CBP Proposes Regulation Amendments re: Statistical Sampling for Audits and Prior Disclosures and Offsetting Overpayments

On October 21, 2009, Customs and Border Protection (CBP) announced that it had published in the Federal Register proposed amendments to the Customs regulations on the use of statistical sampling in CBP audits and prior disclosure cases and the use of offsetting overpayments and over-declarations in audits. Written comments on the proposed amendments may be submitted by interested persons on or before December 21, 2009. 

The proposed amendments to the regulations provide further guidance with regard to the use of statistical sampling in audits conducted by CBP under section 1509 of the Regulations and in independent reviews and lost revenue calculations for private parties for purposes of prior disclosure. Specifically, the amended regulations provide that: (1) CBP has the sole discretion concerning whether to employ statistical sampling in any given case, authorize a person being audited to perform self-testing and use statistical sampling, or accept the statistical sampling used by a private party conducting an independent review and calculation of lost revenue in a prior disclosure case. Once CBP approves the specfics of a statistical sampling plan, and the person being audited or submitting the prior disclosure agrees to waive its ability to challenge the validty of the sampling plan at a later date (any future challenges will be limited to computation and clerical errors), the audit (or self-testing) may proceed in accordance with the sampling plan. CBP reserves the reight in any case to conduct a full enty-by-entry audit if it deems such an audit to be appropriate.

Furthermore, the amendments provide that CBP auditors and private parties seeking to use statistical sampling with regard to a prior disclosure case may do so only when: (1) review of 100 percent of the transactions is impossible or impractical; (2) the sampling plan is prepared in accordance with generally recognized sampling procedures; and (3) the sampling procedure is executed in accordance with that plan. 19 C.F.R. § 163.11(c)(2) (as proposed).

With regard to offsetting overpayments and over-declarations, CBP is proposing updating the regulations to reflect an amendment to section 1509(b) made by Section 382 of the Trade Act of 2002. Prior to the Act, once liquidation had become final with respect to an entry that was overpaid, CBP was bound by the liquidation and could not offset an overpayment against the underpayments that formed the basis of a penalty action. CBP is now authorized under the statute to account for overpayments of duties and fees and over-declarations of quantities or values when calculating loss of duties, taxes, or fees and monetary penalties levied under section 1592, if:

(1) The overpayments or over-declarations are identified by CBP during an audit (review or examination) conducted by CBP under section 1509(b); 

(2) The audit was completed on or after August 6, 2002, the effective date of the Act;

(3) The overpayments or over-declarations relate to liquidated entries;

(4) The overpayments or over-declarations are determined by CBP as having been made within the time period and scope of the audit as defined by CBP; and 

(5) The overpayments or over-declarations are determined by CBP not to have been made for the purpose of violating any provision of law, including the customs laws and laws enforced by other agencies, including, but not limited to, the Internal Revenue Service.