26 U.S.C. § 5703 — Liability for tax and method of payment

Page 3263 TITLE 26—INTERNAL REVENUE CODE § 5703 amendments made by this section [amending this sec- tion, section 5761 of this title, and provisions set out as a note under section 5701 of this title] shall take effect as if included in section 9302 of the Balanced Budget Act of 1997 [Pub. L. 105–33].’’ EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105–33 applicable to articles removed, as defined in subsec. (k) of this section, after Dec. 31, 1999, with transition rule, see section 9302(i) of Pub. L. 105–33, set out as a note under section 5701 of this title. EFFECTIVE DATE OF 1990 AMENDMENT Amendment by Pub. L. 101–508 applicable with re- spect to articles removed after Dec. 31, 1990, see section 11202(h) of Pub. L. 101–508, set out as a note under sec- tion 5701 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 applicable to pipe to- bacco removed, within the meaning of subsec. (k) of this section, after Dec. 31, 1988, with transition rule, see section 5061(d) of Pub. L. 100–647, set out as a note under section 5701 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–272 applicable to smokeless tobacco removed after June 30, 1986, see section 13202(c) of Pub. L. 99–272, set out as a note under section 5701 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 2128(b) of Pub. L. 94–455 effec- tive on first month which begins more than 90 days after Oct. 4, 1976, see section 2128(e) of Pub. L. 94–455, set out as a note under section 5701 of this title. EFFECTIVE DATE OF 1965 AMENDMENT Amendment by section 502(b)(3) of Pub. L. 89–44 appli- cable on and after Jan. 1, 1966, see section 701(d) of Pub. L. 89–44, set out as a note under section 5701 of this title. Pub. L. 89–44, title VIII, § 808(d)(1), June 21, 1965, 79 Stat. 165, provided that: ‘‘The amendments made by subsections (a) and (b)(3) [amending this section and section 7652 of this title] shall take effect on July 1, 1965.’’ EFFECTIVE DATE OF 1958 AMENDMENT Amendment by Pub. L. 85–859 effective Sept. 3, 1958, see section 210(a)(1) of Pub. L. 85–859, set out as an Ef- fective Date note under section 5001 of this title. § 5703. Liability for tax and method of payment (a) Liability for tax (1) Original liability The manufacturer or importer of tobacco products and cigarette papers and tubes shall be liable for the taxes imposed thereon by sec- tion 5701. (2) Transfer of liability When tobacco products and cigarette papers and tubes are transferred, without payment of tax, pursuant to section 5704, the liability for tax shall be transferred in accordance with the provisions of this paragraph. When tobacco products and cigarette papers and tubes are transferred between the bonded premises of manufacturers and export warehouse propri- etors, the transferee shall become liable for the tax upon receipt by him of such articles, and the transferor shall thereupon be relieved of his liability for such tax. When tobacco products and cigarette papers and tubes are released in bond from customs custody for transfer to the bonded premises of a manufac- turer of tobacco products or cigarette papers and tubes, the transferee shall become liable for the tax on such articles upon release from customs custody, and the importer shall thereupon be relieved of his liability for such tax. All provisions of this chapter applicable to tobacco products and cigarette papers and tubes in bond shall be applicable to such arti- cles returned to bond upon withdrawal from the market or returned to bond after previous removal for a tax-exempt purpose. (b) Method of payment of tax (1) In general The taxes imposed by section 5701 shall be determined at the time of removal of the to- bacco products and cigarette papers and tubes. Such taxes shall be paid on the basis of return. The Secretary shall, by regulations, prescribe the period or the event for which such return shall be made and the information to be fur- nished on such return. Any postponement under this subsection of the payment of taxes determined at the time of removal shall be conditioned upon the filing of such additional bonds, and upon compliance with such require- ments, as the Secretary may prescribe for the protection of the revenue. The Secretary may, by regulations, require payment of tax on the basis of a return prior to removal of the to- bacco products and cigarette papers