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Industry Circular

Number: 54-2
Date: August 19, 1954


Internal Revenue Service

Washington 25, D.C.


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Amendments of Regulations Relating to the Bottling of Distilled Spirits

Proprietors of rectifying plants and taxpaid bottling houses; and others concerned:

1. As you probably know, the Alcohol and Tobacco Tax Division is conducting an extensive survey of the various aspects of its supervision of the distilled spirits industries. In order to facilitate those studies and to effectively receive industry comments and suggestions, an Alcohol and Tobacco Tax Survey Committee was established on September 8, 1953. As one of the first results of such studies, extensive changes were proposed with respect to procedures affecting rectifiers and proprietors of taxpaid bottling houses. The proposals, as set out in regulations prepared by the Planning and Procedure Section, Alcohol and Tobacco Tax Division, were published in the Federal Register as a notice of proposed rule-making on July 28, 1954. The period of 15 days during which comments from the industry were invited, has now elapsed; no adverse comments from the industry were received during that period. Accordingly, the revision of regulations as proposed in the notice will probably go into effect about September 1, 1954.

2. In order that you may lay your plans in anticipation of the new procedures, the present Industry Circular has been prepared to explain certain of the changes which will be made and to provide additional information of an explanatory nature concerning certain forms and procedures which will be used.

3. Generally, the amendments to the regulations are intended to provide greater flexibility in the operations of bottling plants and to afford bottlers an opportunity to conduct their activities with as little delay as possible and at the same time permit Governmental supervision to be exercised efficiently and economically. In order to accomplish this dual purpose, it has been necessary to discontinue certain elements of supervision by storekeeper-gaugers and to change the emphasis of other activities of such officers. It is recognized that during a period of transition certain questions will arise which will require, for prompt and effective resolution, a reasonable approach on the part of both Government officers and plant proprietors.

It is our firm intention to administer the statutes and regulations relating to the distilled spirits industries in a fair and equitable manner; plant proprietors will be permitted to conduct their operations with as 1ittle restriction by Government supervision as is consistent with adequate protection to the revenue and economy in the administration of such supervision.

Form 122

4. A major change in the regulations is concerned with the preparation and use of Form 122. The form, as revised, will serve a dual purpose: First, it will serve as a notice of dumping for rectification and will permit the rectifier to use the form in the same manner (but with less effort and fewer entries) as in the past, and Second, it will serve as a notice of rectification, or in other words, as a batch record. There is no intention to disguise the fact that under the latter purpose the preparation of a greater number of Forms 122 will be necessary. However, this new usage bridges the gap in accounting which previously existed between the Form 122 and the Form 237. It is now intended that there will be a complete accounting and record of all distilled spirits, wines, etc., dumped for rectification until such products are finally bottled and removed from the premises. In order to facilitate this use of Form 122, it is believed desirable to furnish some further explanation as to its preparation and use.

5. Use of Form 122 as Notice or Dumping.

a. An initial supply of Form 122 will be made available to you by your Assistant Regional Commissioner (Alcohol and Tobacco Tax). However, as in the past, you will be required to provide Forms 122 for your own use; accordingly, it will be necessary that you take prompt steps to assure yourself of a supply of such form (obtained from commercial sources) preferably within a month of the effective date of the new regulations.

b. In order to facilitate operations involving taxable rectification or production of tax exempt gin and vodka, Form 122 will be a notice rather than an application. It will be necessary for you only to deposit the form on the desk of the storekeeper-gauger. If such officer is immediately available and wishes to check the spirits covered by the form, he will do so. Otherwise, you may proceed with the activity described in the form without delay. It is anticipated that this will provide you an opportunity to schedule your operations

without interruption or delay because of the unavailability of the Government officer. In the event you desire to blend two or more straight whiskies or two or more fruit brandies distilled from the same kind of fruit under exemption from the rectification tax, storekeeper-gaugers are required to examine the containers to be dumped, verify the entries on. Form 122, and maintain continuous supervision over the dumping and blending of the spirits; therefore, you, may not proceed with the dumping, gauging, and blending of such spirits until the storekeeper-gauger has verified the information on Form 122 and is prepared to supervise the operations. In such latter case, you are also required to submit a written application, with the Form 122, to the storekeeper-gauger for supervision of the blending as required by regulations.

c. Form 122 will be prepared generally in the same manner as in the past. However, you have been relieved of the need to enter a considerable amount of information. It will no longer be necessary for you to enter the kind of cooperage, the proof of distillation, proof at time of withdrawal, nor with respect to the rectifier's gauge, the gross weight, tare, net weight, and proof. In order to further facilitate your operations (and entirely at your option), spirits in packages may be gauged in bulk in a processing tank rather than by gauging each package individually. Accordingly, losses may be indicated for an entire lot rather than for individual packages.

