Small Domestic Producer Wine Tax Credit-Implementation of Public Law 104-188, Section 1702, Amendments Related to the Revenue Reconciliation Act of 1990 (96R-028T), 65452-65456 [E7-22698]

Agencies

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

[Federal Register Volume 72, Number 224 (Wednesday, November 21, 2007)]
[Rules and Regulations]
[Pages 65452-65456]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-22698]


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DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Part 24

[T.D. TTB-64; Re: T.D. ATF-390 and ATF Notice No. 852]
RIN 1513-AA05


Small Domestic Producer Wine Tax Credit--Implementation of Public 
Law 104-188, Section 1702, Amendments Related to the Revenue 
Reconciliation Act of 1990 (96R-028T)

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

ACTION: Final rule (Treasury decision).

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SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau is adopting as a 
final rule, with some clarifying or editorial changes, the temporary 
regulations concerning transfer of the small domestic producer wine tax 
credit and computation of the wine bond that were adopted in response 
to the Small Business Job Protection Act of 1996.

EFFECTIVE DATE: November 21, 2007.

FOR FURTHER INFORMATION CONTACT: Marjorie D. Ruhf, Regulations and 
Rulings Division, 1310 G Street, NW., Washington, DC 20220; (202) 927-
8202; or Marjorie.Ruhf@ttb.gov.

SUPPLEMENTARY INFORMATION:

Background

    The Alcohol and Tobacco Tax and Trade Bureau (TTB) is responsible 
for administering the provisions of Chapter 51 of the Internal Revenue 
Code of 1986 (IRC), including promulgating regulations pursuant to 
Chapter 51 pertaining to Federal excise taxes on alcohol beverage 
products. Section 5041 of the IRC (26 U.S.C. 5041) imposes a tax on 
wines in bond in, produced in, or imported into, the United States. 
Section 5041(c) allows a credit against the tax for small domestic wine 
producers. The regulations implementing this credit were promulgated in 
part 24 of the TTB regulations (27 CFR part 24). Prior to January 24, 
2003, our predecessor Agency, the Bureau of Alcohol, Tobacco and 
Firearms (ATF), administered the regulations in part 24.

History of the Small Domestic Producer Wine Tax Credit

The Revenue Reconciliation Act of 1990
    The Revenue Reconciliation Act of 1990 (the RRA), Title XI of 
Public Law 101-508, 104 Stat. 1388-400, was enacted on November 5, 
1990. Section 11201 of the RRA increased by 90 cents per wine gallon 
the rate of tax on still wines and artificially carbonated wines 
removed from bonded premises or Customs custody on or after January 1, 
1991. The law did not increase the tax rate on champagne and other 
sparkling wine.
    Section 11201 also provided a credit of up to 90 cents per wine 
gallon for small domestic wine producers on the first 100,000 gallons 
of wine (other than champagne and other sparkling wine) removed for 
consumption or sale during a calendar year. This credit could be taken 
by a bonded wine premises proprietor who produced not more than 250,000 
gallons of wine in a given calendar year. The provisions of section 
11201 separated the activities of production and removal in such a way 
that eligibility for the credit was based on removal of wine by an 
eligible small producer and was not conditioned on the producer 
actually producing the wine removed. Thus, a proprietor who produced 
less than 250,000 gallons of wine a year could take the small domestic 
producer wine tax credit on wine purchased and received in bond as long 
as the wine was within the first 100,000 gallons of wine removed from 
the small producer's bonded premises during the calendar year.
    Under the RRA, small wine producers were eligible to take the small 
producer wine tax credit only on wine removed for consumption or sale 
by that producer. If the producer transferred wine in bond to another 
bonded wine premises (for example, a bonded wine cellar used as a 
warehouse) for storage pending subsequent removal by the warehouse, 
then the producer could not claim a credit on that wine, since the 
producer had not removed the wine for consumption or sale. If the 
warehouse did not produce wine at all, or produced more than 250,000 
gallons of wine, then the warehouse was not eligible for the small 
producer wine tax credit. Even if the warehouse produced wine and was 
eligible for credit in its own right, its eligibility was limited to 
the first 100,000 gallons removed during the year. In order to receive 
the credit, some small wineries began to taxpay their wines at the time 
of removal and store the wines in a taxpaid status rather than transfer 
them in bond.
The Small Business Job Protection Act of 1996
    Section 1702 of the Small Business Job Protection Act of 1996 (the 
SBJPA), Public Law 104-188, 110 Stat. 1755, enacted on August 20, 1996, 
included an amendment to the small domestic wine producer tax credit 
provision in section 5041(c). The SBJPA amendment allowed the tax 
credit authorized under section 5041(c) to be taken by ``transferees in 
bond'' such as bonded wine cellars used as warehouses on behalf of 
their small producer customers. As a result of this amendment, section 
5041(c) now provides that if wine produced by any person would be 
eligible for the small producer credit if removed by the producer, and 
if wine produced by that person is transferred in bond to another 
person (the transferee) who removes the wine during the calendar year 
and is liable for the tax on the wine, then the transferee (and not the 
producer) will be allowed to take the small producer credit under 
certain circumstances. The producer of the wine must hold title to the 
wine at the time of its removal and must provide to the transferee such 
information as is necessary to properly determine the transferee's 
credit under section 5041(c)(6). The statutory language thus limits the 
application of

