as follows: 

I. Public Participation 

II. Background 

III. Proposed Amendments Concerning 

Statistical Sampling 

A. What is Statistical Sampling? 

B. General Requirements Applicable to 

Statistical Sampling 

C. Benefits for CBP from Statistical 

Sampling 

D. Statistical Sampling Used by Audited 

Persons under CBP Supervision 

E. Private Party Reviews and Use of 

Sampling in Prior Disclosure Cases 

F. Proposed Amendments Concerning 

Statistical Sampling 

IV. Proposed Amendments Concerning 

Offsetting Overpayments and OverDeclarations Identified by CBP Auditors 

for Purposes of Lost Revenue or 

Monetary Penalty Calculations under 19 

U.S.C. 1592 

A. The Trade Act of 2002 

B. Offsetting Prior to the Trade Act of 2002 

C. Offsetting after the Trade Act of 2002 

D. Offsetting and Statistical Sampling 

E. Proposed Amendments Concerning 

Offsetting 

V. Amendment to Prior Disclosure 

Regulations 

VI. Other Changes 

VII. Statutory and Regulatory Reviews 

A. Regulatory Flexibility Act 

B. Executive Order 12866 

C. Paperwork Reduction Act 

D. Signing Authority 

I. Public Participation 

Interested persons are invited to 

participate in this rulemaking by 

submitting written data, views, or 

arguments on all aspects of the 

proposed rule. CBP also invites 

comments that relate to the economic, 

environmental, or federalism effects that 

might result from this proposed rule. 

Comments that will provide the most 

assistance to CBP in developing these 

regulations will reference a specific 

portion of the proposed rule, explain the 

reason for any recommended change, 

and include data, information, or 

authority that support such 

recommended change. See ADDRESSES

above for information on how to submit 

comments. 

II. Background 

CBP is authorized to conduct audits 

under 19 U.S.C. 1509 (section 1509) 

(sometimes referred to in this document 

as CBP audits or CBP 1509 audits). The 

statute authorizes CBP to examine the 

records of (including conducting an 

audit of) parties subject to its authority 

for the following purposes: ascertaining 

the correctness of any entry; 

determining the liability of any person 

for duty, fees, and taxes due, or which 

may be due, the United States; 

determining liability for fines and 

penalties; or insuring compliance with 

the laws of the United States 

administered by CBP. Under section 

1509(b), specific procedures are set forth 

for conducting a formal audit authorized 

under the statute. 

In this document, CBP proposes to 

amend the CBP regulations (19 CFR part 

163) pertaining to audit procedures. 

These proposed amendments concern 

the use of statistical sampling methods 

and the offsetting of overpayments of 

duties and fees or over-declarations of 

quantities or values against 

underpayments or under-declarations 

under certain prescribed circumstances. 

The proposed change regarding 

sampling methods is designed to reflect 

in the regulations a practice recognized 

in both government and industry as the 

most practical and expeditious way to 

accurately assess the voluminous 

number of entry transactions often 

encountered per audit in the modern 

commercial importation environment. 

The proposed change regarding 

offsetting reflects the amendment made 

by the Trade Act of 2002 to 19 U.S.C. 

1509(b) pertaining to CBP audit 

procedures. The proposed amendments 

also include a corresponding change to 

19 CFR part 162 (the prior disclosure 

regulations, 19 CFR 162.74) and the 

removal of the term ‘‘compliance 

assessments’’ from 19 CFR part 163 as 

the term has become superfluous as a 

result of CBP policy changes with 

respect to audits. 

III. Proposed Amendments Concerning 

Use of Statistical Sampling 

A. What Is Statistical Sampling? 

Statistical sampling is a generally 

accepted auditing tool used in the 

private sector and by government 

auditors by which an audit, review, or 

examination of a voluminous universe 

of records is made more manageable 

through the selection of samples from 

that universe. These methods have 

become a dependable means of 

conducting audits for a variety of 

business purposes. Government 

agencies use statistical sampling 

methods when conducting audits 

authorized by applicable law. 

More specifically, statistical sampling 

methodology requires random selection 

of items from a defined universe of 

items and statistical evaluation of 

sample results. Once the audit objective, 

sampling objective, and category of 

sampling have been defined, and the 

universe of entries/transactions has 

been analyzed in accordance with 

generally accepted statistical sampling 

concepts, the auditors will determine 

the sample size, sample selection 

technique, and sample review 

procedure. The results revealed by 

examination of the samples can then be 

applied to the entire universe of records, 

permitting conclusions to be drawn 

about the universe with a high degree of 

confidence. The sampling plan, and its 

preparation, is fully documented. The 

audit is conducted according to the 

sampling plan. After the audit has been 

completed, the basic sampling 

parameters, as well as the conclusions 


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53966 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

1 Generally, the terms ‘‘lost duties’’ (or ‘‘lost 

duty’’) and ‘‘lost revenue’’ are used interchangeably 

in this document, although CBP notes that 19 U.S.C. 

1592, applicable to penalties for false statements 

made in an entry, pertains explicitly to lost duties, 

taxes, and fees, 19 U.S.C. 1593a, applicable to 

penalties for false statements made in a drawback 

claim, pertains explicitly to lost revenue, and 19 

U.S.C. 1509(b)(6)(A), applicable to offsetting, 

discussed later in this document, pertains explicitly 

to overpayments of duties and fees and calculations 

of lost revenue or monetary penalties under 19 

U.S.C. 1592, thereby using both terms. In some 

instances, ‘‘lost duties’’ (with or without the 

additional ‘‘taxes and fees’’) may be used in 

reference to 19 U.S.C. 1592 and ‘‘lost revenue’’ may 

be used in reference to 19 U.S.C. 1593a. CBP further 

notes that sampling may be employed in a CBP 

audit conducted for purposes of either 19 U.S.C. 

1592 or 19 U.S.C. 1593, while offsetting under 19 

U.S.C. 1509(b)(6) may be applied in a CBP audit 

only for calculating lost duties (or lost revenue, as 

set forth in the statute) under 19 U.S.C. 1592. 

Finally, sampling by a private party is not limited 

to use in a CBP audit context; offsetting by CBP or 

a private party, as set forth in this document, is so 

limited. 

2The appropriate CBP Fines, Penalties and 

Forfeitures (FP&F) office may approve the sampling 

in some circumstances; in others, FP&F may 

forward the prior disclosure that employs sampling 

to RA for review and approval of the sampling. 

indicated by the sampling plan’s results, 

are disclosed in an audit report. 

The use of sampling in CBP 1509 

audits has produced benefits for both 

CBP and the trade community. 