and tubes where a person defaults in the postponed pay- ment of tax on the basis of a return under this subsection or regulations prescribed there- under. All administrative and penalty provi- sions of this title, insofar as applicable, shall apply to any tax imposed by section 5701. (2) Time for payment of taxes (A) In general Except as otherwise provided in this para- graph, in the case of taxes on tobacco prod- ucts and cigarette papers and tubes removed during any semimonthly period under bond for deferred payment of tax, the last day for payment of such taxes shall be the 14th day after the last day of such semimonthly pe- riod. (B) Imported articles In the case of tobacco products and ciga- rette papers and tubes which are imported into the United States— (i) In general The last day for payment of tax shall be the 14th day after the last day of the semi- monthly period during which the article is entered into the customs territory of the United States. (ii) Special rule for entry for warehousing Except as provided in clause (iv), in the case of an entry for warehousing, the last day for payment of tax shall not be later than the 14th day after the last day of the semimonthly period during which the arti- cle is removed from the 1st such ware- house. Page 3264 TITLE 26—INTERNAL REVENUE CODE § 5703 (iii) Foreign trade zones Except as provided in clause (iv) and in regulations prescribed by the Secretary, articles brought into a foreign trade zone shall, notwithstanding any other provision of law, be treated for purposes of this sub- section as if such zone were a single cus- toms warehouse. (iv) Exception for articles destined for ex- port Clauses (ii) and (iii) shall not apply to any article which is shown to the satisfac- tion of the Secretary to be destined for ex- port. (C) Tobacco products and cigarette papers and tubes brought into the United States from Puerto Rico In the case of tobacco products and ciga- rette papers and tubes which are brought into the United States from Puerto Rico, the last day for payment of tax shall be the 14th day after the last day of the semimonthly period during which the article is brought into the United States. (D) Special rule for tax due in September (i) In general Notwithstanding the preceding provi- sions of this paragraph, the taxes on to- bacco products and cigarette papers and tubes for the period beginning on Sep- tember 16 and ending on September 26 shall be paid not later than September 29. (ii) Safe harbor The requirement of clause (i) shall be treated as met if the amount paid not later than September 29 is not less than 11⁄15 of the taxes on tobacco products and ciga- rette papers and tubes for the period begin- ning on September 1 and ending on Sep- tember 15. (iii) Taxpayers not required to use elec- tronic funds transfer In the case of payments not required to be made by electronic funds transfer, clauses (i) and (ii) shall be applied by sub- stituting ‘‘September 25’’ for ‘‘September 26’’, ‘‘September 28’’ for ‘‘September 29’’, and ‘‘2⁄3’’ for ‘‘11⁄15’’. (E) Special rule where due date falls on Sat- urday, Sunday, or holiday Notwithstanding section 7503, if, but for this subparagraph, the due date under this paragraph would fall on a Saturday, Sunday, or a legal holiday (as defined in section 7503), such due date shall be the immediately pre- ceding day which is not a Saturday, Sunday, or such a holiday (or the immediately fol- lowing day where the due date described in subparagraph (D) falls on a Sunday). (F) Special rule for unlawfully manufactured tobacco products In the case of any tobacco products, ciga- rette paper, or cigarette tubes manufactured in the United States at any place other than the premises of a manufacturer of tobacco products, cigarette paper, or cigarette tubes that has filed the bond and obtained the per- mit required under this chapter, tax shall be due and payable immediately upon manufac- ture. (3) Payment by electronic fund transfer Any person who in any 12-month period, end- ing December 31, was liable for a gross amount equal to or exceeding $5,000,000 in taxes im- posed on tobacco products and cigarette pa- pers and tubes by section 5701 (or 7652) shall pay such taxes during the succeeding calendar year by electronic fund transfer (as defined in section 5061(e)(2)) to a Federal Reserve Bank. Rules similar to the rules of section 5061(e)(3) shall