PROMISSORY NOTES

U.S. CUSTOMS AND BORDER PROTECTION DIRECTIVE

ORIGINATING OFFICE: OF:FM:FP DISTRIBUTION: S-01

CBP DIRECTIVE NO. 5350-017B

DATE: AUGUST 24, 2005

SUPERSEDES: CD 5350-017A, 5/3/01

REVIEW DATE: AUGUST 2008

SUBJECT: PROMISSORY NOTES

1 PURPOSE. This directive establishes national policy and guidance for the

issuance and control of Promissory Notes used as an alternative method for the

collection of outstanding claims that arise from tariff debt under the laws administered

by U.S. Customs and Border Protection (CBP). Promissory Notes are agreements that

are executed to pay indebtedness at a future date. This directive does not cover

Promissory Notes that are due to nontariff debt that are to be handled in accordance

with the Debt Collection Improvement Act of 1996 and the Debt Collection Act of 1982.

The information in this directive is intended only as guidance for CBP employees and

nothing herein is intended to create or confer any rights, privileges, or benefits for any

private person or entity.

2 BACKGROUND. Ordinarily, CBP requires and expects full payment of bills and

other claims by their respective due dates. Promissory Notes are not generally to be

used in situations where a bond is securing the debt to CBP. Rather, Promissory Notes

are to be executed only in unusual circumstances where CBP has exhausted all other

methods of payment by the debtor. Thus, Promissory Notes are the least favored form

of payment.

3 POLICY.

3.1 Promissory Notes are to be used as a collection method only when the debtor is

unable to make a lump sum payment or to obtain credit elsewhere and the debt is not

secured by a bond.

3.2 Promissory Notes for amounts $2,000 or less must relate to a Fines, Penalties

and Forfeiture (FP&F) case. Requests for Promissory Notes having principal amounts

of $2,000 or less that are not related to FP&F cases will be referred to the Director,

Revenue Division, Office of Finance. In these instances, a bill will be created for the

debt amount through the manual billing process, if necessary, and the debtor’s

payments will be posted against the bill.

3.3 Promissory Notes for amounts $2,000 or less shall be limited MAXIMUM of

6 months. Upon default of any installment, CBP shall have the option of making the

entire balance due and payable as of the date of default. However, Promissory Notes

for mitigated amounts must always provide for reversion back to the original penalty

ATTACHMENT B

PENALTY NOTE

amount, less any payments made. See reversion provision in specimen note in

Attachment A.

3.4 The FP&F Officer (if not available, then the on-site Supervisory CBP Officer) at

the ports are responsible for the review and acceptance of Promissory Notes related to

passenger/traveler seizure or penalty cases that have principal amounts of $2,000 or

less. Payments on these notes will be sent to the FP&F office servicing the port where

the penalties were incurred.

3.5 Promissory Note amounts that exceed $2,000 in principal shall only be

authorized by the Director, Revenue Division, Office of Finance. Collateral in the form

of a security bond, letter of credit or marketable securities must be obtained in cases

whenever the Director, Revenue Division determines the debtor has significant assets.

4 AUTHORITY.

4.1 The following statutes, regulations, and guidelines provide the necessary

requirements for the acceptance and execution of Promissory Notes:

4.1.1 Title 26 U.S.C. § 6621

4.1.2 Title 31 U.S.C. § 3711

4.1.3 Title 19 U.S.C. § 1617

4.1.4 Title 19 U.S.C. § 1618

4.1.5 Title 19. U.S.C. § 1623

4.1.6 Title 31 OMB Circular A-129

4.1.7 Title 31 CFR § 903.3

5 DEFINITIONS.

5.1 Promissory Notes – Notes that are executed promising to pay indebtedness at a

future date. Most Promissory Notes will incorporate a payback schedule of payments

that includes interest.

5.1.1 Attachment A: Specimen copy of a Promissory Note for amounts $2,000 or less

relates to an FP&F case. Note the revision provision in this note that makes the original

penalty amount due in case of default.

5.1.2 Attachment B: Specimen copy of a Promissory Note for more than $2,000 due to

a penalty payment.

ATTACHMENT B

PENALTY NOTE

5.1.3 Attachment C: Specimen copy of a Promissory Note for more than $2,000 due to

a payment of duties, taxes, and fees.

