ATF

Sample Block


Bureau of Alcohol, Tobacco, Firearms and Explosives

Department of Treasury
Bureau of Alcohol, Tobacco, and Firearms

TD ATF-390
 Implementation of Public Law 104-188, Section 1702, Amendments  Related to Revenue Reconciliation Act of 1990 (96R-028P)

AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of 
the Treasury.

ACTION: Temporary rule (Treasury decision).

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SUMMARY: This temporary rule implements some of the provisions of the 
Small Business Job Protection Act of 1996. The new law made changes to 
the small producers' wine tax credit and wine bond provisions in the 
Internal Revenue Code of 1986. The wine regulations are amended to 
extend the application of the credit to ``transferees in bond'' 
(proprietors who store wine for a small producer but who do not hold 
title to such wine) in certain circumstances, and to make conforming 
changes to the bond computation instructions, which were also affected 
by the law change. In the Proposed Rules section of this Federal 
Register, ATF is also issuing a notice of proposed rulemaking inviting 
comments on the temporary rule for a 60-day period following the 
publication of this temporary rule.

EFFECTIVE DATES: The temporary regulations are retroactive to January 
1, 1991. The regulations will remain in effect until superseded by 
final regulations.

ADDRESSES: Send written comments to: Chief, Wine, Beer & Spirits 
Regulations Branch, Bureau of Alcohol, Tobacco and Firearms, P.O. Box 
50221, Washington, DC 20091-0221.

FOR FURTHER INFORMATION CONTACT: Marjorie D. Ruhf, Wine, Beer & Spirits 
Regulations Branch, 650 Massachusetts Avenue, NW., Washington, DC 
20226, (202) 927-8230.

SUPPLEMENTARY INFORMATION:

Background

Tax Credits for Certain Proprietors of Bonded Wine Premises

    The Revenue Reconciliation Act of 1990, Title XI of Public Law 101-
508, 104 Stat. 1388-400, was enacted on November 5, 1990. Section 11201 
of this law increased the rate of tax on still wines and artificially 
carbonated wines removed from bonded premises or Customs custody on or 
after January 1, 1991. The tax rates on these products were increased 
by 90 cents per wine gallon. The law did not increase the tax rate on 
champagne and other sparkling wines.
    In addition to the above-referenced increased rates of tax, section 
11201 provided that small domestic producers of wine are entitled to a 
credit of up to 90 cents per wine gallon on the first 100,000 gallons 
of wine (other than champagne and other sparkling wines) removed for 
consumption or sale during a calendar year. This credit may be taken by 
a bonded wine premises proprietor who does not produce more than 
250,000 gallons of wine in a given calendar year. The 90 cents per wine 
gallon credit is equivalent to the amount by which the tax on wine was 
increased by the Revenue Reconciliation Act of 1990. However, the full 
credit of 90 cents per gallon is reduced 1 percent ($.009 per gallon) 
for each thousand gallons of wine over 150,000 gallons which are 
produced in a year, until the full increased tax rate is reached.
    On December 11, 1990, ATF issued regulations implementing the small 
producers' wine tax credit. See T.D. ATF-307, 55 FR 52723. The 
regulations appearing at 27 CFR 24.278 implement the tax credit for 
small domestic producers. The regulations in 27 CFR 24.279 explain the 
procedure for making adjustments to tax returns as a result of claiming 
an incorrect credit rate.
    On August 9, 1991, ATF issued Industry Circular 91-9 to announce an 
ATF ruling (subsequently published as ATF Ruling 92-1 (A.T.F.Q.B. 1992-
3, 55)), which held that the small producer's wine tax credit is 
available only to eligible proprietors engaged in the business of 
producing wine. A proprietor who has a basic permit to produce wine but 
does not produce wine during a calendar year may not take the small 
producers' wine tax credit on wine removed during such

[[Page 29664]]

calendar year. A proprietor who has obtained a new wine producers' 
basic permit may not take the small producers' wine tax credit on wine 
removed until wine is produced by such proprietor. The provisions of 
that ruling are hereby incorporated into 27 CFR 24.278(a) and the 
ruling is declared obsolete.

