Implementation of Refund Procedures for Craft Beverage Modernization Act Federal Excise Tax Benefits Applicable to Imported Alcohol

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Alcohol and Tobacco Tax and Trade Bureau</SUBAGY> <CFR>27 CFR Parts 26 and 27</CFR> <DEPDOC>[Docket No. TTB-2022-0009; T.D. TTB-201; Re: T.D. TTB-186, Notice No. 215]</DEPDOC> <RIN>RIN 1513-AC89</RIN> <SUBJECT>Implementation of Refund Procedures for Craft Beverage Modernization Act Federal Excise Tax Benefits Applicable to Imported Alcohol</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Alcohol and Tobacco Tax and Trade Bureau, Treasury. <HD SOURCE="HED">ACTION:</HD> Final rule; Treasury decision. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Alcohol and Tobacco Tax and Trade Bureau (TTB) is making permanent, with two changes, temporary regulations published in the <E T="04">Federal Register</E> on September 23, 2022, relating to reduced excise tax rates and tax credits for imported distilled spirits, wines, and beer. These regulatory amendments implement changes made to the Internal Revenue Code by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which amended the Craft Beverage Modernization Act provisions of the Tax Cuts and Jobs Act of 2017. This rule finalizes the procedures for industry members to claim limited reduced tax rates and tax credits for imported alcohol products that are entered for consumption in the United States. Specifically, this rule finalizes provisions in a temporary rule that outlines the process for foreign producers to assign reduced tax rates and tax credits to importers, and for importers to accept and apply the assigned tax benefits to imported products. This final rule clarifies that only the foreign producer who produces the product may assign the applicable tax benefits on distilled spirits, wine, or beer to U.S. importers, and extends by one calendar quarter the timeframe for those foreign producers to submit these assignments to TTB. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Effective September 22, 2025, the temporary regulations published in the <E T="04">Federal Register</E> at 87 FR 58021 on September 23, 2022, are adopted as final with the amendments described below. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Tammy McNeely, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street NW, Box 12, Washington, DC 20005; phone 202-453-2265, ext. 092. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. TTB's Temporary Regulations Implementing the Transition To Refunds to Obtain Tax Benefits for Imported Alcohol</HD> This final rule adopts as permanent, with two changes, the Alcohol and Tobacco Tax and Trade Bureau's (TTB's) temporary regulations implementing changes to the Internal Revenue Code of 1986 (IRC) pursuant to the Taxpayer Certainty and Disaster Tax Relief Act of 2020. TTB published the temporary rule, T.D. TTB-186, in the <E T="04">Federal Register</E> on September 23, 2022, at 87 FR 58021, along with a concurrent notice of proposed rulemaking, Notice No. 215, at 87 FR 58043, soliciting comments on the temporary regulations and proposing a clarifying change. The temporary regulations established procedures for claiming reduced tax rates and tax credits established under the Craft Beverage Modernization Act (CBMA) (collectively, “tax benefits” or “CBMA tax benefits”) for imported alcohol products entered for consumption  <SU>1</SU> <FTREF/> in the United States beginning in 2023. <FTNT> <SU>1</SU>  The temporary regulations implemented statutory tax refund provisions that apply to imported products “removed” after December 31, 2022. See 26 U.S.C. 5001(c)(4), 5041(c)(7), and 5051(a)(6). TTB regulations at 27 CFR 27.48 provide that any internal revenue taxes payable on imported distilled spirits, wines, and beer upon release from customs custody are collected, accounted for, and deposited as internal revenue collections by U.S. Customs and Border Protection (CBP) in accordance with CBP requirements. There are different types of entry under CBP regulations, and “entered for consumption” refers to a type of customs entry filed to introduce the goods into the stream of U.S. commerce. Such entries are subject to applicable tax and duties. Accordingly, TTB interprets the term “removed” as used in the CBMA tax refund statutory provisions for imported products to mean “entered for consumption.” For purposes of this temporary rule, “entered for consumption” includes withdrawal from a CBP bonded warehouse for consumption. </FTNT> <HD SOURCE="HD3">Enactment of Temporary CBMA Tax Benefits</HD> The CBMA tax benefits were first made available in 2018, through the Tax Cuts and Jobs Act (Pub. L. 115-97). <SU>2</SU> <FTREF/> These CBMA provisions established reduced tax rates and tax credits applicable to specified limited quantities of domestic and foreign producers' distilled spirits, wine, and beer. These quantities are subject to controlled group