6 RESPONSIBILITIES.

6.1 All CBP employees involved in the Promissory Note process are responsible for

adhering to the policy and procedures established in this directive.

6.2 The Director, Revenue Division shall be responsible for all Promissory Notes that

exceed $2,000 in principal.

6.3 The Executive Director, Office of Finance shall ensure that the Director, Revenue

Division is complying with the policies and procedures established in this directive. The

Director, Revenue Division is responsible for the write-off of all Promissory Notes except

for those due to penalty claims where the original penalty less any payment(s) received

is $1,500 or less. See paragraph 5. Concurrence is necessary from the Assistant Chief

Counsel (ACC), Indianapolis, Indiana, for the write-off of Promissory Notes that exceed

$1,500.

6.4 Port Directors shall ensure that employees under their supervision adhere to the

policy and procedures established in this Promissory Note process. This includes the

FP&F officers, as well as any Supervisory CBP officers, on-site CBP officers and other

employees in their port who are involved in the processing of Promissory Notes.

6.5 The FP&F officers are responsible for: 1) obtaining and maintaining control of

executed Promissory Notes that are $2,000 or less in principal; 2) the forwarding of

requests to the Director, Revenue Division or designees, for Promissory Notes that

exceed $2,000 in principal; and 3) the reviewing and forwarding of uncollectible

Promissory Notes, with a copy of the complete set of the associated FP&F case

documentation, to the ACC, Indianapolis, for write-off consideration. Debt referred for

write-off consideration should only be for Promissory Notes on penalty claims where the

original penalty less any payment(s) received is more than $1,500. The FP&F officer

has write-off authority for Promissory Notes where the original penalty amount, less any

payment(s) received, does not exceed $1,500.

6.6 On-Site CBP officers or Supervisory CBP officers are responsible for obtaining

and maintaining control of executed Promissory Notes that are $2,000 or less in

principal when the FP&F officer is not available. The Supervisory CBP officer is

responsible for reviewing and approving the Promissory Note if the FP&F officer is not

available.

6.7 The Directors, Field Operations shall ensure that the Port Directors and other

employees under their authority comply with the policies and procedures contained

herein.

ATTACHMENT B

PENALTY NOTE

6.8 The Executive Director, Financial Operations shall ensure that employees under

his/her authority adhere to the policy and procedures set forth in this directive.

6.9 The Assistant Commissioner, Office of Finance is responsible for the overall

Promissory Notes program to ensure that CBP complies with this directive.

7 PROCEDURES. These national guidelines and procedures shall be used when

accepting and processing Promissory Notes for the collection of unsecured claims.

7.1 The Promissory Note shall be a written agreement prepared as a legally binding

document and shall include the identification of the debtor, the total debt amount,

payment amounts, payment period, and the rate of interest, if applicable. If there is a

default of any installment payment, CBP shall have the option of making the entire

remaining balance due and payable as of the date of the default. NOTE: Promissory

Notes cannot be signed by a minor (under the age of 18).

7.2 The size and frequency of installment payments shall bear relationship to the

debt amount and the debtor’s ability to repay. Installment payments of less than $50

shall be avoided unless there are unusual circumstances. For exceptions, see

paragraphs 7.5.1 and 7.6.1.

7.3 Installment payments shall be limited to the shortest possible payment term.

However, the payment term shall not exceed 3 years unless the payment within 3 years

is impossible and circumstances, including the amount of the note, justify a longer

payback period. For exceptions, see paragraph 7.6.1.

7.4 When a Promissory Note for $2,000 or less is issued for an amount that is not

mitigated, the word “mitigated” shall be crossed out or deleted wherever it appears on

the form. See Promissory Note form (Attachment A).

7.5. For Promissory Notes That Are $2,000 or Less in Original Principal:

7.5.1 Promissory Notes that are $2,000 or less in original principal will only be made

for debt on FP&F cases. Field FP&F officers will maintain these notes. Requests shall

be reviewed and approved by the on-site Supervisory CBP officers or FP&F officers.

The Supervisory CBP officers or FP&F officers shall have sole discretion in granting

exceptions to paragraphs 7.2. Reasons for exceptions shall be noted in the case files.