apply to the $5,000,000 amount specified in the preceding sentence. (c) Use of government depositaries The Secretary may authorize Federal Reserve banks, and incorporated banks or trust compa- nies which are depositaries or financial agents of the United States, to receive any tax imposed by this chapter, in such manner, at such times, and under such conditions as he may prescribe; and he shall prescribe the manner, time, and condition under which the receipt of such tax by such banks and trust companies is to be treated as payment for tax purposes. (d) Assessment Whenever any tax required to be paid by this chapter is not paid in full at the time required for such payment, it shall be the duty of the Secretary, subject to the limitations prescribed in section 6501, on proof satisfactory to him, to determine the amount of tax which has been omitted to be paid, and to make an assessment therefor against the person liable for the tax. The tax so assessed shall be in addition to the penalties imposed by law for failure to pay such tax when required. Except in cases where delay may jeopardize collection of the tax, or where the amount is nominal or the result of an evi- dent mathematical error, no such assessment shall be made until and after the person liable for the tax has been afforded reasonable notice and opportunity to show cause, in writing, against such assessment. (Aug. 16, 1954, ch. 736, 68A Stat. 707; Pub. L. 85–859, title II, § 202, Sept. 2, 1958, 72 Stat. 1417; Pub. L. 94–455, title XIX, §§ 1905(a)(25), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1821, 1834; Pub. L. 97–448, title III, § 308(a), Jan. 12, 1983, 96 Stat. 2407; Pub. L. 98–369, div. A, title I, § 27(c)(2), July 18, 1984, 98 Stat. 509; Pub. L. 99–509, title VIII, § 8011(a)(1), Oct. 21, 1986, 100 Stat. 1951; Pub. L. 99–514, title XVIII, § 1801(c)(2), Oct. 22, 1986, 100 Stat. 2786; Pub. L. 100–647, title II, § 2003(b)(1)(C), (D), Nov. 10, 1988, 102 Stat. 3598; Pub. L. 103–465, title VII, § 712(c), Dec. 8, 1994, 108 Stat. 5000; Pub. L. 111–3, title VII, § 702(e)(1), Feb. 4, 2009, 123 Stat. 110.) Editorial Notes AMENDMENTS 2009—Subsec. (b)(2)(F). Pub. L. 111–3 added subpar. (F). 1994—Subsec. (b)(2)(D). Pub. L. 103–465, § 712(c)(1), added subpar. (D). Former subpar. (D) redesignated (E). Subsec. (b)(2)(E). Pub. L. 103–465, § 712(c), redesignated subpar. (D) as (E), substituted ‘‘due date’’ for ‘‘14th Page 3265 TITLE 26—INTERNAL REVENUE CODE § 5704 day’’ in heading, and inserted ‘‘(or the immediately fol- lowing day where the due date described in subpara- graph (D) falls on a Sunday)’’ before period at end. 1988—Subsec. (b)(2)(B)(i), (ii), (C). Pub. L. 100–647 sub- stituted ‘‘the 14th day after the last day of the semi- monthly period during which’’ for ‘‘the 14th day after the date on which’’. 1986—Subsec. (b)(2). Pub. L. 99–509 amended par. (2) generally. Prior to amendment par. (2), time for mak- ing of return and payment of taxes, read as follows: ‘‘In the case of tobacco products and cigarette papers and tubes removed after December 31, 1982, under bond for deferred payment of tax, the last day for filing a return and paying any tax due for each return period shall be the last day of the first succeeding return period plus 10 days.’’ Subsec. (b)(3). Pub. L. 99–514 inserted last sentence. 1984—Subsec. (b)(3). Pub. L. 98–369 added par. (3). 1983—Subsec. (b). Pub. L. 97–448 designated existing provisions as par. (1), struck out provisions that the Secretary prescribe the time for making a return and the time for the payment of taxes and that the Sec- retary prescribe by regulations the conditions for the filing of additional bonds, and added par. (2). 1976—Subsec. (a). Pub. L. 94–455, § 1905(a)(25)(A), di- rected that all provisions of chapter 52 applicable to to- bacco products and cigarette papers and tubes in bond be applicable to such articles returned to bond upon withdrawal from the market or returned to bond after previous removal for a tax-exempt purpose. Subsec. (b). Pub. L. 94–455, §§ 1905(a)(25)(B), 1906(b)(13)(A), struck out provisions which had author- ized payment of taxes by stamp until regulations could be promulgated to provide for payment by return and struck out ‘‘or his delegate’’ after ‘‘Secretary’’ in three places. Subsec. (c). Pub. L. 94–455, §§ 1905(a)(25)(C), 1906(b)(13)(A), redesignated subsec. (d) as (c) and struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Former sub- sec. (c), relating to the use of stamps as evidence of the payment of taxes, was struck out. Subsecs. (d), (e). Pub. L. 94–455, §§ 1905(a)(25)(C), 1906(b)(13)(A), redesignated subsec. (e) as (d) and struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Former sub- sec. (d) redesignated (c). 