Proposed Revision of Distilled Spirits Plant Regulations (2001R-194P), 26200-26307 [E8-9095]

Agencies

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

[Federal Register Volume 73, Number 90 (Thursday, May 8, 2008)]
[Proposed Rules]
[Pages 26200-26307]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-9095]



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Part II





Department of the Treasury





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Alcohol and Tobacco Tax and Trade Bureau



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27 CFR Part 19



Proposed Revision of Distilled Spirits Plant Regulations (2001R-194P); 
Proposed Rule

Federal Register / Vol. 73, No. 90 / Thursday, May 8, 2008 / Proposed 
Rules

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DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Part 19

[Docket No. TTB-2008-0004]; [Notice No. 83]
RIN 1513-AA23


Proposed Revision of Distilled Spirits Plant Regulations (2001R-
194P)

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau (TTB) proposes to 
amend its distilled spirits plant regulations. Many of these proposed 
revisions are the result of comments submitted by the Distilled Spirits 
Council of the United States in response to a Bureau of Alcohol, 
Tobacco and Firearms notice of proposed rulemaking (NPRM) published in 
November 1998. Other proposed revisions are a result of a comprehensive 
TTB review of the distilled spirits plant regulations. This NPRM 
supersedes the NPRM issued in November 1998. We believe the proposed 
amendments will modernize the requirements for operating distilled 
spirits plants and make the regulations easier to understand, thereby 
allowing proprietors of such plants to operate in a more efficient 
manner. The proposed regulations are also written in a plain language 
format to improve clarity.

DATES: We must receive your written comments on or before August 6, 
2008.

ADDRESSES: You may send comments on this notice to one of the following 
addresses:
     https://www.regulations.gov (via the online comment form 
for this notice as posted within Docket No. TTB-2008-0004 on 
Regulations.gov, the Federal e-rulemaking portal); or
     Mail: Director, Regulations and Rulings Division, Alcohol 
and Tobacco Tax and Trade Bureau, P.O. Box 14412, Washington, DC 20044-
4412; or
     Hand Delivery/Courier in lieu of Mail: Alcohol and Tobacco 
Tax and Trade Bureau, 1310 G Street, NW., Suite 200-E, Washington, DC 
20005.
    See the Public Participation section of this notice for specific 
instructions and requirements for submitting comments, and for 
information on how to request a public hearing.
    You may view copies of this notice and any comments we receive 
about this proposal at https://www.regulations.gov. A direct link to the 
appropriate Regulations.gov docket is available under Notice No. 83 on 
the TTB Web site at https://www.ttb.gov/spirits/spirits_
rulemaking.shtml. You also may view copies of this notice and any 
comments we receive about this proposal by appointment at the TTB 
Information Resource Center, 1310 G Street, NW., Washington, DC 20220. 
To make an appointment, call 202-927-2400.

FOR FURTHER INFORMATION CONTACT: Daniel J. Hiland, Regulations and 
Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G 
Street NW., Suite 200-E, Washington, DC 20220; telephone 202-927-8176.

SUPPLEMENTARY INFORMATION:

Table of Contents

Notice to Readers
Impact of the Homeland Security Act on this Rulemaking
I. Background Information for this Notice
    A. Distilled Spirits Plant Operations under Current Law
     Basic Definitions
     Federal Laws and Regulatory Authority
     Major Regulatory Provisions
    B. Petition to Amend 27 CFR Part 19
    C. General Changes Proposed in this Notice
     Plain Language
     Structure of Part 19
     Redundancy with the Law
     Alternate Methods or Procedures
    D. Specific Changes Proposed in this Notice
     Subpart A--General Provisions
     Subpart B--Administrative and Miscellaneous Provisions
     Subpart C--Restrictions on Production, Location, and 
Use of Plants
     Subpart D--Registration of a Distilled Spirits Plant 
and Obtaining a Permit
     Subpart E--Changes to Registrations and Permits
     Subpart F--Bonds and Consents of Surety
     Subpart G--Construction, Equipment, and Security 
Requirements ----
     Subpart H--Special (Occupational) Tax
     Subpart I--Distilled Spirits Taxes
     Subpart J--Claims
     Subpart K--Gauging
     Subpart L--Production of Distilled Spirits
     Subpart M--Storage of Distilled Spirits
     Subpart N--Processing of Distilled Spirits
     Subpart O--Denaturing Operations and Manufacture of 
Articles
     Subpart P--Transfers, Receipts, and Withdrawals
     Subpart Q--Return of Spirits to Bonded Premises and 
Voluntary Destruction
     Subpart R--Losses and Shortages
     Subpart S--Containers and Marks
     Subpart T--Liquor Bottle, Label, and Closure 
Requirements
     Subpart U--Reserved
     Subpart V--Records and Reports
     Subpart W--Production of Vinegar by the Vaporizing 
Process
     Subpart X--Distilled Spirits for Fuel Use
     Subpart Y--Paperwork Reduction Act
II. Derivation Table for Proposed Part 19
III. Public Participation
     Comments Invited
     Submitting Comments
     Confidentiality
     Public Disclosure
IV. Regulatory Analyses and Notices
     Paperwork Reduction Act
     Regulatory Flexibility Act
     Executive Order 12866
     Executive Order 13132
V. Drafting Information
VI. List of Subjects
VII. Authority and Issuance
     Text of the Proposed Rule

Notice to Readers--Impact of the Homeland Security Act on This 
Rulemaking

    Effective January 24, 2003, the Homeland Security Act of 2002 (Pub. 
L. 107-296, 116 Stat. 2135 (2002)) divided the Bureau of Alcohol, 
Tobacco and Firearms (ATF) into two new agencies, the Alcohol and 
Tobacco Tax and Trade Bureau (TTB) in the Department of the Treasury 
and the Bureau of Alcohol, Tobacco, Firearms and Explosives in the 
Department of Justice. The regulation and taxation of alcohol beverages 
remains a function of the Department of the Treasury and is the 
responsibility of TTB. References to ATF in this notice reflect the 
time period prior to January 24, 2003, while references to TTB are 
after that date.