Payments on these notes will be sent to the FP&F office servicing the port where the

penalties were incurred.

7.5.2 The Supervisory CBP officers or FP&F officers shall decide if goods or

documents of the debtor will be retained to secure the Promissory Note, with advice

from local counsel, as needed. It is also the Supervisory CBP officer’s responsibility to

ensure that the original executed Promissory Note is forwarded to the FP&F officer with

the case file.

ATTACHMENT B

PENALTY NOTE

7.5.3 The FP&F officers shall ensure that sufficient controls are in place to prevent loss

of these original Promissory Note documents and files.

7.5.4 The FP&F officer shall be responsible for ensuring that these Promissory Notes,

as well as both full and partial payments on them, are properly recorded in the

applicable automated system.

7.5.5 The FP&F officer shall be responsible for identifying when payment is in default

and for taking timely action, in accordance with the Promissory Note agreement.

Procedures for this are set forth in the Seized Asset Management and Enforcement

Procedures Handbook.

7.5.6 When the final payment of a Promissory Note clears the bank, the FP&F officers

shall mark the note “paid” and return the note to the debtor.

7.6 For Promissory Notes That Exceed $2,000 In Original Principal:

7.6.1 The Director, Revenue Division must approve Promissory Notes that exceed

$2,000 in original principal. The Revenue Division will maintain these notes. In

addition, the Director, Revenue Division has sole discretion in granting exceptions to

paragraphs 7.2 and 7.3 for Promissory Notes that exceed $2,000 in principal. Reasons

for exceptions shall be noted in the files.

7.6.2 Request packages for Promissory Notes that exceed $2,000 shall be sent to the

Director, Revenue Division, U.S. Customs and Border Protection, P.O. Box 68907,

Indianapolis, Indiana 46278. Request packages shall include financial statements for

the debtors. If the debtor is a corporation, the package shall include copies of the

previous 2 years of either: 1) audited financial statements, 2) federal income tax

returns, or 3) unaudited financial statements on forms that contain a signed statement

that “under penalty of perjury, these financial statements are true and correct to the best

of my knowledge.” If the debtor is not a corporation, the request package shall include

a copy of the debtor’s financial statement on the form as shown in Attachment D. The

request packages will be reviewed and analyzed by the Revenue Division to determine

if a Promissory Note is the only viable option. Collateral in the form of a security bond,

letter of credit or marketable securities must be obtained in cases whenever it is

determined the debtor has significant assets.

7.6.3 If the Director, Revenue Division decides that a Promissory Note is appropriate,

the debtor must sign the note in the presence of a Notary Public and the note must be

sent back to the Revenue Division for safekeeping and recordation in the applicable

automated system.

7.6.4 If the underlying debt is comprised of CBP bills, the bills will be canceled and the

Promissory Note will be established in the applicable automated system.

ATTACHMENT B

PENALTY NOTE

7.6.5 The Revenue Division personnel designated to control Promissory Notes shall

post the installment payments to the notes as the payments are received (or in a timely

manner thereafter), and shall identify when a payment s in default. When a default

occurs, timely action, in accordance with the Promissory Note agreement, shall be

taken.

7.6.6 The Revenue Division personnel designated to control Promissory Notes shall

forward a report of the current Promissory Note receivable balance values on a monthly

basis to the Financial Statements Section, Financial Reporting and Analysis Branch, so

they can be posted to the General Ledger.

7.6.7 When the final payment of a Promissory Note clears the bank, the Director,

Revenue Division shall ensure that the note is marked “paid” and returned to the debtor.

7.7 Uncollectible Promissory Notes.

7.7.1 If, despite diligent efforts, all attempts to effect collection of a Promissory Note

are unsuccessful and it is determined further attempts are not warranted, the FP&F

officers (for notes of $2,000 or less in original principal) or the Revenue Division (for

notes greater than $2,000 in original principal) shall review the facts available to ensure

collection actions have been properly documented and process the debt for write-off.

Note: If the amount of the note was a mitigated amount, the language in the note

provides for reversion back to the original penalty amount less any payments

made to date. See paragraph 3.2.

7.7.2 Write-off Actions for Promissory Notes That Are $2,000 or Less in (Original)

Principal.