Sampling produces greater efficiency in 

the audit process by reducing audit 

related costs for the auditee with respect 

to time (including less audit time at the 

auditee’s premises and less time for the 

auditee to pull supporting documents 

and records) and allowing CBP to best 

use its resources to conduct the audit. 

B. General Requirements Applicable to 

Use of Statistical Sampling 

CBP audits are conducted in 

accordance with Government 

Accountability Office (GAO) 

Government Auditing Standards, and 

GAO generally recognizes the validity of 

statistical sampling approaches when 

properly applied, as do auditors, 

accountants, and statisticians within 

and outside the government. Private 

persons conducting reviews and 

employing statistical sampling, whether 

an audited person authorized by CBP to 

conduct self-testing in connection with 

a CBP 1509 audit or a private party 

performing an independent review and 

calculation of lost revenue for prior 

disclosure purposes (both discussed in 

this document), must employ a 

sampling plan and sampling procedures 

that are consistent with generally 

recognized sampling approaches. The 

sampling procedures must be executed 

in accordance with the sampling plan. 

A number of commercial statistical 

sampling programs are available for 

guidance on sampling. 

C. Benefits for CBP from Statistical 

Sampling 

Auditing has become an 

indispensable tool in CBP’s mission to 

administer and enforce the customs 

laws and regulations. CBP conducts 

various kinds of commercial audits of 

parties engaged in various aspects of 

international trade. These parties, to 

name a few, include importers of goods, 

manufacturers of goods imported under 

provisions of the North American Free 

Trade Agreement (NAFTA), and 

drawback claimants. Audits are also 

conducted in furtherance of 

investigations of alleged criminal and 

civil violations of the customs and 

related laws. Frequently, in performing 

these audits, CBP encounters a universe 

of transactions that is too voluminous to 

review, on an entry-by-entry basis, in a 

timely or cost-effective manner. Thus, to 

accomplish its mission, CBP employs 

statistical sampling techniques to 

review these voluminous transactions 

efficiently and to produce accurate 

results. 

D. Statistical Sampling Used by Audited 

Persons under CBP Supervision 

In some circumstances, CBP may 

authorize persons being audited to 

conduct certain reviews or tests of their 

own entries/transactions within the 

scope of a CBP 1509 audit. CBP auditors 

refer to this as ‘‘self-testing’’ and 

recognize it as a valuable tool to employ 

during certain audits. Self-testing within 

the context of a CBP 1509 audit is 

performed by the audited person under 

CBP supervision. 

Self-testing occurs when CBP and the 

person being audited agree, prior to or 

during the audit, to have the audited 

person conduct its own review of 

certain entries/transactions under CBP 

review (i.e., within the time period and 

scope of the audit, which, in some 

circumstances within the auditor’s 

discretion, may be modified to 

accommodate the self-testing and serve 

CBP’s purpose). If satisfied with the 

accuracy and soundness of the review, 

CBP may accept the results. This 

approach is generally used to determine 

the extent of certain problematic 

entries/transactions and to calculate lost 

revenue. The audited person authorized 

to conduct self-testing may employ 

statistical sampling when approved in 

advance by CBP auditors, subject to the 

requirements outlined further below. 

(Note that ‘‘self-testing’’ by a person 

being audited differs from the situation 

where a private party uses sampling in 

its own, independent examination of 

certain entries/transactions conducted 

in connection with a prior disclosure 

claim (discussed immediately below). 

This private party independent review 

and sampling occurs outside the context 

of a CBP 1509 audit.) 

E. Private Party Reviews and Use of 

Sampling in Prior Disclosure Cases 

In some instances, a private party will 

submit a prior disclosure claim 

consisting of an independent review of 

certain entries/transactions and a 

calculation of lost revenue.1 (Under the 

prior disclosure regulations, 19 U.S.C. 

1592(c)(4), 19 U.S.C. 1593a(c)(3), and 19 

CFR 162.74, an importer may disclose to 

CBP, before or without knowledge of the 

commencement of a formal 

investigation, all facts regarding its false 

statements or omissions that resulted in 

a loss of duties, taxes, and fees or loss 

of revenue to the government through 

its violation(s) of 19 U.S.C. 1592 or 

1593a.) The private party may employ 

statistical sampling in this review and 

calculation. The private party’s review 

and calculation, including the time 

period and scope of the review, the 

sampling plan, and the sampling plan’s 

execution, are subject to CBP review 

and approval.2 A prior disclosure will 

only be approved (or considered 

perfected) when the sampling plan and 

its execution are approved by CBP. 

F. Proposed Amendments Concerning 

Statistical Sampling 

Statistical sampling is an important 

tool available to CBP auditors for 

examining customs entries/transactions 

(as is traditional entry-by-entry 

examination of all entries/transactions). 

Because the CBP regulations do not 

explicitly provide for the use of 

statistical sampling in audits, CBP 

proposes to amend the regulations to set 

forth the circumstances and 

requirements for the use of sampling 

methods by CBP and, where 

appropriate, audited persons authorized 

by CBP to conduct self-testing in a CBP 

1509 audit or private parties conducting 

an independent review for prior 

disclosure purposes. 

More specifically, the proposed 

changes provide the following: 

(1) CBP has the sole discretion 

concerning whether to employ 

statistical sampling in any given case, 

authorize a person being audited to 

perform self-testing and use statistical 

sampling, or accept the statistical 

sampling used by a private party 

conducting an independent review and 

calculation of lost revenue in a prior 

disclosure case. 

(2) During the audit, at the audit 

opening conference (or thereafter in 


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Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 53967 

3Pursuant to the ‘‘finality of liquidation’’ rule, 

with respect to liquidation of an entry (as opposed 

to other CBP decisions), a CBP decision on 

liquidation is final and conclusive (binding) on all 

parties unless timely protested under 19 U.S.C. 

1514 within 180 days of the liquidation. 

those instances where self-testing is 

authorized by CBP at some point after 

the conference), CBP will explain the 

sampling method and how the sampling 

results would be applied in determining 

lost revenue and overpayments (see the 

following section for discussion of 

offsets for overpayments). An audited 

person, including one employing selftesting, who accepts the sampling plan 

also waives its ability to challenge the 

validity and methodology of the 

sampling plan at a later date. Having 

accepted the sampling plan, the audited 

person is limited to challenging only 

alleged computational or clerical errors. 

Once CBP approves the specifics of the 

sampling plan, and the person being 

audited agrees to waive its ability to 

challenge the validity of the sampling 

plan at a later date, the audit (or selftesting) may proceed in accordance with 

that plan. CBP’s authority to conduct 

the audit or to employ sampling is not 

dependent on the audited person’s 

acceptance of the specifics of the 

sampling plan. 