Public Law 104-188

    On August 20, 1996, the Small Business Job Protection Act of 1996, 
Public Law 104-188, 110 Stat. 1755, was enacted. Section 1702 of the 
Act contains amendments to the Revenue Reconciliation Act of 1990, 
including some provisions which affect small wine producers. The law 
provides that the amendments made by section 1702 shall take effect as 
if included in the provision of the Revenue Reconciliation Act of 1990 
to which such amendment relates. Section 11201 of the Revenue 
Reconciliation Act, which contained the small producers' wine tax 
credit provision, was effective for wine removed after January 1, 1991. 
Accordingly, the amendments made in this regulation have been made 
retroactive to January 1, 1991.
    Before the enactment of Public Law 104-188, small wine producers 
were eligible to take the small producers' wine tax credit only on wine 
removed for consumption or sale by that producer; if the producer 
transferred wine in bond to another bonded wine premises (a transferee 
in bond) for storage pending subsequent removal by the transferee, then 
the producer could not claim a credit on that wine, since the producer 
had not removed the wine for consumption or sale. If the transferee was 
not eligible for the small producers' wine tax credit (i.e., it did not 
produce wine at all, or it produced more than 250,000 gallons of wine), 
then there was no eligibility for the credit. Even if the transferee 
produced wine and was eligible for credit in its own right, its 
eligibility was limited to the first 100,000 gallons removed during the 
year. In order to receive the credit, some small wineries began to 
taxpay their wines at the time of removal, and store the wines taxpaid 
instead of transferring them in bond.
    Public Law No. 104-188 amended 26 U.S.C. 5041(c) to allow the 
credit to be taken by ``transferees in bond'' on behalf of their small 
producer clients. As amended, 26 U.S.C. 5041(c) provides that where 
wine would be eligible for the small producer credit if removed by the 
producer, and such wine is transferred in bond to another person (the 
transferee) who removes such wine during such calendar year, the 
transferee (and not the producer) may be eligible for the small 
producer credit under certain prescribed circumstances. The law 
requires that the producer must hold title to the wine at the time of 
its removal and must provide to the transferee such information as is 
necessary to properly determine the transferee's credit under this 
paragraph. The statutory language thus limits the application of the 
credit to transferees in bond receiving wine from the actual producer 
of the wine in question, and not from a subsequent owner who may also 
be a small producer. Production is already defined in 27 CFR 24.278 for 
purposes of establishing eligibility for wine credit.
    A definition of removals is hereby added in 27 CFR 24.278(e)(2). As 
amended, 26 U.S.C. 5041(c)(6) provides that, when the producer elects 
to transfer the credit, the transferee (and not the producer) will be 
eligible for the credit. Therefore, the credit eligibility of the small 
producer is still limited to the first 100,000 gallons removed for 
consumption or sale during a calendar year, whether the removal is from 
its own premises or from the premises of a transferee in bond using the 
producer's credit on the producer's instructions.
    Another condition of the new credit provision is that the producer 
must give the transferee ``such information as is necessary to properly 
determine the transferee's credit.'' A new regulation in 27 CFR 
24.278(b)(2)(D) sets forth what information is required. The regulatory 
requirement to transmit taxpayment instructions ``in writing'' may be 
satisfied by any form of electronic transmission available to the 
producer and transferee, as long as a permanent copy is filed with the 
records required to be maintained in support of tax return and claim 
information by both the producer and the transferee.

