I 
110TH CONGRESS 
1ST SESSION H. R. 2571 
To amend the Internal Revenue Code of 1986 and the Foreign Trade Zones 
Act to simplify the tax and eliminate the drawback fee on certain distilled 
spirits used in nonbeverage products manufactured in a United States 
foreign trade zone for domestic use and export. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 5, 2007 
Mr. PASCRELL introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 and the For-
eign Trade Zones Act to simplify the tax and eliminate 
the drawback fee on certain distilled spirits used in non-
beverage products manufactured in a United States for-
eign trade zone for domestic use and export. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SPECIAL RULES FOR NONBEVERAGE PROD-
UCTS MANUFACTURED IN A UNITED STATES 
FOREIGN TRADE ZONE. 
(a) IN GENERAL.—Subpart E of part I of subchapter 
A of chapter 51 of the Internal Revenue Code of 1986 
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is amended by inserting after section 5062 the following 
new section: 
‘‘SEC. 5063. EXCEPTION FOR NONBEVERAGE PRODUCTS 
MANUFACTURED IN A UNITED STATES FOR-
EIGN TRADE ZONE. 
‘‘(a) GENERAL RULE.—In the case of domestic dis-
tilled spirits on which a tax would be determined under 
this subchapter, when used in a foreign trade zone for the 
manufacture or production of nonbeverage products, in 
lieu of payment of the tax under this subchapter by the 
distilled spirits plant proprietor, distilled spirits may be 
transferred without payment of tax to an activated foreign 
trade zone. Upon demonstration to the Secretary of the 
manufacture or production of nonbeverage products in a 
foreign trade zone using the distilled spirits withdrawn 
from bond without payment of tax, authorized manufac-
turers and producers of nonbeverage products are not sub-
ject to the tax under section 5001. In case of any removal, 
sale, transport, or use of distilled spirits not authorized 
under section 5061 for which taxes have not been paid, 
the full rate of tax under section 5001 shall be paid by 
any person responsible. 
‘‘(b) APPLICATION.—The Secretary may require per-
sons eligible for the application of this section to file an 
adequate bond and permit as reasonably determined by 
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the Secretary. Every person subject to the application of 
this section shall register annually with the Secretary, 
keep such books and records as may be necessary to estab-
lish the fact that distilled spirits received on which no tax 
has been determined were used in the manufacture or pro-
duction of nonbeverage products, and be subject to month-
ly reporting and such rules and regulations in relation 
thereto as the Secretary may prescribe to secure the 
Treasury against fraud. 
‘‘(c) POWERS OF THE SECRETARY.—For purposes of 
ascertaining the correctness of the application of this sec-
tion, the Secretary is authorized to examine any books, 
papers, records, or memoranda as may be necessary to es-
tablish the fact that the distilled spirits received were used 
in the manufacture or production of nonbeverage prod-
ucts, to require the attendance of the person or of any 
officer or employee of such person or the attendance of 
any other person having knowledge of the premises, to 
take testimony with reference to any matter covered, and 
to administer oaths to any person giving such testimony. 
‘‘(d) DEMONSTRATION OF USE IN THE MANUFAC-
TURING
OR
PRODUCTION
OF
NONBEVERAGE
PROD-
UCTS.—Except in the case of knowing and willful non-
compliance, application of this section shall not be denied 
in the case of failure to comply with any requirement im-
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posed under this section, or any rule or regulation issued 
pursuant to this section, upon the person manufacturing 
or producing the nonbeverage product demonstrating that 
distilled spirits for which taxes have not been paid trans-
ferred to an activated foreign trade zone were in fact used 
in the manufacture or production of nonbeverage prod-
ucts. 
‘‘(e) FORMULA AND MANUFACTURING INFRACTIONS 
FOR MANUFACTURERS
AND PRODUCERS
OF NONBEV-
ERAGE PRODUCTS IN FOREIGN TRADE ZONES.—In the 
case of failure to comply with any formula or manufac-
turing requirement imposed under this section or any rule 
or regulations issued pursuant to this section, the manu-
facturer or producer of nonbeverage products shall be lia-
ble for a penalty up to $1,000 for each failure to comply 
unless it is shown that the failure to comply was due to 
reasonable cause. No penalty imposed under this sub-
section shall exceed the amount of tax which would have 
been determined under this subchapter without regard to 
this section. The penalty imposed by this subsection shall 
be assessed, collected, and paid in the same manner as 
taxes under this subchapter, not later than 30 days after 
notification by the Secretary. Any excise tax determined 
to be owed through monthly reporting processes and pro-
cedures for submission and approval of formulas, on-site 
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inspection, or audit shall be paid by the manufacturer or 
producer of nonbeverage products not later than 30 days 
after notification by the Secretary. 
‘‘(f) DEFINITIONS.—For purposes of this section— 
‘‘(1) AUTHORIZED MANUFACTURERS AND PRO-
DUCERS.—The term ‘authorized manufacturers and 
producers’ means those manufacturers and pro-
ducers of nonbeverage products that are registered 
with the Secretary, agree to monthly reporting, and 
have received manufacturing or processing authority 
from the United States Foreign Trade Zones Board. 
‘‘(2) 
NONBEVERAGE
PRODUCT.—The 
term 
‘nonbeverage product’ means medicines, medicinal 
preparations, food products, flavors, flavoring ex-
tracts, or perfume, which are unfit for beverage pur-
poses.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) The table of sections for subpart E of part 
I of subchapter A of chapter 51 of the Internal Rev-
enue Code of 1986 is amended by inserting after the 
item relating to section 5062 the following new item: 
‘‘Sec. 5063. Exception for nonbeverage products manufactured in a United 
States foreign trade zone.’’. 
(2) Section 5005(e)(2) of such Code is amended 
by inserting ‘‘used as described in section 5063,’’ 
after ‘‘deposited in a foreign-trade zone,’’. 
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(3) Section 5214(a) of such Code is amended 
by striking the period at the end of paragraph (13) 
and inserting ‘‘; or’’, and by adding at the end the 
following new paragraph: 
‘‘(14) without payment of tax as authorized by 
section 5063.’’. 
(4) Section 5003 of such Code is amended by 
adding at the end the following new paragraph: 
‘‘(18) For provisions relating to an exception 
for nonbeverage products manufactured in a United 
States foreign trade zone.’’. 
(c) FOREIGN TRADE ZONES.—Section 3 of the Act 
of June 18, 1934 (commonly known as the Foreign Trade 
Zones Act; 19 U.S.C. 81c) is amended in subsection 
(c)(2)— 
(1) by inserting in the second sentence before 
the end period the following: ‘‘and such products, 
upon approval by the Secretary of the Treasury and 
the Foreign Trade Zones Board, shall be eligible for 
tax treatment pursuant to section 5063 of the Inter-
nal Revenue Code of 1986’’; 
(2) by striking ‘‘or flavoring extracts’’ and in-
serting ‘‘flavoring extracts, or perfumes’’; and 
(3) by adding at the end the following: ‘‘Dis-
tilled spirits for manufacturing or production of non-
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beverage products for which taxes have not been 
paid shall be admitted to the foreign trade zone in 
domestic status and reported to the Bureau of Cus-
toms and Border Protection in accordance with ad-
mission procedures, including direct delivery as ap-
plicable.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on the date of the enactment 
of this Act. 
Æ 
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