(3) The same waiver provision applies 

to a situation involving a private party 

conducting an independent review and 

lost revenue calculation for purposes of 

prior disclosure, where CBP elects to 

conduct a CBP audit after submission of 

the prior disclosure claim. In this 

instance, before commencing the audit, 

CBP will explain the specifics of the 

audit, as above in paragraph (2), and the 

waiver provision applies. 

(4) CBP reserves the right in any case 

to conduct a full entry-by-entry audit if 

it deems such an audit appropriate. 

IV. Proposed Amendments Concerning 

Offsetting Overpayments and OverDeclarations Identified by CBP 

Auditors for Purposes of Lost Revenue 

or Monetary Penalty Calculations 

Under 19 U.S.C. 1592 

A. The Trade Act of 2002 

CBP is updating the regulations to 

reflect an amendment to section 1509(b) 

(section 1509(b)) made by Section 382 of 

the Trade Act of 2002 (the Act; Pub. L. 

107–210, 116 Stat. 933 (2002)). Section 

382 of the Act amended section 1509(b) 

by adding the following paragraph (6): 

(6)(A) If, during the course of any audit 

conducted under this subsection, the 

Customs Service [now CBP] identifies 

overpayments of duties or fees or overdeclarations of quantities or values that are 

within the time period and scope of the audit 

that the Customs Service [CBP] has defined, 

then in calculating the loss of revenue or 

monetary penalties under section 592 [of the 

Tariff Act of 1930, as amended; 19 U.S.C. 

1592], the Customs Service [CBP] shall treat 

the overpayments or over-declarations on 

finally liquidated entries as an offset to any 

underpayments or under-declarations also 

identified on finally liquidated entries, if 

such overpayments or over-declarations were 

not made by the person being audited for the 

purpose of violating any provision of law. 

(B) Nothing in this paragraph shall be 

construed to authorize a refund not otherwise 

authorized under section 520 [of the Tariff 

Act of 1930, as amended, 19 U.S.C. 1520]. 

The explanation of the amendment to 

section 1509(b) made by Section 382 of 

the Trade Act of 2002 (the Act; Pub. L. 

107–210, 116 Stat. 933 (2002) is 

contained in House Report 107–320. 

The House Report states: 

Explanation of the provision 

This provision would require that when 

conducting an audit, Customs [now CBP] 

must recognize and offset overpayments and 

overdeclarations of duties, quantities and 

values against underpayments and underdeclarations. As an example, if during an 

audit Customs [CBP] finds that an importer 

has underpaid duties associated with one 

entry of merchandise by $100 but has also 

overpaid duties from another entry of 

merchandise by $25, then any assessment by 

Customs [CBP] must be the difference of $75. 

CBP notes that the above explanation 

is qualified by the statute’s explicit 

limitation on offsetting to identified 

overpayments/over-declarations and 

under-payments/under-declarations that 

are within the time period and scope of 

the audit as defined by CBP. 

B. Offsetting Prior to the Trade Act of 

2002 

Prior to the Act’s amendment of 

section 1509(b), the ‘‘finality of 

liquidation’’ rule (19 U.S.C. 1514) 

precluded offsetting (also called netting) 

when CBP issued a claim for lost duties, 

taxes, and fees under 19 U.S.C. 

1592(d).3 Thus, prior to the Act, once a 

liquidation had become final with 

respect to an entry that was overpaid, 

CBP was bound by the liquidation and 

could not offset an overpayment against 

the underpayments that formed the 

basis of the penalty action. (See United 

States v. Snuggles, Inc., 20 C.I.T. 1057, 

937 F. Supp. 923 (C.I.T. 1996).) In 

contrast, imposition of a penalty and/or 

a demand for lost duties, taxes, or fees 

relative to violative entries identified 

and included in a penalty case is 

authorized under section 1592 

notwithstanding the provisions of 19 

U.S.C 1514. 

C. Offsetting After the Trade Act of 2002 

The reason for the offsetting 

amendment to section 1509(b) made by 

Section 382 of the Trade Act of 2002 

(the Act; Pub. L. 107–210, 116 Stat. 933 

(2002)) is contained in House Report 

107–320. The House Report states: 

Reason for change 

A government audit should be an evenhanded and neutral evaluation of a person’s 

compliance with the law. The government 

should treat overpayments/overdeclarations 

and underpayments/underdeclarations 

equally, and if both are found during an 

audit, they should be used to offset each 

other. The Committee redrafted this 

provision on the basis of concerns from 

Customs [now CBP]. It is the Committee’s 

intention that this provision shall not affect 

in any way Customs’ [CBP’s] current 

authority to define an audit’s scope, time 

period, and methodology. 

CBP notes that this quoted language 

from the House Report clearly indicates 

that offsetting is limited to identified 

overpayments/over-declarations and 

underpayments/under-declarations that 

fall within the time period and scope of 

the audit as defined by CBP. 

As a result of the Act’s amendment to 

section 1509(b) permitting offsetting, 

CBP is now authorized under the statute 

to account for overpayments of duties 

and fees and over-declarations of 

quantities or values when calculating 

loss of duties, taxes, or fees (referred to 

as ‘‘loss of revenue’’ in the statute) and 

monetary penalties levied under section 

1592, if: 

(1) The overpayments or overdeclarations are identified by CBP 

during an audit (review or examination) 

conducted by CBP under section 

1509(b); 

(2) The audit was completed on or 

after August 6, 2002, the effective date 

of the Act; 

(3) The overpayments or overdeclarations relate to liquidated entries; 

(4) The overpayments or overdeclarations are identified by CBP as 

having been made within the time 

period and scope of the audit as defined 

by CBP; and 

(5) The overpayments or overdeclarations are determined by CBP not 

to have been made for the purpose of 

violating any provision of law, 

including the customs laws and laws 

enforced by other agencies, including 

but not limited to, the Internal Revenue 

Service. 

Regarding item (1) above (the 

requirement that offsetting applies only 

where the audit is conducted under 

section 1509(b)), where overpayments or 

over-declarations are identified through 

a process other than an audit conducted 

under the statute, e.g., a process 

conducted by an agent, import 

specialist, or inspection officer in the 

performance of his/her duties, offsets 


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4Under the former section 1520(c)(1) (repealed 

under Pub. L. 108–429, Title II, Sec. 2105, Dec. 3, 

2004), an importer could file a petition for 

reliquidation to correct a clerical error, mistake of 

fact, or other inadvertence up to one year from the 

date of importation. Under current section 1514(a), 

an importer has 180 days from the date of 

liquidation to file a protest to correct these errors. 