1958—Subsec. (a)(1). Pub. L. 85–859 designated part of first sentence of subsec. (a) as par. (1) thereof and re- designated the remainder of subsec. (a) as (b). Subsec. (a)(2). Pub. L. 85–859 added par. (2). Subsec. (b). Pub. L. 85–859 designated former subsec. (a), with exception of part of the first sentence, as sub- sec. (b) and substituted ‘‘tobacco products and ciga- rette papers and tubes’’ for ‘‘articles’’, and inserted provisions relating to postponements, and to payment of the tax on the basis of a return prior to removal of the tobacco products and cigarette papers and tubes where a person defaults in the postponed payment of the tax. Former subsec. (b) redesignated (c). Subsec. (c). Pub. L. 85–859 designated former subsec. (b) as (c) and substituted ‘‘If the Secretary or his dele- gate shall by regulation provide for the payment of tax by return and require the use of’’ for ‘‘If the Secretary or his delegate shall, by regulation, require the use’’, and ‘‘tobacco products’’ for ‘‘articles’’. Former subsec. (c) redesignated (d). Subsec. (d). Pub. L. 85–859 redesignated former subsec. (c) as (d). Former subsec. (d) redesignated (e). Subsec. (e). Pub. L. 85–859 designated former subsec. (d) as (e) and permitted assessments in cases where delay may jeopardize collection of the tax, or where the amount is nominal or the result of an evident mathe- matical error. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2009 AMENDMENT Pub. L. 111–3, title VII, § 702(e)(2), Feb. 4, 2009, 123 Stat. 110, provided that: ‘‘The amendment made by this subsection [amending this section] shall take effect on the date of the enactment of this Act [Feb. 4, 2009].’’ EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103–465 effective Jan. 1, 1995, see section 712(e) of Pub. L. 103–465, set out as a note under section 5061 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective as if included in the amendments made by section 8011 of the Omni- bus Budget Reconciliation Act of 1986, Pub. L. 99–509, see section 2003(b)(2) of Pub. L. 100–647, set out as a note under section 5061 of this title. EFFECTIVE DATE OF 1986 AMENDMENTS Amendment by Pub. L. 99–514 effective, except as oth- erwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title. Amendment by Pub. L. 99–509 applicable to removals during semimonthly periods ending on or after Dec. 31, 1986, except as otherwise provided, see section 8011(c) of Pub. L. 99–509, set out as a note under section 5061 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–369 applicable to taxes re- quired to be paid on or after Sept. 30, 1984, see section 27(d)(2) of Pub. L. 98–369, set out as a note under section 5001 of this title. EFFECTIVE DATE OF 1983 AMENDMENT Pub. L. 97–448, title III, § 308(b), Jan. 12, 1983, 96 Stat. 2407, provided that: ‘‘The amendments made by sub- section (a) [amending this section] shall apply with re- spect to tobacco products and cigarette papers and tubes removed after December 31, 1982.’’ EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1905(a)(25) of Pub. L. 94–455 ef- fective on first day of first month which begins more than 90 days after Oct. 4, 1976, see section 1905(d) of Pub. L. 94–455, set out as a note under section 5005 of this title. EFFECTIVE DATE OF 1958 AMENDMENT Amendment by Pub. L. 85–859 effective Sept. 3, 1958, see section 210(a)(1) of Pub. L. 85–859, set out as an Ef- fective Date note under section 5001 of this title. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. § 5704. Exemption from tax (a) Tobacco products furnished for employee use or experimental purposes Tobacco products may be furnished by a man- ufacturer of such products, without payment of tax, for use or consumption by employees or for experimental purposes, in such quantities, and in such manner as the Secretary shall by regula- tion prescribed. (b) Tobacco products and cigarette papers and tubes transferred or removed in bond from domestic factories and export warehouses A manufacturer or export warehouse propri- etor may transfer tobacco products and ciga-