[[Page 65453]]

the credit to transferees in bond receiving wine from the actual 
producer of the wine in question and not from a subsequent owner who 
may also be a small producer.
    In addition to the transfer of credit provisions, the SBJPA 
included an amendment to the bond computation rules in 26 U.S.C. 5354, 
which allowed the small domestic producer wine tax credit to be taken 
into account when calculating the penal sum of the bond.
    The SBJPA provided that the amendments made by section 1702 took 
effect as if they had been included in the provisions of the RRA to 
which the amendment related. Accordingly, the amendments made to the 
small domestic producer wine tax credit provisions under the SBJPA were 
retroactive to January 1, 1991.
The Taxpayer Relief Act of 1997
    The Taxpayer Relief Act of 1997 (the TRA), Public Law 105-34, 111 
Stat. 788, was enacted on August 5, 1997. Section 908 of the TRA added 
to section 5041 a new wine tax class, ``hard cider,'' imposed a $0.226 
rate of tax on hard cider, and provided for a reduced amount of the 
small domestic producer wine tax credit ($0.056) applicable to the hard 
cider tax rate. These provisions applied to hard cider removed from 
bond on or after October 1, 1997.

Rulemaking Actions

    In response to these three statutory changes, ATF took the 
following regulatory actions.
    On December 11, 1990, ATF published T.D. ATF-307 (55 FR 52732), a 
final rule effective January 1, 1991, to implement a number of changes 
related to the RRA. Among other changes, T.D. ATF-307 added two new 
sections to 27 CFR part 24. New Sec.  24.278 implemented the wine tax 
credit for small domestic producers. New Sec.  24.279 set forth the 
procedure for making adjustments to tax returns as a result of improper 
application of the tax credit. ATF did not request comments prior to 
issuing this final rule.
    On June 2, 1997, ATF published at 62 FR 29663 a temporary rule, 
T.D. ATF-390, to amend Sec. Sec.  24.148, 24.278, and 24.279 (27 CFR 
24.148, 24.278, and 24.279) to implement the SBJPA statutory changes. 
In the temporary rule, ATF also incorporated in Sec.  24.278(a) the 
provisions of ATF Ruling 92-1 (A.T.F. Q.B. 1992-3, 55), which held that 
the small producer wine tax credit is available only to eligible 
proprietors engaged in the business of producing wine. On the same day, 
ATF published a Notice of Proposed Rulemaking, Notice No. 852 (62 FR 
29681), inviting comments on this temporary rule. The one comment that 
ATF received on this temporary rule is discussed below.
    On August 21, 1998, ATF published at 63 FR 44779 another temporary 
rule, T.D. ATF-398, to implement the hard cider tax rate and several 
other provisions of the TRA. This temporary rule amended Sec.  24.278 
to reflect a new rate for the small domestic producer wine tax credit 
on hard cider. On the same day, ATF published a Notice of Proposed 
Rulemaking, Notice No. 859 (63 FR 44819), inviting comments on that 
temporary rule. For various reasons unrelated to the amendment of the 
credit provision in Sec.  24.278, ATF extended the comment period, 
postponed the labeling compliance date, and solicited comments on 
alternative labeling rules. The T.D. ATF-398 amendment to Sec.  24.278 
was adopted as a final rule without any change by T.D. ATF-470 (66 FR 
68938) on November 26, 2001.

