For those new to the importing process, the concept of liquidation is, well, unusual. I have to admit when I hear the term my first impression is the subject of a new series of Arnold Schwarzenegger films. “You’ve been liquidated, fella!” Ok, don’t go there.
The process of liquidation is, unfortunately, far from the stuff that inspires Hollywood movies.
What Is the Liquidation Process?
The customs regulations define liquidation as follows:
Liquidation means the final computation or ascertainment of the duties (…) or drawback accruing on an entry. (19 CFR §159.1)
Responsibility for complying with customs regulations is shared between Customs & Border Protection (CBP) and the importer in a multi-step process:
- The importer is required to tell CBP about importations it is making. This declaration is done through the process of filing an entry. (CBP form 3461)
- Based on the information provided by the importer or from its inspections, CBP approves or clears the entry for delivery into the U.S.
- The importer is then required to calculate duties and taxes it owes and submit these funds to customs. CBP form 7501 summarizing the importer’s duty and tax calculations accompanies the payment.
- CBP has one year from the date of entry to review the importer’s calculations and agree with the importer or recalculate the duties owed. This process is known as liquidation. The entry is now closed from a duty payment perspective.
It is CBP practice today to automatically liquidate entries 314 days from the date of importation.
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Customs or the importer may request the liquidation period be extended for additional one-year increments not to exceed three one-year extensions. This is done when CBP requires additional time to determine the valuation or classification of the merchandise.
The importer may wish to extend the liquidation period if the importer can demonstrate that he or she needs additional time to provide information that would change its outcome or that CBP has a similar question under review.
The one-year statutory liquidation requirement may also be suspended by statute or due to court action. Actions that might suspend liquidation include countervailing or anti-dumping duty investigations. Because the entry remains open, the importer is liable for any duty orders resulting from resolution of these investigations.
What happens if, at time of liquidation, Customs disagrees with the original entry?
If the liquidation results in an advantageous duty rate for the importer, Customs will liquidate the entry and automatically refund any overpayment of duties.
If the liquidation process results in an increased duty payment, Customs will issue an advance notice of the proposed duty rate and allow the importer the opportunity to validate the original duty rate declaration. If the importer fails to respond or Customs disagrees with the importer’s response, the entry will liquidate at the higher duty level and the importer must pay the duty.
This process most commonly occurs when the entry does not support the importer’s claims under a free trade agreement or duty preference program such as NAFTA or GSP. It can also happen when Customs assigns a different Harmonized Tariff Schedule (HTS) classification resulting in increased duties.
If the duty refund or advancement is less than $20, Customs will not refund the overpayment nor will they demand payment of the duty shortfall. (19 CFR §159.6(c))
How do I know my entry has been liquidated?
Upon liquidation, extension of liquidation or suspension of liquidation, Customs will post a bulletin notice of liquidations using form 4333. At this time Customs will endeavor to also notify the importer directly by issuing form 4333-A, Courtesy Notice of Liquidation. The date of posting of the bulletin notice will be the actual liquidation date.
Form 4333-A is the half-sheet carbon form you’ve been piling up on the corner of your desk.
What do I need to do with the Courtesy Notice?
If the form simply notifies you of liquidation of your entry, then you don’t need to do anything. Some importers include this notice with their entry file and use it as a trigger to move the file from active to long-term retention status.
If the form notifies you liquidation of your entry has been suspended or extended, the form should also tell you why. More than likely you are already aware of the action (see above). If not, you should investigate the reason for the delay. You may choose to quantify the additional duty risk your company is facing and notify your financial area.
If the form is pink, this indicates Customs disagreed with your estimated duty payment and is asking for more money. You may choose to accept their decision or to protest it. If you decide to protest their decision, you have 90 days from the liquidation date to do so. Regardless of your choice, you must pay the bill promptly. Failure to pay could result in additional fines and possible penalties.
Regardless of what you do with the courtesy notices themselves, a prudent importer will log the liquidations to ensure their entries are moving through the process.
Are there other methods of tracking liquidations?
Tracking your company’s entry liquidations can also be done through accessing your ACS records or your ITRAC report. For more information on obtaining your ITRAC data, see my previous article on this subject.
So you are telling me once Customs has liquidated an entry the file is closed for good right?
Yes and no. Most of the time, the liquidation is the final action in the life of an entry—at least relative to duty. However, if the importer chooses to protest the liquidation—or if there is any pending litigation including the entry—the liquidation is not final until the protest has been decided or the litigation settled.
For more detailed information about the liquidation process, I encourage you to review the Customs regulations at: 19 CFR §159.