IRS ANNOUNCES METHODS FOR DETERMINING TIRE WEIGHT USED TO SET EXCISE TAX.

Rev. Proc. 92-82

                          TABLE OF CONTENTS

This revenue procedure provides several alternatives for manufacturers (and importers, who are included in the definition of manufacturers under section 3.06) to determine tire weight for the purpose of the imposition of the manufacturers excise tax under section 4071(a) of the Internal Revenue Code. Section 4 provides several ways for a manufacturer to determine the weight of all tires of a single model. Of substantial interest to many manufacturers will be section 4.01(2), which generally permits manufacturers to base the tax on specification weight, provided that it is corroborated as described therein. Section 5 provides a procedure whereby a manufacturer that makes more than one model in a category may obtain permission from the Commissioner to use a single weight for all tires in a category based upon the manufacturer's own average weights within that category. Section 6 provides a procedure whereby a manufacturer may obtain permission from the Commissioner to use industrywide averages published by an approved industry group.

SEC. 2. BACKGROUND

01. Section 4071(a) of the Code imposes a tax on tires sold by a manufacturer, producer, or importer, if the tires are made wholly or in part of rubber, and the tires are of the type used on highway vehicles. The tax is based on the weight of the tire at a graduated rate computed on each pound in excess of 40 pounds.

02. Section 4071(c) of the Code provides that the weight of tires is based on total weight exclusive of metal rims or rim bases and that total weight is determined under regulations prescribed by the Secretary.

03. Section 48.4071-2(a) of the Manufacturers and Retailers Excise Tax Regulations lists materials used in constructing a tire that are included in determining total weight.

04. Section 48.4071-2(b) of the regulations provides that a manufacturer that has received permission from the Commissioner may, subject to conditions as the Commissioner may prescribe, determine total weight of tires manufactured and sold by the manufacturer on the basis of the average weight for each type, size, grade, and classification. Average weight must be established in accordance with the method approved by the Commissioner, and the method applies for such periods as the Commissioner may prescribe. The regulations further provide that the Commissioner may terminate the approval granted to any manufacturer. If the approval granted any manufacturer is terminated, the termination is effective 10 days from the date of the receipt by the manufacturer of the notice of termination. A manufacturer may terminate, as of a specified date, the privilege to determine total weight under section 48.4071-2(b) by giving no less than 10 days written notice of the intent to terminate to the Commissioner. The termination of the approval given a manufacturer does not affect a manufacturer's tax liability for tires sold prior to the effective date of the notice of termination. However, see section 7 for the Service's authority to redetermine tax liability for any period not barred by the statute of limitations.

SEC. 3. DEFINITIONS

For the purposes of this revenue procedure the following definitions apply.

01. The term "average actual weight" means the average weight of a model determined by dividing the total weight of tires sampled in a certified sampling by the number of tires sampled.

02. The term "category" means a particular type, size, grade, and classification of tire. A category often includes tires that have different specification weights that are alike as to type, size, grade, and classification. A manufacturer must use a consistent method in placing models in a category.

03. The term "certified sampling" means the selection and weighing of a random sample of a model of tire that identifies each of the individual tires by category, specification weight, manufacturer's serial number, Department of Transportation (DOT) number, and actual weight. Except as otherwise provided, a certified sample means a random sample of 10 or more tires of a model. The taxpayer, or an authorized employee thereof, must attest to the accuracy of the information in writing, at the time the sample is taken, under penalties of perjury.

04. The term "fiscal year" means the period July 1 to June 30.

05. The term "industry group" means the Rubber Manufacturers Association or any other organization that establishes to the satisfaction of the Commissioner schedules of average weights for determining the tax under section 4071 of the Code and section 6.

06. The term "manufacturer" generally includes a producer or importer. Whenever a special rule for importers is set forth in this revenue procedure, a domestic manufacturer that imports tires is considered an importer as to tires that it imports.

07. The term "minor modification" means a change in composition formula that does not increase or decrease specification weight by more than one percent from the original specification weight.

08. The term "model" means all tires within a category that have the same specification weight and composition formula.

09. The terms "produce" and "production" include "import" and "importation," as appropriate.

10. The term "specification weight" means the weight of the tire determined by composition formula.

SEC. 4. PROCEDURE TO DETERMINE TIRE WEIGHTS GENERALLY

01. General rule. Except as provided in sections 5 and 6, a manufacturer must determine tire weight using in one of the following methods:

(1) Actual weight. A manufacturer may weigh each tire to determine the weight of each tire sold.