Discussion of Comment Received in Response to T.D. ATF-390

    As previously stated, ATF received only one comment in response to 
the temporary rule implementing the SBJPA statutory changes. Kenwood 
Vineyards commented that the provisions of the temporary rule placed 
the burden of ``recordkeeping, reporting, compliance and cash flow'' on 
the transferee in bond and suggested that the small producer should pay 
the tax, subject to any appropriate credit, on its own return when the 
transferee removes the wine. TTB cannot adopt this suggestion because 
under 26 U.S.C. 5043, when wine is transferred in bond as authorized by 
26 U.S.C. 5362(b), the liability for payment of the tax becomes the 
liability of the transferee at the time of removal of the wine from the 
transferor's premises. The law provides that liability for paying the 
tax transfers to the transferee when the wine is transferred in bond 
and that the transferor is relieved of liability. TTB cannot by 
regulation alter who is liable to pay the tax.

Adoption of Final Rule

    Based on the legislative and rulemaking history outlined above, TTB 
has determined that the temporary regulations published in T.D. ATF-390 
should be adopted as a final rule with minor corrections and 
clarifications as discussed below.
    In Sec.  24.148, we are making two corrections in the table:
    1. In the first column (Bond), we are updating the form number of 
the Wine Bond to read TTB F 5120.36.
    2. In the second column (Basis), we are revising paragraph (1). 
Prior to the amendment by T.D. ATF-390, the first sentence of paragraph 
(1), which sets out the basis for calculating the bond coverage, read, 
in pertinent part, ``tax on all wine or spirits possessed, in transit 
or unaccounted for at any one time * * *.'' This wording was based on 
that of the underlying statute, 26 U.S.C. 5354, which reads, in 
pertinent part, ``tax on any wine or distilled spirits possessed or in 
transit at any one time * * *.'' In T.D. ATF-390, we inadvertently 
omitted the word ``possessed.'' We are correcting that omission by 
restoring the word ``possessed'' to mirror the statute. We are also 
subdividing paragraph (1) to separate the two maximum penal sum 
amounts.
    In Sec.  24.278, we are making the following changes and 
corrections:
    1. In paragraph (b)(2)(ii), we are substituting the phrase ``tax 
imposed by 26 U.S.C. 5041'' for the words ``tax imposed by this 
section.'' The latter wording reflects the precise statutory language, 
which is inapposite in the context of the regulatory text.
    2. We are retaining, in paragraphs (d)(1) and (d)(2), the 
references to hard cider adopted in T.D. ATF-470, as previously 
discussed.
    3. At the end of paragraph (e)(2), we are adding a sentence to 
clarify that sparkling wine, which is not eligible for credit, does not 
count as a removal against the 100,000 gallon limitation. This reflects 
the longstanding position of TTB and ATF.
    4. In Sec.  24.278(g), we are adding a reference to section 
5041(c)(5) of the IRC to clarify the statutory basis for the language 
setting forth the requirements with regard to deductions under Subtitle 
A of the IRC.
    In Sec.  24.279(a), we are adding a reference to the statutory 
conditions for imposition of penalties under section 6662 of the IRC. 
The added language clarifies circumstances in which TTB would require 
the inclusion of these penalties as part of the adjustment for excess 
credit taken during a calendar year.
    Finally, we are making some plain language and other editorial 
changes to Sec. Sec.  24.148, 24.278, and 24.279 to enhance their 
clarity and readability without substantively affecting the texts, and 
we have added the Office of Management and Budget (OMB) control number 
to Sec.  24.148 and updated the OMB control numbers for Sec. Sec.  
24.278 and 24.279 as noted in the Paperwork Reduction Act discussion in 
this preamble.

[[Page 65454]]

Inapplicability of Delayed Effective Date Requirement

    Pursuant to the provisions of 5 U.S.C. 553(d)(1) and (d)(3), we are 
issuing these regulations without a delayed effective date. These final 
regulations recognize an exemption within the meaning of section 
553(d)(1) because they implement a 1996 statutory amendment expanding 
the scope of the small domestic producer wine tax credit in order to 
cover removals by transferees in bond under specified circumstances. 
Furthermore, TTB has determined that good cause exists to provide 
wineries with immediate guidance on their utilization of this credit in 
accordance with section 553(d)(3).

