Friday, May 29, 2009

Ask the Wizard: Lessons on Liquidation

Each Friday, the Wizard joins us to share an answer to one of the questions asked during the week. This week we had several questions related to liquidation, so the Wizard wrapped them up into one neat little package for delivery to you. No CBP clearance required!


What is liquidation? How does it work and why should we care whether entries have liquidated?

In the midst of an economic crisis, the term “liquidation” might sound like something to be feared, but in reality, it is a good thing. “Liquidation” is a legal term that indicates all CBP requirements regarding an entry and the imported merchandise covered by it have been met. Liquidation indicates that the final computation of duties and review of the entry have been completed. Liquidation closes the entry unless post-entry issues are pursued or fraud is suspected.

Now that we have a definition, let’s see how the process works and why importers should care. The entry summary has been filed by the importer/broker, duties have been paid and the goods have been received. What else could be left for the importer to do? First, it is important to understand what is subject to liquidation. All entries covering imported merchandise except TIBs and transportation entries must be liquidated. In addition, the liquidation date for informal, mail and baggage entries will be

· The date of payment by the importer of duties due on the entry; or
· The date of release by CBP or postmaster when merchandise is duty free; or
· The date the free entry is accepted for articles released under special permit for immediate delivery under 19 CFR 142.

CBP will not send any special notification of the liquidation on an informal entry. It is up to the importer to keep track of liquidations and update whatever internal system is used to maintain the record of liquidations. For formal consumption entries, CBP will post the official notice in a conspicuous place in the Customhouse at the port of entry. The date of posting is the date the liquidation is effective. Brokers participating in ABI receive an electronic liquidation notice. Many brokers have systems that can transfer the liquidation data electronically to their importer clients or at least provide the data in report form. CBP will also try to provide importers with a “Courtesy Notice (CBP4333-A); however, this is an informal notice.

Liquidation normally occurs 314 days after the date of entry. Entries not liquidated within one year from the date of entry of the merchandise or date of final withdrawal of all merchandise in a warehouse, will be deemed liquidated by operation of law at the rate of duty, value, quantity and amount of duties provided by the importer at the time the entry summary was filed. As you would expect, there are exceptions to this rule. If the liquidation of the entry has been suspended or extended by CBP, liquidation will be delayed. Unless the liquidation of an entry continues to be suspended, any entry not liquidated within 4 years from the date of entry or final withdrawal of merchandise covered by a warehouse entry will be deemed liquidated by operation of law. If the liquidation continues to be suspended past the 4-year period,
CBP must liquidate entries within 6 months following the suspension removed from Department of Commerce (DOC).

Why is the date of liquidation important? The date of liquidation is important because it triggers several deadlines. One of the most important deadlines is the time for filing a protest. If a protest is not filed within that 180-day window, the entry will be completely closed for review or change unless CBP suspects fraud. Now, the importer should watch for the liquidation. If the importer has flagged entries that require a protest, it becomes more important to monitor the liquidations. This can be done by a regular review of the incoming CBP 4333-A forms, reports provided by brokers and by requesting the broker to query the liquidation of the entry. Generally, the form or electronic data notifies you of the liquidation and nothing else needs to be done. If the form shows extension or suspension, you will want to find out why, unless you are already aware of the reason. If the form is pink, CBP disagreed with your estimated duty payment and requests additional funds. You may choose to accept their decision or to protest it. If you decide to protest their decision, you have 180 days from the liquidation date to do so. Payment must be submitted regardless of whether a protest is being filed. If the protest is successful, CBP will refund the money paid.

Finally, the importer may opt to file the courtesy CBP 4333-A documents with the entry. At the very least, the importer should make note of the liquidation or other status in the appropriate tracking system maintained by the broker. While importers may desire to destroy files that meet the “over 5 –year” criteria, it is important to determine the liquidation status first. If the file has not been liquidated, then the importer still faces some liability for the entry and destruction would not be the best option.

Do you have a question for the Wizard? Submit your question by clicking on the link in the space for “Ask the Wizard.” See you next Friday!

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