7.7.2.1 If the FP&F officer determines that a Promissory Note will be written-off, an

explanation of the collection actions taken and the reasons or determinations to effect

write-off shall be recorded in the file (Title 31 CFR 903.3).

7.7.2.2 The FP&F officer has the authority to effect write-offs if the original penalty

amount, less any payment(s) does not exceed $1,500.

7.7.2.2.1 If the FP&F officer is processing a penalty of $1,500 or less for write-off, the

FP&F officer must forward a copy of the case file to the Revenue Division so that the

debt may be submitted for the Treasury Offset Program (TOP). See paragraph 7.8.

7.7.2.3 If the original penalty amount, less any payment(s) received, exceeds $1,500,

the Promissory Note and a copy of the complete set of the FP&F case documentation

shall be sent to the: Assistant Chief Counsel, U.S. Customs and Border Protection,

P.O. Box 68914, Indianapolis, Indiana 46278.

7.7.3 Write-Off Actions for Promissory Notes That Exceed $2,000 in (Original)

Principal.

ATTACHMENT B

PENALTY NOTE

7.7.3.1 If the Director, Revenue Division determines that a Promissory Note will be

written-off, an explanation of the collection actions taken and the reasons or

determinations to effect the write-off shall be forwarded as follows:

7.7.3.2 If the original debt, less any payment(s) received, exceeds $1,500, the

Promissory Note along with the FP&F case or bill documentation, if applicable, shall be

sent to the ACC, Indianapolis, Indiana.

7.7.3.3 If the original debt, less any payment(s) is $1,500 or less, the Promissory Note

along with the FP&F case or bill documentation, if applicable, shall be sent to the

Director, Revenue Division.

7.7.4 Handling of All Debts That Exceed $1,500.

7.7.4.1 If the original debt less any payment(s) received, exceeds $1,500, the ACC,

Indianapolis will review the documentation to determine if all reasonable collection

actions have been taken and if the write-off is appropriate. As part of this review, the

ACC may take additional collection actions or may refer the Promissory Note back to

the requesting office for additional collection action or to the appropriate Associate or

ACC for enforcement in district court.

7.7.4.2 If, after review, the ACC concurs with the write-off request, the ACC shall

forward the Promissory Note and the counsel opinion to the Revenue Division.

7.7.4.3 The Director, Revenue Division shall have the final review and determination if

write-off is warranted for all debts not exceeding $100,000. Debts that exceed

$100,000 must be referred to the Department of Justice for final determination [see Title

31 U.S.C. 3711 (a)] unless certain specific exceptions apply, e.g., outside the

jurisdiction of the United States, statute of limitations has expired, etc.

7.7.4.4 When the Director, Revenue Division has approved a write-off of a valid and

legally enforceable Promissory Note, notification shall be sent to the originator of the

write-off request (the pertinent FP&F officers and the Revenue Division staff).

Subsequently, the write-off of the Promissory Note shall be recorded in the applicable

automated system. The ACC, Indianapolis, is responsible for recording notes that were

maintained by the FP&F officers and the Director, Revenue Division is responsible for

recording notes that were maintained by the Revenue Division.

7.7.4.5 All debt that is written-off must be submitted to the TOP. See paragraph 7.8.

7.8 Promissory Notes that are uncollectible shall be submitted for collection under

the Treasury Offset Program (TOP), Title 31 CFR 285.2. Valid and legally enforceable

debts that are processed for write-off are eligible for the TOP if the Promissory Notes

are for $100 or more, OR if the Promissory Notes are for $25 or more AND the taxpayer

ATTACHMENT B

PENALTY NOTE

identification numbers are available. The Revenue Division is responsible for CBP’s

participation in the TOP.

7.9 When a debt is no longer eligible for the TOP, CBP will close out the debt and

generate an Internal Revenue Service (IRS) Form 1099C for amounts written-off in

accordance with the applicable IRS regulations.