For this reason, it is unlikely that a CBP audit of 

liquidated entries will uncover an entry/transaction 

that is eligible for a refund under section 1514. 

will not be allowed. CBP may allow 

offsetting when an audited person 

conducts self-testing under the purview 

of a section 1509(b) audit, provided that 

other requirements are met. In this 

instance, the private party’s self-testing, 

and any offsetting applied, occurs 

within the context of a section 1509(b) 

audit and is subject to the CBP auditor’s 

review and approval. 

Regarding item (4) above (concerning 

time period and scope of the audit), CBP 

has the sole discretion to define the time 

period and scope of an audit conducted 

pursuant to section 1509. This includes 

defining the time period and scope of an 

audited person’s self-testing conducted 

under CBP supervision as part of a CBP 

audit. 

CBP emphasizes that for offsetting 

purposes, where statistical sampling is 

employed in the audit (selecting a 

smaller number of entries/transactions 

to represent a greater universe of 

entries/transactions), identification of 

underpayments and overpayments is 

limited to the entries/transactions 

actually examined (i.e., viewed) by CBP 

auditors. It is only from these examined 

entries/transactions that CBP 

‘‘identifies’’ overpayments or overdeclarations, as required by section 

1509(b)(6). (See ‘‘Offsetting and 

statistical sampling’’ section further 

below.) 

Regarding item (5) above (concerning 

the restriction on offsetting relative to 

an overpayment or over-declaration 

made for the purpose of violating any 

law), CBP will disallow offsetting where 

it determines that an overpayment or 

over-declaration was made for the 

purpose of violating any law, whether or 

not CBP is charged with enforcing such 

law. Any specific intentionally made 

overpayment/over-declaration identified 

for offsetting will be disallowed. 

Similarly, offsetting will not be allowed 

to reduce underpayments made 

fraudulently. Thus, CBP will disallow 

offsetting entirely where any 

underpayments/under-declarations 

identified for offsetting were made 

knowingly and intentionally (i.e. 

derived from a knowing and intentional 

act). 

The Regulatory Audit, Office of 

International Trade (RA) field office 

conducting the audit will refer all 

matters regarding disallowance to the 

appropriate FP&F office for 

determination. If a determination to 

disallow offsets is made, and a penalty 

notice is issued under section 1592(a) 

and (c), the determination to disallow 

offsets will be subject to review by the 

CBP official having the delegated 

authority to decide a petition for relief 

filed pursuant to section 1592(b) and 19 

U.S.C. 1618. If a penalty notice is not 

issued but a demand for lost duties is 

issued pursuant to section 1592(d), the 

same determination, upon request, may 

be reviewed pursuant to 19 CFR 162.79b 

(a means by which an importer may 

seek Headquarters review of a demand 

for lost duties under 19 U.S.C. 1592 (or 

19 U.S.C. 1593a which is not relevant to 

offsetting)). 

CBP notes that offsetting may be 

permitted where the overpayments or 

over-declarations, within the time 

period and scope of the audit, were not 

made by the same acts, statements, or 

omissions that caused the 

underpayments or under-declarations; 

nor are such overpayments or overdeclarations limited to having occurred 

on the same entry or entries that 

evidence the underpayments or underdeclarations. Offsets, however, will not 

be allowed for duties paid on goods for 

which a duty allowance or preference 

was not timely claimed or established at 

the time of entry, or within the time 

allowed after entry, under applicable 

law or regulation. This payment of 

duties is not an overpayment within the 

meaning of the offset provision in this 

circumstance because it results from the 

failure to timely meet the allowance or 

preference qualification requirement. 

Where the offset provision is applied 

during an audit, CBP will set forth in 

the audit report the pertinent facts 

developed concerning the nature of the 

overpayments or over-declarations in a 

given case. 

Finally, in accordance with section 

1509(b)(6)(B), while offsetting is 

allowed in certain circumstances 

despite the finality of liquidation, where 

the offsetting results in a net 

overpayment of duties, CBP will not 

issue a refund unless, with respect to a 

given overpayment (or overpayments), a 

refund is otherwise authorized under 19 

U.S.C. 1520 (section 1520). Section 1520 

pertains to CBP’s authority to refund 

overpaid amounts in various specified 

circumstances and to reliquidate an 

entry when an importer makes a postentry NAFTA claim within a year of 

importation (19 U.S.C. 1520(d)). Also, at 

the time the offsetting law was enacted, 

section 1520(c)(1) provided for 

reliquidation of an entry to correct a 

clerical error, mistake of fact, or other 

inadvertence. That provision was 

repealed in 2004 and now resides in 19 

U.S.C. 1514(a). Congress intended its 

reference to refunds under section 1520 

in the offsetting statute enacted in 2002 

(section 1509(b)(6)(B)) to include the 

provision for clerical error, mistake of 

fact, and other inadvertence. Therefore, 

CBP proposes to include reference to 

clerical error, mistake of fact, and other 

inadvertence under 19 U.S.C. 1514(a) in 

the proposed regulation as a possible 

basis for refunds along with section 

1520.4

By limiting refunds to section 1520, 

Congress indicated that the offsetting 

provision of section 1509(b)(6) was not 

intended to, by itself, authorize a refund 

or alter the existing statutory scheme 

regarding the issuance of refunds. 

Therefore, overpayments properly 

identified in a CBP audit will be offset 

against properly identified 

underpayments, and refunds relative to 

overpayments will not be made under 

section 1509(b)(6)(B) within the audit 

process. Where CBP auditors identify an 

overpayment entry/transaction in a CBP 

audit that is eligible for a refund under 

section 1520 (an unlikely prospect but 

not inconceivable under section 1520(d) 

because of the one-year after 

importation filing period) or section 

1514(a), as set forth above, CBP will 

advise the audited person to file a 

section 1520 claim or section 1514 

protest at the appropriate CBP port 

office and will not include the entry/ 

transaction’s overpayment in the audit’s 

calculation of offsetting. 

Illustration: Where underpayments 

identified in a CBP audit amount to 

$1,200 and overpayments amount to 

$1,000, the audited person would be 

responsible for payment of only $200 

(not $1,200) in lost revenue. If, during 

the course of the audit, a properly 

identified overpayment entry/ 

transaction was recognized as possibly 

refund-eligible under either 19 U.S.C. 

1514 or 19 U.S.C. 1520, as above, the 

audited person would be advised to file 

for reliquidation under the appropriate 

process relative to that overpayment. 

