Industry Circular

Number: 60-25

Date: June 7, 1960

Office of the Commissioner of Internal Revenue Alcohol and Tobacco Tax Division

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EXPORT REGULATIONS 26 CFR PART 290

Manufacturers of tobacco products and cigarette papers and tubes; dealers in tobacco materials; proprietors of export warehouses; and proprietors of customs bonded cigar manufacturing warehouses, class 6:

Purpose. This industry circular is to call to your attention the new internal revenue tobacco export regulations in 26 CFR Part 290, which become effective July 1, 1960, and to furnish information to assist you in the transition from the superseded regulations to the new regulations.

Background. The new regulations implement the Internal Revenue Code of 1954, as amended by the Excise Tax Technical Changes Act of 1958. They bring together in one part the internal revenue regula- tions relating to the exportation (including supplies for vessels and aircraft) of tobacco materials, tobacco products, and cigarette papers and tubes, without payment of tax; the qualification of, and operations by, export warehouse proprietors; and the allowance of drawback on tax- paid tobacco products and cigarette papers and tubes exported. A reprint of the regulations, as published in the Federal Register on May 28, 1960, is attached, and the following comments highlight the areas of significant effect.

Supplies for Vessels. Under section 290.62, tax-exempt tobacco products and cigarette papers and tubes may be delivered as supplies, for consumption beyond the jurisdiction of the internal revenue laws, to vessels engaged in foreign, intercoastal, or noncontiguous territory trade when such vessels are operating on a regular schedule in trade or actually transporting passengers and/or cargo; to vessels clearing through customs for a port beyond the jurisdiction of the internal revenue laws of the United States; to vessels of war or other govern- mental activity; and to vessels engaged in the fishing business.

Under this section, if the quantity of tobacco products or cigarette papers or tubes to be laden appears to be excessive for the intended voyage, the customs authorities at the port may require the master of the receiving vessel to submit an application on Customs Form 5127 for authorization to lade the articles. Any portion of the shipment not laden must be either returned to the factory or the ware- house in accordance with the provisions of sections 290.210 or 290.267 or otherwise disposed of as authorized by the assistant regional com- missioner. A copy of the Form 5127 will be returned to you by the Collector of Customs with the certified copy of the notice of removal,

Form 2149 or 2150. Please see that the Form 5127 is attached to the notice of removal when you file the notice with the assistant regional commissioner.

Vessels engaged in the fishing business no longer need "touch and trade" permits in order to take aboard tax-exempt tobacco products or cigarette papers or tubes for use as supplies.

Supplies for Aircraft. Under section 290.62, tax-exempt tobacco products and cigarette papers and tubes maybe delivered as supplies, for consumption beyond the jurisdiction of the internal revenue laws of the United States, to aircraft clearing through customs en route to a place or places beyond the jurisdiction of these internal revenue laws and to aircraft operating on a regular schedule between United States customs areas as defined in the Air Commerce Regulations (19 CFR Part 6).

Relief from Liability for Tax. Under section 290.66, manufac- turers and export warehouse proprietors are relieved from liability for the tax on tobacco products and cigarette papers and tubes when they furnish the assistant regional commissioner satisfactory evidence of exportation or proper delivery of the articles. Therefore, the notices of removal, Form 2149 or 2150, returned to you in accordance with the provisions of Subpart J, should be forwarded promptly to the assistant regional commissioner. Unless this evidence is received by him within the prescribed period of 90 days, or any authorized extended period, the tax becomes immediately due and payable under the provisions of section 290.67.

Export Warehouse Proprietors Currently Qualified. Because the permits issued under the Interim Regulations Relating to Export Ware- houses (Subpart D of 26 CFR Part 296) continue in effect, there is no general requirement for requalification when Part 290 becomes effective.

Operations by Export Warehouse Proprietors. Under section 290.141, a sign must be placed on the outside of the building in which an export warehouse is located, or at the entrance thereof, showing the name under which the proprietor operates and either the type of business (Export Warehouse Proprietor) or his permit number.