Commissioner

U.S. Customs and Border Protection

Attachments

ATTACHMENT B

PENALTY NOTE

ATTACHMENT A

SHORT TERM

PENALTY NOTE

U.S. CUSTOMS AND BORDER PROTECTION

PROMISSORY NOTE

I, __________________________, [Name] of _____________________ [Street Address],

______________________________ [City, State or Foreign Country] promise to pay to the order of the

U.S. Customs and Border Protection (CBP) at the following address:

Fines, Penalties and Forfeitures Officer

[CBP address]

the sum of $_________ on or before the due date ________ (a date no later than SIX MONTHS after the

execution date of this note) as a mitigated penalty. This mitigated penalty is due as a result of a penalty

in the original amount of _________ [Original Penalty Amount] issued against me under case number

_______________ [Case Number]. Payment of this note may be made by a lump sum payment or

installments and, in either instance, by a guarantee form of payment, such as cash, cashier’s check or

money order. However, all payments must be received by CBP on or before the due date. If any

payment is received in a non-guaranteed form, such as a personal check, I understand that the payment

may be rejected and this note may be treated as in default if guaranteed payment is not received timely.

Nonpayment of the sum due under this note by the due date for any reason shall constitute a default. In

case of default in payment, the entire balance of the ORIGINAL PENALTY AMOUNT stated above shall

become immediately due and payable at the option of the CBP and without notice. I waive presentment

for payment, demand, notice of nonpayment, protest and notice of protest, and dishonor of the same.

Presentation of this document in any subsequent legal proceeding shall be presumptive evidence of this

unpaid penalty.

I shall have the right to prepay the obligation set forth in this note in whole or in part at any time without

penalty. Execution of this Promissory Note is my fully informed and voluntary act.

_____________________

(Signature)

_____________________

CBP Witness _____________________

(Name Printed)

SSN: ________________

at: _______________

Date: ______________

ATTACHMENT B

PENALTY NOTE

U.S. CUSTOMS AND BORDER PROTECTION

REVENUE DIVISION

PROMISSORY NOTE

_______________________________ [name and address of debtor], (the “Maker”), acting through its

duly authorized agent, promises to pay to the order of the U.S. Customs and Border Protection (CBP) at

the following address:

U.S. Customs and Border Protection

Revenue Division

P.O. Box 68907

Indianapolis, IN 46268

the sum of principal in monthly installments, with interest at ___ percent per annum, for a

total of __________________ [total amount of principal and interest on note] in compromise and

settlement of the original penalty amount of ___________ [original penalty amount] due under case

number _______ [case number]. Interest will be assessed monthly on the unpaid balance and will be

compounded in the event of default. The first installment of _______ [first installment amount] will be due

on _______ [first payment due date]. Each subsequent payment will be due on the ________ [due date]

of each month thereafter until the final payment of _______ [final installment amount], which will be due

on ______ [final installment payment date]. An additional charge of 5% of installment payment shall be

due on any payment not received within 15 days of the payment's due date. Payments shall be made by

guaranteed form of payment.

Nonpayment of any sum due under this note within 15 days of the payment's due date for any reason

shall constitute a default. In case of default in payment, the entire balance of the ORIGINAL PENALTY

AMOUNT stated above plus any accrued interest and late fees on this note shall become immediately

due and payable at the option of the CBP and without notice. That entire balance due shall continue to

accrue interest until payment is received. The maker waives presentment for payment, demand, notice of

nonpayment, protest and notice of protest, and dishonor of the same. Presentation of this document in

any subsequent legal proceeding shall be presumptive evidence of this unpaid penalty.

Page 1 of 2

ATTACHMENT B

PENALTY NOTE

Maker shall have the right to prepay the obligation set forth in this note in whole or in part at any time

without penalty. Prepayments shall first be applied to the interest due, and then to the remaining

principal.

(Signature)

(Name Printed)

for:

(Name of Principal)

SSN:

at:

Date:

ACKNOWLEDGMENT

State of :

County of :

Before me the undersigned, a Notary Public for County, State of , personally

appeared and acknowledged the execution of

this instrument as his/her fully informed and voluntary act this day of , 20 .

(Signature)

, Notary Public

(Name Printed)

My commission expires: .

