Quarterly Excise Tax Filing for Small Alcohol Excise Taxpayers (2005R-441P), 5598-5605 [06-981]

Agencies

• Alcohol and Tobacco Tax and Trade Bureau
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 71, Number 22 (Thursday, February 2, 2006)]
[Rules and Regulations]
[Pages 5598-5605]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-981]


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DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Parts 19, 24, 25, 26 and 70

[T.D. TTB-41]
RIN 1513-AB17


Quarterly Excise Tax Filing for Small Alcohol Excise Taxpayers 
(2005R-441P)

AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury.

ACTION: Temporary rule; Treasury decision.

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SUMMARY: This temporary rule implements the quarterly excise tax 
payment procedure for small alcohol excise taxpayers contained in 
section 11127 of the Safe, Accountable, Flexible, Efficient 
Transportation Equity Act: A Legacy for Users, which amended section 
5061 of the Internal Revenue Code of 1986. Before passage of this law, 
most Federal alcohol excise taxpayers paid the tax on a semimonthly 
basis. We are amending the applicable regulations on a temporary basis 
to incorporate the legislative change allowing quarterly payments. We 
also are soliciting comments from all interested parties on the 
implementation of this new procedure through a notice of proposed 
rulemaking published elsewhere in this issue of the Federal Register.

DATES: Effective Date: This temporary rule is effective on January 1, 
2006.

FOR FURTHER INFORMATION CONTACT: For questions concerning quarterly 
filing procedures, contact James S. McCoy, National Revenue Center, 
Alcohol and Tobacco Tax and Trade Bureau (513-684-2120); for other 
questions concerning this document, contact Marjorie Ruhf, Regulations 
and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau (202-
927-8202 or marjorie.ruhf@ttb.gov).

SUPPLEMENTARY INFORMATION:

Background

    This temporary rule implements the statutory change contained in 
section 11127 of the Safe, Accountable, Flexible, Efficient 
Transportation Equity Act: A Legacy for Users, Pub. L. 109-59, 119 
Stat. 1144 (``the Act''), signed by President Bush on August 10, 2005. 
Section 11127 of the Act amended section 5061(d) of the Internal 
Revenue Code of 1986 (IRC), 26 U.S.C. 5061(d), by redesignating 
paragraphs (4) and (5) as paragraphs (5) and (6), respectively, and by 
inserting a new paragraph (4) which allows certain Federal alcohol 
excise taxpayers to pay taxes quarterly, rather than on a semimonthly 
basis as provided in section 5061(d) before the amendment. This new 
provision applies to quarterly tax payment periods beginning on and 
after January 1, 2006.
    New paragraph (4) of section 5061(d) specifically references taxes 
imposed under subparts A, C, and D of part I of subchapter A of chapter 
51 of the IRC and section 7652 of the IRC. The taxes imposed under 
subparts A, C, and D involve gallonage taxes on distilled spirits (26 
U.S.C. 5001), wines (26 U.S.C. 5041), and beer (26 U.S.C. 5051). These 
taxes apply to spirits, wines, and beer produced in or imported into 
the United States. The Alcohol and Tobacco Tax and Trade Bureau (TTB) 
collects these taxes from proprietors of domestic bonded premises 
pursuant to regulations contained in 27 CFR parts 19, 24, and 25, and 
the Bureau of Customs and Border Protection (CBP) collects these taxes 
from importers of these products pursuant to regulations contained in 
title 19 of the CFR. Section 7652 (26 U.S.C. 7652) imposes a tax on 
spirits, wines, and beer coming to the United States from Puerto Rico 
and the U.S. Virgin Islands. TTB collects these taxes from regulated 
premises in Puerto Rico under regulations in 27 CFR part 26, and CBP 
collects these taxes pursuant to title 19 of the CFR when the products 
in question come to the United States from the U.S. Virgin Islands. Tax 
payments in connection with transactions that are subject to 
regulations administered by CBP are not dealt with in this document.
    The provisions of new paragraph (4) apply to ``any taxpayer who 
reasonably expects to be liable for not more than $50,000 in taxes * * 
* for the calendar year and who was liable for not more than $50,000 in 
such taxes in the preceding calendar year.'' In such a case the 
taxpayer must pay the tax no later than the 14th day after the last day 
of the calendar quarter during which the action giving rise to the tax 
(that is, withdrawal, removal, entry, and bringing in from Puerto Rico) 
occurs. The statute defines a ``calendar quarter'' as the three-month 
period ending on March 31, June 30, September 30, or December 31.
    New paragraph (4) also provides that the quarterly tax payment 
procedure does not apply to a taxpayer for any remaining portion of the 
calendar year following the date on which the aggregate amount of tax 
due from the taxpayer exceeds $50,000. If at any point during the year 
the taxpayer's liability exceeds $50,000, any tax that has not been 
paid on that date becomes due on the 14th day after the last day of the 
semimonthly period in which that date falls. Thus, in effect, a 
taxpayer whose taxpayments exceed the $50,000 limit during the calendar 
year is required to revert to the semimonthly payment procedure for the 
remainder of the year.

Basic Interpretative Considerations

    Based on a careful reading of the statutory language, TTB has 
applied the following considerations in drafting the implementing 
regulatory changes set forth in this document.

