What's $20 Between Friends?

John Goodrich | October 16, 2011 | Import Basics
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Amazing! There is actually an import regulation based in common sense! But as always, the devil is in the details.

Amazing! There is actually an import regulation based in common sense!
 
"Get out of town!" says you.
 
"Truth!" say I.
 
A_20_dollar_billThe government does not waste hard-earned tax dollars or the resources of importers attempting to collect or refund revenues of less than $20.
 
What is this about? CBP regulation 19 CFR §159.6 states:
Difference between liquidated duties and estimated duties.
(a) Difference under $20 in original liquidation. When there is a net difference of less than $20 between the total amount of duties, fees, taxes, and interest assessed in the liquidation of any entry (other than an informal, mail, or baggage entry) and the total amount of estimated duties, fees, and taxes deposited, including any supplemental deposit, the difference shall be disregarded and the entry endorsed "as entered."...
As always, the devil is in the details.
 
Too frequently this so called "$20 Rule" is misinterpreted as implying that importers need not make corrections to entries when less than $20 in revenue is involved. I've heard this misinterpretation from importers, customs brokers, and local CBP representative alike. I've also heard interpretations that maintain the importer need not make amendments for value discrepancies of plus or minus $20. Unfortunately, neither of these interpretations is what the regulation really says.
 
If you read the regulation carefully and closely you will note it speaks merely to CBP's obligations to collect or refund revenue.
 
Lest you think me overly hard-nosed, let us consider the following scenario:
 
An importer's broker makes a typographical error on a NAFTA entry from Canada. Instead of declaring $1 million in value the broker drops a decimal point and only declares $100 thousand. NAFTA, of course, exempts the entry from duties as well as user fees. As a result the error results in no loss of revenue to the government. No harm no foul, right? Wrong! The importer under-declared the value of the shipment by 90%! The entry summary process is not just about revenue, it is also a statistical data report. Importers have an obligation to report that data accurately, regardless of the revenue. In this example the importer should amend the entry and report the proper value.
 
There are a variety of similar discrepancies that can surface in an entry that result in minor or no revenue issues including those related to:
  • HTS codes,
  • HTS reporting quantity,
  • Country of origin,
  • Country of export, and
  • Manufacturer ID codes.
Each of these is an important data element that should be accurate.
 
Really? You mean to tell me that if I declare 10,000 units, and I actually receive only 9,999 I need to make a post entry amendment? For one unit???
 
Well...maybe, maybe not. The CBP policy for pursuing enforcement action is to first identify an error, second to demonstrate harm to the United States, and third to meet a materiality standard. Clearly CBP would be hard-pressed to make such a case for one unit of 10,000.
 
Within a Focused Assessment (FA), however, that same error may have been one of many quantity reporting errors that demonstrate a pattern of material and systemic weaknesses within the importer's internal controls. The FA guidelines instruct the audit teams to hold importers to a 99% accuracy standard based on a weighted average. (See FA document 3F page 6) Quantity can be interpreted to be HTS related as described within this document. If CBP can demonstrate a pattern of errors, an importer may fail their audit.
 
As a trade compliance manager you have an obligation to ensure that you have implemented systemic controls to avoid making entry declaration errors. While you might choose to establish a policy that does not report such statistically insignificant errors, you certainly should have a system in place that tracks and evaluates them. Better yet, why not simply report the minor non-revenue issue within a Post Summary Correction (PSC) or quarterly Post Entry Amendment (PEA) report? (See: Oops, I Made a Mistake!) Both processes allow for reporting non-revenue issues of less than $20.
 
Ultimately what you report and when you report it is up to the policies of your individual company and the advice you might receive from your broker or attorney.
 
The regulations attempt to inject a modicum of reason into the importing revenue collection process. But don't be mistaken. CBP regulations and policy hold importers to a high standard of accuracy. While $20 in revenue may not be an issue between CBP and the trade, the rest of the data within an entry is.
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