Page 2 of 2

ATTACHMENT C

SHORT TERM

PENALTY NOTE

U.S. CUSTOMS AND BORDER PROTECTION

REVENUE DIVISION

PROMISSORY NOTE

[name and address of debtor], (the “Maker”), acting through its duly authorized agent, promises to pay to

the order of the U.S. Customs and Border Protection (CBP) at the following address:

U.S. Customs and Border Protection

Revenue Division

P.O. Box 68907

Indianapolis, IN 46268

the sum of principal in ___ monthly installments, with interest at ___ percent per annum, in

compromise and settlement [reason for note]. Interest will be assessed monthly on the unpaid balance

and will be compounded in the event of default. The first installment of _________ [first installment

amount] will be due on ______ [first payment due date]. Each subsequent payment will be due on the

______ [due date] of each month thereafter until the final payment of _________ [final installment

amount], which will be due on ______ [final installment payment date]. An additional charge of 5 % of

installment payment shall be due on any payment not received within 15 days of the payment's due date.

Payments shall be made by guaranteed check or money order.

Nonpayment of any sum due under this note within 15 days of the payment's due date for any reason

shall constitute a default. In case of default in payment, the entire unpaid principal balance plus any

accrued interest and late fees on this note shall become immediately due and payable at the option of the

CBP and without notice. That entire balance due shall continue to accrue interest until payment is

received. The maker waives presentment for payment, demand, notice of nonpayment, protest and

notice of protest, and dishonor of the same. Presentation of this document in any subsequent legal

proceeding shall be presumptive evidence of this unpaid debt.

Page 1 of 2

- 13 -

Maker shall have the right to prepay the obligation set forth in this note in whole or in part at any time

without penalty. Prepayments shall first be applied to the interest due, and then to the remaining

principal.

(Signature)

(Name Printed)

for:

(Name of Principal)

EIN:

at:

Date:

ACKNOWLEDGMENT

State of :

County of :

Before me the undersigned, a Notary Public for County, State of , personally

appeared and acknowledged the execution

of this instrument as his/her fully informed and voluntary act this day of , 20 .

(Signature)

, Notary Public

(Name Printed)

My commission expires: .

Page 2 of 2

- 14 -

ATTACHMENT D

FINANCIAL REPORT

DEBT AMOUNT:

DEBTOR NAME: SPOUSE’S NAME:

IMPORTER OF RECORD NUMBER: [Or Social Security Number]

ASSETS: AMOUNT

Cash on hand _______________

Checking account balance _______________

Savings account balance _______________

Certificates of deposit (including IRA) _______________

Accounts receivable _______________

Stock (including IRA) _______________

Mutual funds (including IRA) _______________

Bond (including IRA) _______________

Thrift savings _______________

Cars current value _______________

Boats current value ______________

House(s) current value _______________

Land current value _______________

Business establishment(s) current value _____ __________

Other assets (list separately)

Jewelry _______________

Household goods _______________

Other _____________ _______________

_____________ _______________

TOTAL ASSETS _______________

LIABILITIES (TOTAL BALANCES OF WHAT YOU PRESENTLY OWE)

Accounts payable (credit card balances,

personal loans, child support, etc.) _______________

Mortgage balance (house, car boat, etc.) _______________

Other liabilities (list separately)

Bureau of Customs and Border Protection debt _______________

____________ _______________

TOTAL LIABILITIES _______________

Page 1 of 2

- 15 -

ATTACHMENT D

FINANCIAL REPORT

DEBT AMOUNT:

DEBTOR NAME: SPOUSE’S NAME:

IMPORTER OF RECORD NUMBER: [Or Social Security Number]

MONTHLY INCOME (average payment per month)

Wages and salaries _______________

Interest _______________

Dividends _______________

Business income _______________

Other income (list separately)

_________________ _______________

_____________________________________________________

TOTAL MONTHLY INCOME _______________

I, the undersigned, certify under penalty of perjury, that my financial statements set forth above are true

and correct. The amounts of assets, liabilities, income and expenses include by way of illustration, not

limitation, my own assets, those of my spouse, and those owned by both of us together.

Signature __________________________________ Date _________________

ACKNOWLEDGMENT

State of :

County of :

Before me the undersigned, a Notary Public for County, State of , personally

appeared and acknowledged the execution of

this instrument as his/her fully informed and voluntary act this day of , 20 .

(Signature)

, Notary Public

(Name Printed)

My commission expires: .

Page 2 of 2