Regulatory Flexibility Act

    Pursuant to the requirements of the Regulatory Flexibility Act (5 
U.S.C. chapter 6), we certify that these regulations will not have a 
significant economic impact on a substantial number of small entities. 
Any revenue effects of this rulemaking on small businesses flow 
directly from the underlying statute. Likewise, any secondary or 
incidental effects, and any reporting, recordkeeping, or other 
compliance burdens flow directly from the statute. Accordingly, a 
regulatory flexibility analysis is not required. Pursuant to 26 U.S.C. 
7805(f), the temporary regulation was submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business, and we received no comments.

Executive Order 12866

    It has been determined that this rule is not a significant 
regulatory action as defined by Executive Order 12866. Therefore, a 
regulatory assessment is not required.

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 in the regulations contained in this final rule have 
been previously reviewed and approved by OMB in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3504(h)) under control 
numbers 1512-0058, 1512-0540, and 1512-0492, originally issued to ATF. 
When TTB took over the administration of the wine tax, these control 
numbers were changed by OMB to 1513-0009, 1513-0104, and 1513-0088, 
respectively. Although sections of the regulations covered by these 
approvals are amended for clarity, this final rule imposes no new or 
revised collection of information, and does not change the reporting or 
recordkeeping burden.

Drafting Information

    Marjorie Ruhf of the Regulations and Rulings Division, Alcohol and 
Tobacco Tax and Trade Bureau, drafted this document.

List of Subjects in 27 CFR Part 24

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

Amendments to the Regulations

0
Accordingly, for the reasons set forth in the preamble, the temporary 
rule amending 27 CFR part 24, which was published on June 2, 1997, at 
62 FR 29663, is adopted as a final rule with the changes as discussed 
above and set forth below.

PART 24--WINE

0
1. 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
2. Section 24.148 is revised to read as follows:


Sec.  24.148  Penal sums of bonds.

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

----------------------------------------------------------------------------------------------------------------
                                                                                             Penal sum
                    Bond                                    Basis                -------------------------------
                                                                                      Minimum         Maximum
----------------------------------------------------------------------------------------------------------------
(a) Wine Bond, TTB F 5120.36...............  (1) Wine operations coverage. (i)            $1,000         $50,000
                                              Not less than the tax on all wine
                                              or spirits possessed, in transit,
                                              or unaccounted for at any one
                                              time, taking into account the
                                              appropriate small producer wine
                                              tax credit.
                                             (ii) Where the liability exceeds     ..............         100,000
                                              $250,000.
                                             (2) Tax deferral coverage. Where                500         250,000
                                              the unpaid tax amounts to more
                                              than $500, not less than the
                                              amount of tax which, at any one
                                              time, has been determined but not
                                              paid. Exception: $1,000 of the
                                              wine operations coverage may be
                                              allocated to cover the amount of
                                              tax which, at any one time, has
                                              been determined but not paid, if
                                              the total operations coverage is
                                              $2,000 or more.
(b) Wine Vinegar Plant Bond, TTB F 5510.2..  Not less than the tax on all wine             1,000        100,000
                                              on hand, in transit, or
                                              unaccounted for at any one time.
----------------------------------------------------------------------------------------------------------------
\*\ The proprietor of bonded wine premises who operates an adjacent or contiguous wine vinegar plant with a wine
  bond that does not cover the operation may file a consent of surety to extend the terms of the wine bond in
  lieu of filing a wine vinegar plant bond.


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


(Approved by the Office of Management and Budget under control number 
1513-0009)

0
3. Section 24.278 is revised to read as follows:


Sec.  24.278  Tax credit for certain small domestic producers.

    (a) General. A person who produces not more than 250,000 gallons of 
wine during the calendar year may take a credit against any tax imposed 
by Title 26 of the United States Code (other than Chapters 2, 21, and 
22), in an amount computed in accordance with paragraph (d) of this 
section, on the first 100,000 gallons of wine (other than champagne and 
other sparkling wine) removed during that year for consumption or sale. 
This credit applies only to wine that has been produced at a qualified 
bonded wine premises in the United

[[Page 65455]]