Thus, where underpayments identified 

in a CBP audit total $1,000 and 

identified overpayments approved for 

offsetting total $1,200 (not including 

any overpayments that are eligible for 

reliquidation (and refund) under 

sections 1514 or 1520), the audited 

person would not be responsible for 

payment of any lost revenue because the 

overpayments exceed the 

underpayments, and a refund of the net 

overpayment of $200 will not be paid. 

The audited person would be advised to 

seek reliquidation and a refund under 


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either 19 U.S.C. 1514 or 1520 for any 

overpayments eligible for such relief. 

D. Offsetting and Statistical Sampling 

In accordance with the previous 

discussion of sampling, where sampling 

is employed in an audit that involves 

offsetting, identified overpayments and 

over-declarations will be extrapolated 

from the smaller number of entries/ 

transactions actually examined (the 

sample transactions/entries) over the 

larger universe of entries/transactions 

encompassed within the time period 

and scope of the audit in the same way 

that underpayments and underdeclarations, i.e., violative entries/ 

transactions, will be extrapolated. (This 

extrapolation exercise is also referred to 

as ‘‘projecting’’ the sample results over 

the universe of entries/transactions.) 

However, as explained previously, 

where a sampling method is employed, 

CBP will not offset for, and therefore 

will not extrapolate for, a specific 

overpayment that is outside of the 

sample examined (i.e., the entries/ 

transactions actually viewed by CBP 

auditors), even if the overpayment 

otherwise falls within the time period 

and scope of the audit and thus within 

the universe of entries/transactions. To 

do otherwise would undermine the 

representative purpose inherent in the 

statistical sampling (extrapolation/ 

projection) approach, just as would 

going outside the entries/transactions 

actually examined to identify another 

violative entry/transaction 

(underpayment/under-declaration) for 

purposes of the audit. 

Illustration: CBP initially sets forth 

the time period and subject matter scope 

of the audit and thereby identifies the 

universe of transactions as consisting of 

5,000 entries/transactions. In 

accordance with generally accepted 

statistical sampling concepts and 

techniques, CBP determines the entries/ 

transactions to be examined and selects 

500 entries/transactions for examination 

by CBP auditors. Of the 500 entries/ 

transactions examined, CBP auditors 

identify 50 underpayment entries/ 

transactions and 10 overpayment 

entries/transactions. These are the total 

representative underpayments and 

overpayments ‘‘identified’’ for offsetting 

under the statute. The relevant 

information obtained from these 

underpayment and overpayment 

entries/transactions is projected over the 

universe of 5,000 entries/transactions to 

extrapolate total underpayments of 

$8,000 and total overpayments of 

$2,000. The total underpayments will be 

offset by the total overpayments, 

resulting in total loss of duty in the 

amount of $6,000. Should the audited 

person point to any specific 

overpayments outside the 500 entries/ 

transactions examined (even those 

within the time period and subject 

matter scope of the audit and thus 

within the universe of entries/ 

transactions), such overpayments will 

be considered outside the sampling 

plan’s targeted set of entries/ 

transactions and will not be considered 

in the projection. (Of course, any 

entries/transactions outside the time 

period and/or scope (subject matter) of 

the audit also will not be considered.) 

E. Proposed Amendments Concerning 

Offsetting 

Because the CBP regulations do not 

reflect the change in the law made by 

section 382 of the Act (concerning 

offsets), CBP is proposing to amend the 

regulations pertaining to CBP audits to 

reflect the existing offsetting provision 

of section 1509(b)(6). CBP notes that the 

offsetting provision of the Act is selfeffectuating and has had legal effect 

since the effective date of the Act, 

August 6, 2002. Thus, while the 

offsetting regulatory amendment is put 

forward as a part of this proposed 

regulation, the offsetting provision of 19 

U.S.C. 1509(b) is already legally 

effective. 

V. Amendment to Prior Disclosure 

Regulations 

As discussed previously, where a 

private party submits a prior disclosure 

claim consisting of an independent 

review of certain entries/transactions 

and a loss of revenue calculation, the 

private party may use statistical 

sampling to calculate lost revenue. The 

sampling used is subject to the 

requirements of proposed § 163.11(c) 

(see proposed regulatory text and 

Section III of this document pertaining 

to sampling). Since the changes 

proposed in this rule regarding 

sampling impact the prior disclosure 

process to some extent, a corresponding 

amendment is proposed to the prior 

disclosure regulations, 19 CFR 162.74, 

to reference the sampling provision of 

§ 163.11(c) and make clear that any 

sampling method used to calculate lost 

revenue is subject to CBP approval. If 

the sampling method is rejected as 

flawed, the prior disclosure claim will 

not be approved. 

VI. Other Changes 

As compliance assessments are no 

longer the central focus of CBP’s 

auditing program, the proposed 

amendments include a proposal to 

remove from pertinent regulations 

references to compliance assessments. 

In this regard, ‘‘audit’’ is the preferred 

term, but references to a ‘‘review’’ or 

‘‘examination’’ have the same meaning, 

provided that the action is conducted 

under section 1509 in furtherance of the 

statute’s purposes. 

Also, as the former Office of 

Investigations of the U.S. Customs 

Service is now part of Immigration and 

Customs Enforcement (ICE), CBP is 

proposing to add a reference to ICE in 

the regulation (19 CFR 163.11(f)) 

concerning formal investigations. 

VII. Statutory and Regulatory Reviews 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) requires Federal 

agencies to examine the impact a rule 

would have on small entities. A small 

entity may be a small business (defined 

as any independently owned and 

operated business not dominant in its 

field that qualifies as a small business 

per the Small Business Act); a small notfor-profit organization; or a small 

governmental jurisdiction (locality with 

fewer than 50,000 people). 

The entities affected by this proposed 

rule are importers and various other 

parties who are subject to a CBP audit 

under the CBP regulations. ‘‘Importers’’ 

are not defined as a ‘‘major industry’’ by 

the Small Business Administration 

(SBA) and do not have a unique North 

American Industry Classification 

System (NAICS) code; rather, virtually 

all industries classified by SBA include 

entities that import goods and services 

into the United States. Thus, entities 

affected by this proposed rule would 

likely consist of the broad range of large, 

medium, and small businesses operating 

under the customs laws and other laws 

that CBP administers and enforces. 

These entities include, but are not 

limited to, importers, brokers, and 

freight forwarders, as well as other 

businesses that operate under drawback, 

bonded warehouse, and foreign trade 

zone procedures and those conducting 

various activities under bond. 