[[Page 5599]]

    1. We note that the longer deferral period allowed under new 
paragraph (4) will result in a larger unpaid tax liability, with a 
consequent impact on bonds as discussed below in this document. While 
we recognize that the intent of the statutory change is to ease the 
regulatory burden on small taxpayers, we also must acknowledge the need 
to protect the revenue by ensuring that unpaid taxes are covered by 
appropriate bond amounts. If a taxpayer otherwise eligible for the new 
quarterly payment procedure does not wish to adjust the penal sum of 
its bond, that taxpayer should be allowed to continue to make 
taxpayments and file returns on a semimonthly basis.
    Accordingly, we have decided to treat the quarterly payment 
procedure as optional rather than mandatory in the implementing 
regulations in order to provide flexibility to those taxpayers. Looking 
at section 5061 as a whole, and noting the placement of the semimonthly 
payment procedure in paragraph (d)(1) as a provision of general 
applicability, we believe this interpretation is permissible because it 
makes the semimonthly procedure available to any taxpayer eligible for 
deferred payment of taxes, even if the taxpayer is also eligible for 
the quarterly payment procedure. The Conference Report of the Committee 
of Conference on H.R. 3, Report 109-203 at page 1133, describes the 
statutory change as follows: ``[D]omestic producers and importers of 
distilled spirits, wine, and beer with excise tax liability of $50,000 
or less attributable to such articles in the preceding calendar year 
may file returns and pay taxes within 14 days after the end of the 
calendar quarter instead of semi-monthly.'' The use of the word ``may'' 
indicates Congress viewed the continued use of the semimonthly 
procedure as an option.
    2. Based on the wording of new paragraph (4) and of redesignated 
paragraph (5) of section 5061(d), we believe that the ``special rule 
for taxes due in September'' properly applies only to semimonthly 
return periods and therefore does not apply to quarterly payments under 
new paragraph (4). Therefore we have changed the regulations referring 
to this payment to restrict its application to taxpayers who file 
semimonthly returns.
    3. New paragraph (4) extends the quarterly payment option to a 
taxpayer who reasonably expects to be liable for not more than $50,000 
in alcohol excise taxes during the calendar year and who was liable for 
not more than $50,000 in the preceding calendar year. We understand 
``taxpayer'' to mean an entity (including an individual, partnership or 
corporation) with a single taxpayer identification number. A single 
taxpayer may have multiple locations; if so, the combined liability of 
all locations and the same taxable commodity must be considered in 
determining eligibility for quarterly payments.
    4. Since the taxes imposed by 26 U.S.C. 5001, 5041 and 5051 apply 
to commodities produced in or imported into the United States, a 
taxpayer who has both domestic operations and import transactions must 
combine the tax liability on the domestic operations and the imports to 
determine eligibility for the quarterly procedure.
    5. New paragraph (4) makes no mention of controlled groups. 
Accordingly, we believe it is appropriate to take into account only the 
taxpayer's own liability in determining eligibility for quarterly 
payments, even if the taxpayer is considered to be a member of a 
controlled group for other purposes under the IRC. We also note that 
there may be some individual taxpayers who are eligible for the 
quarterly payment procedure but who are required to pay taxes by 
electronic fund transfer (EFT) because they are part of a controlled 
group that owes more than $5 million in distilled spirits, wine, or 
beer excise taxes per year. See 26 U.S.C. 5061(e). These individual 
taxpayers must transmit the quarterly payments via EFT.
    6. With regard to the requirement that a taxpayer ``reasonably 
expect'' to be liable for not more than $50,000 in a tax year, we 
believe it is appropriate to define ``reasonably expect'' in the 
implementing regulations to mean both that the taxpayer was not liable 
for more than $50,000 in taxes the previous year and that there are no 
other existing or anticipated circumstances (such as an increase in 
production capacity) that would cause the taxpayer's liability to 
increase beyond that limit.
    7. If a taxpayer exceeds $50,000 in tax liability during a taxable 
year and therefore must revert to the semimonthly payment procedure, 
that taxpayer may resume quarterly payments only after a full calendar 
year has passed in which the taxpayer's liability did not exceed 
$50,000. New taxpayers will be eligible to file quarterly returns in 
their first year of business simply if they reasonably expect to owe 
less than $50,000 in taxes during that calendar year.

Effect on Bond Amounts

    The bond regulations that apply to domestic producers of distilled 
spirits and wine at 27 CFR 19.245 and 24.148, and the regulations 
covering deferral bonds for proprietors bringing distilled spirits, 
wine, and beer to the United States from Puerto Rico at 27 CFR 26.66 
(for distilled spirits), 26.67 (for wine) and 26.68 (for beer), require 
proprietors to calculate the penal sum of their deferral bonds to cover 
the unpaid tax that is chargeable against the bond at any one time. We 
do not believe that new paragraph (4) requires any changes to these 
regulatory provisions, the terms of which will clearly apply to 
taxpayers who use the quarterly payment procedure. We note, however, 
that it would be prudent for a taxpayer who uses the quarterly payment 
procedure to review the current deferral bond coverage, which in all 
likelihood is based on anticipated semimonthly taxes plus a 14-day 
deferral period. Such taxpayers may need to increase the deferral 
coverage for anticipated quarterly taxes because of the longer three-
month plus 14-day deferral period.
    We note that the penal sum amount set by regulation at 27 CFR 25.93 
for a brewer's bond is 10 percent of the maximum amount of annual tax 
liability, with a minimum amount of $1,000. This 10 percent/minimum 
amount provides adequate bond coverage for small brewers who incur less 
than $50,000 of annual taxable liability each year and who file on a 
semimonthly basis. However, we also note that the average maximum tax 
liability per return period for small brewers who pay quarterly will be 
approximately 29 percent of their annual liability. Our calculation 
indicates that the average maximum liability for a quarter of the year 
plus the additional liability incurred during the 14 day period 
provided for payment, equals between 2.5 and 3.0 times the amount of 
the bond coverage presently required. Thus we conclude that required 
bond coverage under Sec.  25.93 is inadequate for small brewers who pay 
taxes quarterly. As a result, we are increasing the required bond 
coverage for small brewers who pay excise taxes quarterly to 29 percent 
of the maximum amount of annual tax liability. Further, such increased 
bonding liability will apply only to small brewers who pay excise taxes 
quarterly and not to other small brewers who continue to pay 
semimonthly.

