New CBP Rule Proposes to Memorialize Use of Statistical Sampling in Audits and Offsetting in Disclosures

October 22, 2009

U.S. Customs and Border Protection (CBP) has issued a proposed rule which would amend the Customs Regulations (19 CFR) to provide further guidance on the use of sampling methods in CBP audits and prior disclosure cases.  This rule also proposes providing guidance concerning the offsetting of overpayments and over-declarations when an audit involves a calculation of lose revenue or monetary penalties under 19 U.S.C. § 1592.  CBP indicates that this proposed rule largely reflects current practice and existing law. 

Specifically, with regard to sampling methods in audits, the rule proposes the following:

•   To amend 19 CFR 163.11 to explicitly set forth the circumstances and requirements for the use of sampling methods by CBP and, where appropriate, audited persons authorized by CBP to conduct self-testing in an audit under 19 USC 1509 or private parties conducting an independent review for prior disclosure purposes (currently, the Customs Regulations do explicitly provide for statistical sampling in audit situations);
• To grant CBP the sole discretion concerning whether to (i) employ statistical sampling in an audit; (ii) authorize a person being audited to perform self-testing and use statistical sampling; or (iii) accept the statistical sampling used by a private party conducting an independent review and calculation of lost revenue in a prior disclosure case.
• To preclude an audited person, including one employing self-testing, the ability to challenge the validity and methodology of the sampling plan at a later date once a CBP sampling plan is accepted.  The audited person would be limited to challenging only alleged computational or clerical errors.  These waiver conditions would also apply to a situation involving a private party, conducting an independent review and lost revenue calculation for purposes of a prior disclosure where CBP elects to conduct an audit following submission of a prior disclosure claim.
• To allow CBP to reserve the right in any case to conduct a full entry-by-entry audit if it deems such an audit appropriate.

On the subject of offsetting overpayments in prior disclosure situations, CBP proposes amending its regulations to reflect changes made by Section 382 of the Trade Act of 2002 which amended 19 USC 1509(b) to allow the offsetting of overpayments and over-declarations identified by CBP auditors for purposes of lost revenue or monetary penalty calculations under 19 USC 1592. Following the amendment of 19 USC 1509(b), CBP is authorized to account for overpayments of duties and fees and over-declarations of quantities or values (offsetting) when calculating the loss of duties, taxes, or fees and monetary penalties levied under 19 USC 1592 provided:

•   The overpayments or over-declarations are identified by CBP during an audit (review or examination)   conducted by CBP under section 1509(b);
•    The audit was completed on or after August 6, 2002;
•    The overpayments or over-declarations relate to liquidated entries;
•    The overpayments or over-declarations are identified by CBP as having been made within the time period and scope of the audit as defined by CBP; and
•    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.

CBP has requested comments on this proposed rule from interested parties.  Comments must be received on or before December 21, 2009.  If you would like additional detail on this proposed rule or are interested in submitting comments to CBP, please contact a Barnes/Richardson attorney.