Liability for Additional Tax

    Pursuant to 26 U.S.C. 5043, the proprietor of a bonded wine cellar 
is liable for the tax on any wines removed from such premises. Section 
5362(b) provides that wine may be withdrawn without payment of tax for 
transfer in bond between bonded premises. When such a transfer occurs, 
section 5043(a)(1)(A) provides that the liability for payment of the 
tax shall become the liability of the transferee from the time of 
removal of the wine from the transferor's premises, and the transferor 
shall thereupon be relieved of such liability.
    Thus, where a small producer transfers wine in bond to a bonded 
wine cellar, and the bonded wine cellar thereupon removes the wine, it 
is the transferee and not the transferor that is liable for the tax. 
Since the small producers' wine tax credit rate each year is based on 
the level of production during the same calendar year, and the total 
production is not known until the close of the year, adjustments to the 
credit rate are sometimes needed. If ATF determines, for example, that 
a transferee took the small producer credit for a certain quantity of 
wine, and the small producer subsequently disqualified itself for the 
credit by producing more than 250,000 wine gallons during that calendar 
year, it is the transferee that will be responsible for paying the 
additional tax liability and any applicable interest or penalties 
arising out of such an underpayment of tax. Transferees may wish to 
take this into account when making contractual arrangements with small 
wine producers.
    Increasing adjustments are required if a person produces more wine 
than anticipated when the credit was computed, or if the person fails 
to produce wine during the calendar year and loses eligibility for such 
credit after claiming it. The regulations in 27 CFR 24.279(a) cover 
increasing adjustments as they relate to the small producer's own 
removals, and this section is being expanded to reflect adjustments to 
credits taken by a transferee in bond. If excess credits are taken by 
the transferee based on information received from a producer, the 
transferee is responsible for making the necessary increasing 
adjustment, with interest. The section on increasing adjustments is 
also being amended to differentiate between the excess credits 
discussed above, which are the result of a good faith estimate of 
future production, and excess credits taken after the 100,000 gallon 
maximum has been reached. The latter excess credits result from 
careless recordkeeping of current removals, and not from an inability 
to predict exact annual production. As revised, 27 CFR 24.279 notes 
that the regional director (compliance) has the discretion to impose a 
penalty on excess credits which result from carelessness.
    A decreasing adjustment may be claimed if a person qualifies for 
the credit but does not deduct it, or deducts less than the full credit 
for which such person is eligible. Since the person who paid the tax 
(in this case the transferee) must claim a refund or credit of such 
tax, yet was most likely reimbursed for the tax by the producer, we 
note that the provisions of 26 U.S.C. 6423 and 27 CFR part 70, subpart 
E (recently recodified from 27 CFR part 170, subpart E) will apply to 
such requests for refund. Using information provided by the producer,

[[Page 29665]]

the transferee must show (1) that the owner of the article (the 
producer) has furnished the transferee with the amount claimed for 
payment of the tax, (2) the owner has given its written consent to the 
allowance of the credit or refund to the transferee, and (3) the owner 
bore the ultimate burden of the tax (i.e., did not pass on the burden 
of the tax to the consumer as part of the sale price of the product), 
or unconditionally repaid the amount claimed to the person who bore the 
ultimate burden of the tax. The procedure in 27 CFR 24.279(b) for 
claiming credit or refund of taxes to reflect increases in small 
producers' wine tax credit eligibility has been modified to take 
transferees in bond into account.

Disclosure Issues

    Both small wine producers and transferees in bond should note that 
at times it will be necessary for ATF to disclose information 
concerning the tax liability of the small wine producer to the 
transferee who actually claimed the small producer credit, in order to 
explain the basis for additional assessments or other adjustments to 
the transferee's tax liability. In general, 26 U.S.C. 6103 prohibits 
the disclosure of tax returns or return information to anyone other 
than the taxpayer unless the taxpayer has consented to such a 
disclosure. However, 26 U.S.C. 6103(h)(4)(C) allows the disclosure of a 
return or return information in a Federal judicial or administrative 
proceeding pertaining to tax administration, if such return or return 
information directly relates to a transactional relationship between a 
person who is a party to the proceeding and the taxpayer which directly 
affects the resolution of an issue in the proceeding. It is ATF's 
position that any audit or inspection of the transferee's tax liability 
is an administrative proceeding pertaining to tax administration. Thus, 
the law authorizes ATF to disclose to the transferee information 
pertaining to the credit eligibility of the producer in cases where it 
directly relates to credits taken by the transferee on the instructions 
of the small producer, which directly affects the resolution of the 
issue of the tax liability of the transferee. See generally First 
Western Government Securities, Inc. v. United States, 796 F.2d 355 
(10th Cir. 1986).