States. The small domestic wine producer tax credit is available only 
to eligible proprietors engaged in the business of producing wine. A 
proprietor who has a basic permit to produce wine but does not produce 
wine during a calendar year may not take the small producer wine tax 
credit on wine removed during that calendar year. A proprietor who has 
obtained a new wine producer basic permit may not take the small 
producer wine tax credit on wine removed until the proprietor has 
produced wine. ``Production'' of wine includes those activities 
described in paragraph (e)(1) of this section.
    (b) Special rules relating to eligibility for wine credit--(1) 
Controlled groups. For purposes of this section and Sec.  24.279, the 
term ``person'' includes a controlled group of corporations, as defined 
in 26 U.S.C. 1563(a), except that the phrase ``more than 50 percent'' 
must be substituted for the phrase ``at least 80 percent'' wherever it 
appears. Also, the rules for a ``controlled group of corporations'' 
apply in a similar fashion to groups that include partnerships and/or 
sole proprietorships. Production and removals of all members of a 
controlled group are treated as if they were the production and 
removals of a single taxpayer for the purpose of determining what 
credit a person may use.
    (2) Credit for transferees in bond. A person other than the 
eligible small producer (hereafter in this paragraph referred to as the 
``transferee'') may take the credit under paragraph (a) of this section 
that would be allowed to that producer if the wine removed by the 
transferee had been removed by the producer on that date, under the 
following conditions:
    (i) Wine produced by any person would be eligible for any credit 
under this section if removed by that person during the calendar year;
    (ii) Wine produced by that person is removed during that calendar 
year by the transferee to whom that wine was transferred in bond and 
who is liable for the tax imposed by 26 U.S.C. 5041 with respect to 
that wine;
    (iii) That producer holds title to that wine at the time of its 
removal and provides to the transferee such information as is necessary 
to properly determine the transferee's credit under this paragraph; and
    (iv) At the time of taxable removal, the producer provides to the 
transferee, in writing (each retaining a copy with the record of 
taxpaid removal from bond pursuant to Sec.  24.310), the following 
information:
    (A) The names of the producer and transferee;
    (B) The quantity and tax class of the wines to be shipped;
    (C) The date of removal from bond for consumption or sale;
    (D) A confirmation that the producer is eligible for credit, with 
the credit rate to which the wines are entitled; and
    (E) A confirmation that the subject shipment is within the first 
100,000 gallons of eligible wine removed by (or on behalf of) the 
producer for the calendar year.
    (c) Time for determining and allowing credit. The credit referred 
to in paragraph (a) of this section will be determined at the same time 
as the tax is determined under 26 U.S.C. 5041(a), and will be allowable 
at the time any tax described in paragraph (a) of this section is 
payable. The credit allowable by this section is treated as if it 
constitutes a reduction in the rate of the tax.
    (d) Computation of credit. The credit which may be taken on the 
first 100,000 gallons of wine (other than champagne and other sparkling 
wine) removed for consumption or sale by an eligible person during a 
calendar year is computed as follows:
    (1) For persons who produce 150,000 gallons or less of wine during 
the calendar year, the credit is $0.90 per gallon for wine ($0.056 for 
hard cider);
    (2) For persons who produce more than 150,000 gallons but not more 
than 250,000 gallons during the calendar year, the credit is reduced by 
1 percent for every 1,000 gallons produced in excess of 150,000 
gallons. For example, the credit that would be taken by a person who 
produced 160,500 gallons of wine and hard cider during a calendar year 
would be reduced by 10 percent, for a net credit against the tax of 
$0.81 per gallon for wine or $0.0504 for hard cider, as long as the 
wine or hard cider was among the first 100,000 gallons removed for 
consumption or sale during the calendar year.
    (e) Definitions--(1) Production. For purposes of determining if a 
person's production of wine is within the 250,000 gallon limit, 
production includes, in addition to wine produced by fermentation, any 
increase in the volume of wine due to the winery operations of 
amelioration, wine spirits addition, sweetening, or production of 
formula wine. Production of champagne and other sparkling wines is 
included for purposes of determining whether total production of a 
winery exceeds 250,000 gallons. Production includes all wine produced 
at qualified bonded wine premises within the United States and wine 
produced outside the United States by the same person.
    (2) Removals. For purposes of determining if a person's removals 
are within the 100,000 gallon limit, removals include wine that the 
person removed from all qualified bonded wine premises within the 
United States. Wine removed by a transferee in bond under paragraph 
(b)(2) of this section must be counted against the 100,000 gallon limit 
of the small producer who owns that wine, and not against the limit of 
the transferee in bond if the transferee is also a small producer. 
Champagne and other sparkling wines, which are not eligible for credit, 
do not count as removals against the 100,000 gallon limit.
    (f) Preparation of tax return. A person who is eligible for the 
credit must show the amount of wine tax before credit on the Excise Tax 
Return, TTB F 5000.24, and must enter the quantity of wine subject to 
the credit and the applicable credit rate as the explanation for an 
adjusting entry in Schedule B of the return for each tax period. Where 
a person does not use the credit authorized by this section to directly 
reduce the rate of Federal excise tax on wine, that person must report 
on TTB F 5000.24 where the credit will be, or has been, applied. Where 
a transferee in bond takes credit on behalf of one or more small 
producers, the transferee must show in Schedule B of the return the 
name of each producer, each producer's credit rate, and the total 
credit taken on behalf of each producer during the tax return period.
    (g) Denial of deduction. Pursuant to 26 U.S.C. 5041(c)(5), any 
deduction under 26 U.S.C. subtitle A with respect to any tax against 
which the credit is allowed under paragraph (a) of this section must 
only be for the amount of the tax as reduced by the credit.
    (h) Exception to credit. The appropriate TTB officer will deny any 
tax credit taken under paragraph (a) of this section where it is 
determined that the allowance of the credit would benefit a person who 
would otherwise fail to qualify for the use of the credit. (26 U.S.C. 
5041(c).)