The proposed amendments, if 

adopted as final, would bring the 

regulations concerning audit procedures 

up to date with CBP practices by 

explicitly providing for the use of 

sampling methods in audits conducted 

by CBP under 19 U.S.C. 1509. The use 

of sampling methods is expected to 

facilitate and enhance the effectiveness 

of the CBP audit process for CBP and 

private entities, thus making the process 

less burdensome for both parties. Also, 

if adopted, the proposed amendments 

would bring the regulations up to date 

with existing law regarding the 

offsetting of overpayments and overdeclarations for the purpose of 


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calculating loss of revenue or monetary 

penalties under 19 U.S.C. 1592. 

Because these amendments to the 

regulations affect such a wide-ranging 

group of entities involved in the 

importation of goods to the United 

States, the number of entities subject to 

this proposed rule would be considered 

‘‘substantial.’’ Additionally, these 

changes to the regulations would confer 

a small, positive economic benefit to 

affected entities as a result of a more 

efficient audit process and, in some 

cases, a reduction of duties found owing 

to the government. Neither of these 

benefits, however, would rise to the 

level of being considered a ‘‘significant’’ 

economic impact. We welcome 

comments on this conclusion. If we do 

not receive any comments contradicting 

our findings, we may certify that this 

rule will not have a significant 

economic impact on a substantial 

number of small entities at the final rule 

stage. 

B. Executive Order 12866 

The proposed rule, if adopted as a 

final rule, would not impose additional 

requirements or procedural burdens on 

persons affected and would not have an 

economic impact on them except in 

certain penalty cases in which the 

persons affected would realize a 

reduction in the amount of a penalty, or 

in the amount of lost revenue owed, due 

to the allowance of offsetting. Thus, the 

rule would not 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. There is no identifiable 

relationship between what the rule 

requires, permits, or accomplishes and 

the procedures, obligations, or 

responsibilities of other agencies or the 

obligations of affected persons to other 

agencies. Thus, the rule would not 

create a serious inconsistency or 

otherwise interfere with an action taken 

or planned by another agency. The rule 

would not materially alter the budgetary 

impact of entitlements, grants, user fees, 

or loan programs, as the rule’s 

provisions have nothing to do with 

these matters. Also, the rule would not 

raise novel legal policy issues arising 

out of legal mandates, the President’s 

priorities, or the principles set forth in 

E.O. 12866. Thus, the proposed 

amendments of this rule do not meet the 

criteria of a ‘‘significant regulatory 

action’’ as described in E.O. 12866. 

C. Paperwork Reduction Act 

The collections of information in part 

163 of the current CBP regulations have 

already been approved by the Office of 

Management and Budget (OMB) in 

accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3507) 

and have been assigned OMB control 

number 1651–0076 (General 

recordkeeping and record production 

requirements). This proposed rule does 

not involve a change to the existing 

approved information collection. 

Affected persons are already required to 

provide relevant information or records 

requested by CBP during an audit 

procedure conducted under the 

authority of 19 U.S.C. 1509 (the CBP 

audit statute) and the CBP regulations. 

Records or information having to do 

with overpayments or over-declarations 

for offset purposes under paragraph 

(b)(6) of the statute fall within this 

existing requirement. An agency may 

not conduct or sponsor, and a person is 

not required to respond to, a collection 

of information unless the collection of 

information displays a valid control 

number assigned by OMB. 

D. Signing Authority 

This proposed regulation is being 

issued in accordance with 19 CFR 

0.1(a)(1) pertaining to the Secretary of 

the Treasury’s authority (or that of his 

or her delegate) to approve regulations 

pertaining to certain revenue functions. 

List of Subjects 

19 CFR Part 162 

Administrative practice and 

procedure, Customs duties and 

inspection, Penalties, Reporting and 

recordkeeping requirements. 

19 CFR Part 163 

Administrative practice and 

procedure, Customs audits, Customs 

duties and inspection, Imports, 

Penalties, Reporting and recordkeeping 

requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, parts 162 and 163 of the 

CBP regulations (19 CFR Parts 162 and 

163) are proposed to be amended as set 

forth below: 

PART 162—INSPECTION, SEARCH 

AND SEIZURE 

1. The general authority citation for 

part 162 continues to read as follows: 

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 

1592, 1593a, 1624; 6 U.S.C. 101; 8 U.S.C. 

1324(b). 

* * * * * 

2. Section 162.74 is amended by 

adding new paragraph (j) to read as 

follows: 

§ 162.74 Prior disclosure. 

* * * * * 

(j) Prior disclosure using sampling. (1) 

A private party may use statistical 

sampling to ‘‘disclose the circumstances 

of a violation’’ and for calculation of lost 

duties, taxes, and fees or lost revenue 

for purposes of prior disclosure, 

provided that the statistical sampling 

satisfies the three criteria in 19 CFR 

163.11 (c)(2). When the private party 

submits a prior disclosure employing 

statistical sampling, the time period, 

scope, and any sampling plan employed 

by the private party, as well as the 

execution and results of the self-review, 

including the sampling plan, are subject 

to CBP review and approval. The private 

party submitting a prior disclosure that 

employs sampling under this paragraph 

may not contest the validity of the 

sampling plan or its methodology at a 

later date and will be limited to 

challenging computational and clerical 

errors. 

(2) If a private party submits a prior 

disclosure claim employing sampling, 

CBP may review other transactions from 

the same time period and scope that are 

the subject of the prior disclosure, 

PART 163—RECORDKEEPING 

3. The general authority citation for 

part 163 continues to read as follows: 

Authority: 5 U.S.C. 301, 19 U.S.C. 66, 

1484, 1508, 1509, 1510, 1624. 

* * * * * 

4. Section 163.0 is amended by 

removing from the second sentence the 

words, ‘‘or compliance assessment’’. 

5. Section 163.1 is amended as 

follows: 

A. By revising paragraph (c) as set 

forth below. 

B. By removing paragraph (e), and 

redesignating existing paragraphs (f) 

through (l) as paragraphs (e) through (k). 

§ 163.1 Definitions. 

* * * * * 

(c) Audit. ‘‘Audit’’ means an 

examination or review by CBP under 19 

U.S.C. 1509 of records required to be 

maintained and/or produced by persons 

listed in § 163.2, or pursuant to other 

applicable laws or regulations 

administered by CBP, for the purpose of 

furthering any investigation or review 

conducted to: ascertain the correctness 

of any entry; determine the liability of 

any person for duties, taxes, and fees 

due, or revenue due, or which may be 

due the United States; determine 

liability for fines, penalties, and 


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forfeitures; ensure compliance with the 

laws of the United States administered 

by CBP; or determine that information 

submitted or required is accurate, 

complete, and in accordance with any 

laws and regulations administered by 

CBP. An audit does not include a 

quantity verification for a customs 

bonded warehouse or general purpose 

foreign trade zone. An audit may be as 

extensive or simple as CBP determines 

is warranted to achieve the audit’s 

purpose under applicable laws and 

regulations. CBP may authorize a person 

being audited to conduct, under CBP 

supervision, self-testing of its own 

transactions within the time period and 

scope of the audit. 