Under section 290.142, complete and adequate records are to be maintained by an export warehouse proprietor showing the date, kind, and quantity of tobacco products and cigarette papers and tubes received, removed, transferred, destroyed, lost, or returned to manufacturers or customs warehouse proprietors. No particular form of records is prescribed, but the information required must be readily ascertainable. In addition to these records, a copy of each notice, Form 2149 or 2150, covering the receipt of tobacco products or cigarette papers or tubes and a copy of each notice, Form 2150, covering the removal of such articles are also required to be kept.

Under section 290.143, an export warehouse proprietor furnishes an inventory, to the assistant regional commissioner, of the quantity of tobacco products and cigarette papers and tubes held by him at the time of commencing business, filing a superseding bond, transferring ownership, moving to another region, concluding business, and whenever required by an internal revenue officer.

The new report, Form 2140, to be submitted to the assistant regional commissioner at the times specified in sections 290.143 through 290.151, supersedes the more detailed report, Form 550-C, which required the reporting of individual receipts and removals. Please note that a report for each calendar month is required to be made not later than the 20th day of the succeeding month even though no operations or transactions occurred.

Sections 290.142, 290.143, and 290.147 specify the retention period for the records, inventories, and reports and require that they be made available for inspection by any internal revenue officer upon his request.

Under section 290.152, an export warehouse proprietor may file claim, in letter form, for the remission of tax liability on tobacco products and cigarette papers and tubes lost (otherwise than by theft) or destroyed, by fire, casualty, or act of God, before removal from the export warehouse or after removal for tax-exempt purposes, while such articles are in the possession or ownership of the export ware- house proprietor.

Exportation of Tobacco Materials by Dealers in Tobacco Materials. Under section 290.171 and 290.172, dealers who export tobacco materials prepare an extra copy of the shipper's export declaration, Commerce Form 7525-V, for each shipment, which copy, after completion by the customs authorities at the port, is to be returned to the dealer for retention as a part of his records and for presentation to the internal revenue officer at the time of inspection of the dealer's establishment. In those instances where tobacco materials are exported by parcel post and no shipper's export declaration is required, the dealer must secure, at the time the packages are presented for mailing, a receipt on Post Office Department Form 3817 for retention as a part of his records.

Please note that internal revenue tobacco invoice, Form 774, has been discontinued; also, a copy of Commerce Form 7525-V is no longer required to be filed with the Internal Revenue Service.

Packages. Under section 290.181, all tobacco products and cigarette papers and tubes are to be put up in packages before removal from the factory for export purposes (including supplies for vessels and aircraft and supplies for use of the armed forces overseas).

Mark Label or Notice, and Class Designation. Under sections 290.184, 290.185 and 290.186, packages of tobacco products must show the following:

1. Name and location, or the permit number, of the manufacturer.
2. Quantity of manufactured tobacco or number of cigars or cigarettes.
3. The words "Tax-exempt. For Use outside U. S." or "U. S. Tax-exempt. For use outside U. S." except where a stamp, sticker, or notice required by a foreign country or a possession of the United States, which identifies such country or possession, is used.
4. In the case of large cigars, the class designation.

Shipping Containers. Under section 290.187, each shipping con- tainer in which tobacco materials, tobacco products, or cigarette papers or tubes are removed must bear a distinguishing number assigned either by the manufacturer or by the export warehouse proprietor.

Procedure for Removals by Manufacturers and Export Warehouse Proprietors. Provisions are made in sections 290.198 through 290.213 for manufacturers and export warehouse proprietors to prepare and transmit the notices of removal, Forms 2149 and 2150, covering the transfer or removal of tobacco materials, tobacco products, and ciga- rette papers and tubes for direct exportation or for delivery for sub- sequent exportation.

Section 290.200 provides for the transfer of tobacco products and cigarette papers and tubes from a factory to an export warehouse and between export warehouses. As an informational guide, a list of the proprietors of export warehouses operating under permits on January 1, 1960, will be furnished to all export warehouse proprietors and to manufacturers who presently remove shipments for export purposes.

