Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 61-90

1961-1 C.B. 808

IRS Headnote

The penal sum of export bonds covering spirits bottled in bond for export and the amount of tax liabilities  on such spirits lost in transit should be based on the wine gallons in those situations in which the spirits involved are less than 100 degrees of proof.

Full Text

Rev. Rul. 61-90

Advice has been requested whether the penal sum of export bonds, where required, and tax liabilities on spirits lost in transit after withdrawal from bonded premises for exportation should be based on the proof gallons involved even though such spirits may have been bottled at less than 100 degrees of proof.

It is has been the practice of proprietors of distilled spirits plants to base the penal sum of export bonds covering spirits bottled in bond for export on the proof gallons and to carry such spirits after bottling in their storage account on the basis of the proof-gallon content.

Section 5233 of the Internal Revenue Code of 1954 provides, in part, that distilled spirits stored on bonded premises, which have been duly entered for bottling in bond before determination of tax or for bottling in bond for export, shall be dumped, gauged, bottled, packaged, and cased in the manner which the Secretary of the Treasury or his delegate shall by regulations prescribe.

Section 5175(a) of the Code requires that no distilled spirits shall be withdrawn from bonded premises for exportation without payment of tax unless the exporter has furnished bond to cover such withdrawal, under such regulations and conditions and in such form and penal sum as the Secretary of the Treasury or his delegate may prescribe.

Section 201.11 of the Distilled Spirits Plants Regulations defines the term `tax gallon' as the unit of measure of spirits for the imposition of tax under section 5001 of the Code. This section further provides that when spirits are 100 degrees of proof or more at the time of tax determination, the tax is determined on a proof-gallon basis. When spirits are less than 100 degrees of proof at the time of tax determination, the tax is determined on a wine-gallon basis.

Section 201.336 of the Distilled Spirits Plants Regulations provides, in part, that the tax on spirits withdrawn for export with benefit of drawback at less than 100 degrees of proof shall be determined on a wine-gallon basis.

Section 252.171 of the Exportation of Liquors Regulations provides, in part, for drawback of tax equal in amounts to the tax found to have been paid or determined on spirits bottled especially for export.

Prior to amendment by Public Law 85-859, C.B. 1958-3, 92, at 248, section 5243(a) of the ,1954 Code (now section 5233 of the Code) provided that whenever any spirits deposited in the internal revenue bonded warehouse have been duly entered for withdrawal for bottling in bond before tax payment or for export in bond, such spirits shall be dumped, etc., in the manner which the Secretary of the Treasury or his delegate shall be regulations prescribe. However, section 5233 of the Code, as noted above, now provides that spirits stored on bonded premises which have been duly entered for bottling in bond for export shall be dumped, etc., in the manner prescribed.

Section 5233 of the Code does not require that distilled spirits to be bottled in bond be duly entered for withdrawal for bottling in bond before tax payment or for export in bond.

Therefore, the withdrawal gauge under section 5233 of the Code is not based on the withdrawal of spirits for bottling in bond. The only withdrawal of bottled-in-bond spirits now is the withdrawal from bond.

Also, the prohibition of drawback allowance upon the exportation of bottled-in-bond spirits found in section 5243(e) of the 1954 Code, prior to amendment by Public Law 85-859, has been eliminated by sections 5233 and 5175 of the Code as implemented by section 201.336 of the Distilled Spirits Plants Regulations and section 252.171 of the Exportation of Liquors Regulations, all of which are referred to above.

Accordingly, the penal sum of export bonds, where required, and the amount of tax liabilities on spirits lost in transit after withdrawal from bonded premises for exportation, should be computed on the basis of wine gallons in those situations in which the spirits involved are less than 100 degrees of proof. Such spirits should also be carried on Form 1620, Filled Case Report, and Form 1621, Summary of Deposits and Withdrawals at Bonded Warehouse, on this same wine-gallon basis.