Claims for Refund or Credit

    As previously noted, section 1702(i) of the Small Business Job 
Protection Act of 1996 provides that the amendments made by section 
1702 of the Act shall take effect as if included in the provision of 
the Revenue Reconciliation Act of 1990 to which such amendment relates. 
Section 11201 of the Revenue Reconciliation Act, which contained the 
small wine producer credit provision, was effective for wine removed 
after January 1, 1991. Accordingly, the amendments made in this 
regulation have been made retroactive to January 1, 1991. However, 
since the law did not contain any language explicitly or implicitly 
waiving the statute of limitations for filing claims for credit or 
refund, the applicable statutory period provided for in 26 U.S.C. 6511 
and 27 CFR 70.261 will still apply. See, e.g., United States v. Zacks, 
375 U.S. 59 (1963). In most cases, this means that claims must be filed 
within 3 years after the due date of the tax return to which they 
relate.

Other Changes Made by the Small Business Job Protection Act of 1996

    The cross reference to 26 U.S.C. 5041(e) in 26 U.S.C. 5061(b)(3) 
was amended to read ``section 5041(f)'' because paragraph 5041(e) was 
redesignated as 5041(f) when the wine credit provisions were added in 
1990. No conforming changes to the regulations are needed.
    Finally, the wine bond requirement was amended to note that the 
appropriate credit should be taken into account in computing the penal 
sum of the bond, and this document makes a conforming change to 27 CFR 
24.148. We note that, pursuant to ATF Ruling 92-1 (A.T.F.Q.B. 1992-3, 
55), now incorporated into 27 CFR 24.278(a), a new proprietor may not 
take credit against wine tax until such proprietor actually produces 
wine and establishes its eligibility as a small producer. Therefore, 
new proprietors may be asked to file bonds at the full tax rate if they 
plan to sell wine received in bond or transferred from a predecessor 
before they produce wine and qualify for the small producers' wine tax 
credit.

Regulatory Flexibility Act

    It is hereby certified that these regulations will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not required. Any 
revenue effects of this rulemaking on small businesses flow directly 
from the underlying statute. Likewise, any secondary or incidental 
effects, and any reporting, recordkeeping, or other compliance burdens 
flow directly from the statute. Pursuant to 26 U.S.C. 7805(f), this 
temporary regulation will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Executive Order 12866

    It has been determined that this temporary rule is not a 
significant regulatory action as defined by Executive Order 12866, 
because any economic effects flow directly from the underlying statute 
and not from this temporary rule. Therefore, a regulatory assessment is 
not required.

Paperwork Reduction Act

    This regulation is being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the new collection of information contained in this 
regulation has been reviewed under the requirements of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(j)) and, pending receipt and 
evaluation of public comments, approved by the Office of Management and 
Budget (OMB) under control number 1512-0540. An agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid control number assigned by the 
Office of Management and Budget.
    The collections of information in this regulation are in 27 CFR 
24.278 and 24.279 (previously approved under OMB Control Number 1512-
0492). This information is required to advise the transferee of any 
available credit, and to support entries on tax returns and claims. 
This information will be used by the transferee and the small producer 
to compute taxes or claims and may also be reviewed by ATF during an 
audit to confirm that wine tax credits were properly taken. The 
collections of information are required to obtain a benefit (reduced 
rate of tax). The likely recordkeepers are businesses and small 
businesses.
    For further information concerning these collections of 
information, and where to submit comments on the collections of 
information, refer to the preamble to the cross reference notice of 
proposed rulemaking published elsewhere in this issue of the Federal 
Register.

