Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 61-23

1961-1 C.B. 792

IRS Headnote

Distilled spirits which have been contaminated during the bottling process and voluntarily destroyed and spirits which have been wasted in washing and cleaning operations do not give rise to a loss occurred by reason of, and incident to, authorized rectifying, packaging, bottling or casing operations under section 5008(c)(1) of the Internal Revenue Code of 1954, but result in a voluntary destruction of spirits under section 5008(b)(2).

Full Text

Rev. Rul. 61-23

Advice has been requested whether refunds and credits of tax for distilled spirits which have been contaminated during the bottling process and later destroyed, and for spirits which have been wasted in washing and cleaning operations, are allowable under section 5008(b)(2) of the Internal Revenue Code of 1954, or whether the credit or refund for such losses is allowable under section 5008(c)(1) of the Code.

The proprietor of a distilled spirits plant made changes in his filling equipment which resulted in the bottled spirits being contaminated with oil. The contaminated spirits were set aside and later destroyed by dumping in the sewer. In addition, other spirits were permitted to waste away by allowing them to drain down the sewer after being used to purge or wash out tanks, lines, filters, etc. between the bottling of different blends.

Section 5008(b)(2) of the Code provides in part that the Secretary of the Treasury of his delegate may credit or refund the tax on spirits, withdrawn from bond on payment or determination of tax for rectification or bottling, which have been voluntarily destroyed (before the completion of the bottling and casing or other packaging) under the provisions of this subsection.

Section 5008(c)(1)(B) of the Code likewise provides in part for the crediting or refunding of the tax on spirits, withdrawn from bond on payment or determination of tax for rectification or bottling, which are lost before the completion of bottling and casing or other packaging if such loss occurred by reason of, and was incident to, authorized rectifying, packaging, bottling, or casing operations.

While the waste of contaminated spirits may result in a financial loss to the proprietor of a distilled spirits plant, such spirits are not lost within the meaning of section 5008(c)(1) of the Code. The same position is taken in respect of spirits which are allowed to drain down the sewer after their use in the purging or washing out of tanks, lines, etc.

The destruction of spirits as a result of contamination during the bottling process and the destruction of spirits used in washing and purging operations are, however, properly classifiable as voluntary destructions.

Accordingly, refunds and credits of tax for distilled spirits which have been contaminated during the bottling process and later destroyed, and for spirits which have been wasted in the process of purging or washing out tanks, lines, and filters, etc., when changing from one blend to another, are allowable under section 5008(b)(2) of the Code subject to the provisions of applicable Distilled Spirits Plants Regulations.