I. Background Information for This Notice

A. Distilled Spirits Plant Operations Under Current Law

    Distilled spirits taxation is a specialized area of Federal law. 
The following background material provides basic information about how 
distilled spirits plants operate and are regulated under Federal law.
Basis Definitions
    Distilled Spirits. The term ``distilled spirits'' refers to those 
products that contain ethyl alcohol and are generally the result of 
distillation. This term does not apply to wine and beer, which are 
products of fermentation. Examples of distilled spirits products 
include vodka, whiskey, gin, brandy, cordials, liqueurs, flavored 
brandies, and other similar products.
    Distilled Spirits Plants. The term ``Distilled Spirits Plant'' 
(DSP) refers to a plant at which distilled spirits are manufactured or 
produced, aged or stored, or packaged or bottled, either for beverage 
or industrial use.
Federal Laws and Regulatory Authority
    Federal law prohibits the manufacture or production of distilled 
spirits in the United States at other than a registered DSP that has 
received a permit from

[[Page 26201]]

TTB. While Federal law allows for the limited home production of wine 
and beer, no such exemption exists for distilled spirits.
    DSPs are regulated under the provisions of two laws, the Internal 
Revenue Code of 1986 (IRC) (Title 26 of the United States Code) and the 
Federal Alcohol Administration Act (FAA Act) (Title 27 of the United 
States Code). The IRC imposes an excise tax on distilled spirits, 
requires plants to register, requires plants to obtain permits not 
otherwise required by the FAA Act, and imposes strict controls over the 
operation of DSPs. The FAA Act imposes a requirement to obtain a basic 
permit and contains various consumer-protection provisions, including 
provisions related to the formulation, labeling, and advertising of 
alcohol beverages. The FAA Act also controls various trade practices 
within the alcohol industry.
    Under these two laws, TTB regulates the distilled spirits industry 
in the United States. Each law authorizes the Secretary of the Treasury 
to prescribe regulations to carry out and enforce its provisions, and 
the Secretary has delegated this authority to TTB. The TTB regulations 
concerning DSPs are contained in title 27 of the Code of Federal 
Regulations, Part 19, Distilled Spirits Plants (27 CFR part 19).
Major Regulatory Provisions
    A DSP consists of one or more of the following: production, 
storage, processing, denaturation, and bottling facilities. A DSP may 
be a large and complex plant, having all facilities, a simple storage 
facility consisting of only one building, or a small bottling facility 
with storage facilities. Production facilities are usually accompanied 
by some storage facilities. Bottling facilities are often accompanied 
by storage facilities, and must by law be accompanied by either a 
production or a storage facility. However, large storage facilities are 
often not accompanied by either of the other two types.
    Registration. Before commencing operations, the DSP proprietor must 
obtain an approved notice of registration. This application for 
registration includes: documents to set up distilling apparatus, 
environmental impact forms, personnel questionnaires, signature 
authorities, and a statement of security.
    Permits. Under the FAA Act, all persons who intend to engage in the 
business of: (a) Distilling spirits; (b) rectifying, blending, or 
bottling (processing) distilled spirits; or (c) warehousing and 
bottling distilled spirits, must file for a basic permit.
    To maintain control over the industrial use of distilled spirits, 
the IRC requires that an operating permit be obtained before commencing 
the production, warehousing, or bottling of alcohol for industrial use. 
Specifically, a permit is required for:
     Distilling for industrial use.
     Bonded warehousing of spirits for industrial use.
     Denaturation of spirits.
     Bonded warehousing of spirits (without bottling) for non-
industrial use.
     Bottling or packaging of spirits for industrial use.
     Any other distilling, warehousing, or bottling operations 
not required to be covered by a basic permit under the FAA Act.
    DSP Bonded Premises. The physical premises of a DSP are divided 
into two technical categories: ``bonded premises,'' and unbonded or 
``general premises.'' All activities relating to the distilling, 
storage, and processing (blending and mixing) of distilled spirits must 
be conducted on bonded premises. All activities relating to taxpaid 
alcohol beverages conducted at the distilled spirits plant must be 
conducted on general premises.
    Operations as a distiller, warehouseman, or processor may be 
conducted only on the bonded premises of a DSP by a person qualified to 
carry on such operations under 27 CFR part 19 and who has obtained the 
basic permits required by 27 CFR part 1, or, as appropriate, the 
operating permit required by part 19. However, certain other 
activities, such as those of apothecaries, customs bonded warehousemen, 
manufacturers of nonbeverage products, and users of specially denatured 
alcohol, may be carried on outside of DSPs.
    The continuity of a DSP must be unbroken except for separations 
that may include public waterways, thoroughfares, or carrier rights-of-
way. In most instances, DSPs are also prohibited from being located in 
a dwelling house, in a shed, yard, or enclosure connected with a 
dwelling house, on board a vessel or boat, on premises where beer or 
wine is produced, in a retail liquor establishment, or where any other 
business is conducted.
    Bonds. Normally, the distilled spirits tax is not collected while 
spirits are held on the ``bonded'' premises of a distilled spirits 
plant. The potential tax liability of the spirits held on bonded 
premises is guaranteed by an operations bond, and taxable removals are 
covered by a withdrawal bond.
    The bond is a legally binding, written agreement involving three 
parties: the taxpayer, the surety (insurance or bonding company), and 
the U.S. Government. The purpose of the bond is to protect the 
financial interest of the Government. If for any reason, the taxpayer 
fails to pay the tax, then the surety (insurance or bonding company) is 
obliged to pay, up to the limit of the bond.
    Other Requirements. In addition to registering, obtaining a permit, 
and providing a bond, plants are required to comply with a number of 
regulations relating to plant security; the production, storage, and 
processing of spirits; recordkeeping; inspection and audit; and filing 
of reports. These requirements are outlined in 27 CFR part 19.
    Recordkeeping Accounts. All operations at a DSP are accounted for 
within three recordkeeping accounts: Production, Storage, and 
Processing. Since the facilities (tanks and rooms) of a DSP may be used 
for multiple purposes, the accountability of spirits must be maintained 
by appropriate records within the three accounts instead of physical 
separation.
    Payment of Taxes. The Federal excise tax on distilled spirits 
attaches to the spirits as soon as they are produced, and the distilled 
spirits plant is held liable for the tax on all distilled spirits held 
in the bond premises. The amount of Federal excise tax that a distilled 
spirits plant must pay is based upon the taxable removal of the spirits 
from the bonded premises. There are two basic methods of paying the tax 
on distilled spirits withdrawn from bonded premises-deferred payment 
and prepayment. Under the deferred payment system, the proprietor may 
withdraw spirits from bond after tax determination but before payment 
of tax. The excise tax paid is based on the amount of spirits removed 
from bond during each return period. Under the prepayment system, the 
proprietor must pay the distilled spirits tax after tax determination 
but before withdrawal of the spirits from bonded premises. Most DSP 
proprietors use the deferred payment system.
    Currently, the Federal excise tax rate on distilled spirits is 
$13.50 per proof gallon. The term ``proof gallon'' is unique to this 
particular commodity and means: a liquid gallon that contains 50 
percent ethyl alcohol.
    Although the tax rate for distilled spirits is $13.50 per proof 
gallon, many distilled spirits products are actually taxed at a lower 
rate. Many products contain wine and/or flavors, and the IRC at 26 
U.S.C. 5010 provides a credit for the wine and flavors content of the 
product. These credits effectively

[[Page 26202]]

reduce the rate of excise tax paid on distilled spirits products that 
contain wine and flavors.
    Nontaxable Transactions. Certain types of shipments to and from a 
distilled spirits plant are permitted without payment of tax. Examples 
are:
     Shipments of bulk (unbottled) spirits from one registered 
distilled spirits plant to another. (Bottled spirits are not eligible 
for untaxed transfer in bond between plants.)
     Shipments of bulk imported spirits from U.S. Customs and 
Border Protection custody to a distilled spirits plant. (Only bulk 
imported spirits are eligible for this type of transfer.)
     Direct exports of products from the United States.
     Shipments to users of industrial alcohol (certain permit 
holders who use alcohol for medical, research, or industrial purposes).

