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Industry Circular

Number: 59-59
Date: December 2, 1959

Office of the Commissioner of Internal Revenue
Alcohol and Tobacco Tax Division


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Manufacturers of large cigars:

    Purpose. The purpose of this industry circular is to inform you of the
position of the Revenue Service concerning overages and shortages of large
cigars disclosed by physical inventory.

     Background. A comprehensive study has been conducted as to the overages
and shortages that are frequently disclosed by physical inventories in factories
producing large cigars and which, in the case of shortages, are sometimes
accounted for as "reduced to materials," or "consumed by employees," or by
understating the quantities of cigars produced. During this study, we have been
repeatedly assured by many manufacturers of large cigars that these overages
and shortages occur mainly because large cigars are difficult to accurately
count when in a loose condition and in large quantities, and are susceptible to
loss and breakage during grading, sorting, and packaging operations which
generally are performed many days after the cigars have been made (and so

    Comments. In order that your records and reports may accurately reflect
your operations and transactions, each overage and shortage of cigars disclosed
by physical inventory should be entered in your records and the net overage or
net shortage during any month should be reported on Form 2136 submitted for
that month. Shortages so reported will be considered for allowance if they are
found to be in reasonable quantities and consistent with operating conditions at
your factory.

    Inquiries. Inquiries in regard to this industry circular should refer to its
number and be addressed to the office of your assistant regional commissioner
(alcohol and tobacco tax).




                                Dwight E. Avis
                     Director, Alcohol and Tobacco Tax Division



                                    IRS - D. C. - 53972




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