Administrative Procedure Act

    Because this document merely implements a law which is retroactive 
to January 1, 1991, and because immediate guidance is necessary to 
implement the provisions of the law, it is found to be impracticable to 
issue this Treasury decision with notice and public procedure under 5 
U.S.C. 553(b),

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or subject to the effective date limitation in section 553(d).
    Drafting Information: The principal author of this document is 
Marjorie Ruhf, Wine, Beer & Spirits Regulations Branch, Bureau of 
Alcohol, Tobacco and Firearms.

List of Subjects in 27 CFR Part 24

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

Authority and Issuance

    Chapter I of title 27, Code of Federal Regulations is amended as 
follows:

PART 24--WINE

    Paragraph 1. The authority citation for 27 CFR part 24 continues to 
read as follows:

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

    Par. 2. Section 24.148 is revised to read as follows:


Sec. 24.148  Penal sums of bonds.

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

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

(26 U.S.C. 5354, 5362)
    Par. 3. Section 24.278 is revised and the OMB authorization number 
is added to read as follows:


Sec. 24.278  Tax credit for certain small domestic producers.

    (a) General. In the case of a person who produces not more than 
250,000 gallons of wine during the calendar year, there shall be 
allowed as a credit against any tax imposed by Title 26, U.S.C. (other 
than Chapters 2, 21 and 22), an amount computed in accordance with 
paragraph (d) of this section, on the first 100,000 gallons of wine 
(other than champagne and other sparkling wine) removed during such 
year for consumption or sale. Such credit applies only to wine which 
has been produced at a qualified bonded wine premises in the United 
States. The small wine producer's tax credit is available only to 
eligible proprietors engaged in the business of producing wine. A 
proprietor who has a basic permit to produce wine but does not produce 
wine during a calendar year may not take the small producers' wine tax 
credit on wine removed during such calendar year. A proprietor who has 
obtained a new wine producers' basic permit may not take the small 
producers' wine tax credit on wine removed until wine is produced by 
such proprietor. ``Wine production operations'' include those 
activities described in paragraph (e) of this section.
    (b) Special rules relating to eligibility for wine credit--(1) 
Controlled groups. For purposes of this section and Sec. 24.279, the 
term ``person'' includes a controlled group of corporations, as defined 
in 26 U.S.C. 1563(a), except that the phrase ``more than 50 percent'' 
shall be substituted for the phrase ``at least 80 percent'' wherever it 
appears. Also, the rules for a ``controlled group of corporations'' 
apply in a similar fashion to groups which include partnerships and/or 
sole proprietorships. Production and removals of all members of a 
controlled group are treated as if they were the production and 
removals of a single taxpayer for the purpose of determining what 
credit may be used by a person.
    (2) Credit for transferees in bond. A person other than an eligible 
small producer (hereafter in this paragraph referred to as the 
``transferee'') shall be allowed the credit under paragraph (a) of this 
section which would be allowed to the producer if the wine removed by 
the transferee had been removed by the producer on that date, under the 
following conditions:
    (i) Wine produced by any person would be eligible for any credit 
under this section if removed by such person during the calendar year,
    (ii) Wine produced by such person is removed during such calendar 
year by the transferee to whom such wine was transferred in bond and 
who is liable for the tax imposed by this section with respect to such 
wine, and
    (iii) Such producer holds title to such wine at the time of its 
removal and provides to the transferee such information as is necessary 
to properly determine the transferee's credit under this paragraph.
    (iv) At the time of taxable removal, the following information 
shall be provided to the transferee by the producer, in writing, and 
the producer and transferee shall each retain a copy with the record of 
taxpaid removal from bond required by Sec. 24.310:
    (A) The names of the producer and transferee;
    (B) The quantity and tax class of the wines to be shipped;
    (C) The date of removal from bond for consumption or sale;
    (D) A confirmation that the producer is eligible for credit, with 
the credit rate to which the wines are entitled; and
    (E) A confirmation that the subject shipment is within the first 
100,000 gallons of eligible wine removed by (or on behalf of) the 
producer for the calendar year.