(Approved by the Office of Management and Budget under control 
number 1513-0104)


0
4. Section 24.279 is revised to read as follows:


Sec.  24.279  Tax adjustments related to wine credit.

    (a) Increasing adjustments. Persons who produce more wine than the 
amount used in computation of the credit, or who lose eligibility by 
not producing during a calendar year, must make increasing tax 
adjustments. Where an increasing adjustment to a person's

[[Page 65456]]

tax return is necessary as a result of an incorrect credit rate claimed 
pursuant to Sec.  24.278, that person must make the adjustment on the 
Excise Tax Return, TTB F 5000.24, no later than the return period in 
which production (or the production of the controlled group of which 
the person is a member) exceeds the amount used in computation of the 
credit. If the adjustment is due to failure to produce, the person must 
make the adjustment no later than the last return period of the 
calendar year. The adjustment is the difference between the credit 
taken for prior return periods in that year and the appropriate credit 
for those return periods. The person must make tax adjustments for all 
bonded wine premises where excess credits were taken against tax that 
year, and must include interest payable. In the case of a person who 
continued to deduct credit after reaching the 100,000 gallon maximum 
during the calendar year, that person must make an adjustment in the 
full amount of excess credit taken and must include interest payable 
under 26 U.S.C. 6601 from the date on which the excess credit was 
taken. In addition, the person must include the penalty payable under 
26 U.S.C. 6662 if the appropriate TTB officer determines that the 
underpayment was due to negligence or disregard of rules or regulations 
and advises the person to include the penalty as part of the 
adjustment. The appropriate TTB officer will provide information, when 
requested, regarding interest rates applicable to specific time periods 
and regarding any applicable penalties. In the case of a controlled 
group of bonded wine premises that took excess credits, all member 
proprietors who took incorrect credits must make tax adjustments as 
determined in this section. In the case of a small producer who 
instructed a transferee in bond to take credit as authorized by Sec.  
24.278(b)(2), and subsequently determines that the credit was less or 
not applicable, that producer must immediately inform the transferee in 
bond, in writing, of the correct credit information. The transferee 
must make any increasing adjustment on its next tax return based on 
revised credit information given by the producer or a TTB officer.
    (b) Decreasing adjustments. Where a person fails to deduct the 
credit or deducts less than the appropriate credit provided for by 
Sec.  24.278 during the calendar year, the person may file a claim for 
refund of excess tax paid. The claim must be filed in accordance with 
Sec.  24.69. In the case of wine removed on behalf of a small producer 
by a transferee in bond, if the transferee in bond was instructed to 
deduct credit and failed to deduct credit or deducted less than the 
appropriate credit and was later reimbursed for the tax by that 
producer, the transferee may file the claim. The provisions of 26 
U.S.C. 6423 and 27 CFR part 70, subpart F, will apply, and the producer 
and transferee in bond must show that the conditions of Sec.  
24.278(b)(2) were met. (26 U.S.C. 5041(c))

(Approved by the Office of Management and Budget under control 
number 1513-0088)

    Signed: August 24, 2007.
John J. Manfreda,
Administrator.

    Approved: November 5, 2007.
Timothy E. Skud,
Deputy Assistant Secretary (Tax, Trade, and Tariff Policy).
 [FR Doc. E7-22698 Filed 11-20-07; 8:45 am]
BILLING CODE 4810-31-P