Effect on Reporting Requirements

    In general, proprietors of distilled spirits plants, bonded wine 
cellars, and breweries must file monthly reports of operations. Since 
proprietors who are small taxpayers may be filing quarterly tax 
returns, we considered whether

[[Page 5600]]

these proprietors should file quarterly reports of operations as well.
    The beer regulations at 27 CFR 25.297(b) already allow brewers to 
file quarterly reports if they produce less than 10,000 barrels of beer 
during a calendar year. This level of activity represents a tax 
liability of $70,000 per year at the reduced rate of tax for small 
brewers, so brewers eligible to file quarterly returns under new 
paragraph (4) of section 5061(d) are already eligible to file quarterly 
reports under the existing rule. Therefore, we have not made any 
changes to the regulations regarding the brewers' report of operations.
    The wine regulations at 27 CFR 24.300(g)(2) already allow small 
proprietors to file an annual, rather than a monthly, report of 
operations if they are eligible to pay taxes on an annual basis and 
their total wine to be accounted for in a calendar month does not 
exceed 20,000 gallons. We believe it is appropriate to allow wine 
premises proprietors to file quarterly reports of operations if they 
are eligible to make quarterly tax payments. Accordingly, we have 
revised paragraph (g) of Sec.  24.300 to give quarterly taxpayers the 
option of filing quarterly reports of operations. However, in this 
revised text we have set a maximum activity level of 60,000 gallons of 
wine to be accounted for in a calendar quarter in order to ensure that 
proprietors with very large production or storage capacity who pay 
little or no tax will continue to file monthly reports of operations. 
We are also making a corresponding conforming change to 27 CFR 24.313, 
Inventory records.
    For distilled spirits plant proprietors, there are four operational 
report forms, and there is no provision in the TTB regulations 
specifying a reporting interval less frequent than monthly. We do not 
believe this document is the appropriate vehicle for making a change in 
the timing for reports of operations. Because of the short time 
available before this temporary rule takes effect, we will defer 
consideration of adoption of a quarterly report of operations for 
distilled spirits plant proprietors.

Other Considerations

    The TTB regulations include provisions that allow TTB to require 
prepayment of taxes or to make a jeopardy assessment of taxes if we 
believe such action is necessary to protect the revenue. We have 
reviewed those prepayment and jeopardy assessment provisions and have 
determined that no changes to them are needed in order for them to 
apply to taxpayers who pay on a quarterly basis.
    We also considered whether to require the filing of a notice of 
intent by a taxpayer who chooses to make quarterly tax payments before 
the taxpayer begins the procedure. Since we can determine from records 
we already have that a taxpayer appears to be eligible for the 
quarterly payment procedure (in particular, that the taxpayer's 
liability for the previous calendar year did not exceed $50,000), and 
because advance notice would serve no other useful purpose, we have 
decided not to require advance notice.

Discussion of Regulatory Amendments

    In addition to the regulatory changes discussed above, we are 
including definitions of ``reasonably expects'' and ``taxpayer'' in the 
amended provisions of parts 19, 24, 25, and 26. We are also adding a 
definition of ``calendar quarter and quarterly'' to the definitions 
section of parts 19, 24, and 26. The following additional points are 
noted regarding the regulatory amendments contained in this document:

Part 19

    We are revising Sec.  19.565 and amending Sec. Sec.  19.522, 
19.523, and 19.703 in part to accommodate the quarterly return 
procedure. In addition to the removal of the word ``semimonthly'' from 
the existing text, the revision of Sec.  19.565 includes a 
reorganization of the text for editorial purposes.

Part 24

    We are amending Sec.  24.271, which prescribes the return periods 
available for proprietors who have deferral bonds, to accommodate the 
quarterly procedure.
    Since 1990, part 24 has included Sec.  24.273, which allows certain 
wine premises proprietors to file annual tax returns and pay taxes 
annually. Because the wine bond's coverage is split between operations 
coverage and deferral coverage, we were not limited by the existing 
language of section 5061, which specified semimonthly return periods 
for removals under a bond for deferred payment of taxes. Thus, we were 
able administratively to allow an annual return period for small 
proprietors who had no bond for deferred payment of taxes and who owed 
less than $1,000 per calendar year in taxes. New paragraph (4) of 
section 5061(d) does not affect the right of eligible proprietors to 
continue to pay taxes on an annual basis under this regulation. 
However, we are revising Sec.  24.273 to show that it is an exception 
to both semimonthly and quarterly return filing, and we are 
reorganizing the section for clarity.

Part 25

    We are amending Sec.  25.93 to change the bond penal sum for 
quarterly taxpayers, as discussed above. We are also amending 
Sec. Sec.  25.164 and 25.164a, which cover tax return filing rules for 
brewers, to reflect the adoption of the quarterly return procedure. 
Finally, we are amending Sec.  25.166 by replacing the reference to 
``semimonthly'' returns.

Part 26

    We are amending Sec.  26.112, which concerns returns for taxes 
imposed under section 7652, to incorporate the quarterly taxpayment 
procedure.

Part 70

    We are amending paragraph (a) of Sec.  70.412, which summarizes 
alcohol tax return filing procedural rules, to include a reference to 
quarterly returns.