d. There is no objection to the entry of dissimilar lots of spirits and wines on the same Form 122; however, it must be pointed out that, unless such spirits are to be used in the same formula the accounting therefor in Part 4 of the Form 122 may be more difficult. Where more than one lot of spirits or wines are dumped on the same Form 122, each lot will be given an alphabetical designation in the left-hand margin of the form in such manner as to identify the particular lot concerned. This same alphabetical designation will be required in accounting for the spirits on Part 4, unless all of the spirits described on Form 122 are to be rectified under the same formula. This designation is necessary in order to afford a means of comparing the entries in Section B of Part 4 with the various lots dumped and described in Part 1. Under such circumstances, the quantity of lot "A" accounted for in Part 4 must agree with quantity shown in Part 1, except that the losses (or gains) far all, lots may be combined as a single entry.

e. There may be occasions when it will be necessary for you to check both the first and second boxes in Part 2; in other words you may dump spirits which need to be gauged on the same form with spirits

for which a gauge is not required. In such instances, the second statement should be modified to read "I certify that no gauge is required of certain of the distilled spirits described in Part 1 and marked by an asterisk, etc." The asterisk shall be placed at the front of column "a" on the line or lines describing such spirits.

f. Your attention is directed to the fact that the dumping and use of alcoholic coloring, flavoring, or blending materials (other than materials in the categories of whisky, wine, spirits, cordials, liqueurs, etc.) will be entered on Form 122 only when it is used as a batch record. Such materials, therefore, will not be accounted for on Form 45. Where whisky, wine, spirits, etc., are to be used as flavoring materials, they must be entered Form 122 and carried forward to Form 45.

6. Use of Form 122 as a Batch Record.

a. When the entire quantity of spirits dumped are to be used immediately in rectifying a batch of spirits or wines, the total of column "k" will be included in the batch total (together with any coloring or flavoring materials entered in column "p" not required to be shown in column "k") which will be entered in Section A of Part 4 at the line titled "Used in Rectification". In such instances a single Form 122 will cover both purposes (notice of dumping and batch record).

b. Intermediate blending will be permitted as indicated in the comments on the use of the form as a dumping record and when such blending is undertaken the information required in columns "a", "b", "c", "d", and "f" may be indicated either as "various" or multiple entries may be made with respect to each lot. However, in case an ingredient can be described with respect to a particular column as, for example, several lots of rye whisky (even though produced by different distillers) could be described in column "d" as "rye whisky", such identification shall be made to the extent possible.

c. An omission in printing occurred in the fourth sentence of paragraph 4 of the instructions. This sentence should read "Remnants of one batch of a rectified product may be included in a subsequent batch of the same product and reported on the Form 122 covering the later rectification."

d. Where it is intended to dump distilled spirits for use in intermediate operations such as the distillation of gin, the maceration of flavoring materials, etc., the use in such intermediate operations shall be considered within the category of batch records. In other words, if it is desired to use neutral spirits which have already been dumped on a Form 122 in the preparation of gin or flavoring materials, a Form 122 batch record should be prepared accounting for the materials used for such purposes. This procedure will permit the balancing of the original Form 122 and will provide a new Form 122 to cover the preparation of the gin, flavoring, etc.

e. Form 122 may cover spirits rectified in several processing tanks. It is necessary to note on the Form 122 the numbers of the tanks in which such rectification is conducted. Similarly, it is desired that the serial number of the Form 122 and the tank number on which it is posted be shown on the other tanks involved in the batch.

f. It is desired to re-emphasize that, in the case of accounting for the number of proof gallons involved in a batch as entered at line 2, Section A of Part 4, such accounting may be accomplished by quantities reported on (a) Forms 237, (b) Forms 122, or (c) any combination of Forms 237 and 122.

Form 182

(Available on requisition from Assistant Regional Commissioner, Alcohol and Tobacco Tax).

7a. Bottlers will be required, by regulations, to maintain a monthly record and report of red strip stamps on Form 182. Pending revision of such form, bottlers will comply with the applicable instructions printed on the form; where the term storekeeper-gauger is used, the instructions shall be read as applicable to the bottler.

b. Pending such revision, Part 1 will be amended specifically as follows:

(1) Amend the title to read, "Monthly Record of Red Strip Stamps"

(2) The headings "Government Cabinet Account" and "Used and Mutilated Stamps" will be lined out.

(3) The heading of column 2 will be amended to ready "On Hand Beginning of Day".

(4) Columns 5, 7, and 9, will not be used.

(5) The heading of column 8 will be amended to read, "Returned for Exchange".

(6) The heading of column 10 will be amended to read, "On Hand End of Day". (7) The number of each denomination of stamps used on bottles, to be reported in column 11, will be obtained by computing the number of each denomination of stamp used on the bottles filled and cased during the day as reported on Forms 230 and 237.

c. Pending revision it will be necessary that Part 2 of the form be amended specifically as follows:

(1) The title will be amended to read, "Monthly Report of Red Strip Stamps".

(2) Line 1 will be changed to read, "On Hand First Day of Month".

(3) Line 2 will be changed to read, "Received from District Director".

(4) Lines 7, 10, and 11, will not be used.

(5) Line 8 will be amended to read, "Returned for Exchange".

(6) Line 16 will be amended to read, "On Hand Last Day of Month".