(2) Specification weight. A manufacturer may use a tire's specification weight (or, in certain cases, average actual weight), provided the average actual weight as determined by a certified sampling does not exceed the specification weight by more than 2 percent. If the average actual weight as determined by the certified sampling exceeds the model's specification weight by more than 2 percent, the manufacturer may use specification weight, provided the manufacturer conducts a second certified sampling of at least 75 tires (or total production, if less) and the average actual weight as determined by the second certified sampling does not exceed the specification weight by more than 2 percent.

If the average actual weight as determined in the additional sampling exceeds the model's specification weight by more than 2 percent, the manufacturer may not use specification weight, but may use the tire's average actual weight to determine the weight of each tire of the specific model sold.

If an importer is unable to obtain the manufacturer's specification weight, the importer may determine tire weight based upon average actual weight as determined in a certified sampling of at least 75 tires (or total importation, if less), provided it informs the district director within 30 days of the receipt of the sampling results.

A tire weight determination made as described in this section 4.01(2) remains effective for a period not to exceed 12 months following the month in which the determination is made. However, if a manufacturer makes a modification (other than a minor modification) to the specification weight of a model, the model's weight must be immediately redetermined. See section 7.03 regarding correction of errors.

(3) Other approved method. A manufacturer may seek a letter ruling from the Service as to whether another method accurately reflects the weight of a model. See Rev. Proc. 92-1, 1992-1 I.R.B. 9, or updates thereof, for instructions for requesting a ruling.

02. Special rule for importers of articles equipped with tires that do not import tires separately.

An importer that does not import tires separately but that does import articles equipped with tires may use the tire weight established for the model by the manufacturer or other importer of the model under section 4.01 if the importer obtains the documentation that establishes the model's weight from the manufacturer or other importer.

SEC. 5. PROCEDURE FOR A MANUFACTURER TO USE A SINGLE AVERAGE WEIGHT FOR ALL MODELS THAT IT PRODUCES IN A CATEGORY

01. Approval required.

A manufacturer that makes two or more models in a single category may use the weighted average weight for all tires within the category to determine the weight of all tires in the category sold, provided the approval of the Commissioner is first obtained. To obtain approval, a manufacturer must submit an application to the Assistant Commissioner (Examination), Internal Revenue Service, 1111 Constitution Avenue N.W., Washington, D.C. 20224, in substantially the form shown in section 10. Upon approval, the Service will furnish copies of the approval to the district director and the manufacturer.

02. Manufacturers -- Annual information to be supplied.

A manufacturer whose application has been approved by the Service must furnish to its district director by November 1 of each year, effective for the next calendar year, a schedule of weighted average weights for each category of tire for which it uses this section. The schedule must include the weighted average weight for each category of tires, the number of models in each category, and the total quantity of tires produced by category during the preceding fiscal year sold domestically. The schedule must also contain a full description of each tire category, including its profile, ply construction, ply/belt construction, type, tread type, size, diameter, ply rating, and load range. The name, address, and telephone number of a person authorized to represent the manufacturer must also be provided. Any corrections to the schedule must be furnished to the district director within 30 days. See section 7.03.

03. Determination of weighted average weight.

The weighted average weight of the models in a single category is computed using the weights of each model in the category, as determined under section 4.01(2), weighted by the volume of the preceding fiscal year's domestic sales of the models. For the purposes of determining model weight under section 4.01(2), the certified sampling(s) must be conducted from the ordinary production during the period beginning July 1 and ending August 31 of the current calendar year, or, if there is no ordinary production during that period, from the most recent period in the previous fiscal year in which there was ordinary production. The weighted average weight determined under this section is effective for the following calendar year.

Example. Manufacturer N produces three models differing in specification weight but falling within the same category, X. In the preceding fiscal year, N sold domestically 50,000 model X(a) tires with a specification weight of 50.00 pounds and an average actual weight of 50.80 pounds as determined in a 10-tire certified sampling, 100,000 model X(b) tires with a specification weight of 50.10 pounds and an average actual weight as determined in a 75-tire certified sampling of 51.30 pounds, and 100,000 model X(c) tires with a specification weight of 51.00 pounds and an average actual weight of 50.90 pounds as determined in a 10-tire certified sampling. The weighted average weight that N must use for category X is 50.92, computed as follows:

                    (2)        (3)         (4)

If a manufacturer did not produce two or more models in a category in the preceding fiscal year, the manufacturer may not determine a weighted average weight for that category using this section.