[[Page 29667]]

    (c) Time for determining and allowing credit. The credit allowable 
by paragraph (a) of this section shall be determined at the same time 
as the tax is determined under 26 U.S.C. 5041(a), and shall be 
allowable at the time any tax described in paragraph (a) of this 
section is payable. The credit allowable by this section is treated as 
if it constituted a reduction in the rate of such tax.
    (d) Computation of credit. The credit which may be taken on the 
first 100,000 gallons of wine (other than champagne and other sparkling 
wine) removed for consumption or sale by an eligible person during a 
calendar year shall be computed as follows:
    (1) For persons who produce 150,000 gallons or less of wine during 
the calendar year, the credit is $0.90 per gallon for wine eligible for 
such credit at the time it is removed for consumption or sale;
    (2) For persons who produce more than 150,000 gallons but not more 
than 250,000 gallons during the calendar year, the credit shall be 
reduced 1 percent ($0.009) for every 1,000 gallons produced in excess 
of 150,000 gallons. For example, the credit which would be taken by a 
person who produced 159,500 gallons of wine would be reduced by 9 
percent, or $0.081, for a net credit against the tax of $0.819 per 
gallon for the first 100,000 gallons of wine removed for consumption or 
sale.
    (e) Definitions--(1) Production. For the purpose of determining if 
a person's production is within the 250,000 gallon limitation, in 
addition to wine produced by fermentation, production includes any 
increases in the volume of such wine due to the winery operations of 
amelioration, wine spirits addition, sweetening, and the production of 
formula wine. Production of champagne and other sparkling wines is not 
excluded for purposes of determining whether total production of a 
winery exceeds 250,000 gallons. Production includes all wine produced 
at qualified bonded wine premises within the United States and wine 
produced outside the United States by such person.
    (2) Removals. For the purpose of determining if a person's removals 
are within the 100,000 gallon limitation, removals include wine removed 
from all qualified bonded wine premises within the United States by 
such person. Wine removed by a transferee in bond under the provisions 
Sec. 24.278(b)(2) will be counted as a removal by the small producer 
who owns such wine, and not by the transferee in bond.
    (f) Preparation of tax return. A person who is eligible for the 
credit shall show the amount of wine tax before credit on the Excise 
Tax Return, ATF F 5000.24, and enter the quantity of wine subject to 
credit and the applicable credit rate as the explanation for an 
adjusting entry in Schedule B of the return for each tax period. Where 
a person does not use the credit authorized by this section to directly 
reduce the rate of Federal excise tax on wine, that person shall report 
on ATF F 5000.24 where such credit will be, or has been, applied. Where 
a transferee in bond takes credit on behalf of one or more small 
producers, the names of such producers, their credit rate, and the 
total credit taken on behalf of each during the tax return period shall 
be shown in schedule B.
    (g) Denial of deduction. Any deduction under 26 U.S.C. chapters 1-
6, with respect to any tax against which the credit is allowed under 
paragraph (a) of this section shall only be for the amount of such tax 
as reduced by such credit.
    (h) Exception to credit. The regional director (compliance) shall 
deny any tax credit taken under paragraph (a) of this section where it 
is determined that the allowance of such credit would benefit a person 
who would otherwise fail to qualify for the use of such credit. (26 
U.S.C. 5041(c).)

(Approved by the Office of Management and Budget under control 
number 1512-0540)

    Par. 4. Section 24.279 is revised and the OMB authorization number 
is added to read as follows:


Sec. 24.279  Tax adjustments related to wine credit.

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

(Approved by the Office of Management and Budget under control 
number 1512-0492)

    Signed: December 23, 1996.
John W. Magaw,
Director.

    Approved: January 3, 1997.
Dennis M. O'Connell,
Acting Deputy Assistant Secretary (Regulatory, Tariff and Trade 
Enforcement).
[FR Doc. 97-14308 Filed 5-30-97; 8:45 am]
BILLING CODE 4810-31-P