Temporary Rule

    Based on the January 1, 2006, effective date of the statutory 
change to section 11127, TTB believes that proper administration and 
enforcement of those requirements necessitates the immediate adoption 
of implementing regulations as a temporary rule pursuant to 5 U.S.C. 
553(b)(A) and (B), and 5 U.S.C. 553(d)(1), (2), and (3). TTB believes 
that such implementing action ensures that affected industry members 
will have timely knowledge of the regulatory requirements that will 
enable them to obtain the benefits of the statutory change.

Public Participation

    To submit comments on these regulations, please refer to the notice 
of proposed rulemaking on this subject published in the Proposed Rules 
section of this issue of the Federal Register.

Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for temporary 
rules, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 
et seq.) do not apply. Pursuant to section 7805(f) of the Internal 
Revenue Code, we will submit this temporary rule to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on the 
impact of the temporary regulations.

Executive Order 12866

    It has been determined that this temporary rule is not a 
significant regulatory action as defined in E.O. 12866. Therefore, a 
regulatory assessment is not necessary.

[[Page 5601]]

Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995, no persons are required 
to respond to a collection of information unless it displays a valid 
Office of Management and Budget (OMB) control number. The collections 
of information contained in the regulations amended by this temporary 
rule have been previously reviewed and approved by OMB in accordance 
with the Paperwork Reduction Act of 1995 under control numbers 1513-
0053, 1513-0083, and 1513-0090. There is no new collection of 
information imposed by this Treasury decision. There is a decrease in 
the reporting or recordkeeping burden resulting from the change from 
semimonthly to quarterly tax return periods for certain small 
taxpayers.

Inapplicability of Prior Notice and Comment and Delayed Effective Date 
Procedures

    It has been determined that prior notice and comment procedures are 
not required pursuant to 5 U.S.C. 553(b)(A), and a delayed effective 
date is not required pursuant to 5 U.S.C. 553(d)(2).

Drafting Information

    Charles N. Bacon, Daniel J. Hiland, Ramona Hupp, and Marjorie D. 
Ruhf of the Regulations and Rulings Division, Alcohol and Tobacco Tax 
and Trade Bureau, drafted this document.

List of Subjects

27 CFR Part 19

    Administrative practice and procedure, Alcohol and alcoholic 
beverages, Authority delegations (Government agencies), Caribbean Basin 
Initiative, Chemicals, Claims, Customs duties and inspection, 
Electronic funds 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 24

    Administrative practice and procedure, Claims, Electronic fund 
transfers, Excise taxes, Exports, Food additives, Fruit juices, 
Labeling, Liquors, Packaging and containers, Reporting and 
recordkeeping requirements, Research, Scientific equipment, Spices and 
flavoring, Surety bonds, Vinegar, Warehouses, Wine.

27 CFR Part 25

    Administrative practice and procedure, Beer, Claims, Electronic 
funds transfers, Excise taxes, Exports, Labeling, Packaging and 
containers, Reporting and recordkeeping requirements, Research, Surety 
bonds.

27 CFR Part 26

    Administrative practice and procedure, Alcohol and alcoholic 
beverages, Caribbean Basin Initiative, Claims, Customs duties and 
inspection, Electronic funds transfers, Excise taxes, Packaging and 
containers, Puerto Rico, Reporting and recordkeeping requirements, 
Surety bonds, Virgin Islands, Warehouses.

27 CFR Part 70

    Administrative practice and procedure, Claims, Excise taxes, 
Freedom of information, Law enforcement, Penalties, Reporting and 
recordkeeping requirements, Surety bonds.

Amendments to the Regulations

    For the reasons discussed in the preamble, TTB amends 27 CFR parts 
19, 24, 25, 26 and 70 as follows:

PART 19--DISTILLED SPIRITS PLANTS

0
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, 5148, 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.


0
2. Section 19.11 is amended by adding in appropriate alphabetical order 
a definition of ``calendar quarter and quarterly'' to read as follows:


Sec.  19.11  Meaning of terms.

* * * * *
    Calendar quarter and quarterly. These terms refer to the three-
month period ending on March 31, June 30, September 30, or December 31.
* * * * *

0
3. Section 19.522 is amending by revising paragraph (a) to read as 
follows:


Sec.  19.522  Taxes to be collected by returns.

    (a)(1) Deferred payment of taxes. The tax on spirits to be 
withdrawn from bond for deferred payment of tax shall be paid pursuant 
to a return on Form 5000.24, Excise Tax Return. The return, Form 
5000.24, shall be executed and filed for each return period 
notwithstanding that no tax is due for payment for such period. The 
proprietor of each bonded premises shall include, for payment, on his 
return on Form 5000.24, the full amount of distilled spirits tax 
determined in respect of all spirits released for withdrawal from the 
bonded premises on determination of tax during the period covered by 
the return (except spirits on which tax has been prepaid).
    (2) Return periods--(i) Definitions. For purposes of this section, 
the following terms have the meanings indicated:
    Reasonably expects. When used with reference to a taxpayer, 
reasonably expects means the taxpayer was not liable for more than 
$50,000 in taxes the previous year and there is no other existing or 
anticipated circumstance known to the taxpayer (such as an increase in 
production capacity) that would cause the taxpayer's liability to 
increase beyond that limit.
    Taxpayer. A taxpayer is a person who is liable for excise tax 
imposed with respect to distilled spirits by 26 U.S.C. 5001 and 7652 
under the same Employer Identification Number as defined in 26 CFR 
301.7701-12.
    (ii) Semimonthly return period. Except in the case of a taxpayer 
who qualifies for, and chooses to use, quarterly return periods as 
provided in paragraph (b)(3) of this section, all taxpayers must use 
semimonthly return periods for deferred payment of tax. The semimonthly 
return periods shall run from the 1st day through the 15th day of each 
month, and from the 16th day through the last day of each month, except 
as otherwise provided in Sec.  19.523(c).
    (iii) Quarterly return period. Effective January 1, 2006, a 
taxpayer who reasonably expects to be liable for not more than $50,000 
in taxes with respect to distilled spirits imposed by 26 U.S.C. 5001 
and 7652 for the current calendar year, and who was liable for not more 
than $50,000 in such taxes in the preceding calendar year, may choose 
to use a quarterly return period. In such a case the last day for 
payment of tax and filing of the return will be the 14th day after the 
last day of the calendar quarter. However, the taxpayer may not use the 
quarterly return period procedure for any portion of the calendar year 
following the first date on which the aggregate amount of tax due from 
the taxpayer during the calendar year exceeds $50,000, and any tax 
which has not been paid on that date will be due on the 14th day after 
the last day of the semimonthly period in which that date occurs.
* * * * *