Under sections 290.203 and 290.205, relating to the shipment of tobacco materials, tobacco products, and cigarette papers and tubes to foreign countries and possessions of the United States, the notice of removal, Form 2149 or 2150, should be filed with the related shipper's export declaration, Commerce Form 7525-V. This concurrent filing of the notice of removal with the shipper's export declaration is not mandatory but is preferred because we are assured that such filing will assist the customs authorities in processing the forms. This procedure, and the elimination of the requirement for customs officers' inspection and supervision of lading of export shipments, should result in an earlier certification of the forms to evidence exportation and the return of the forms to you.

Section 290.207 provides for the filing with the collector of customs of Form 2149 or 2150, as appropriate, to cover the removal of tobacco products and cigarette papers and tubes for delivery to vessels and aircraft entitled to receive such articles for consump- tion as supplies beyond the jurisdiction of the internal revenue laws of the United States. To insure proper processing of the forms at the customhouse, we urge that in preparing the forms you insert the word "SUPPLIES" in item 7, in addition to 'the required informa- tion.

Provision is made in section 290.210 for the return to the factory or export warehouse of tobacco materials, tobacco products, or cigarette papers or tubes previously removed therefrom, before lading, or after lading if such materials or articles have not been beyond the juris- diction of the internal revenue laws of the United States (i.e., the 3-mile limit or international boundary). However, such materials or articles which are returned after having been beyond the jurisdiction of the internal revenue laws of the United States are subject to treatment under the tariff laws of the United States administered by the Bureau of Customs.

Drawback of Tax. Subpart K provides for the allowance of drawback of tax when taxpaid tobacco products and cigarette papers and tubes are exported and the person who paid the tax files claim and otherwise complies with the provisions of the regulations.

Withdrawal of Cigars from Customs Bonded Manufacturing Warehouses. Subpart L provides for the withdrawal of cigars from customs bonded manufacturing warehouses, class 6, for exportation or for delivery for subsequent exportation when the customs warehouse proprietor has on file an internal revenue bond, Form 2100, or submits a bond on Form 2104 in accordance with section 290.243. Requirements relating to packages and the preparation and transmission of the notices of removal, Form 2149, are similar to the requirements in Subpart J with respect to the removal of tobacco products and cigarette papers and tubes by domestic manufacturers and export warehouse proprietors.

The duty paid by a customs warehouse proprietor on the tobacco used in the manufacture of cigars may not be recovered when the cigars are exported under the provisions of Subpart L.

Supplies of Forms 2140, 2149, and 2150. A supply of the monthly report, Form 2140, and the notice of removal, Form 2150, will be furnished to each export warehouse proprietor and a supply of the notice of removal, Form 2149, will be furnished to each manufacturer and customs warehouse proprietor who presently exports tobacco materials, tobacco products, or cigarette papers or tubes, in sufficient time to permit their use on the effective date of the regulations. Additional

supplies of these forms may be obtained from your assistant regional commissioner (alcohol and tobacco tax). Superseded Regulations. The regulations in 26 CFR Part 290 will, on July 1, 1960, supersede the provisions of regulations in:

1. 26 CFR (1939) Part 140 (Regulations 8) insofar as it relates to the exportation of tobacco materials, tobacco products, and cigarette papers and tubes;
2. 26 CFR (1939) Part 141 (Regulations 76);
3. 26 CFR (1939) Part 142 (Treasury Decision 5438);
4. 26 CFR (1939) Part 451 (Regulations 73) insofar as it relates to tobacco products; and
5. Subpart D of 26 CFR Part 296 which prescribes interim regulations relating to the qualification of persons engaging in or commencing to engage in business as an export warehouse proprietor.

Superseded Forms. The application for withdrawal and entry for exportation, Form 550, the notices of removal, Forms 550-A and 550-B, the monthly report, Form 550-C, and the internal revenue tobacco invoice, Form 774, become obsolete on July 1, 1960. Please destroy any supply of the unused forms you may have on hand.

Inquiries. Inquiries regarding this 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