* * * * * 

6. Section 163.6 is amended by 

removing the words ‘‘or compliance 

assessment’’ in paragraph (c)(1), first 

sentence, and in paragraph (c)(2), first 

sentence. 

7. Section 163.7 is amended by 

removing the words ‘‘or compliance 

assessment’’ in paragraph (a), first 

sentence. 

8. Section 163.11 is revised to read as 

follows: 

§ 163.11 Audit procedures. 

(a) Conduct of a CBP audit. In 

conducting an audit under 19 U.S.C. 

1509(b), the CBP auditors, except as 

otherwise provided in paragraph (f) of 

this section, will: 

(1) Provide notice, telephonically and 

in writing, to the person to be audited 

of CBP’s intention to conduct an audit 

and a reasonable estimate of the time to 

be required for the audit; 

(2) Inform the person who is to be the 

subject of the audit, in writing and 

before commencement of the audit, of 

that person’s right to an entrance 

conference, at which time the objectives 

and records requirements of the audit, 

and any sampling plan to be employed 

or offsetting that may apply, will be 

explained and the estimated termination 

date of the audit will be set; 

(3) Provide a further estimate of any 

additional time for the audit if, during 

the course of the audit, it becomes 

apparent that additional time will be 

required; 

(4) Schedule a closing conference 

upon completion of the audit on-site 

work to explain the preliminary results 

of the audit; 

(5) Complete a formal written audit 

report within 90 calendar days 

following the closing conference 

referred to in paragraph (a)(4) of this 

section, unless the Executive Director, 

Regulatory Audit, Office of International 

Trade, CBP Headquarters, provides 

written notice to the person audited of 

the reason for any delay and the 

anticipated completion date; and 

(6) After application of any disclosure 

exemptions contained in 5 U.S.C. 552, 

send a copy of the formal written audit 

report to the person audited within 30 

calendar days following completion of 

the report. 

(b) Petition procedures for failure to 

conduct closing conference. Except as 

otherwise provided in paragraph (f) of 

this section, if the estimated or actual 

termination date of the audit passes 

without a CBP auditor providing a 

closing conference to explain the results 

of the audit, the person audited may 

petition in writing for a closing 

conference to the Executive Director, 

Regulatory Audit, Office of International 

Trade, Customs and Border Protection, 

Washington, DC 20229. Upon receipt of 

the request, the director will provide for 

the closing conference to be held within 

15 days after the date of receipt. 

(c) Use of statistical sampling in 

calculation of loss of duties or revenue. 

(1) General. In conducting an audit 

under this section, regardless of the 

finality of liquidation under 19 U.S.C. 

1514, CBP auditors have the sole 

discretion to determine the time period 

and scope of the audit and will examine 

a sufficient number of transactions, as 

determined solely by CBP, to make a 

determination as to whether full duties, 

taxes, and fees have been paid or 

drawback was properly claimed. In 

addition to examining all transactions to 

identify loss of duties, taxes, and fees 

under 19 U.S.C. 1592 or loss of revenue 

under 19 U.S.C. 1593a, or to determine 

compliance with any other applicable 

customs laws, CBP auditors, at their sole 

discretion, may use statistical sampling 

methods. During the audit, CBP auditors 

will explain the sampling plan and how 

the results of the sampling will be 

projected over the universe of 

transactions for purposes of calculating 

lost duties, taxes, and fees or lost 

revenue and, where appropriate, 

overpayments and over-declarations 

eligible for offsetting under paragraph 

(d) of this section. The person being 

audited and CBP will discuss the 

specifics of the sampling plan before 

commencement of the audit that 

employs sampling. Once the sampling 

plan is accepted, the audited person 

waives the ability to contest the validity 

of the sampling plan or its methodology 

at a later date and will be limited to 

challenging computational and clerical 

errors. CBP’s authority to conduct the 

audit or employ statistical sampling is 

not dependent on the audited person’s 

acceptance of the specifics of the 

sampling plan. 

(2) When CBP uses statistical 

sampling. CBP auditors have the sole 

discretion to use statistical sampling 

techniques when: 

(i) Review of 100 percent of the 

transactions is impossible or 

impractical; 

(ii) The sampling plan is prepared in 

accordance with generally recognized 

sampling procedures; and 

(iii) The sampling procedure is 

executed in accordance with that plan. 

(3) Statistical sampling by audited 

persons under CBP supervision. Audited 

persons permitted in advance by CBP to 

conduct self-testing of certain 

transactions under CBP supervision 

within the time period and scope of a 

CBP audit may use statistical sampling 

methods, provided that the three criteria 

contained in paragraph (c)(2) of this 

section are satisfied. CBP will determine 

the time period and scope of the CBPapproved and supervised self-testing 

and will explain any sampling plan to 

be employed in accordance with 

paragraph (c)(1) of this section. The 

execution and results of the self-testing 

and the sampling plan are subject to 

CBP approval, and the audited person is 

subject to the waiver of paragraph (c)(1) 

of this section. 

(d) Offset of overpayments and overdeclarations in 19 U.S.C. 1592 penalty 

cases. (1) General. In conducting any 

audit authorized under 19 U.S.C. 

1509(b) and this section for the purpose 

of calculating the loss of duties, taxes, 

and fees or monetary penalty under any 

provision of 19 U.S.C. 1592, CBP 

auditors identifying overpayments of 

duties or fees or over-declarations of 

quantities or values that are within the 

time period and scope of the audit, as 

established solely by CBP, may treat the 

overpayments or over-declarations on 

finally liquidated entries as an offset to 

any underpayments or underdeclarations also identified on finally 

liquidated entries, provided that the 

identified overpayments or overdeclarations were not made by the 

person being audited for the purpose of 

violating any provision of law, 

including laws other than customs laws, 

or the identified underpayments or 

under-declarations were not made 

knowingly and intentionally. 

(2) When audited person conducts 

self-testing under CBP supervision. 

Offsetting may apply to self-testing 

conducted by an audited person under 

CBP supervision (i.e., during a CBP 

audit), provided that CBP approves the 

self-testing in advance and, upon review 

of the self-testing, including any 

offsetting applied, approves its 

execution and results. 


pwalker on DSK8KYBLC1PROD with PROPOSALS
53972 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

(3) Time period and scope determined 

by CBP; projection when sampling 

employed. In conducting an audit under 

paragraph (d)(1) of this section or 

authorizing an audited person’s selftesting as described in paragraph (d)(2) 

of this section, CBP will have the sole 

authority to determine the time period 

and scope of the audit. An audit 

employing statistical sampling will be 

limited to the transactions that the CBP 

auditors actually examine (i.e., review) 

during the audit. The results of the 

sample examination, with respect to 

properly identified overpayments and 

over-declarations and properly 

identified underpayments and underdeclarations, will be projected over the 

universe of transactions to determine 

the total overpayments and overdeclarations that are eligible for 

offsetting and to determine the total loss 

of duties, taxes, and fees. 