B. Notice No. 870 and the Petition To Amend 27 CFR Part 19

    On November 30, 1998, ATF issued a notice of proposed rulemaking, 
Notice No. 870 (63 FR 65720), that solicited comments on proposed 
changes to several sections of the regulations in 27 CFR part 19. The 
proposed changes included: (1) Delegations of authority, (2) removing a 
special tax provision, (3) liberalizing the requirement for approval of 
certain changes in plant personnel or procedures, (4) reducing the 
paperwork when plant premises are alternated with other premises, (5) 
providing for alternation of distilled spirits plant and brewery 
premises, (6) allowing denaturation and manufacture of articles to be 
done in a single, unified process, (7) specifying marks for packages of 
industrial spirits withdrawn taxpaid, (8) clarifying regulations that 
refer to a transfer record, and (9) incorporating a provision of an ATF 
Industry Circular regarding alcohol fuel into the regulations.
    In addition to these proposed changes, ATF asked for comments 
regarding the general recordkeeping system for distilled spirits plants 
prescribed in part 19.
    In response to Notice No. 870, ATF received extensive comments from 
the Distilled Spirits Council of the United States (DISCUS), a trade 
association representing distilled spirits industry members with 
interests in the U.S. market. While DISCUS provided comments on the 
specific issues raised in Notice No. 870, it also asked that ATF 
consider a broad range of regulatory changes to part 19. Essentially, 
in its comments on part 19, DISCUS asked ATF to initiate a complete 
revision of part 19. In support of its petition, DISCUS provided ATF 
with sample regulations that consisted of a ``markup'' version of 27 
CFR part 19, along with numerous copies of variances (alternate methods 
or procedures) that ATF granted to members of the distilled spirits 
industry over the years. Suggested amendments included a broad range of 
issues, including, but not limited to, reduced recordkeeping 
requirements for distilled spirits plants, greater use of commercial 
records, reduced reporting requirements, reduced requirements for 
reporting changes affecting the DSP's registration, liberalized use of 
DSP premises, storage of distilled spirits on bonded premises through 
``constructive segregation'' based on commercial records, and adoption 
of alternative methods in the regulations for universal applicability.
    In response to Notice No. 870, ATF also received comments from 
Equistar Chemicals, LP. Equistar is a producer of industrial ethyl 
alcohol, and its comments addressed issues in Notice No. 870 related to 
industrial alcohol. Equistar also commented on other issues affecting 
distilled spirits plants such as the amendment of plant registrations, 
recordkeeping, denaturation, and gauging.
    After reviewing the comments received in response to the Notice No. 
870, ATF concluded that the amendments proposed in the 1998 NPRM were 
not extensive enough to address the changes that have taken place in 
the industry since the last major revision to the distilled spirits 
plant regulations took place over 20 years ago when ATF implemented the 
Distilled Spirits Tax Revision Act of 1979, commonly referred to as 
``All in Bond.''
    As the successor agency to ATF, TTB undertook a comprehensive 
review of the distilled spirits plant regulations in 27 CFR part 19 and 
the comments received in response to Notice No. 870. This notice of 
proposed rulemaking is the result of that review, and this notice 
supersedes Notice No. 870. We believe the proposed amendments will 
modernize the requirements for operating distilled spirits plants and 
make the regulations easier to understand, thereby allowing proprietors 
of such plants to operate in a more efficient manner. A discussion of 
our new proposal to amend part 19 in a more comprehensive way follows.

C. General Changes Proposed in This Notice

    The following summarizes the general changes we propose to make to 
27 CFR part 19.
Plain Language
    On June 1, 1998, the President issued a memorandum that requires 
Federal agencies to write regulations in ``plain language.'' We fully 
support this initiative, and we have written these proposed regulations 
in the plain language style. In an effort to make these regulations 
easier to understand, we made several plain language changes to the 
part 19 regulations:
     We use the active voice in the regulations, whenever 
possible;
     We use shorter sentences, paragraphs, and sections; and
     We minimize the use of jargon and unnecessary technical 
terms.
Structure of Part 19
    In its comments on part 19, DISCUS points out that part 19 is 
``excessively long, overcomplicated and very difficult to read.'' 
Further, it stated that the regulations are ``divided into 25 subparts, 
with many related and overlapping provisions included in two or more 
subparts.'' DISCUS recommends ``consolidating and re-grouping a number 
of regulatory provisions which are closely related, eliminating 
regulations which merely are redundant of each other or the statute, 
adding cross-references to related regulations, and clarifying 
regulatory language.''
    We reviewed the various sections and subparts in the current part 
19 and determined that much of the basic structure for part 19 needs to 
be amended. Under the current structure, information is not always 
located where a reader would logically expect to find it.
    For example, under the current regulations, information regarding 
distilled spirits taxes is found in two separate subparts, Subpart C, 
Taxes, and Subpart P, Transfers and Withdrawals. Subpart C contains 
much of the basic information about distilled spirits taxes, including 
the methods for calculating tax credits under the IRC at 26 U.S.C. 
5010. However, information regarding determination of taxes and the 
filing of tax returns is located in subpart P. Logically, all 
information associated with distilled spirits taxes should appear 
within the same subpart. The proposed regulations consolidate all of 
the information concerning distilled spirits taxes into a new Subpart 
I, Distilled Spirits Taxes. Similarly, we reviewed all of the major 
topics covered in part 19 and attempted to group them together in a 
more logical order. Accordingly, this proposed, amended version of part 
19 has been restructured with new subparts and related

