[Federal Register: April 15, 2005 (Volume 70, Number 72)]
[Rules and Regulations]
[Page 19888-19890]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15ap05-4]
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DEPARTMENT OF THE TREASURY
Alcohol and Tobacco Tax and Trade Bureau
27 CFR Part 45
[T.D. TTB-26]
RIN 1513-AA99
Removal of Tobacco Products and Cigarette Papers and Tubes,
Without Payment of Tax, for United States Use in Law Enforcement
Activities
AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury.
ACTION: Temporary rule; solicitation of comments.
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SUMMARY: The Department of the Treasury and the Alcohol and Tobacco Tax
and Trade Bureau adopt a temporary amendment to the regulations
relating to the removal of tobacco products and cigarette papers and
tubes, without payment of tax, for use of the United States. This
amendment allows manufacturers of tobacco products and cigarette papers
and tubes to remove these articles without payment of tax for use by
Federal agencies in their law enforcement activities, and to exempt
packages of those removed products from the tax-exempt labeling
requirement. We take this action to timely meet the needs of Federal
agency law enforcement operations, particularly investigations
involving tobacco product diversion and smuggling.
DATES: This temporary rule is effective April 15, 2005. We must receive
written comments on or before June 14, 2005.
ADDRESSES: You may send comments to any of the following addresses:
Chief, Regulations and Procedures Division, Alcohol and
Tobacco Tax and Trade Bureau, (Attn: T.D. TTB-26), P.O. Box 14412,
Washington, DC 20044-4412.
202-927-8525 (facsimile).
nprm@ttb.gov (e-mail).
http://www.ttb.gov/tobacco/rules/index.htm. (An online
comment form is posted with this temporary rule document on our Web
site).
http://www.regulations.gov (Federal e-rulemaking portal;
follow instructions for submitting comments).
You may view copies of this document and any comments we receive on
this temporary rule by appointment at the TTB Library, 1310 G Street
NW., Washington, DC 20220. To make an appointment, call 202-927-2400.
You may also access copies of this document and any comments received
online at http://www.ttb.gov/tobacco/rules/index.htm.
FOR FURTHER INFORMATION CONTACT: Linda Wade Chapman, Alcohol and
Tobacco Tax and Trade Bureau, Regulations and Procedures Division, 1310
G Street NW., Suite 200-E, Washington, DC 20220; telephone 202-927-
8210; or e-mail Linda.Chapman@ttb.gov.
SUPPLEMENTARY INFORMATION:
Background
Statutory and Regulatory Provisions
Section 5704(b) of the Internal Revenue Code of 1986 (26 U.S.C.
5704(b)) provides that a manufacturer may, among other things, remove
tobacco products and cigarette papers and tubes without payment of tax
for use of the United States, in accordance with regulations prescribed
by the Secretary of the Treasury. The regulations administered by the
Alcohol and Tobacco Tax and Trade Bureau (TTB) include, in part 45 (27
CFR part 45), provisions that implement this aspect of section 5704(b).
Section 45.31 of the TTB regulations (27 CFR 45.31) sets forth two
circumstances in which manufacturers of tobacco products and cigarette
papers and tubes may remove those articles for sale or donation to
Federal agencies without payment of Federal excise tax. Specifically:
In the case of articles purchased by a Federal agency with
funds appropriated by the U.S. Congress, the manufacturer may remove
the articles for delivery to the Federal agency for gratuitous
distribution under the supervision of the agency.
In the case of articles purchased by a donor from a
manufacturer or donated directly by a manufacturer, the manufacturer
may remove the articles for delivery to a Federal agency for gratuitous
distribution, under the supervision of the agency, to charges of the
United States or to patients in a hospital or institution operated by a
State Government or the District of Columbia where the Federal agency
maintains a program for distribution to members or veterans of the
armed forces of the United States in the hospital or institution.
Section 45.31 further provides that tobacco products and cigarette
papers and tubes removed under the provisions of part 45 may not be
sold subsequent to removal.
In addition, Sec. 45.46 of the TTB regulations (27 CFR 45.46)
provides that every package of tobacco products and cigarette papers
and tubes removed under part 45 must have the words ``Tax-Exempt. For
Use of U.S. Not To Be Sold.'' adequately imprinted on the package or on
a label securely affixed to the package.
The Need for Regulatory Change
Individuals and criminal organizations continue to engage in
criminal activities involving diversion of tobacco products from the
legal market and the smuggling of genuine and counterfeit tobacco
products. These activities often violate the Contraband Cigarette
Trafficking Act (18 U.S.C. 2341 et seq.), the Jenkins Act (15 U.S.C.
375 et seq.), or other statutory provisions, endanger the public, and
jeopardize Federal, State, and local government revenues. For example,
in 2002, a U.S. district court in North Carolina convicted several
people of smuggling large quantities of cigarettes from that State for
resale in higher-tax States in order to raise funds for a foreign
terrorist organization. In addition, in January 2004, an indictment
returned in El Paso, Texas, in response to a criminal investigation
charged a criminal group with smuggling over 107 million counterfeit
and properly trademarked cigarettes across the southern U.S. border,
thereby costing the Federal government and three State governments over
$8 million in lost tax revenue.