05. Use of this section for some but not all categories.

A manufacturer may elect to use this section to determine tire weight for all or only some tire categories in which it produces two or more models. However, a manufacturer may delete a tire category from its schedule only at the time of its annual submission of the schedule to the district director effective for the next calendar year. Further, if the Service finds that a manufacturer is using this section selectively for tax avoidance purposes, the Service may terminate approval for that manufacturer to determine total weight on the basis of average weight.

SEC. 6. PROCEDURE FOR A MANUFACTURER TO USE AN AVERAGE WEIGHT SCHEDULE COMPILED BY AN INDUSTRY GROUP

01. Approval required.

A manufacturer may use industry average tire weights as determined by an industry group to determine the weight of tires sold, provided the manufacturer has received prior approval of the Commissioner and has submitted information to the industry group in time for inclusion in the industry group's first published schedule for the year. To obtain approval, a manufacturer must submit an application to the Assistant Commissioner (Examination) in substantially the form shown in section 10. Upon approval, the Service will furnish copies to the district director, the industry group, and the manufacturer.

02. Manufacturers -- Annual information to be supplied.

A manufacturer whose application has been approved by the Service must furnish the following information to the industry group annually by September 10 each year:

(1) If the manufacturer makes only one model in a category, the manufacturer must furnish to the industry group the weight of the model as determined under section 4.01(2). For the purpose of determining model weight under section 4.01(2), the certified sampling(s) used in determining weight under that section must be conducted from the ordinary production during the period beginning July 1 and ending August 31 of the current calendar year (if ordinary production during that period is less than 10 tires, the certified sampling may be based on total production during that period), or, if there is no ordinary production during that period, from the most recent period in the previous fiscal year in which there was ordinary production.

(2) If the manufacturer makes more than one model in a category, the manufacturer must furnish to the industry group the average weight of models in that category as determined in section 5, weighted by the volume of the preceding fiscal year's domestic sales.

(3) The quantity of tires sold domestically in each category during the preceding fiscal year.

(4) Such other information as the industry group requests.

03. Certain importers -- Annual information to be supplied.

An importer whose application has been approved by the Service and that does not import tires separately but that does import articles equipped with tires must furnish the following information to the industry group by September 10 each year:

(1) The quantity of tires imported for domestic use by category during the preceding fiscal period.

(2) A complete description of the tire.

(3) Such other information as the industry group requests.

04. Exclusive use of an industry group's schedule.

A manufacturer that uses an industry group's average weight schedule must use it for all tire weight determinations for tires for which the industry group has determined categories.

05. Determination of weight if the industry group does not have a category for a model.

If the industry group has not determined a category for a model a manufacturer must determine the model's weight in accordance with section 4.01(2) and forward the information to the industry group within 30 days. The certified sampling required by section 4.01(2) may be based on total production, if ordinary production is less than 10 tires. Pending the addition of the new category to the industry group's schedule (see section 7.03), the manufacturer must use the weight as determined by it in accordance with section 4.01(2). However, if the model is from a prior year's production and the manufacturer is not currently producing a model in the category, the manufacturer may instead base tire weight on the average weight contained in the industry group's most recent schedule for that category.

06. Industry group.

(1) An industry group must publish by November 15 of each year, effective for the next calendar year, a schedule of weighted average weights for each category based on the data submitted by participating manufacturers using a methodology similar to that contained in section 5.03. The industry group must furnish copies of the schedule and any additions or corrections to each participant and to the Assistant Commissioner (Examination). The industry group must provide the Assistant Commissioner (Examination) with the highest and lowest tire weights submitted to it in each category.

(2) An industry group must include in its calculation of average tire weight tires imported on other articles.

(3) An industry group must correct any error that would result in a change of one cent or more in tax liability in any tire category.

(4) If an industry group has reason to believe that any of the data submitted by a manufacturer is in error, the industry group must request correction or verification of the data from the manufacturer.

(5) An industry group may not include in a category a tire whose weight is not reasonable for that category.

(6) An industry group must notify the Assistant Commissioner (Examination) of any noncompliance with this revenue procedure.

(7) An industry group must submit to the Assistant Commissioner (Examination) a list of the categories with the average weight and the weight spread found in each category one month prior to publication of the schedule.