[[Page 5602]]


0
4. In Sec.  19.523, the first sentence of paragraph (a) is amended by 
removing the word ``Where'' and adding, in its place, the words 
``Except when payment is pursuant to a quarterly return as provided in 
paragraph (d) of this section, where'' and a new paragraph (d) is added 
to read as follows:


Sec.  19.523  Time for filing returns.

* * * * *
    (d) Payment pursuant to quarterly return. Where the proprietor of 
bonded premises has withdrawn spirits from such premises on 
determination and before payment of tax, and the proprietor uses 
quarterly return periods as provided in Sec.  19.522(b)(3), the 
proprietor shall file a quarterly tax return covering such spirits on 
Form 5000.24, and remittance, as required by Sec.  19.525, not later 
than the 14th day after the last day of the quarterly return period. If 
the due date falls on a Saturday, Sunday, or legal holiday, the return 
and remittance shall be due on the immediately preceding day which is 
not a Saturday, Sunday, or legal holiday.

0
5. Section 19.565 is revised to read as follows:


Sec.  19.565  Shortages of bottled distilled spirits.

    (a) Determination of shortage. Unexplained shortages shall be 
determined by comparing the spirits recorded to be on hand with the 
results of the quantitative determination of the spirits found to be on 
hand by actual count during the physical inventory required by Sec.  
19.402. When the recorded quantity is greater than the quantity 
determined by the physical inventory, the difference is an unexplained 
shortage. The records shall be adjusted to reflect the physical 
inventory.
    (b) Payment of tax on shortage. An unexplained shortage of bottled 
distilled spirits shall be taxpaid:
    (1) Immediately on a prepayment return on Form 5000.24, or
    (2) On the return on Form 5000.24 for the return period during 
which the shortage was ascertained.

(Sec. 201, Pub. L. 85-859, 72 Stat. 1323, as amended (26 U.S.C. 
5008))

0
6. In Sec.  19.703, paragraph (a) is amended by removing the words 
``semimonthly tax return'' and adding, in their place, the words ``next 
deferred payment of tax''.

PART 24--WINE

0
7. The authority citation for part 24 continues to read as follows:

    Authority: 5 U.S.C. 552(a); 26 U.S.C. 5001, 5008, 5041, 5042, 
5044, 5061, 5062, 5081, 5111-5113, 5121, 5122, 5142, 5143, 5148, 
5173, 5206, 5214, 5215, 5351, 5353, 5354, 5356, 5357, 5361, 5362, 
5364-5373, 5381-5388, 5391, 5392, 5511, 5551, 5552, 5661, 5662, 
5684, 6065, 6091, 6109, 6301, 6302, 6311, 6651, 6676, 7011, 7302, 
7342, 7502, 7503, 7606, 7805, 7851; 31 U.S.C. 9301, 9303, 9304, 
9306.


0
8. Section 24.10 is amended by adding in appropriate alphabetical order 
a definition of ``calendar quarter and quarterly'' to read as follows:


Sec.  24.10  Meaning of terms.

* * * * *
    Calendar quarter and quarterly. These terms refer to the three-
month period ending on March 31, June 30, September 30, or December 31.
* * * * *

0
9. Section 24.271 is amended by revising the section heading and 
paragraphs (a) and (b) and the heading of paragraph (c), and by adding 
headings to paragraphs (c)(1) and (c)(1)(i), to read as follows:


Sec.  24.271  Payment of tax by return with remittance.

