Industry Circular

Number: 61-39

Date: September 1, 1961

Office of the Commissioner of Internal Revenue

Alcohol and Tobacco Tax Division

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IMPORTATION REGULATIONS 26 CFR PART 275

Importers of tobacco materials, tobacco products, and cigarette papers and tubes; proprietors of customs bonded cigar manufacturing warehouses, class 6; and others concerned:

Purpose. This industry circular is to call your attention to new regulations in 26 CFR Part 275, relating to the importation of tobacco materials, tobacco products, and cigarette papers and tubes, which become effective October 1, 1961; and also to furnish information to assist you in the transition to these regulations. A reprint of the regulations as published in the Federal Register on August 31, 1961, is attached.

Background. The new regulations include in a single part revised provisions relating to tobacco materials, tobacco products, and cigarette papers and tubes, imported into the United States from a foreign country or brought into the United States from Puerto Rico, the Virgin Islands, or a possession of the United States; to the release of such articles from customs custody, without payment of tax, under bond; and to the removal of cigars, subject to tax, from a customs bonded manufacturing warehouse, class 6(treated under the law as importations). These regulations supersede regulations in Parts 270, 275, 280, 285, and Subpart E of Part 296, insofar as they relate to such importations, and also supersede, in their entirety, the interim regulations in Subpart F of Part 296, relating to the deferred taxpayment in Puerto Rico of Puerto Rican tobacco products shipped to the United States.

Taxpayment to collector of customs. Any internal revenue tax on tobacco materials, tobacco products, and cigarette papers and tubes, imported or brought into the United States and released from customs custody subject to tax, is to be paid, at the same time duty

is paid, to the collector of customs, on the basis of a return made on the customs form by which release from customs custody is effected. In most cases, this form will be either Customs Form 7501, Consumption Entry, or Customs Form 7505, Warehouse Withdrawal for Consumption. When preparing the form, an extra copy should be made and marked "For internal revenue purposes." The information called for in section 275.81 shall be shown on all copies and may be inserted at any convenient place on the form; however, it is preferred that it be inserted below the information required for duty purposes. The refund of any excessive deposits of internal revenue taxes which are found by collectors of customs upon liquidation or reliquidation of an entry will be made by such collectors in accordance with customs regulations (19 CFR 24.36).

Releases from customs custody, without payment of tax (other than Puerto Rican articles). Tobacco products and cigarette papers and tubes manufactured in a foreign country, the Virgin Islands, or a possession of the United States, may be released from customs custody, without payment of tax, for transfer to the factory of a qualified manufacturer of such articles, in accordance with the provisions of section 275.85.

Under section 275.90, tobacco materials grown in a foreign country, the Virgin Islands, or a possession of the United States may be released from customs custody, without payment of tax, for delivery to a dealer in tobacco materials or to a manufacturer of tobacco products under the bond of such dealer or manufacturer. To obtain release of such articles, you are no longer required to use Form 2146, but, under section 275.91, you are required to certify on the customs form by which release is to be effected that you are a properly bonded dealer in tobacco materials or hold an internal revenue permit as a manufacturer of tobacco products, as applicable, giving your establishment number or factory permit number, as the case may be, and also that you are authorized under the law (section 5704(d) of the Internal Revenue Code) to receive such tobacco materials. A copy of this form will be returned to you for retention.

Prepayment of tax in Puerto Rico. Under section 275.101, tax on tobacco products and cigarette papers and tubes of Puerto Rican manufacture may be prepaid in Puerto Rico prior to shipment of such articles to the United States. To prepay such tax under section 275.105, the shipper files, or causes to be filed, a tax return, Form 3073, with remittance of the tax which will become due on such articles, with the Officer-in-Charge of the Office of International Operations in Puerto Rico. A receipted copy of the return will be given to the person filing the return and paying the tax for presentation to the internal revenue officer, assigned by the Supervisor-in-Charge, Alcohol and Tobacco Tax, Puerto Rico, to inspect the articles to be shipped, for his endorsement to show release of the articles. Under section 275.106, the shipper affixes a statement of prepayment, Form 3074, (prepared by the internal revenue officer) to the outside of each shipping container in which the products are packed. Please note that this statement should be affixed to the outer shipping con- tainer such as the crate, packing box, van, trailer, etc., and not on the individual cartons, cases, etc. The shipper also attaches a copy of a certification of prepayment of tax, Form 3075, (also prepared by the internal revenue officer) to the bill of lading to accompany the shipment, in custody of the carrier. If, upon inspection, the collector of customs at the port of entry finds the full amount of tax has not been prepaid, the difference must be paid to him (by any interested person) prior to the release of such articles.

Deferred taxpayment in Puerto Rico. Also, under section 275.101, the payment of tax on tobacco products of Puerto Rican manufacture coming into the United States may be deferred and paid in Puerto Rico on the basis of a semimonthly tax return. It is provided, however, in section 275.109, that the manufacturer in Puerto Rico desiring to defer such payment must file a bond, Form 2986, with the Officer-in-Charge of the Office of International Operations in Puerto Rico, in accordance with the bonding provisions set forth in Subpart G, conditioned on the payment at the time and manner prescribed of the tax computed with respect to tobacco products released for shipment on computation of tax. Where it is found that the amount of any bond, as required by section 275.121, for the deferred payment of such taxes, is no longer sufficient, the bonded manufacturer must file a strengthening or superseding bond. However, alternatively, either of the following methods of payment of tax on Puerto Rican tobacco products shipped to the United States may be followed:

(1) Prepayment in Puerto Rico, (2) Payment by the manufacturer of tobacco products in the United States, receiving such products, without payment of tax, under his bond.