On numerous occasions, Federal law enforcement agencies--including
the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco,
Firearms, and Explosives, and the Bureau of Immigration and Customs
Enforcement--have used non-taxpaid tobacco products provided by a
manufacturer in undercover, sting, or other law enforcement activities.
Many tobacco product manufacturers are willing to provide Federal
agencies with tobacco products for use in law enforcement activities,
and we believe they should be able to remove those products without
payment of tax under 26 U.S.C. 5704(b). However, because Sec. 45.31
does not specifically authorize the tax-free removal of such goods for
Federal law enforcement purposes, these Federal agencies must ask the
manufacturer to apply to TTB for
[[Page 19889]]
approval of an alternate method or procedure under Sec. 45.21 of the
TTB regulations (27 CFR 45.21) to remove the tobacco products without
payment of tax and without the required tax-exempt label.
Section 45.21 permits TTB to approve variances from methods or
procedures specifically prescribed in part 45, provided that good cause
exists for the variance and that the variance is consistent with the
purpose and intended effect of the prescribed method or procedure. In
addition, the variance must afford equivalent security to the revenue,
not be contrary to law, not result in increased cost to the Government,
or hinder administration of part 45. In the case of law enforcement
activities, the variances relate to the limited uses and the post-
removal sale prohibition prescribed in Sec. 45.31 and the tax-exempt
label requirement in Sec. 45.46.
TTB has found that requests from manufacturers for tax-free
removals for Federal agencies' law enforcement activities meet the
criteria for a variance under Sec. 45.21. Consequently, we routinely
grant written requests for these variances on a case-by-case basis.
While we attempt to issue these variances as quickly as possible, this
case-by-case written approval process often is counter-productive in
the context of a fast-moving criminal investigation and unnecessarily
adds to the administrative workload of TTB and the cooperating tobacco
manufacturers.
Accordingly, we believe that it is appropriate to amend the
regulations to remove this administrative bottleneck. We also believe
that, for the reasons stated below, it is in the public interest to
implement these regulatory changes immediately as a temporary rule with
provision for the submission of public comments, which we will consider
before adoption of a final rule in this matter. This temporary rule
will eliminate the need for manufacturers of tobacco products and
cigarette papers and tubes to obtain a variance to remove their
products without payment of tax for use in a Federal law enforcement
operation. These changes will save Federal law enforcement agencies
valuable time in conducting their investigations and will not
jeopardize the general public or the revenue.
The supplying of tobacco products and cigarette papers and tubes by
manufacturers to Federal agencies will continue to be voluntary, and
these changes in the regulations do not impose additional cost,
compliance, or reporting burdens on manufacturers. In addition, the
temporary regulation does not preclude manufacturers from selling
tobacco products, without payment of tax, for use in a Federal law
enforcement operation.
Discussion of the Temporary Amendments
The amendments set forth in this document include a revision of
Sec. 45.31, which divides the section into paragraphs (a) and (b) in
order to accommodate the new provision allowing removals without
payment of tax for Federal law enforcement use and in order to improve
the readability of the section. Paragraph (a) includes the terms of the
existing first two sentences of the text as well as the new Federal law
enforcement removal provision. Paragraph (b) repeats the sale
prohibition terms of the last sentence of the existing text, but
includes an exception for Federal law enforcement removals under
paragraph (a)(3) when a sale is a necessary part of the law enforcement
activity.
In addition, we amend Sec. 45.46 by adding an exception clause at
the beginning of the text for articles removed pursuant to Sec.
45.31(a)(3). This exception is necessary because the tax-exempt label
required by Sec. 45.46 could interfere with the Federal agency's law
enforcement efforts.
Public Participation
Submitting Comments
We invite comments from interested members of the public on this
temporary rule. Please provide specific information in support of your
comments, and submit your comments by the closing date shown above in
this notice. Your comments must reference T.D. TTB-26 and must include
your name and mailing address. Your comments must be legible and
written in language acceptable for public disclosure. We do not
acknowledge receipt of comments, and we consider all comments as
originals. You may submit comments in one of five ways:
Mail: You may send written comments to TTB at the address
listed in the ADDRESSES section.
Facsimile: You may submit comments by facsimile
transmission to 202-927-8525. Faxed comments must--
(1) Be on 8.5- by 11-inch paper;
(2) Contain a legible, written signature; and
(3) Be no more than five pages long. This limitation assures
electronic access to our equipment. We will not accept faxed comments
that exceed five pages.
E-mail: You may e-mail comments to nprm@ttb.gov. Comments
transmitted by electronic mail must--
(1) Contain your e-mail address;
(2) Reference this notice number on the subject line; and
(3) Be legible when printed on 8.5- by 11-inch paper.
Online form: We provide a comment form with the online
copy of this temporary rule document on our Web site at http://www.ttb.gov/tobacco/rules/index.htm.
Select the ``Send comments via e-
mail'' link under this document number.