SEC. 7. PROVISIONS OF GENERAL APPLICATION TO SECTIONS 4 THROUGH 6

01. Redetermination of tax liability.

The Service reserves the right to redetermine for any period not barred by the statute of limitations the tax liability of a manufacturer who improperly uses or implements sections 4 through 6. If the improper implementation is in connection with the manufacturer's use of a weighted average weight or an industry average tire weight, consideration will also be given to terminating the approval for that manufacturer to determine tire weight on the basis of that method.

02. Non-application to imported used tires.

This procedure and the average weight schedules may not be used to determine the tax liability for imported used tires.

03. Corrections and supplementation.

Corrections must be made if errors occur, such as if an error is found in a specification weight or average actual weight determination, or if a manufacturer that uses section 5 or 6 discovers that it has placed a model in an improper category. Further, a correction must be made if a manufacturer that bases tax upon specification weight learns that the average actual weight of a model exceeds the model's specification weight by more than 2 percent.

(1) Manufacturers that determine tire weight in accordance with section 4 or 5 must correct errors by the first day of the second month following discovery of the error.

(2) Manufacturers that determine tire weight in accordance with section 6 must inform the industry group within 30 days of discovery of an error with respect to the data it has submitted to the industry group and within 30 days of the beginning of production of a model for which the industry schedule does not have a category. The industry group must correct or supplement its schedule within 30 days of receipt of information if supplementation is needed or if correction of an error causes a change in the industry group's schedule. Any supplementation or correction of the industry group's schedule is effective beginning the first day of the second month following issuance.

(3) The termination by a manufacturer of its participation in an industry group's schedule subsequent to the publication by an industry group of its schedule does not require correction or supplementation to the schedule.

04. Civil and criminal penalties. The information required by this revenue procedure is for use in determining excise tax liability and the preparation and filing of excise tax returns. Failure to properly prepare and file excise tax returns may result in the imposition of civil and criminal penalties.

SEC. 8. RECORDS

01. Each manufacturer and each industry group must maintain a file of all correspondence and average weight data, including all records concerning its computations used to establish average weights. In addition, manufacturers must maintain records of tire component formulae used to determine specification weight. Each item in the file must be kept for no less than 6 years.

02. Upon request, these records must be made available to the Internal Revenue Service for verification.

SEC. 9. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 80-19, 1980-1 C.B. 628, as amplified by Rev. Proc. 82-17, 1982-1 C.B. 462, and as modified by Rev. Proc. 83-13, 1983-1 C.B. 675, is superseded as of the date of the publication of this revenue procedure, except that the industry-wide group schedule issued in accordance with Rev. Proc. 80-19 for the calendar year 1992 by the Rubber Manufacturers Association (RMA) remains effective for that year for taxpayers properly using that schedule, and the RMA may, in conjunction with participating manufacturers, publish its schedule for 1993 using that revenue procedure.

SEC. 10. AGREEMENT AND APPLICATION FORM APPLICATION AND AGREEMENT ON TIRES

[Insert exact name of manufacturer] (Taxpayer) hereby applies for permission to use average weight schedules to determine tire weight prepared in accordance with Revenue Procedure 92-82. The Taxpayer applies for permission to [prepare and use its own weighted average weight schedules as described in section 5 of Rev. Proc. 92- 82] [submit data and use the average weight schedules prepared by (the Rubber Manufacturers Association or _______ ) as described in section 6 of Rev. Proc. 92-82].

(a) In consideration of the permission granted by acceptance of this application by the Internal Revenue Service, the Taxpayer understands that it is subject to, and will comply with, the provisions of Rev. Proc. 92-82, which is part of this agreement.

(b) Rev. Proc. 92-82 may subsequently be amended or superseded and this agreement includes all changes made therein unless the Taxpayer, by written notice to the Assistant Commissioner (Examination), terminates this agreement within 60 days of publication of the change in the Internal Revenue Bulletin.

(c) Ten days after the postmarked date of the Taxpayer's written notice to the Assistant Commissioner (Examination) terminating this agreement under (b), the permission to use average weights is revoked.

(d) In consideration of the permission to use average weights, the Taxpayer waives any rights to claim refund, credit, or abatement of any part of the tax it has paid under this agreement on the basis that the actual weight of its particular tire is less than that established pursuant to this agreement.

______________________ ______________________

This revenue procedure is effective October 13, 1992, the date of its publication in the Internal Revenue Bulletin.

DRAFTING INFORMATION

The principal author of this revenue procedure is Bernard H. Weberman of the Office of Assistant Chief Counsel (Passthroughs & Special Industries). For further information regarding this procedure contact Mr. Weberman on (202) 622-3163 (not a toll-free call).