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).



-----------------------------------------------------------------------



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 The regulations will remain in effect until superseded by 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),



[[Page 29666]]



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:



----------------------------------------------------------------------------------------------------------------

                                                                                                Penal sum       

                Bond                                        Basis                      -------------------------

                                                                                          Minimum      Maximum  

----------------------------------------------------------------------------------------------------------------

(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.                             

----------------------------------------------------------------------------------------------------------------

* 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