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May 26, 1994

HQ 224790


WAR-1-03-CO:R:C:E 224790 CB
ENT-7-02

CATEGORY: ENTRY

Paul V. Byrne, Jr., Esq.
O'Donnell, Byrne & Williams
20 North Wacker Drive
Suite 3710
Chicago, IL 60606

RE: Continental Distributing Co., Inc.; removal of merchandise from bonded warehouse; 26 U.S.C. ?5061(d)

Dear Mr. Byrne:

This is in response to your request for a ruling on behalf of your client, Continental Distributing Co., Inc. ("Continental"), dated June 16, 1993.

FACTS:

Continental operates a customs bonded champagne and spirits warehouse which it intended to expand. As a result of this construction, Continental will be required to transfer its bonded merchandise from its bonded warehouse to another bonded warehouse. Because of the expected time needed for the construction project, and the current projection for its bonded sales, Continental will not return any of the transferred bonded merchandise to its bonded warehouse.

You state that your client believes that there is an apparent disagreement between the Bonded Warehouse Manual ("the Manual") and 26 U.S.C. ?5061(d). The statute requires that the internal revenue tax be paid no later than the 14th day after the last day of the semimonthly period during which the article is removed from the first bonded warehouse. On the other hand, the Manual indicates that payment is due within 14 days of the transfer.

You ask for a ruling that the tax is due and payable not later than the 14th day after the last day of the semimonthly period during which the bonded merchandise is removed.

ISSUE:

When is the internal revenue tax due on bonded merchandise payable?

LAW AND ANALYSIS:

Section 5061(d), of Title 26, United States Code, provides for the payment of Internal Revenue taxes on alcohol and tobacco products upon withdrawal from the first Customs bonded warehouse in which they are stored. Such imported articles may, however, be transferred tax-free if the articles are "destined for export." 26 U.S.C. 5061(d)(2)(D). It is the Bureau of Alcohol, Tobacco and Firearms' position that payment of the tax cannot be deferred through the transfer of bottled imported spirits between Customs bonded warehouses. Rather, under section 5061(d), the removal from the first bonded warehouse triggers payment of the tax. Therefore, you are correct in your assumption that Continental would be required to pay the Internal Revenue tax upon withdrawal of the bonded merchandise from its bonded warehouse.

There remains the question of when is the payment due. You state that Continental believes that there is a disagreement between the applicable statute and the Manual. In section 1.1 Purpose, the Manual clearly states that it "does not itself have the force of law, and is intended only as a convenient compilation of the reference material. . . ." Continental is correct in concluding that the Manual sets forth a different time period than the statute and, therefore, should be corrected. However, there is no question that in case of a conflict, such as the one here, the statutory language prevails. Thus, the Internal Revenue tax is due and payable not later than the 14th day after the last day of the semimonthly period during which the bonded merchandise is removed from the first bonded warehouse.

HOLDING:

Payment of the Internal Revenue tax cannot be deferred through the transfer of bottled imported spirits between Customs bonded warehouses. Removal of the bonded merchandise from the first bonded warehouse triggers payment of the tax provided under 26 U.S.C. ?5061(d). The tax is payable not later than the 14th day after the last day of the semimonthly period during which the bonded merchandise is removed from the first bonded warehouse.

Sincerely,

JOHN DURANT, Director

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