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information has been consolidated, where appropriate, into a single 
subpart. In addition, duplicative sections have been eliminated. The 
intent of this restructuring is to assist the reader and make it easier 
to locate related topics within part 19.
    The proposed subparts are as follows:
     Subpart A--General Provisions
     Subpart B--Administrative and Miscellaneous Provisions
     Subpart C--Restrictions on Production, Location, and Use 
of Plants
     Subpart D--Registration of a Distilled Spirits Plant and 
Obtaining a Permit
     Subpart E--Changes to Registrations and Permits
     Subpart F--Bonds and Consents of Surety
     Subpart G--Construction, Equipment, and Security 
Requirements
     Subpart H--Special (Occupational) Tax
     Subpart I--Distilled Spirits Taxes
     Subpart J--Claims
     Subpart K--Gauging
     Subpart L--Production of Distilled Spirits
     Subpart M--Storage of Distilled Spirits
     Subpart N--Processing of Distilled Spirits
     Subpart O--Denaturing Operations and Manufacture of 
Articles
     Subpart P--Transfers, Receipts, and Withdrawals
     Subpart Q--Return of Spirits to Bonded Premises and 
Voluntary Destruction
     Subpart R--Losses and Shortages
     Subpart S--Containers and Marks
     Subpart T--Liquor Bottle, Label, and Closure Requirements
     Subpart U--Reserved
     Subpart V--Records and Reports
     Subpart W--Production of Vinegar by the Vaporizing Process
     Subpart X--Distilled Spirits for Fuel Use
     Subpart Y--Paperwork Reduction Act
Redundancy With the Law
    In its comments on part 19, DISCUS recommends that several sections 
of the regulations be deleted because those sections are ``redundant 
with the law.'' DISCUS notes that many of the sections simply repeat 
provisions of law contained in title 26 of the IRC. DISCUS recommends 
we delete these redundant sections of part 19 or revise the regulations 
to simply reference the appropriate section of the IRC.
    TTB recognizes that some sections of the part 19 regulations repeat 
provisions of the IRC. However, we intend that the part 19 regulations 
provide users with a comprehensive and complete body of the 
requirements for operating a distilled spirits plant. By making part 19 
a complete reference tool, persons researching a particular issue will 
not need access to both the IRC and the regulations. Therefore, when a 
provision of law affects operations at a distilled spirits plant, we 
included that provision in part 19. However, in some instances, we 
deleted sections of the regulations that simply repeated information 
found in other regulations within part 19.
Alternate Methods or Procedures.
    Periodically, TTB allows industry members to use an alternate 
method or procedure in lieu of a specific regulatory requirement in 
part 19. The current regulation at 27 CFR 19.62 describes how DSP 
proprietors may apply for an alternate method or procedure. Section 
19.62 also describes the criteria that TTB uses when evaluating such 
requests. Generally, TTB may approve the use of an alternate method or 
procedure when:
     Good cause has been shown for use of the alternate method 
or procedure,
     The alternate method or procedure is consistent with the 
intent of the regulation, and
     The alternate method or procedure is not contrary to the 
law.
    Over the years, DSP proprietors have applied for a wide range of 
alternate methods or procedures in lieu of the requirements stated in 
part 19. We have evaluated these requests on a case-by-case basis using 
the criteria established in 27 CFR 19.62, and we have approved many of 
these requests. Industry members commonly refer to these alternate 
methods or procedures as ``variances.''
    As part of its comments on part 19, DISCUS submitted numerous 
copies of variances that have been granted to members of the distilled 
spirits industry. The variances submitted by DISCUS were divided into 
three general categories, recordkeeping, separation of premises, and 
``other.'' In its comments, DISCUS asserts that ATF granted variances 
from many of the regulatory requirements and that it is not aware of 
any variance that has caused any problems with Federal excise tax 
compliance. DISCUS recommends that variances granted to individual 
plant proprietors be extended to all plants in the revised regulations.
    In response to this suggestion, TTB reviewed the individual 
variances submitted by DISCUS for possible applicability to all 
distilled spirits plants. We found that many variances did, in fact, 
have general applicability to all plants. As a result, we have 
incorporated many of those methods or procedures into the proposed 
regulations, where appropriate. For example:
     Several variances were issued that allowed for the use of 
computer-generated records. This proposal has been adopted into the 
revised regulations at Sec.  19.572 and is discussed later in this 
preamble under our discussion of Records in subpart V.
     Several variances were issued that allowed for computer-
generated reports and computer-generated transaction forms. These 
proposals were adopted into the revised regulations at Sec.  19.634, 
and are discussed later in this preamble under our discussion of 
records in subpart V.
     A variance was issued that allows for the filing of 
letterhead notices to report certain changes at a plant. This procedure 
providing for the use of letterhead notices has been incorporated into 
the new subpart E and is explained more fully under our discussion of 
subpart E.
     Several variances were issued that allow for the use of 
``commercial records'' to record transactions and/or operations. The 
use of documents created in the ordinary course of business, rather 
than documents created expressly to meet the requirements of part 19 is 
now provided for in the proposed regulations at Sec.  19.572 in subpart 
V.
     A variance was issued that allows modified 
``abbreviations'' to be used. The proposed regulations will not 
prescribe any official abbreviations for use on forms and records to 
identify spirits, and the provisions of current Sec.  19.726, which 
prescribe official abbreviations have been deleted from the proposed 
regulations. However, we will continue to list authorized abbreviations 
for marking containers found in the current regulations at Sec.  
19.612.
     A variance was issued that allows filled, capped, and 
labeled bottles to remain on the bottling line at the end of each work 
day if the same brand and size will be produced on the next bottling 
shift. This variance was incorporated into the proposed regulations at 
Sec.  19.358 and is discussed under subpart N.
     A variance that allows the bottling of liqueurs from a 
tank truck or tote was incorporated into the proposed regulations at 
Sec.  19.352 and is discussed under subpart N.
     A variance whereby certain small tanks are not required to 
be mounted on scales was incorporated into the proposed regulations at 
Sec.  19.183 and is discussed under subpart G.

[[Page 26204]]

     Several variances have been approved that allow for the 
use of meters in gauging spirits for purposes other than tax 
determination. We are proposing significant changes in the new 
regulations that will allow for the use of accurate mass flow meters, 
without prior approval by TTB, for bulk tax determination gauges and 
other required gauges at a distilled spirits plant if the meters meet 
certain criteria for accuracy.
    During our review of the variances submitted by DISCUS, we also 
found several that were not appropriate for incorporation into the new, 
revised regulations. In some instances, we did not wish to apply the 
provisions of a particular alternate method or procedure to all DSP 
proprietors without regard to their compliance history and other 
factors. As such, proprietors may continue to apply for these types of 
alternate methods or procedures, and we will evaluate them on a case-
by-case basis.
    For example, we have issued several variances to DSP proprietors 
regarding the timing and frequency of required inventories for bulk and 
cased spirits. In evaluating this type of variance, we frequently 
consider the compliance history of the particular plant, shortages and 
gains disclosed by past inventories, along with other factors. 
Accordingly, this type of authorization does not have general 
applicability and is not appropriate for inclusion in the new proposed 
regulations. However, we will continue to approve this type of request, 
when appropriate, on a case-by-case basis.
    In other instances, the subject matter of a particular variance 
only applied to a very specific situation at a single plant and was, 
therefore, not applicable to all plants. Accordingly, we did not 
incorporate this type of variance into the new proposed regulations. 
For example:
     We approved several variances in regard to case markings 
that did not have general application to the case markings used by 
other plants.
     We approved a ``business day'' for a plant that runs from 
2 a.m. through 1:59 a.m. This type of variance does not have general 
applicability to other plants.
    In summary, we have incorporated a number of existing variances 
into the proposed regulations where appropriate, and when the variance 
would have general applicability to the industry.

