[Federal Register Volume 61, Number 243 (Tuesday, December 17, 1996)]
[Rules and Regulations]
[Pages 66218-66220]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31771]
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DEPARTMENT OF THE TREASURY
26 CFR Part 301
[TD 8694]
RIN 1545-AS52
Disclosure of Return Information to the U.S. Customs Service
AGENCY: Internal Revenue Service (IRS), Treasury.
[[Page 66219]]
ACTION: Final regulations.
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SUMMARY: These amendments to the regulations under 26 CFR part 301
implement section 6103(l)(14) of the Internal Revenue Code, which
authorizes the disclosure of certain return information to the U.S.
Customs Service. The regulations specify the procedure by which return
information may be disclosed and describe the conditions and
restrictions on the use of the information by the U.S. Customs Service.
EFFECTIVE DATE: These regulations are effective December 17, 1996.
FOR FURTHER INFORMATION CONTACT: Donald Squires, 202-622-4570 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The North American Free Trade Agreement Implementation Act (Act),
Public Law 103-182, 107 Stat. 2057, was signed into law on December 8,
1993. Section 522 of the Act added section 6103(l)(14) to the Internal
Revenue Code (Code), authorizing the IRS to disclose certain tax data
to the U.S. Customs Service. The Act directed the Treasury Department
to adopt temporary regulations to implement the new section.
On March 11, 1994, temporary regulations were published in the
Federal Register (59 FR 11547) specifying the procedure by which return
information may be disclosed to officers and employees of the United
States Customs Service, and describing the conditions and restrictions
on the use and redisclosure of that information. A notice of proposed
rulemaking (DL-21-94) cross-referencing the temporary regulations was
published in the Federal Register for the same day (59 FR 11566).
The IRS received two comments on the proposed regulations but did
not hold a public hearing. After consideration of the comments, this
Treasury decision adopts the proposed regulations without revision. The
comments are discussed below.
Explanation of Provisions
The regulations authorize disclosure of return information only to
the extent necessary to the purposes authorized by the statute, i.e.,
ascertaining the correctness of entries in audits under the Tariff Act
of 1930 and other actions to recover any loss of revenue or collect
amounts determined to be due and owing as a result of these audits. The
regulations permit redisclosure to the Department of Justice for civil
enforcement actions related to these collection efforts. Consistent
with the statute's legislative history, the regulations prohibit
disclosure of information (i) relating to Advance Pricing Agreements
(as described in Rev. Proc. 91-22 (1991-1 C.B. 526)), or (ii) covered
by tax treaties and executive agreements with respect to which the
United States is a party. The regulations also specifically prohibit
any use or redisclosure of the information by the Customs Service in a
manner inconsistent with section 6103 and the regulations.
Notice to Taxpayers/Importers
One commentator suggested that the regulations should provide
taxpayers with advance notice of a Customs Service request for tax data
and an opportunity to comment upon or object to the request. The
legislation authorizing these disclosures did not, however, make any
provision for such advance notice and pre-disclosure challenges to
Customs Service requests for disclosure of tax data. Such procedures
would, moreover, run counter to the existing statutory scheme of
section 6103. Disclosures under section 6103 are governed by the
requirements of that statute and applicable regulations, none of which
offers a procedural opportunity for a taxpayer to challenge, in
advance, a proposed disclosure of tax information by the IRS.
The same commentator suggested that, in the alternative, a taxpayer
should be notified in the event of a disclosure so the taxpayer can
prepare its response to inquiries from the Customs Service that might
be based on such tax data. Otherwise, the commentator argued, the
taxpayer would be forced to defend itself against an ``unexpressed
suspicion'' based on information the taxpayer does not know the Customs
Service has obtained and possibly has misinterpreted.
Nothing in the statute's legislative history suggests that Congress
intended the Service to notify taxpayers upon disclosure of their tax
data to the Customs Service. As noted above, such a requirement would
be at odds with general practice under section 6103. Moreover, the IRS
understands that the usual practice of the Customs Service is not to
request information from the IRS unless the data has been first
directly requested from, but not provided by, importers. When importers
receive such a request, therefore, they will effectively be on notice,
whether or not they choose to comply with the request, that the Customs
Service is likely to consider tax information in the course of its
audit.
Misinterpretation of Tax Data by Customs
Both commentators expressed a concern that due to the different
reporting requirements of the IRS and the Customs Service, tax data is
susceptible to misinterpretation by Customs Service auditors. For
example, it was noted that the cost of goods reported for tax purposes
includes certain amounts (e.g. duty, transportation, insurance,
storage, design costs) not relevant to, or included in, the value of
goods for customs purposes.
Congress was aware when it enacted the legislation, however, that
IRS tax information may not correlate exactly with the information
required to be reported to the Customs Service. Congress nonetheless
concluded that the value of the tax information to the Customs Service
would outweigh the possible difficulties caused by the necessity of
adjusting the IRS data for use in Customs Service audits. Moreover, the
Customs Service has informed the IRS that the Customs Service is
committed to a policy of full disclosure and communication with
importers during audits. In light of that policy, any apparent
discrepancies between tax data and Customs Service reporting will be
brought to the attention of the importer when discovered in order to
allow the importer to explain or reconcile the data. The Customs
Service also notes that importers have an additional opportunity to
review and comment upon the findings of an auditor before the
preparation of the auditor's final report.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations, and because the notice of proposed
rulemaking preceding the regulations was issued prior to March 29,
1996, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding these regulations was submitted
to the Chief Counsel for Advocacy of the Small Business Administration
for comment on their impact on small business.
[[Page 66220]]
Drafting Information
The principal author of these regulations is Donald Squires, Office
of the Assistant Chief Counsel (Disclosure Litigation), IRS. However,
other personnel from the IRS, Customs Service and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 301 is amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 is amended by
removing the entry for Section 301.6103(l)(14)-1T and adding an entry
in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6103(l)(14)-1 also issued under 26 U.S.C. 6103(l)(14).
* * *
Sec. 301.6103(l)(14)-1T [Redesignated as Sec. 301.6103(l)(14)-1]
Par. 2. Section 301.6103(l)(14)-1T is redesignated as
Sec. 301.6103(l)(14)-1 and the section heading is amended by removing
the language ``(temporary)''.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: November 13, 1996.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 96-31771 Filed 12-16-96; 8:45 am]
BILLING CODE 4830-01-U