Under sections 275.110 and 275.111, to ship tobacco products to the United States on computation of tax (involving deferred taxpayment), the bonded manufacturer prepares Form 2987, showing the

tax calculated thereon, and executes the agreement to pay the amount of tax which will be computed on such products covered by such form. He then requests the Supervisor-in-Charge, Alcohol and Tobacco Tax, Puerto Rico, to assign an internal revenue officer to inspect the tobacco products, verify the tax calculation, date and execute his certificate on the form, and release the products for shipment. The date of computation of tax entered by the internal revenue officer in item 25 of the Form 2987 determines the tax return period in which the amount of tax, as shown in item 14, must be reported. The bonded manufacturer attaches a copy of the properly executed Form 2987 to the bill of lading to accompany the shipment, and also affixes a statement of computation of tax, Form 2989, (prepared by the internal revenue officer) to the outside of each shipping container in which the products are packed. Please note that this statement should be affixed to the outer shipping container such as the crate, packing box, van, trailer, etc., and not on the individual cartons, cases, etc.

Under sections 275.112 to 275.115, the bonded manufacturer must file a semimonthly tax return, Form 2988, with remittance, with the Officer-in-Charge of the Office of International Operations in Puerto Rico, covering the period from the 1st day through the 15th day of each month and from the 16th day through the last day of each month. The tax return should show the serial numbers of all Forms 2987 certified during the return period. A tax return shall be filed, not later than the 3rd business day succeeding the last calendar day of the return period, for each and every return period, unless the Assistant Regional Commissioner, Alcohol and Tobacco Tax, New York, New York, authorizes that a return need not be filed by the bonded manufacturer for any period in which no tax liability is incurred. Under section 275.117, if, upon inspection, the collector of customs at the port of entry finds the full amount of tax has not been computed, the difference must be paid to him (by any interested person) prior to release of such articles.

Release of Puerto Rican tobacco products and cigarette papers and tubes without payment of tax. Puerto Rican tobacco products and cigarette papers and tubes may be shipped to the United States and released from customs custody, without payment of tax, for transfer to the factory of a qualified manufacturer of such articles in accordance with the provisions of section 275.101. It is provided, however, under sections 275.135 and 275.136, that a manufacturer who desires to receive such articles must file an extension of coverage of his bond on Form 2105, with, and receive a notice of approval from,the assistant regional commissioner.

Under section 275.137, the manufacturer in the United States files a notice of release, Form 3072, with the assistant regional commissioner for certification that he is authorized to receive the kind of articles set forth on the form, and after such certifi- cation forwards all copies of the Form 3072 to the shipper in Puerto Rico for execution by the shipper and the internal revenue officer assigned to inspect the articles. The shipper in Puerto Rico dispatches a copy of the form with the shipment.

Under section 275.140, the manufacturer of tobacco products or cigarette papers and tubes in the United States, who subsequently removes such Puerto Rican articles subject to tax, pays the tax thereon on the basis of a return under the provisions of 26 CFR Part 270 or 285, as the case may be. Such articles shall be separately listed and identified on the return, Form 3071 or 2137, as articles of Puerto Rican manufacture and the amount of tax paid thereon separately stated.

Under sections 275.139 and 275.141, the manufacturer in the United States who receives Puerto Rican tobacco products and cigarette papers and tubes, without payment of tax, under his bond, is required to keep separate supporting records and submit supplemen- tal monthly reports on Form 3068 or 2138, as the case may be, of the receipt and disposition of such articles.

Release of Puerto Rican tobacco materials from customs custody, without payment of tax. Under section 275.101, tobacco materials brought in from Puerto Rico may be released from customs custody, without payment of tax, for delivery to a dealer in tobacco materials or a manufacturer of tobacco products, under his bond. No internal revenue or customs form is provided to effect the release from customs custody of such tobacco materials. However, under section 275.145, the dealer or manufacturer in the United States shall have the tobacco materials consigned to him in care of the collector of customs at the port of entry, and shall certify in writing, under the penalties of perjury, to the collector of customs that he is a bonded dealer in tobacco materials or holds an internal revenue permit as a manufacturer of tobacco products, as applicable, and that he is authorized under the law (section 5704(d) of the Internal Revenue Code) to receive the tobacco materials. Such certification shall show the number of the dealer's establishment or, in the case of a manufacturer, his permit number. This certification, stamped by the collector of customs to show the date of release, will be returned to the dealer or manufacturer for retention.

Customs bonded manufacturing warehouses, class 6. Under section 275.151, a proprietor of a customs bonded manufacturing warehouse, class 6, will no longer pay the tax on cigars removed for domestic sale or consumption by return to the district director of internal revenue, but will pay such tax in accordance with customs procedures and regulations. The form prescribed by customs for this purpose is Form 7505, appropriately modified. One return (Form 7505) will cover all cigars withdrawn (released) on any day, and such return shall be filed on the first business day after the date of withdrawal. Where cigars are returned to a customs bonded warehouse, class 6, for withdrawal from the market, and for refund of the tax, the claim and schedule will continue to be filed with the assistant regional commissioner for the region in which the warehouse is located.

Inquiries. Inquiries in regard to this industry circular should refer to its number and be addressed to the office of your assistant regional commissioner (alcohol and tobacco tax).

Dwight E. Avis

Director, Alcohol and Tobacco Tax Division

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