D. Specific Changes Proposed in This Notice

    The following is a discussion of the new, revised subparts in 27 
CFR part 19 and the specific changes that we propose to make in the 
part 19 regulations.
Subpart A--General Provisions
    Proposed subpart A includes several sections that have general 
applicability to part 19, including a revised definitions section, a 
section that defines the territorial extent of the regulations, and a 
section that identifies other regulations that relate to part 19.
    In the proposed definitions section at Sec.  19.1, we propose some 
minor amendments to the language used within this section to clarify 
the meaning of some terms. We also propose to add some new terms and 
delete an outdated term found in the current definitions section. We 
propose to add the terms ``accurate mass flow meter,'' ``general 
premises,'' ``letterhead application,'' ``letterhead notice,'' 
``National Revenue Center,'' ``TTB officer,'' and ``we.'' We propose to 
delete the term ``region director.''
    We also propose to move two sections currently located in subpart 
D, under the heading ``Activities Not Subject To This Part,'' to 
subpart A. The relocated sections are Sec.  19.4, Recovery and reuse of 
denatured spirits in manufacturing processes, and Sec.  19.5, 
Manufacturing products unfit for beverage use, which are currently 
found at Sec. Sec.  19.57 and 19.58, respectively.
Subpart B--Administrative and Miscellaneous Provisions
    Proposed subpart B contains the administrative and miscellaneous 
provisions for part 19 that are currently found in subpart D. However, 
some sections of regulations that are located in the current subpart D 
have been relocated to other revised subparts, where appropriate. For 
example, we propose to move sections relating to gauging to the new 
proposed Subpart K, Gauging. Similarly, we propose to relocate sections 
relating to the conveyance of spirits or wines on plant premises to the 
new proposed Subpart C, Restrictions, Location, and Use of Plants.
    Proposed subpart B includes a ``penalty of perjury'' section that 
is currently located at Sec.  19.100. In its comments on part 19, 
DISCUS proposes the deletion of the requirement that documents be 
executed under penalties of perjury from several sections of 
regulations. DISCUS states that ``these penalties are unnecessary and 
excessive in light of the fact that a proprietor's permit is subject to 
revocation under the Federal Alcohol Administration Act for failure to 
comply with the Bureau's requirements.'' TTB did not adopt this 
proposal. The penalty of perjury statement is an important safeguard 
that places legal responsibility for the truthfulness of significant 
documents filed with TTB on the documents' signatories. Generally, we 
do not require the ``penalty of perjury'' statement on most documents 
and records. Its use is generally restricted to claims, tax returns, 
applications, and similar documents. The IRC at 26 U.S.C. 6065 states, 
``Except as otherwise provided by the Secretary, any return, 
declaration, statement, or other document required to be made under any 
provisions of the internal revenue laws or regulations shall contain or 
be verified by a written declaration that it is made under penalties of 
perjury.'' Consistent with the IRC at 26 U.S.C. 6065 and along with the 
other tax collection agencies within the Department of the Treasury, 
TTB requires that such documents be signed under penalties of perjury. 
The penalty of perjury provision in the proposed regulations is located 
at Sec.  19.45.
Subpart C--Restrictions on Production, Location, and Use of Plants
    Proposed subpart C covers restrictions associated with the 
operation of a distilled spirits plant, along with the location and use 
of DSP premises. In its comments on part 19, DISCUS makes several 
recommendations affecting those sections of the current regulations 
that govern restrictions, locations, and use of DSP premises. We 
discuss these recommendations and our responses below.
    Restrictions regarding location. Currently, 27 CFR 19.131 provides 
that a distilled spirits plant may not be located on premises where 
beer or wine is produced, or liquors of any description are retailed, 
or (except as provided in Sec.  19.133) on premises where any other 
business is conducted. DISCUS contends that physical separation of 
commodities is meaningless and recommends that this restriction be 
amended to allow a distilled spirits plant to be located on such 
premises if the proprietor's records show the separate operations. We 
did not adopt this proposal because Federal law does not provide for 
``constructive'' separation of premises by records only. The language 
of this regulation is derived directly from the language of the IRC at 
26 U.S.C. 5178(a)(1)(B), which states that a distilled spirits plant 
shall not be located ``on premises where beer or wine is made or 
produced, or liquors of any description are retailed, or on premises 
where any other business is carried on (except when authorized under 
subsection (b)).'' This

[[Page 26205]]