(7) Line 17 will be amended to read, "Total (Line 8 to 16 inclusive)".

(8) Under remarks, the bottler will separately detail (by denominations) mutilated stamps returned for redemption and mutilated stamps destroyed under Government supervision.

(9) Under the Certification, the signature line for the storekeeper-gauger will be changed to show the signature of the person authorized to sign for the proprietor and his name and capacity. The block designated, "StorekeeperGaugers Having Custody of Stamps", will be changed to read, "Storekeeper-Gauger"s Verification° and immediately under such title there will be inserted, "The Inventory As Shown On Hand the Last Day of the Month Has Been Verified".

(10) The physical inventory of stamps on hand at the end of the month will be taken jointly by the proprietor and the storekeeper-gauger. Any stamps disclosed by the physical inventory as unaccounted for by use on bottles, mutilation in cutting or bottling, or returned for exchanged, will be explained in the remarks portion of the form. Upon completion of Form 182 (Part II), both copies of the form will be submitted to the storekeeper-gauger in order that he may compare his record of the inventoried stamps with the quantity reported as on hand at the end of the month and execute his verification on the form. On completion of the storekeeper-gauger's verification, he will return both copies of the form to the bottler. The bottler will, on or before the 5th day of the month succeeding that for which the report is prepared, forward the original to the Assistant Regional Commissioner, Alcohol and Tobacco Tax Division, and retain the duplicate on the premises available for examination by Government officers.

Form 230

8. As in the case of Form 122, Form 230 will be used as a notice to the storekeeper-gauger of intention to dump and bottle distilled spirits or wines. The original and one copy of the form will be placed on the desk of the storekeeper-gauger in order that he may inspect the packages if he is present and so desires. Where the storekeeper-gauger is not immediately available on the premises or does not indicate his desire to examine the packages to be dumped, the proprietor may proceed to dump and reduce the proof of the spirits or dump the wines, bottle the spirits or wines and remove the cases produced. Pending revision of Form 230, bottlers will use existing stocks of Form 230 modified as follows:

1. Immediately below the title and on the same line as the phrase "Part l" insert "Notice of Intention to Dump".

2. In the bottlers application, Part 1, strike out the phrases "Application is hereby made by" and "for permission". In lieu of the latter phrase insert, "intends".

The storekeeper-gauger will no longer complete the authorization in Part 4 as such, but will merely insert the word "noted" just prior to his signature. The space for the storekeeper-gauger's verification of the cases filled will no longer be used.

Form 237

9. Pending revision of Form 237 rectifiers will use existing stocks of Form 237 modified as indicated herein. The third comma in the first sentence of Part 3 of Form 237 will be changed to a period and the remainder of the sentence will be lined out. That portion of the second sentence preceding the colon will be changed to read "Based on the details set forth by the rectifier, tax is due on the products described herein as follows". Where tax due on rectified spirits and wines to be bottled is paid on the gauge in the bottling tank, the storekeeper-gauger will no longer verify cases filled or execute Part 7.

Transfer of Strip Stamps to Proprietor

10. In order that the transfer of red strip stamps from the custody of the storekeeper-gauger to that of the proprietor may be effected in an orderly manner, the following procedure is suggested. On August 31, 1954 (or on such earlier date as bottling for the month may be completed), (1) the stock of strip stamps in the Government cabinet will be inventoried jointly by the proprietor and the storekeeper-gauger, (2) the proprietor will prepare his request to the storekeeper-gauger for issuance of such stamps in the usual manner, except that the request will cover the entire quantity inventoried, (3) the storekeeper-gauger will render a final report as of August 31 closing out his record of strip stamps, and (4) the proprietor will report on his Form 182 the entire quantity of stamps on hand at the beginning of business on September 1. (This quantity will include both the number issued in accordance with the joint inventory and final request and any unused stamps remaining in the proprietor's possession from earlier requests.)

Redemption of Stamps

11. The Internal Revenue Code of 1954 provides that on and after January 1, 1955, red strip stamps will be furnished by the Government to bottlers without cost in accordance with regulations. It is anticipated that regulations will provide for claims for refund of the cost (to the proprietor) of red strip stamps (at the rate of 1/4 cent for less than one-half pint stamps and 1 cent for other denominations) reported "On Hand" on January 1, 1955. It will be necessary that the storekeeper-gauger verify this quantity. After such verification the stamps may continue to be used in the customary manner and need not be submitted with the claim. Details of the claim procedure will be set forth in regulations to be issued prior to January 1, 1955.

Concluding Remarks

12. Storekeeper-gaugers will be available for consultation as to operating problems arising under the regulatory requirements and it is intended that questions be answered by such officers whenever possible. However, you should anticipate new or changed procedures or the use of new or changed formulas or processes in sufficient time to enable you to discuss the subject with the storekeeper-gauger and, in the event there are areas which need to be referred to the Assistant Regional Commissioner, to submit the question to the regional office.

Inquiries concerning this industry circular should refer to the number thereof and to the symbols, O:AT:PP.


John L. Huntington
Acting Director, Alcohol and Tobacco Tax Division


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