(4) Same acts, statements, omissions, 

or entries not required. Offsetting may 

be permitted where the overpayments or 

over-declarations were not made by the 

same acts, statements, or omissions that 

caused the underpayments or underdeclarations, and is not limited to the 

same entries that evidence the 

underpayments or under-declarations, 

provided that they are within the time 

period and scope of the audit as 

established by CBP and as described in 

paragraph (d)(4) of this section. 

(5) Limitations. Offsetting will not be 

allowed with respect to specific 

overpayments or over-declarations made 

for the purpose of violating any 

provision of law, including laws other 

than customs laws. Offsetting will not 

be allowed with respect to 

overpayments or over-declarations 

resulting from a failure to timely claim 

or establish a duty allowance or 

preference. Offsetting will be disallowed 

entirely where CBP determines that any 

underpayments or under-declarations 

identified for offsetting purposes were 

made knowingly and intentionally. 

(6) Audit report. Where overpayments 

or over-declarations have been 

identified in accordance with paragraph 

(d)(1) of this section, the audit report 

will state whether they have been made 

within the time period and scope of the 

audit. 

(7) Disallowance determinations 

referred to FP&F. Any determination 

that offsets will be disallowed where 

overpayments/over-declarations were 

made for the purpose of violating any 

law, or where underpayments or underdeclarations were made knowingly and 

intentionally, will be made by the 

appropriate Fines, Penalties, and 

Forfeitures (FP&F) office to which the 

issue was referred. CBP will notify the 

audited person of a determination 

whether to allow offsetting in whole or 

in part. The FP&F office will issue a 

notice of penalty and/or demand for lost 

duties, taxes, and fees where it 

determines that such action is 

warranted. Where the FP&F office issues 

a notice of penalty and/or demand, the 

audited person may file a petition under 

19 CFR part 171. 

(8) Refunds limited. A net 

overpayment of duties, taxes, and fees 

will not be paid as a refund unless the 

circumstances of the overpayments meet 

the requirements of 19 U.S.C. 1520 or 

the requirements of 19 U.S.C. 1514(a) 

pertaining to clerical error, mistake of 

fact, or other inadvertence in any entry, 

liquidation, or reliquidation. In that 

event, the audited person must file a 

claim under the applicable statute and 

regulations at the appropriate CBP port 

office. Any such overpayment(s) will 

not be included in the audit’s offsetting 

calculation. 

(e) Sampling not evidence of 

reasonable care. The fact that entries 

were previously within the time period 

and scope of an audit conducted by CBP 

in which sampling was employed, in 

any circumstances described in this 

section, is not evidence of reasonable 

care by a violator in any subsequent 

action involving such entries. 

(f) Exception to procedures. 

Paragraphs (a)(5), (a)(6), (b), (d)(7), and 

(d)(8) of this section do not apply once 

CBP and/or ICE commences an 

investigation with respect to the issue(s) 

involved. 

Jayson P. Ahern, 

Acting Commissioner, Customs and Border 

Protection. 

Approved: October 15, 2009. 

Timothy E. Skud, 

Deputy Assistant Secretary of the Treasury. 

[FR Doc. E9–25222 Filed 10–20–09; 8:45 am] 

BILLING CODE 9111–14–P 

DEPARTMENT OF THE INTERIOR 

Office of Surface Mining Reclamation 

and Enforcement 

30 CFR Part 948 

[WV–116–FOR; OSM–2009–0008] 

West Virginia Regulatory Program 

AGENCY: Office of Surface Mining 

Reclamation and Enforcement (OSM), 

Interior. 

ACTION: Proposed rule; public comment 

period and opportunity for public 

hearing on proposed amendment. 

SUMMARY: We are announcing receipt of 

a proposed amendment to the West 

Virginia regulatory program (the West 

Virginia program) under the Surface 

Mining Control and Reclamation Act of 

1977 (SMCRA or the Act) that includes 

both statutory and regulatory revisions. 

West Virginia submitted a proposed 

amendment authorized by Committee 

Substitute for Senate Bill 153 to revise 

the West Virginia Code of State 

Regulations (CSR) concerning the 

continued oversight by the Secretary of 

‘‘approved persons’’ who prepare, sign, 

or certify mining permit applications 

and related materials; regarding 

incidental boundary revisions (IBR) to 

existing permits, by clarifying that 

certain types of collateral activities are 

part of the primary mining operations 

and therefore subject to the same 

acreage limitations, while providing 

more relevant and exacting criteria for 

the Secretary to consider in evaluating 

an application for revision; deleting the 

bonding matrix forms; changing term 

‘‘Bio-oil’’ to ‘‘Bio fuel’’; and clarifying 

standards in subsection 9.3.f that 

pertain to areas developed for hayland 

or pasture use. West Virginia submitted 

proposed changes as contained in 

Senate Bill 436 which amends WV Code 

22–3–8 by changing references 

regarding ‘‘the commissioner of the 

Bureau of Employment Programs’’ and 

‘‘the executive director of the workers’ 

compensation commissioner’’ which are 

considered non-substantive. 

West Virginia also submitted 

proposed changes as contained in 

Committee Substitute for Senate Bill 

600 regarding the Special Reclamation 

Fund. This bill amends the State’s 

alternative bonding requirements by 

eliminating the 7 cents per ton 

additional tax and increasing and 

extending the special reclamation tax 

from 7.4 to 14.4 cents per ton of clean 

coal mined. It also requires the special 

reclamation tax to be reviewed 

biannually by the Legislature. This 

amendment (WV–115–FOR) was 

announced earlier in the July 22, 2009, 

Federal Register (74 FR 36113–36116) 

as an interim rule and approved on a 

temporary basis. 

West Virginia also submitted 

proposed changes as contained in 

Senate Bill 1011 which amends the WV 

Code by requiring surface mine 

reclamation plans to comport with 

approved master land use plans and 

authorizing surface mine reclamation 

plans to contain alternative postmining 

land uses. Senate Bill 1011 was passed 

by the Legislature on June 2, 2009, 

during the 1st extraordinary 2009 

session, and approved by the Governor 

on June 17, 2009. 


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