provision appears in the proposed regulations at Sec.  19.52.
    Continuity of premises. Currently, the regulation at Sec.  19.132 
provides that the physical continuity of a distilled spirits plant must 
be unbroken except for separation by public waterways, thoroughfares, 
or carrier rights-of-way. However, TTB may approve other separations of 
the plant premises when all parts of the plant are in the ``same 
general location.'' DISCUS recommends that the term ``same general 
location'' mean within 200 miles of the distilled spirits plant.
    We did not adopt this recommendation in the proposed regulations. 
Although DISCUS states that a ``200 mile rule'' would provide increased 
operational flexibility for proprietors, they do not explain how this 
would occur under their proposal and why that distance is more 
appropriate than any other.
    Over the years TTB has received a number of requests to establish 
non-contiguous distilled spirits plant premises. We have evaluated each 
of these requests on a case-by-case basis. In our evaluation of each 
request, we consider a number of factors, such as:
     Security and protection of the revenue,
     Distance between the main plant premises and the proposed 
non-contiguous premises,
     Whether the non-contiguous premises would cross State 
lines,
     Whether the non-contiguous premises will facilitate 
inspections and audits, and
     Whether establishment of non-contiguous premises would 
provide the proprietor with a means for delaying payment of taxes.
    We propose to retain the case-by-case analysis based on multiple 
factors, instead of adopting a 200 mile rule as proposed by DISCUS. As 
a general rule, we believe that the ``same general location'' must not 
be too large an area so that the revenue is placed at risk. Also, 
because a distance of 200 miles could extend over a multi-state area 
and would cross over into different field offices within TTB, such a 
distance would create administrative difficulties for TTB. This 
provision appears in the proposed regulations at Sec.  19.53.
    Other businesses. Currently, the regulation at Sec.  19.68 provides 
that TTB may authorize the carrying on of other businesses (not 
otherwise prohibited) on DSP premises under certain conditions. The 
other businesses should not pose a jeopardy to the revenue, hinder the 
effective administration of part 19, or be contrary to law. There is a 
similar section of regulations at Sec.  19.72. DISCUS recommends the 
removal of Sec.  19.68 since it is redundant with Sec.  19.72.
    We agree that Sec. Sec.  19.68 and 19.72 are very similar, and we 
have merged the two sections into a single section within the proposed 
regulations at Sec.  19.55.
    Bonded warehouses not on premises qualified for production of 
spirits. The current regulation at Sec.  19.134 allows for the 
establishment of a bonded warehouse on premises that are not qualified 
for the production of spirits, if the need for such is clearly 
established. DISCUS recommends the amendment of this section by adding 
language stating that the warehouse may be within 200 miles of the main 
plant. We did not adopt this recommendation for the same reasons 
discussed above under the heading, ``Continuity of Premises.'' This 
provision is found in the proposed regulations at Sec.  19.56.
    Taxpaid spirits or wines on bonded premises. The current regulation 
at Sec.  19.97 provides that spirits or wines on which the tax has been 
paid or determined may be conveyed across bonded premises but cannot be 
stored or remain on bonded premises, and must be kept separate and 
apart from spirits or wines on which the tax has not been paid or 
determined. DISCUS recommends the addition of new language to this 
section whereby the area where taxpaid spirits or wines are stored will 
not be considered bonded premises if the proprietor's records show that 
the tax has been paid or determined. They state that their proposal 
would ``shift the focus from the outdated requirement of physical 
segregation to a modernized, efficient approach based upon 
`constructive segregation.' ''
    We did not adopt this recommendation because the IRC does not allow 
for the separation of premises solely by records. The IRC at 26 U.S.C. 
5612 clearly states that taxpaid or tax determined spirits cannot be 
stored on bonded premises. Further, the bonded area of a DSP is a 
clearly defined physical area of the plant with clearly defined 
boundaries. It is not an area defined only by records of the type of 
spirits stored on the premises. In our proposed regulations, this 
section is now found at Sec.  19.58.
    Conveyance of untaxed spirits or wines within a distilled spirits 
plant. Currently, the regulation at Sec.  19.98 provides that untaxed 
spirits or wines can be conveyed between different bonded areas of a 
plant and across areas of a plant that are not bonded. DISCUS 
recommends the amendment of this section by adding language whereby if 
the proprietor's records show the tax has not been paid or determined, 
then the untaxed spirits will be considered to be on bonded premises 
(constructive segregation).
    We did not adopt this recommendation because the regulation already 
allows for the transfer of untaxed spirits across areas of a plant that 
are not bonded. The amendment proposed by DISCUS would only incorporate 
the idea of ``constructive segregation'' into this section of the 
regulations. However, since the regulation already allows for transfers 
across areas of the plant that are not bonded, the amendment proposed 
by DISCUS is not necessary. This section of the regulations is now 
found at Sec.  19.59 in the proposed regulations.
    Spirits in customs custody. Currently, the regulation at Sec.  
19.99 provides that spirits in customs custody may be conveyed across 
DSP premises under certain conditions. Those conditions include:
     The spirits may not be stored or allowed to remain on DSP 
premises.
     The spirits must be kept separate from other spirits on 
DSP premises.
     The means and route of conveyance must be approved.
     The proprietor must file a consent of surety.
    DISCUS recommends the addition of language to this section whereby 
if the proprietor's records show that spirits are in customs custody, 
then the area where the spirits are stored will not be considered part 
of the DSP premises.
    We did not adopt this DISCUS recommendation for several reasons. 
First, this section of regulations deals with conveyance of spirits in 
customs custody across DSP premises. It does not deal with the storage 
of such spirits on DSP premises.
    In addition, TTB bonded premises and customs bonded premises are 
two distinct types of bonded premises. TTB bonded premises are 
established under the laws and regulations administered by the Alcohol 
and Tobacco Tax and Trade Bureau, while customs bonded premises are 
established under a separate set of laws and regulations administered 
by U.S. Customs and Border Protection. As such, the premises cannot be 
co-located, and there is no basis in the law for constructive 
segregation of these bonded premises by records only. The bonded area 
of a DSP is a clearly defined physical area of the plant with clearly 
defined boundaries. It is not an area defined only by records. In our 
proposed regulations, this section is now found at Sec.  19.60.
    Production of distilled spirits for personal use. Frequently, TTB 
receives

[[Page 26206]]