Federal e-Rulemaking Portal: To submit comments to us via
the Federal e-rulemaking portal, visit http://www.regulations.gov and
follow the instructions for submitting comments.
You may also write to the Administrator before the comment closing
date to ask for a public hearing. The Administrator reserves the right
to determine, in light of all circumstances, whether to hold a public
hearing.
Confidentiality
All submitted material is part of the public record and subject to
disclosure. Do not enclose any material in your comments that you
consider confidential or inappropriate for public disclosure.
Public Disclosure
You may view copies of this temporary rule document and any
comments we receive by appointment at the TTB Library at 1310 G Street,
NW., Washington, DC 20220. You may also obtain copies at 20 cents per
8.5- x 11-inch page. Contact our librarian at the above address or
telephone 202-927-2400 to schedule an appointment or to request copies
of comments.
For your convenience, we will post this document and any comments
we receive on this temporary rule on the TTB Web site. We may omit
voluminous attachments or material that we consider unsuitable for
posting. In all cases, the full comment will be available in the TTB
Library. To access the online copy of this temporary rule and any
posted comments, visit http://www.ttb.gov/tobacco/rules/index.htm.
Select the ``View Comments'' link under this document number to view
the posted comments.
Regulatory Flexibility Act
Because no notice of proposed rulemaking is required for a
temporary rule, the provisions of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.) do not apply.
Executive Order 12866
This temporary rule is not a significant regulatory action as
defined by Executive Order 12866. Therefore, it requires no regulatory
analysis.
[[Page 19890]]
Inapplicability of Prior Notice and Comment and Delayed Effective Date
Procedures
This temporary rule merely implements an existing agency practice
by facilitating the removal, without Federal tax, of tobacco products
and cigarette papers and tubes for the use of Federal agencies in law
enforcement operations. The regulatory changes address immediate needs
of Federal law enforcement agencies and relieve an existing
administrative burden on TTB and tobacco industry members. In addition,
the supplying of tobacco products and cigarette papers and tubes by
manufacturers to Federal agencies continues to be voluntary, and this
regulatory change would only ease an existing burden on manufacturers
who wish to provide their products for this purpose. Accordingly,
pursuant to 5 U.S.C. 553(b)(B), we have determined that prior public
notice and comment procedures on this regulation are unnecessary and
contrary to the public interest. For the same reasons, pursuant to 5
U.S.C. 553(d) (1) and (3), we find that there is good cause for
dispensing with a delayed effective date.
Drafting Information
The principle author of this document is Linda Wade Chapman,
Regulations and Procedures Division, Alcohol and Tobacco Tax and Trade
Bureau.
List of Subjects in 27 CFR Part 45
Authority delegations (Government agencies), Cigars and cigarettes,
Excise taxes, Labeling, Packaging and containers, Reporting and
recordkeeping requirements, Tobacco.
Amendments to the Regulations
0
For the reasons discussed in the preamble, we amend part 45 of the TTB
regulations (27 CFR part 45) as follows:
PART 45--REMOVAL OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND
TUBES, WITHOUT PAYMENT OF TAX, FOR USE OF THE UNITED STATES
0
1. The authority citation for part 45 continues to read as follows:
Authority: 26 U.S.C. 5703, 5704, 5705, 5723, 5741, 5751, 5762,
5763, 6313, 7212, 7342, 7606, 7805, 44 U.S.C. 3504(h).
0
2. Revise the section heading and text of Sec. 45.31 to read as
follows:
Sec. 45.31 Removals for delivery to a Federal agency.
(a) Removal of articles. A manufacturer may remove tobacco products
or cigarette papers and tubes without payment of tax, in accordance
with this part, for delivery to a Federal agency if:
(1) The removed articles were purchased by the Federal agency with
funds appropriated by the Congress of the United States and are for
gratuitous distribution under the supervision of the Federal agency;
(2) The removed articles were purchased by a donor from the
manufacturer, or donated directly by the manufacturer, for gratuitous
distribution under the supervision of the Federal agency to:
(i) Charges of the United States; or
(ii) Patients in a hospital or institution operated by the
Government of a State or the District of Columbia where the Federal
agency maintains a program for distribution to members or veterans of
the armed forces of the United States in the hospital or institution;
or
(3) The removed articles are intended for use by the Federal agency
in an investigation or other Federal law enforcement activity.
(b) Sale prohibited. Except in the case of articles described in
paragraph (a)(3) of this section where a sale is incident to the
Federal law enforcement activity, tobacco products and cigarette papers
and tubes removed under this section may not be sold after their
removal.
0
3. Amend Sec. 45.46 by removing the word ``Every'' and adding, in its
place, the words ``Except in the case of articles described in Sec.
45.31(a)(3), every''.
Signed: January 31, 2005.
John J. Manfreda,
Administrator.
Approved: February 16, 2005.
Timothy E. Skud,
Deputy Assistant Secretary, (Tax, Trade, and Tariff Policy).
[FR Doc. 05-7582 Filed 4-14-05; 8:45 am]
BILLING CODE 4810-31-P