Section 1059A regulations relating to the basis of property imported into the United States.

• Position: Comments submitted on Oct 23, 1997 by Tax Executives Institute to the IRS regarding Internal Revenue Code section 1059A regulations

On October 23, 1997, Tax Executives Institute submitted the following comments to the Internal Revenue Service concerning regulations under section 1059A of the Internal Revenue Code on the interaction of the tax statute with the Customs Service regulations for determining the customs value of imported property. The comments, which took the form of a letter from TEI President Paul Cherecwich, Jr. to IRS Associate Chief Counsel (International) Michael Danilack, were prepared under the aegis of the Institute's International Tax Committee, whose chair is Joseph S. Tann, Jr. of Ameritech Corporation. Alan Richer of General Electric Corporation materially contributed to the preparation of the comments.

This letter addresses a problem in respect of the interaction of the section 1059A regulations with the Customs Service's regulations and rulings.

Section 1059A was added to the Internal Revenue Code by the Tax Reform Act of 1986. The statute resulted from congressional concern that prior law may have provided taxpayers with an incentive to claim a low cost for goods imported for resale to minimize customs duties, but to use a higher cost to reduce taxable income to the importer, particularly when goods were purchased from a related, non-taxable supplier. S Rep. No. 99-313, 99th Cong., 2d Sess. 418 (1986). For this reason, section 1059A provides that the amount of any costs taken into account in computing the basis (or inventory cost) of property imported into the United States in a transaction between related parties is limited to the property's customs value. "Customs value" means the value taken into account in determining the amount of customs duty or any other duties on the importation of any property. I.R.C. [sections] 1059A(b)(1). "Import" refers to the filing of the entry documentation required to secure release of imported merchandise from the U.S. Customs Service. Treas. Reg [sections] 1.1059A-1(b)(1).

A problem arises when a mistake has been made in the value of the goods claimed for customs purposes. Treas. Reg. [sections] 1.1059A-1(d) provides that the taxpayer is bound by the value finally determined by the U.S. Customs Service, including the value of the products and their classification. The finality of the Customs Service's determination turns on when "liquidation" occurs. "Liquidation" refers to the ascertainment of the customs duties occurring on entry of the product and, with certain exceptions, becomes final (and conclusive...