    (a) General. The tax on wine is paid by an Excise Tax Return, Form 
5000.24, which is filed with remittance (check, cash, or money order) 
for the full amount of tax due. Prepayments of tax on wine during the 
period covered by the return are shown separately on the Excise Tax 
Return form. If no tax is due for the return period, the filing of a 
return is not required.
    (b) Return periods and due dates. (1) Return periods. (i) 
Definitions. For purposes of this section, the following terms have the 
meanings indicated:
    Reasonably expects. When used with reference to a taxpayer, 
reasonably expects means the taxpayer was not liable for more than 
$50,000 in taxes the previous year and there is no other existing or 
anticipated circumstance known to the taxpayer (such as an increase in 
production capacity) that would cause the taxpayer's liability to 
increase beyond that limit.
    Taxpayer. A taxpayer is a person who is liable for excise tax 
imposed with respect to wine by 26 U.S.C. 5041 and 7652 under the same 
Employer Identification Number as defined in 26 CFR 301.7701-12.
    (ii) Semimonthly return period. Except in the case of a taxpayer 
who qualifies for, and chooses to use, the annual return period as 
provided in Sec.  24.273 or the quarterly return period as provided in 
paragraph (b)(1)(iii) of this section, all taxpayers who have filed a 
bond for deferred payment of taxes must use semimonthly return periods. 
The semimonthly return periods shall run from the 1st day through the 
15th day of each month, and from the 16th day through the last day of 
each month, except as otherwise provided in paragraph (c) of this 
section.
    (iii) Quarterly return period. Effective January 1, 2006, a 
taxpayer who has filed a bond for deferred payment of taxes, who 
reasonably expects to be liable for not more than $50,000 in taxes with 
respect to wine imposed by 26 U.S.C. 5041 and 7652 for the current 
calendar year, and who was liable for not more than $50,000 in such 
taxes in the preceding calendar year, may choose to use a quarterly 
return period. In such a case the last day for payment of tax and 
filing the return will be the 14th day after the last day of the 
calendar quarter. However, the taxpayer may not use the quarterly 
return period procedure for any portion of the calendar year following 
the first date on which the aggregate amount of tax due from the 
taxpayer during the calendar year exceeds $50,000, and any tax which 
has not been paid on that date will be due on the 14th day after the 
last day of the semimonthly period in which that date occurs.
    (2) Semimonthly and quarterly tax return due dates. The taxpayer 
shall file the semimonthly or quarterly return, with remittance, for 
each return period not later than the 14th day after the last day of 
the return period. If the due date falls on a Saturday, Sunday, or 
legal holiday, the return and remittance shall be due on the 
immediately preceding day which is not a Saturday, Sunday, or legal 
holiday, except as otherwise provided in paragraph (c)(3) of this 
section.
    (c) Special September rule for taxes due by semimonthly return. (1) 
Division of second semimonthly period. (i) General. * * *
* * * * *

0
10. Section 24.273 is revised to read as follows:


Sec.  24.273  Exception to filing semimonthly or quarterly tax returns.

    (a) Eligibility for annual filing. A proprietor may file the Excise 
Tax Return, Form 5000.24, and remittance, within 30 days after the end 
of the calendar year instead of semimonthly or quarterly as provided in 
Sec.  24.271, if the proprietor has not given a bond for deferred 
payment of wine excise tax and if the proprietor:
    (1) Paid wine excise taxes in an amount less than $1,000 during the 
previous calendar year, or
    (2) Is the proprietor of a newly established bonded wine premises 
and expects to pay less than $1,000 in wine

[[Page 5603]]

excise taxes before the end of the calendar year.
    (b) Loss of eligibility for annual filing. (1) If before the close 
of the current calendar year the wine excise tax owed will exceed the 
amount of the coverage under the proprietor's operations bond for wine 
removed from bonded wine premises on which tax has been determined but 
not paid, the proprietor will file an Excise Tax Return with the total 
remittance on the date the wine excise tax owed will exceed such amount 
and file an aggregate Excise Tax Return within 30 days after the close 
of the calendar year showing the total wine tax liability for such 
calendar year. If before the close of the current calendar year the 
wine excise tax liability (including any amounts paid or owed) equals 
$1,000 or more, the proprietor will commence semimonthly or quarterly 
filing of the wine Excise Tax Returns and making of payments as 
required by Sec.  24.271.
    (2) If there is a jeopardy to the revenue, the appropriate TTB 
officer may deny the exceptions to filing tax returns provided in this 
section at any time.
    (c) Other rules apply. A proprietor who files under this section is 
subject to the failure to pay or file provisions of Sec.  24.274.

0
11. Section 24.300 is amended by revising paragraph (g) to read as 
follows:


Sec.  24.300  General.

* * * * *
    (g) F 5120.17, Report of Bonded Wine Premises Operations. A 
proprietor who conducts bonded wine premises operations must complete 
and submit a F 5120.17 in accordance with the instructions on the form.
    (1) Monthly report. The proprietor must submit F 5120.17 on a 
monthly basis, except as otherwise provided in paragraph (g)(2) or 
(g)(3) of this section.
    (2) Quarterly or annual report. (i) General. A proprietor may file 
a completed F 5120.17 on a quarterly or annual basis if the proprietor 
meets the criteria in paragraph (g)(2)(ii) or (g)(2)(iii) of this 
section. To begin the quarterly or annual filing of a report of bonded 
wine premises operations, a proprietor must state the intent to do so 
in the ``Remarks'' section when filing the prior month's F 5120.17. A 
proprietor who is commencing operations during a calendar year and 
expects to meet these criteria may use a letter notice to the 
appropriate TTB officer and file F 5120.17 quarterly or annually for 
the remaining portion of the calendar year. If a proprietor becomes 
ineligible for quarterly or annual filing by exceeding the applicable 
tax liability or activity limit, the proprietor must file F 5120.17 for 
that month and for all subsequent months of the calendar year. If there 
is a jeopardy to the revenue, the appropriate TTB officer may at any 
time require any proprietor otherwise eligible for quarterly or annual 
filing of a report of bonded wine premises operations to file such 
report monthly.
    (ii) Eligibility for quarterly report filing. In order to be 
eligible to file F 5120.17 on a quarterly basis, the proprietor must be 
filing quarterly tax returns under Sec.  24.271, and the proprietor 
must not expect the sum of the bulk and bottled wine to be accounted 
for in all tax classes to exceed 60,000 gallons for any one quarter 
during the calendar year when adding up the bulk and bottled wine on 
hand at the beginning of the month, bulk wine produced by fermentation, 
sweetening, blending, amelioration or addition of wine spirits, bulk 
wine bottled, bulk and bottled wine received in bond, taxpaid wine 
returned to bond, bottled wine dumped to bulk, inventory gains, and any 
activity written in the untitled lines of the report form which 
increases the amount of wine to be accounted for.
    (iii) Eligibility for annual report filing. In order to be eligible 
to file F 5120.17 on an annual basis, the proprietor must be filing 
annual tax returns under Sec.  24.273, and the proprietor must not 
expect the sum of the bulk and bottled wine to be accounted for in all 
tax classes to exceed 20,000 gallons for any one month during the 
calendar year when adding up the bulk and bottled wine on hand at the 
beginning of the month, bulk wine produced by fermentation, sweetening, 
blending, amelioration or addition of wine spirits, bulk wine bottled, 
bulk and bottled wine received in bond, taxpaid wine returned to bond, 
bottled wine dumped to bulk, inventory gains, and any activity written 
in the untitled lines of the report form which increases the amount of 
wine to be accounted for.
    (3) No reportable activity. A proprietor who files a monthly F 
5120.17 and does not expect an inventory change or any reportable 
operations to be conducted in a subsequent month or months may attach 
to the filed F 5120.17 a statement that, until a change in the 
inventory or a reportable operation occurs, a F 5120.17 will not be 
filed.