limitations, which are described more fully later in this document. Domestic producers are eligible to apply the CBMA tax benefits when they pay tax to TTB. For imported products, foreign producers must assign tax benefits to importers of their products, who then must elect to take them. Beginning in 2018, U.S. Customs and Border Protection (CBP) administered these provisions for imported alcohol and established procedures for foreign producers to assign tax benefits to importers, as well as for importers to receive the benefits and apply them at the time of entry. <FTNT> <SU>2</SU>  The “Craft Beverage Modernization and Tax Reform Act.” These statutory provisions apply to beverage and non-beverage alcohol. See Public Law 115-97, sections 13801-13808 (CBMA provisions of the law commonly known as the Tax Cuts and Jobs Act) and 131 Stat. 2054 at 2169-78. </FTNT> The CBMA tax benefits for imported alcohol products  <SU>3</SU> <FTREF/> are as follows: <FTNT> <SU>3</SU>  These tax benefits apply to alcohol from foreign countries and other areas outside of the customs territory of the United States (as defined in 19 CFR 101.1) that is imported into the United States (as defined at 26 U.S.C. 7701(a)(9) as the 50 States and the District of Columbia) and entered for consumption subject to tax. Foreign producers may not assign tax benefits to domestic distilled spirits plants, bonded wine cellars, or breweries that receive bulk distilled spirits, natural wine, or beer that is withdrawn without payment of tax from customs custody for transfer to their bonded premises under 26 U.S.C. 5232, 5364, or 5418. </FTNT> • Each foreign distilled spirits producer may assign a limited quantity of tax benefits in the form of reduced tax rates to importers of their products. The reduced tax rates may be assigned for the first 22,230,000 proof gallons of that foreign producer's production imported into the United States in a calendar year. These rates are, for each foreign producer, $2.70 per proof gallon on the first 100,000 proof gallons, and $13.34 per proof gallon on the next 22,130,000 proof gallons, imported into the United States. • Each foreign wine producer may assign a limited quantity of tax benefits in the form of tax credits to importers of their products. The tax credits may be assigned for the first 750,000 wine gallons of that producer's production imported into the United States in a calendar year. The credits are, for each foreign producer, $1 per wine gallon on the first 30,000 wine gallons of wine imported, 90 cents on the next 100,000 wine gallons imported, and 53.5 cents on the next 620,000 wine gallons imported. The tax credits apply to all wine tax rates, <SU>4</SU> <FTREF/> except that CBMA provides for adjusted credits for imported wine eligible for the hard cider tax rate (6.2 cents, 5.6 cents, and 3.3 cents, respectively, for each of the above quantities). <FTNT> <SU>4</SU>  Wine tax rates vary based on a number of factors such as alcohol and carbonation content. See 26 U.S.C. 5041. </FTNT> • Each foreign brewer may assign a limited quantity of tax benefits in the form of a reduced tax rate of $16 per barrel. This reduced tax rate may be assigned to importers for the first 6,000,000 barrels produced by that foreign producer and imported into the United States in a calendar year. These CBMA tax benefits first applied to calendar years 2018 and 2019. <SU>5</SU> <FTREF/> <FTNT> <SU>5</SU>  See Public Law 115-97, sections 13801-13808 (CBMA provisions of the law commonly known as the Tax Cuts and Jobs Act). </FTNT> <HD SOURCE="HD3">Enactment of Permanent CBMA Tax Benefits</HD> Prior to their initial expiration date in 2019, the CBMA tax benefits were extended and finally made permanent through the Tax Relief Act of 2020. <SU>6</SU> <FTREF/> <FTNT> <SU>6</SU>  See Public Law 116-94, section 144 (Further Consolidated Appropriations Act, 2020 extending and amending CBMA provisions); Public Law 116-260, Division EE, sections 106-110 (Tax Relief Act of 2020 making CBMA provisions permanent with amendments). </FTNT> In addition to making the CBMA tax benefits permanent, the Tax Relief Act of 2020 transferred responsibility for administering CBMA tax benefits for imported alcohol from CBP to the Department of the Treasury (Treasury) as of January 1, 2023. <SU>7</SU> <FTREF/> The Tax Relief Act of 2020 amendments also changed the way importers could take advantage of CBMA tax benefits, requiring that importers pay the full tax rate  <SU>8</SU> <FTREF/> on imported alcohol products to CBP and then subsequently submit refund claims to obtain the tax benefit. This replaced the prior process by which importers could apply the CBMA tax benefit to tax payments made to CBP in connection with the entry of the products into the United States. Consequently, beginning January 1, 2023, importers began paying t ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 70k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━