questions from the general public asking whether the law allows for the 
production of distilled spirits in the home for personal use. Under 
Federal law (26 U.S.C. 5171), distilled spirits may only be produced at 
a registered distilled spirits plant. Therefore, we propose to add a 
new section to subpart C, which will explain that a person may not 
distill spirits at home for personal use. This new section is found in 
the proposed regulation at Sec.  19.51.
Subpart D--Registration of a Distilled Spirits Plant and Obtaining a 
Permit
    The current regulations governing the qualification of a distilled 
spirits plant are found in subpart G. These regulations cover a number 
of issues, including the requirements for plant registration, operating 
permits, alternation of premises, and amending registrations and 
operating permits.
    Proposed subpart D covers the initial registration of a distilled 
spirits plant and procedures for obtaining an operating permit. We 
propose to assign regulations concerning changes after the original 
qualification of the plant to the new subpart E.
    In the proposed subpart D, we also propose to rearrange the 
information related to the qualification of a distilled spirits plant 
in a more logical order. For example, we propose to group all 
registration information together under a heading titled ``Requirements 
for Registering a Plant,'' while information relating to operating 
permits is grouped together under a separate heading titled 
``Requirements for an Operating Permit Under the I.R.C.'' In the 
current regulations, much of the information regarding registration and 
operating permits is intermingled. We believe that separating these 
subjects will make it easier for readers to understand which 
requirements apply to plant registration and which requirements apply 
to operating permits.
    Other businesses. In its comments on part 19, DISCUS proposes the 
inclusion of a cross-reference at Sec.  19.152 of the current 
regulations, indicating that ``other businesses'' may be allowed under 
a separate section of the regulations. We adopted this proposal in the 
proposed regulations at Sec. [thns x p]19.73(b).
    Major equipment. DISCUS also recommends in its comments that the 
requirement to list major equipment on the application for 
registration, currently found at Sec.  19.166, be amended. First, it 
states that the regulation should be clarified to provide that ``major 
equipment'' must be identified in the registration only if it is ``set 
up'' and ``used for distillation, redistillation, or recovery of 
spirits.''
    We adopted this suggestion in part. We do not see any need to list 
major equipment in the application that is not ``set up'' and used for 
the production, storage, or processing of spirits. Therefore, we have 
inserted language in the proposed regulations at Sec.  19.75, which 
requires that equipment be listed if it is ``set up'' and used for the 
production, storage, or processing of spirits.
    DISCUS also recommends that a paragraph be added to Sec.  19.166 
stating that ``bulk containers of less than 101 wine gallon capacity 
and not meeting the criteria of a tank under Sec.  19.273 (such as 
perks and small totes) are not items of major equipment and are not 
required to be listed in the application for registration.'' This 
recommendation is reasonable because such containers are not items of 
major equipment, and we include it in the proposed regulation at Sec.  
19.75.
    In addition, DISCUS recommends that the requirement to provide a 
``statement of certification of accurate calibration'' for tanks found 
in the current regulations at Sec. Sec.  19.166 and 19.273(a)(6) be 
eliminated. This recommendation is reasonable and has been adopted in 
the proposed regulations because it only involves eliminating a 
requirement to include a ``statement of certification of accurate 
calibration'' in the notice of registration. The proposed regulation at 
Sec.  19.182 will continue to require that tanks be accurately 
calibrated.
    Registration file. The IRC at 26 U.S.C. 5171(c) requires that 
persons must apply for and receive a notice of registration before 
commencing business as a distilled spirits plant. In regard to the 
maintenance of the registration file, currently at Sec.  19.155, DISCUS 
recommends the addition of language to allow the registration file to 
be kept in computerized records. We did not adopt this proposal because 
registration documents are normally submitted to TTB in a hard-copy 
format and returned to the proprietor by TTB in hard-copy format. 
DISCUS also recommended the elimination of the requirement that the 
registration file be kept ``at the plant.'' We did not adopt this 
proposal because the file must be readily available for inspection by 
appropriate TTB officers.
    LLCs and LLPs. The current regulations governing qualification of a 
distilled spirits plant in subpart G only acknowledge three types of 
business organizations, sole proprietorships, partnerships, and 
corporations. In view of the increasing use of limited liability 
companies (LLCs) and limited liability partnerships (LLPs), we have 
included instructions for these types of business organizations in the 
proposed regulations at Sec.  19.93.
Subpart E--Changes to Registrations and Permits
    Proposed subpart E includes the regulations governing changes to 
the distilled spirits plant registration, changes to operating permits, 
and alternation of plant premises. Similar to the changes that we 
propose in new subpart D, much of the information in the new subpart E 
is arranged in a more logical order. For example, matters affecting 
changes to registration are grouped together under the heading titled 
``Rules for Amending a Registration,'' and matters affecting changes to 
operating permits are grouped together under the heading titled ``Rules 
for Amending an Operating Permit.''
    In the current regulations, much of the information regarding 
changes to the registration and changes to the operating permit is 
intermingled. As with new subpart D, we believe that separating these 
subjects will make it easier for readers to understand the specific 
requirements that apply to amending either the plant registration or 
the operating permit.
    Letterhead notices and letterhead applications. In its comments on 
part 19, DISCUS makes several recommendations regarding how proprietors 
should apply for changes to a plant's registration or operating permit. 
Generally, DISCUS recommends that, in most instances, the regulations 
allow proprietors to request changes by filing a letterhead notice. In 
its petition, DISCUS states that:

    Subpart G provisions regarding changes in the information shown 
in the original registration should be revised to eliminate 
unnecessary prior submissions and prior approval requirements. 
Similar to our alternation proposals, 27 CFR 19.180, 19.82 and 
19.183 (application for amended registration, change in name of 
proprietor and change of trade name, respectively) should be amended 
to provide that a proprietor file a letterhead notice reporting any 
change within 30 days after the change. Further, 27 CFR 19.184 and 
19.185 (changes to largest stockholders and changes in officers and 
directors, respectively) should be revised to provide identical 
treatment (i.e., reported in the next amended registration) because 
there is no reason to treat these changes differently.

    TTB agrees that we should simplify the amendment of registrations 
and permits wherever possible. Accordingly, we are proposing to expand 
the use of both letterhead notices and letterhead applications for 
reporting changes to the registration and permit. We will allow the use 
of letterhead notices to report

[[Page 26207]]

