CBP Begins Processing Accelerated Payment Claims After CIT Denies Stay in Excise Tax 'Double Drawback' Case

CBP will begin processing refunds for some substitution drawback claims involving internal revenue taxes, after the Court of International Trade on May 15 denied the government’s motion to stay its recent decision invalidating portions of CBP’s drawback regulations, pending an appeal to the Federal Circuit.

The trade court found the government is not likely to succeed in its appeal, filed April 17 (see 2004280043), which challenges a Jan. 24 CIT decision that held unlawful portions of CBP’s new drawback regulations that limited substitution drawback on excise taxes (see 2001270020). In the January decision, CIT took issue with provisions that limit the amount of drawback to the amount of taxes paid (and not previously refunded) on the export that forms the basis for the drawback claim. CIT found no reason to depart from that holding and put processing of affected claims on hold.

“The government makes no new argument in its motion that causes the court to doubt its prior determination that the promulgated regulations conflicted with the unambiguous text of the statute. Success on appeal appears remote,” CIT said as it denied the stay, referencing Congress’ apparent refusal in the past to legislate against what CBP called “double drawback.”

Though it denied the government’s motion to stay, CIT did say it would issue an order suspending final liquidation of drawback claims affected by its ruling. That will allow CBP to start processing accelerated payment requests, which are fully bonded and present little revenue risk, without risking that the CBP will have no remedy left should the Federal Circuit reverse, it said. CBP issued a CSMS message May 15 announcing that it will begin accelerated payment processing for excise tax substitution drawback claims.

The decision “paves the way for quick refunds of up to $383 million to substitution drawback claimants,” said law firm Neville Peterson in a May 18 blog post. “[D]rawback claimants, who have been waiting up to 2 years for accelerated payment of drawback, will start to see those payments, which are an important source of working capital -- particularly now, with many businesses impacted by the coronavirus pandemic,” John Peterson of Neville Peterson said by email. “Plus, drawback is not paid with interest, so the claimants were losing the time value of money,” he said.

"Claimants will need to operate understanding that the AP refunds are conditional, but that's a risk they live with for any claim -- and one they are glad to assume now,” Peterson said. An appeal of CIT’s denial of the stay itself is unlikely, given that the government did get some relief in the form of the suspension of liquidation, he said.