Sec.  24.313  [Amended]

0
12. Section 24.313 is amended by removing the words ``monthly reports'' 
in the first sentence and adding, in their place, the words ``monthly 
or quarterly reports'' and by adding a new sentence following the 
second sentence, to read as follows: ``However, proprietors who file 
quarterly reports must select an annual inventory period that begins on 
the first day of a calendar quarter.''

PART 25--BEER

0
13. The authority citation for part 25 continues to read as follows:

    Authority: 19 U.S.C. 81c; 26 U.S.C. 5002, 5051-5054, 5056, 5061, 
5091, 5111, 5113, 5142, 5143, 5146, 5148, 5222, 5401-5403, 5411-
5417, 5551, 5552, 5555, 5556, 5671, 5673, 5684, 6011, 6061, 6065, 
6091, 6109, 6151, 6301, 6302, 6311, 6313, 6402, 6651, 6656, 6676, 
6806, 7011, 7342, 7606, 7805; 31 U.S.C. 9301, 9303-9308.


0
14. Section 25.93 is amended by revising paragraph (a) to read as 
follows:


Sec.  25.93  Penal sum of bond.

    (a)(1) Brewers filing semimonthly tax returns. For brewers filing 
tax returns and remitting taxes semimonthly under Sec.  25.164(c)(2), 
the penal sum of the brewers bond must be equal to 10 percent of the 
maximum amount of tax calculated at the rates prescribed by law which 
the brewer will become liable to pay during a calendar year during the 
period of the bond on beer:
    (i) Removed for transfer to the brewery from other breweries owned 
by the same brewer;
    (ii) Removed without payment of tax for export or for use as 
supplies on vessels and aircraft;
    (iii) Removed without payment of tax for use in research, 
development, or testing; and
    (iv) Removed for consumption or sale.
    (2) Brewers filing quarterly tax returns. For brewers filing tax 
returns and remitting taxes quarterly under Sec.  25.164(c)(3), the 
penal sum of the brewers bond must be equal to 29 percent of the 
maximum amount of tax calculated at the rates prescribed by law which 
the brewer will become liable to pay during a calendar year during the 
period of the bond on beer:
    (i) Removed for transfer to the brewery from other breweries owned 
by the same brewer;
    (ii) Removed without payment of tax for export or for use as 
supplies on vessels and aircraft;
    (iii) Removed without payment of tax for use in research, 
development, or testing; and
    (iv) Removed for consumption or sale.
* * * * *

0
15. In Sec.  25.164:
0
a. The section heading is revised;
0
b. The first and second sentences of paragraph (a) are amended by 
removing the word ``semimonthly'';

[[Page 5604]]

0
c. Paragraphs (c) and (d) are revised;
0
d. The first sentence of paragraph (e)(1) is amended by adding the 
words ``or quarterly'' after ``semimonthly''; and
0
e. Paragraph (e)(2) is amended by adding the words ``or quarterly'' 
after ``semimonthly'' wherever it appears.
    The revisions read as follows:


Sec.  25.164  Quarterly and semimonthly returns.

* * * * *
    (c) Return periods.
    (1) Definitions. For purposes of this section, the following terms 
have the meanings indicated:
    Reasonably expects. When used with reference to a taxpayer, 
reasonably expects means the taxpayer was not liable for more than 
$50,000 in taxes the previous year and there is no other existing or 
anticipated circumstance known to the taxpayer (such as an increase in 
production capacity) that would cause the taxpayer's liability to 
increase beyond that limit.
    Taxpayer. A taxpayer is a person who is liable for excise tax 
imposed with respect to beer by 26 U.S.C. 5051 and 7652 under the same 
Employer Identification Number as defined in 26 CFR 301.7701-12.
    (2) Semimonthly return period. Except in the case of a taxpayer who 
qualifies for, and chooses to use, quarterly return periods as provided 
in paragraph (c)(3) of this section, all taxpayers must use semimonthly 
return periods for deferred payment of tax. The semimonthly return 
periods shall run from the brewer's business day beginning on the first 
day of each month through the brewer's business day beginning on the 
15th day of that month, and from the brewer's business day beginning on 
the 16th day of the month through the brewer's business day beginning 
on the last day of the month, except as otherwise provided in Sec.  
25.164a.
    (3) Quarterly return period. Effective January 1, 2006, a taxpayer 
who reasonably expects to be liable for not more than $50,000 in taxes 
with respect to beer imposed by 26 U.S.C. 5051 and 7652 for the current 
calendar year, and who was liable for not more than $50,000 in such 
taxes in the preceding calendar year, may choose to use a quarterly 
return period. In such a case the last day for payment of tax and 
filing of the return will be the 14th day after the last day of the 
calendar quarter. However, the taxpayer may not use the quarterly 
return period procedure for any portion of the calendar year following 
the first date on which the aggregate amount of tax due from the 
taxpayer during the calendar year exceeds $50,000, and any tax which 
has not been paid on that date will be due on the 14th day after the 
last day of the semimonthly period in which that date occurs.
    (d) Time for filing returns and paying tax. Except as otherwise 
provided in Sec.  25.164a for semimonthly tax returns, the brewer shall 
file the tax return, Form 5000.24, for each return period, and make 
remittance as required by this section, not later than the 14th day 
after the last day of the return period. If the due date falls on a 
Saturday, Sunday, or legal holiday, the return and remittance shall be 
due on the immediately preceding day which is not a Saturday, Sunday, 
or legal holiday, except as otherwise provided in Sec.  25.164a(c).
* * * * *