minor changes affecting the registration or permit. We will allow for 
the use of letterhead applications for more substantive changes but 
these must be approved by TTB prior to the change. The use of amended 
applications, letterhead applications, and letterhead notices are 
discussed in the proposed regulations at Sec. Sec.  19.112 and 19.126.
    Changes in the statement of plant security. In the current 
regulation at Sec.  19.153(b), an application for amended plant 
registration (form TTB F 5110.41) must be filed each time there is a 
change in plant personnel or procedures contained in the statement of 
security. In Notice No. 870, ATF proposed to liberalize this 
requirement. Therefore, we propose that Sec.  19.153(b) be amended to 
require that a letterhead application be filed for changes in the 
security procedures listed in Sec.  19.153(a)(1)-(4), and that a 
letterhead notice be filed for changes in the personnel listed in Sec.  
19.153(a)(5). Thus, the letterhead application or letterhead notice 
would replace the amended registration that was required each time that 
the information in Sec.  19.153(a)(1)-(5) changed. The plant 
registration would be updated on an annual basis to incorporate changes 
made during the preceding year.
    In its comments on Notice No. 870, Equistar Chemicals states that 
it endorses the proposed changes and would encourage any additional 
efforts to facilitate compliance through reducing nonessential 
paperwork. However, Equistar asks for some clarification of this 
proposal. It pointed out that the proposal allows companies to submit a 
``letterhead application'' and ``letterhead notice'' for changes. 
Equistar states that it presumes that we intended companies to simply 
send an informal letter notifying the agency of procedure or personnel 
changes. The company asks for a clarification of these terms.
    In response to this request for clarification, TTB advises that the 
terms ``letterhead application'' and ``letterhead notice'' refer to a 
letter from a company representative, with signature authority, on 
company letterhead (see definitions). The ``letterhead application'' is 
subject to TTB approval prior to the change; however, the ``letterhead 
notice'' is not subject to prior approval. These terms are now fully 
explained in the proposed regulations at Sec. Sec.  19.112 and 19.126.
    Equistar also points out that ``the proposal requires a letterhead 
application for `changes in any of the information' listed in the 
sections of the Statement of Physical Security that address procedural 
changes.'' The company states that a requirement to advise us of ``any 
changes'' is overly broad and could encompass non-substantive as well 
as substantive changes. Equistar recommends that we maintain the rule's 
original language that covers changes in ``procedure'' rather than 
``any changes.''
    The current regulation governing changes in plant security, which 
appears at Sec.  19.153, has been rewritten to clarify the type of 
changes that may be reported to TTB by letterhead application or 
letterhead notice. In our proposed regulations, this section is now 
located at Sec.  19.123.
    In its response to Notice No. 870, DISCUS states that it supports 
the proposal whereby a distilled spirits plant would file a letterhead 
notice instead of an amended registration for changes in the 
information provided under 27 CFR 19.153(a)(5). However, DISCUS 
recommends the deletion of the word ``security'' from the proposed term 
``security personnel listed in paragraph (a)(5).'' DISCUS states that 
the term ``security personnel'' is not used in paragraph (a)(5) and is 
not synonymous with the persons covered by paragraph (a)(5).
    We agree that the term ``security personnel'' is not an accurate 
term. Therefore, we propose deleting the word ``security'' from the 
proposed regulation at Sec.  19.76.
    DISCUS also recommends that the regulations conform their treatment 
of changes in Sec.  19.153(a)(1)-(4) to the proposed changes in 
paragraph (a)(5). DISCUS asks that the regulations allow these changes 
to be reported by a letterhead notice within 30 days after the changes. 
DISCUS states that the information required by paragraphs (a)(1)-(4) 
and (a)(5) concern the same issues, and ``no reason exists to subject 
subsection (a)(5) to different treatment than subsections (a)(1)-
(a)(4).''
    In response to this recommendation, TTB advises that the 
information at Sec.  19.153 is part of the data for an ``application'' 
for registration (27 CFR 19.152(k)). As such, the items of information 
provided under Sec.  19.153 are subject to pre-approval for initial 
qualification of a distilled spirits plant and continued qualification 
of each plant. Further, the items listed under Sec.  19.153(a)(1) 
through (4) represent crucial physical security features of a plant and 
must, therefore, be subject to prior approval by TTB. In contrast, the 
information required by Sec.  19.153(a)(5) is a listing of persons 
having responsibility for custody and access to keys for approved locks 
at the distilled spirits plant. Since plants are free to designate the 
persons responsible for such custody, this particular item of 
information is not something that needs to be pre-approved. Therefore, 
this item will be treated as a ``notification'' rather than an 
``application.'' These changes now appear in the new, proposed 
regulations Sec. Sec.  19.76 and 19.123.
    Change in name of proprietor. The current regulation at Sec.  
19.182 requires that the proprietor file an application to amend the 
registration and the operating permit whenever there is a change in the 
name of the proprietor. DISCUS recommends the amendment of that 
regulation to allow the filing of a letterhead notice within 30 days of 
the name change, and that the new information be included in the next 
application to amend the registration and the next application to amend 
the operating and/or basic permit filed by the proprietor. DISCUS also 
recommends deleting from the current regulations the phrase, 
``Operations may not be conducted under the new name prior to approval 
of the amended registration and issuance of the amended permit.''
    The provisions of the current regulation at Sec.  19.182 will be 
covered in the proposed regulations at Sec. Sec.  19.113 and 19.128, 
and the proposed regulations will no longer require the filing of 
amended applications. Instead, the proposed regulations will allow for 
the filing of a letterhead application. However, since a change in the 
proprietor's name is a substantive change, the proposed regulation will 
still prohibit operations conducted under the new name before TTB 
approves the letterhead application.
    Change of trade name. The current regulation at Sec.  19.183 
requires that the proprietor file an application to amend the operating 
permit when there is a change in the trade name of the proprietor. 
Operations may not be conducted under the new trade name until the 
amended permit is approved. DISCUS recommends the amendment of the 
regulation to allow for the filing of a letterhead notice within 30 
days of the change and no longer require an application to amend the 
operating permit.
    In the proposed regulation at Sec.  19.129, TTB will no longer 
require the filing of an amended application. Instead, the proposed 
regulation will allow for the filing of a letterhead application. 
However, since any change in the trade names used by the proprietor is 
a substantive change, the proposed regulations will still prohibit 
operations conducted under the new trade name prior to TTB's approval 
of the letterhead application.
    Change of stockholders. The current regulation at Sec.  19.184 
allows for the filing of an annual report of changes in

[[Page 26208]]

major stockholders except where the sale or transfer of capital stock 
results in a change in control or management. In its comments on part 
19, DISCUS recommends that the language of the regulation be amended to 
read, ``Changes in the list of stockholders furnished under the 
provision of Sec. 19.167(c)(1) shall be reported in the next 
application for amended registration on Form 5110.41 filed by the 
proprietor.''
    In the proposed regulations at Sec. Sec.  19.114 and 19.130 we will 
allow a proprietor to submit an annual letterhead notice regarding 
changes in major stockholders. Under the proposed regulations, the 
changes must be incorporated in the next application filed, unless a 
change of control occurs. If a change in control takes place, Sec.  
19.114 requires that the proprietor must file TTB F 5110.41, 
Registration of Distilled Spirits Plant, within 30 days of the change, 
and Sec.  19.130 requires that the proprietor must file TTB F 5110.25, 
Application for Operating Permit Under 5171(d), within 30 days of the 
change.
    Changes in officers and directors. The current regulation at Sec.  
19.185 requires that a proprietor file an application for amended 
registration on Form 5110.41 when there is a change in the list of 
officers or directors. DISCUS recommends that the regulation be amended 
to state that the proprietor will report the change on the next 
application on TTB F 5110.41 for amended registration filed by the 
proprietor.
    In the proposed regulations at Sec. Sec.  19.115 and 19.131, we 
propose to allow a proprietor to submit a letterhead notice at the time 
of the changes and incorporate the changes in the next application for 
amended registration filed on form TTB F 5110.41 and the next form TTB 
F 5110.25 filed.
    Permit transfers. In its comment on Notice No. 870, Equistar 
Chemicals asked that ATF (BATF in its comment) examine ways to minimize 
the paperwork and notice requirements associated with ATF permits when 
a change of ownership occurs. Equistar states:

    BATF should examine ways to minimize the paperwork and notice 
requirements necessary to transfer BATF permit ownership in order to 
facilitate a smoother and less burdensome transition to the 
acquiring entity. Because the Securities and Exchange Commission 
(SEC) obtains copious records on publicly traded companies, perhaps 
BATF could coordinate efforts with SEC in cases where the acquiring 
entity is a publicly traded company and obtain company information 
through existing government databases. Alternatively, BATF could 
also prevent duplication by allowing companies to submit their 
annual reports in lieu of filling out numerous forms and 
applications. Such solutions would simultaneously facilitate BATF's 
access to companies' business information and alleviate the burden 
on companies who must currently submit new documentation of standard 
business information to each governmental branch who requests it.

    In general, TTB agrees that we should simplify the amendment of 
registrations and permits wherever possible. For this reason, we 
propose to expand the use of both letterhead notices and letterhead 
applications for reporting changes to the registration and the 
operating permit.
    However, in regard to utilizing SEC filings in cases where there is 
a change in ownership or control, there are several problems. First, 
much of the information that a proprietor submits in support of a plant 
registration or an operating permit is specific to distilled spirits 
operations. As such, this type of information, except for some similar 
items of information, is not required by agencies such as the SEC and 
so copies of such submissions would be inadequate for TTB purposes.
    Adoption of formulas. The current regulation at Sec.  19.187 
provides for the adoption of formulas by a successor. DISCUS recommends 
in its comments on part 19 that the regulation refer to 27 CFR 5.28 and 
that the language in Sec.  19.187 which is redundant with Sec.  5.28 be 
removed.
    In the proposed regulations we eliminated Sec.