Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 61-30

1961-1 C.B. 795

Section 1372 -- Subchapter S Elections

IRS Headnote

Where defective or unsaleable beer is not removed from the market by the brewer, but is destroyed by a state official at the retail liquor dealer premises, a claim for refund or credit of tax on the beer may not be allowed.

However, where the brewer removes the beer from the market and complies with the notice requirements of section 245.161 of the Beer Regulations, it is within the discretion of Assistant Regional Commissioner to accept certification of the destruction by a state officer as a basis for allowing the brewer's claim.

Full Text

Rev. Rul. 61-30

Advice has been requested whether a claim for refund or credit of tax may be allowed on defective or unsaleable beer, the destruction of which has been witnessed by a state official at retail liquor dealer premises.

The Revenue Service has been advised that in the State of Oregon, State liquor regulations prevent a brewer from having beer returned to the brewery from a retail establishment where the beer has been found to be defective or otherwise unsaleable. It is reported that defective beer in the hands of a retailer, but on which the brewer will issue a credit memorandum, must, under state regulations, be destroyed at the retailer's premises under the supervision of a State officer. The Service has also been advised that in the State of Washington, State liquor inspectors supervise the destruction of damaged beer in the hands of a retailer, the brewer making an adjustment in the form of a credit memo issued to the retailer to cover the damaged or defective beer. In both Oregon and Washington, the State liquor inspector witnessing the destruction certifies to the amount destroyed under his supervision.

Section 5056(a) of the Internal Revenue Code of 1954 provides that any tax paid by any brewer on beer produced in the United States may be refunded or credited to the brewer, without interest, or if the tax has not been paid, the brewer may be relieved of liability therefor, under such regulations as the Secretary of the Treasury or his delegate may prescribe, if such beer is removed from the market and is returned to the brewery or is destroyed under the supervision required by such regulations.

Section 245.161 of the Beer Regulations requires that when a brewer possesses taxpaid beer (or beer on which the tax has been determined), which is removed from the market and which he desires to destroy, in his brewery or elsewhere, he shall give written notice of his intention, in triplicate, to the Assistant Regional Commissioner.

Section 245.162 of the regulations provides as follows:

Assignment of inspector. On receipt of the brewer's notice, the assistant regional commissioner will assign an inspector to verify the statements therein and to witness the destruction of the beer, or it removal from containers for reconditioning or use as material, unless the assistant regional commissioner determines that such supervision is unwarranted because of the small quantity of beer involved and such action will not jeopardize the revenue. If the brewer desires to destory such beer at some place other than the brewery, the assistant regional commissioner may require that the disposition of the beer be delayed pending arrangement of a convenient time for supervision, and, if the place of destruction is not readily accessible to an inspector, the assistant regional commissioner may require that the beer be moved to a more convenient location. The assistant regional commissioner may, at any time, to substantiate claims for refund or credit of tax on beer returned to the stock of the racking room or bottling house, notify the brewer that, until further notice, supervision will be required of any further return of beer to such stock.

The written notice of the intention of the brewer to destroy the beer must be submitted to the Assistant Regional Commissioner in order that an inspector may be assigned to verify the statements in the notice and witness the destruction of the beer, unless for certain reasons, as stated in section 245.162 of the regulations, the Assistant Regional Commissioner determined that supervision is unwarranted.

A necessary condition to relief under section 5056 of the Code is the removal of the beer from the market by the brewer . In this instance, the beer was destroyed before the brewer had any knowledge of the matter. When it came to his attention, the beer was no longer in existence, so it would have been impossible for the brewer to remove it from the market.

Accordingly, where defective or unsaleable beer is not removed from the market by the brewer, but is destroyed while in the hands of a retailer by a state official at the retail liquor dealer premises, a claim for refund or credit of tax on the beer may not be allowed.

However, where the brewer removes the defective or unsaleable beer from the market and complies with the notice requirements prescribed in section 245.161 of the regulations, it is within the discretion of the Assistant Regional Commissioner to accept certification of destruction by the state officer in lieu of assigning an internal revenue officer to supervise the destruction, and to allow the claim on that basis.