RECORDKEEPING REQUIREMENTS APPLICABLE
TO CERTAIN SALES ACTIVITIES
Bottlers of distilled spirits; wholesale
liquor dealers; and others concerned:
Purpose. The purpose of this Industry Circular is to clarify the application
of the recordkeeping requirements with respect to the receipt and disposition of
distilled spirits under Chapter 51 of the Internal Revenue Code and regulations
thereunder as they apply to distilled spirits disposed of under the guise of
Regulations. The regulations in 26 CFR Parts 220, 221, 225, 230, and 235
(for example, 26 CFR 220.758, 220.759, 221.773, and 221.774) provide that the
distiller, warehouseman, rectifier, or bottler, as the case may be, is to keep
daily records of the receipt and disposition of distilled spirits for each of the
premises maintained by him for the receipt, storage, and disposition of taxpaid
distilled spirits and to render monthly reports thereof. Similar provisions as to
wholesale liquor dealers appear in 26 CFR 194.210,194.222, and 194.233. Section
194.229 provides that a retailer keep records of all liquors received by him,
showing the quantities thereof, from whom received, and the receiving dates.
These regulations implement sections 5114, 5124, 5197(a)(2), and 5285(b) of the
Internal Revenue Code. Sections 5621 and 5692 of the Internal Revenue Code
provide certain specific penalties with respect to refusing or neglecting to
keep the records or render the summaries of such records required by the
foregoing sections of law. The penal and forfeiture provisions of sections
5686(b) and 7302 of the Code are also applicable to any violations of these
Background. It has come to the attention of this office that some wholesalers, possibly in an attempt to avoid or evade State tax or price posting
requirements, have been reporting as "salesmen's samples" quantities of
distilled spirits that have been disposed of to retail dealers as a "bonus"
in connection with quantity purchases of distilled spirits. Such "bonus"
quantities have been delivered to the retail customer either by the wholesaler
through his salesmen or by the sales representative of his supplier, or have
been disposed of to the latter with the understanding that the sales representative will in turn pass them on to the retailer. In many instances the "bonus"
quantity was not invoiced to the retailer, nor was any record of its receipt
kept by the retailer.
Discussion. The records required of a liquor dealer are an integral part
of the controls necessary in administering the internal revenue laws relating
to distilled spirits. Such records must show all required information (including,
in the case of a wholesale liquor dealer, the name and address of the person to
whom he gave or sold the distilled spirits). Falsification of these records or
failure by a liquor dealer to correctly report distilled spirits, whether or not
disposed of, or received, as "bonuses," or sold or given to a sales representative of the wholesaler's supplier for any purpose, will render the dealer liable
to the penalty and forfeiture provisions referred to above. A sales representative of a wholesale liquor dealer's supplier who becomes a party to such
falsification of records may, under section 2 of Title 18 of the United States
Code, also be punishable.
Where a sales representative procures stocks of distilled spirits that are
to be paid for by his principal, either in cash or by credit, for delivery to
retailers as a "bonus", or inducement purchase, such quantities must be
reported as received and sent out by his principal in accordance with the
requirements of the appropriate regulations referred to above. Of course, if
such stocks are sold to retailers, occupational tax as well as recordkeeping
liability will be involved.
Any noncompliance with the regulations as described herein renders the
wholesaler or the sales representative's principal, as the case may be, liable
to the penalty provisions of section 5621 of the Internal Revenue Code for the
failure to keep records and may, in addition, jeopardize his basic permit under
the Federal Alcohol Administration Act.
Reporting Bona Fide Samples. It has long been a practice in the wholesale
trade for salesmen to carry small quantities of their wares as samples in order
that the trade might compare their products with competitive brands as to
packaging, taste, and quality. In this connection, reference is made to the
recognition given the distribution as samples of one pint or less of distilled
spirits to retailers in Federal Alcohol Administration Act Regulations 6
(27 CFR 6.29). It is recognized that the reporting in detail of small quantities
of distilled spirits actually distributed to prospective purchasers as bona fide
samples would be burdensome and would serve little purpose from a control
standpoint. Therefore, a wholesaler is considered in substantial compliance
with the requirements of the regulations if he reports distilled spirits so
distributed as disposed of as "salesmen's samples" showing the name of the
salesman who received them, without showing the ultimate disposition of such
spirits by the salesman, provided, of course, that the spirits so reported are in
fact used in good faith as samples by the salesman.
Similarly, where a sales representative procures small quantities of
distilled spirits from his principal's customers or other wholesale or retail
dealers for use as bona fide samples in his contacts with the trade, neither the
principal nor the sales representative is required to maintain records of the
receipt and disposition and to render reports of such distilled spirits so used.
Of course, the wholesaler from whom the spirits are procured is not relieved
from recording and reporting his disposition of the, spirits to the sales
representative or his principal, as the case may be.
Inquiries. Inquiries regarding 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. 38531