0
16. Section 25.164a is amended by revising the section heading and 
paragraph (a)(1) to read as follows:


Sec.  25.164a  Special September rule for taxes due by semimonthly 
return.

    (a) Division of second semimonthly period. (1) General. Except as 
otherwise provided in paragraph (a)(2) of this section, the second 
semimonthly period for the month of September shall be divided into two 
payment periods, from the 16th day through the 26th day, and from the 
27th day through the 30th day. The brewer shall file a return, Form 
5000.24, and make remittance, for the period September 16-26, no later 
than September 29. The brewer shall file a return on Form 5000.24, and 
make remittance, for the period September 27-30, no later than October 
14.
* * * * *

0
17. In Sec.  25.166, the first sentence of paragraph (a) is amended by 
removing the words ``semimonthly return'' and adding, in their place, 
the words ``return for deferred payment of tax''.

PART 26--LIQUORS AND ARTICLES FROM PUERTO RICO AND THE VIRGIN 
ISLANDS

0
18. The authority citation for part 26 continues to read as follows:

    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, 5148, 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.


0
19. Section 26.11 is amended by adding in appropriate alphabetical 
order a definition of ``calendar quarter and quarterly'' to read as 
follows:


Sec.  26.11  Meaning of terms.

* * * * *
    Calendar quarter and quarterly. These terms refer to the three-
month period ending on March 31, June 30, September 30, or December 31.
* * * * *

0
20. Section 26.112 is amended by revising the section heading and 
paragraph (b) and the heading of paragraph (d), and by adding a heading 
to paragraph (d)(1) to read as follows:


Sec.  26.112  Returns for deferred payment of tax.

* * * * *
    (b) Return periods. (1) Definitions. For purposes of this section, 
the following terms have the meanings indicated:
    Reasonably expects. When used with reference to a taxpayer, 
reasonably expects means the taxpayer was not liable for more than 
$50,000 in taxes the previous year and there is no other existing or 
anticipated circumstance known to the taxpayer (such as an increase in 
production capacity) that would cause the taxpayer's liability to 
increase beyond that limit.
    Taxpayer. A taxpayer is a person who is liable for excise tax under 
26 U.S.C. 7652 under the same Employer Identification Number as defined 
in 26 CFR 301.7701-12.
    (2) Semimonthly return period. Except in the case of a taxpayer who 
qualifies for, and chooses to use, quarterly return periods as provided 
in paragraph (b)(3) of this section, all taxpayers must use semimonthly 
return periods for deferred payment of tax. The semimonthly return 
periods shall run from the 1st day through the 15th day of each month, 
and from the 16th day through the last day of each month, except as 
otherwise provided in paragraph (e) of this section.
    (3) Quarterly return period. Effective January 1, 2006, a taxpayer 
who reasonably expects to be liable for not more than $50,000 in taxes 
imposed by 26 U.S.C. 7652 for the current calendar year, and who was 
liable for not more than $50,000 in such taxes in the preceding 
calendar year, may choose to use a quarterly return period. In such a 
case the last day for payment of tax and filing the return will be the 
14th day after the last day of the calendar quarter. However, the 
taxpayer may not use the quarterly return period procedure for any 
portion of the calendar year following the first date on which the 
aggregate amount of tax due from the taxpayer during the calendar year 
exceeds $50,000, and any tax which has not been paid on that date will 
be due on the 14th day after the last day of semimonthly period in 
which that date occurs.
* * * * *

[[Page 5605]]

    (d) Special September rule for taxes due by semimonthly return. (1) 
General. * * *
* * * * *

PART 70--PROCEDURE AND ADMINISTRATION

0
21. The authority citation for part 70 continues 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.


0
22. In Sec.  70.412, the second sentence of paragraph (a) is revised to 
read as follows:


Sec.  70.412  Excise taxes.

    (a) Collection. * * * If the person responsible for paying the 
taxes has filed a proper bond to defer payment, such person may be 
eligible to file semimonthly or quarterly returns, with proper 
remittances, to cover the taxes incurred on distilled spirits, wines, 
and beer during the semimonthly or quarterly period. * * *
* * * * *

    Signed: December 13, 2005.
John J. Manfreda,
Administrator.
    Approved: December 23, 2005.
Timothy E. Skud,
Deputy Assistant Secretary (Tax, Trade, and Tariff Policy).
[FR Doc. 06-981 Filed 2-1-06; 8:45 am]
BILLING CODE 4810-31-P