Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 59-53

1959-1 C.B. 730

Caution: Superseded by Rev. Rul. 65-253

IRS Headnote

Volatile fruit-flavor concentrate may not be produced at a high alcoholic content (in excess of fifteen percent alcohol by volume) and subsequently diluted with distilled water for removal under the provisions of section 198.176 of the Regulations relating to Fruit-Flavor Concentrates. Forms 27-G, Notice By Proprietor of Volatile Fruit-Flavor Concentrate Plant, will not be approved to cover the production of volatile fruit-flavor concentrates containing over six percent alcohol by volume.

Full Text

Rev. Rul. 59-53

Advice has been requested whether a manufacturer of volatile fruit-flavor concentrates may dilute a concentrate containing excessive alcohol with distilled water in an amount necessary to reduce the alcoholic content to not more than fifteen percent, add thereto materials specified in section 198.176 of the Regulations relating to Fruit-Flavor Concentrates, and remove the product from the manufacturing premises. Advice has also been requested whether Form 27-G, Notice by Proprietor of Volatile Fruit-Flavor Concentrate Plant, may be approved covering the production of volatile fruit-flavor concentrate containing up to and including fifteen percent of alcohol by volume.

A volatile fruit-flavor concentrate manufacturer found that concentrates produced by him from various fruits varied considerably as to alcoholic content, depending upon the type of fruit from which produced. In some cases the alcoholic content was far in excess of the six percent specified in his notice, Form 27-G, and even in excess of the fifteen percent limitation specified in section 198.176 of the regulations. Permission was requested to dilute the concentrates with water for the purpose of removing them from the premises under the provisions of section 198.176 of the regulations; and to amend Form 27-G to permit the production of concentrates with an alcoholic content of up to and including fifteen percent.

Section 5511 of the Internal Revenue Code of 1954 conditions the manufacture of volatile fruit-flavor concentrate tax free, among other things, upon the concentrates and the mash or juice from which produced, containing no more alcohol than is reasonably unavoidable in manufacture; and upon such concentrate's being rendered unfit for use as a beverage before removal from the place of manufacture.

Section 198.176 of the regulations provides that concentrate which is fit for use as a beverage may not be removed from the place of manufacture, but provides that it may be used on the premises in the completion of the manufacture of any product, authorized in section 198.26 of the regulations to be made on the premises, which contains less than one-half of one percent of alcohol by volume. Section 198.176 further provides that where the alcoholic content of the concentrate exceeds six percent but not more than fifteen percent of alcohol by volume and it is desired to remove such concentrate from the premises, certain substances must be added in amounts as specified therein. Concentrates containing not more than six percent of alcohol by volume may be removed from the premises without being modified by the addition of any substance unless it is found that the concentrate is fit for use as a beverage.

The purpose of section 198.176 of the regulations relative to the disposition of volatile fruit-flavor concentrate containing over six percent but not more than fifteen percent of alcohol by volume, is to provide for the occasional unavoidable production of concentrates containing over six percent of alcohol by volume. The day to day production taxfree of concentrate containing over 6 percent alcohol by volume is not authorized since with proper care in handling the mash or juice, the development of more alcohol is reasonably avoidable. Manufacturers must exercise every precaution to keep the alcoholic content of the mash or juice as low as possible. Failure to do so may render the concentrate taxable and result in the concentrate manufacturer's being required to discontinue the production of volatile fruit-flavor concentrates free of tax.

Fruit-flavor concentrate containing excessive alcohol may not, therefore, be diluted with water, prior to the addition of substances authorized in section 198.176 of the regulations, for the purpose of reducing the alcoholic content of the concentrates so it will fall within the fifteen percent limitation specified in that section and thus be open to removal from the volatile fruit-flavor concentrate premises on the addition of the specified substances. Form 27-G will not be approved covering the production of a volatile fruit-flavor concentrate containing in excess of six percent alcohol by volume.