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Industry Circular

Number: 59-33
Date: May 29, 1959

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

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PAYMENT OF TAX ON DISTILLED SPIRITS AND RECTIFIED PRODUCTS BY RETURN

Proprietors of registered distilleries, fruit distilleries, internal revenue bonded warehouses, taxpaid bottling houses, rectifying plants, industrial alcohol plants and bonded warehouses, and others concerned:

Purpose. The purpose of this industry circular is to give you preliminary information that will help you to effectively plan for a smooth transition from the payment of tax on distilled spirits and rectified products by stamps to the payment of such taxes by return.

Background. The Secretary of the Treasury has authorized the payment of taxes on distilled spirits and rectified products by return. This method of taxpayment will be mandatory and will eliminate the use, in the United States, of distilled spirits excise tax stamps, certificates of taxpayment (Form 1595), rectified spirits package stamps, class B, and rectification tax sheet stamps. A preliminary draft of regulations for the payment of tax on distilled spirits and rectified products has been prepared and, since the new system for paying tax is to be effective June 24, 1959, we are furnishing you a copy so you may be as fully advised as possible at the earliest possible date.

General. The proposed regulations will contain the requirements for bonds and consents of surety, the procedures for determining tax and for filing returns, and other provisions necessary to a system of taxpayment by return. In order to present an orderly discussion of the proposed regulations, this circular will treat separately with four major subjects, (1) bonds and consents, (2) the general rules for returns, (3) determination and payment of tax on distilled spirits, and (4) determination and payment of tax on rectified products.

BONDS AND CONSENTS

Conferences have been held with representatives of the Surety Association of America, 60 John Street, New York 38, New York, to acquaint them with the new bonding requirements. They have assured us that they will issue instructions by June 4th so that all bonding companies will be prepared to act expeditiously on requests for bonds conforming with the proposed regulations.

Prior to July 1

Form 2520 Bond Covering Postponed Payment of Taxes. Proprietors of registered distilleries, fruit distilleries, internal revenue bonded warehouses, and industrial alcohol plants and bonded warehouses will be required to file a deferral bond on Form 2520 if they intend to defer the payment of tax on distilled spirits during the period June 24 through June 30, 1959. The penal sum of the bond shall be sufficient to cover the full amount of the distilled spirits tax to be deferred during the period June 24 through June 30; the minimum penal sum of such bond will be $1,000 and the maximum will be $300,000. A separate bond must be given for each bonded premises; however, the proprietor of a distillery who operates an internal revenue bonded warehouse on the distillery premises, and who intends to defer the payment of tax on spirits withdrawn from bond, may give 1 bond on Form 2520 to cover withdrawals from both the distillery and the warehouse. The same procedure may be followed for industrial alcohol plants and bonded warehouses. In addition to filing bond on Form 2520, consents of surety will be required as follows:

Proprietors of internal revenue bonded warehouses who give bond on Form 2520 must also give a consent on the existing bond (Form 1571), or file a new bond on Form 1571 specifically conditioned to cover the deferral of tax. The conditioning of the existing bond or new bond will be by consent of surety on Form 1533. The wording of this consent is given in §170.533 of the attached draft.

Proprietors of registered distilleries and fruit distilleries who give bond on Form 2520 must also give a consent on the existing bond (Form 30 or 30-1/2), or film a new bond on Form 30 or 30-1/2 specifically conditioned to cover the deferral of tax. The conditioning of the existing bond or new bond will be by consent of surety on Form 1533. The wording of this consent is given in § 170.534 of the attached draft.

Proprietors of industrial alcohol plants or bonded ware houses who give bond on Form 2520 must also give a consent on the existing bond (Form 1432A), or file a new bond on Form 1432A specifically conditioned to cover the deferral of tax. The conditioning of the existing bond or new bond will be. by consent of surety on Form 1533. The wording of this consent is given in § 170.532 of the attached draft.

Proprietors of rectifying plants who, during the period June 24 through June 30, intend to defer the payment of tax imposed on rectified products by sections 5021, 5022, and 5041, I.R.C., must file a consent on the existing bond (Form 34), or file a new bond on Form 34 specifically conditioned to cover deferral of the tax. The conditioning of the existing bond or new bond will be by consent of surety on Form 1533. The wording of this consent is given in § 170.535 of the attached draft.

Periods Starting on or after July 1, 1959

Withdrawal Bonds

Form 2613 Bond Covering Deferred Payment of Tax on Spirits Withdrawn by Proprietor of Bonded Premises.

Form 2614 Bond Covering Deferred Payment of Tax on Spirits Withdrawn by Proprietor of Bottling Premises.

Form 2615 Blanket Withdrawal Bond.

Note: On and after July 1, 1959, the qualification bond on Form 2601 will cover the deferral of the rectifi cation taxes and additional wine taxes incurred on bottling premises, and no additional bond will be required to defer payment of these taxes.

Proprietors of bonded premises of distilled spirits plants shall, unless blanket bond on Form 2615 is filed, file a withdrawal bond on Form 2613 to defer the payment of tax on distilled spirits withdrawn by them from their bonded premises on and after July 1, 1959. The penal sum of the bond on Form 2613 shall be sufficient to cover the full amount of tax which at any one time has been determined and is chargeable against such bond but has not been paid. The minimum penal sum shall be $1,000, and the maximum shall be $1,000,000. (Note: The block in the upper right corner of Form 2613 indicating the form may be filed as a blanket bond is in error as Form 2613 may not be used as a blanket bond. See the paragraph discussing the Form 2615 bond, which has been devised for this purpose.)

Proprietors of bottling premises of distilled spirits plants shall, unless blanket bond on Form 2615 is given, file a withdrawal bond on Form 2614 to defer the payment of tax on distilled spirits withdrawn by them from bonded premises on and after July 1, 1959, on determination, but before payment, of tax. The penal sum of bond on Form 2614 shall be sufficient to cover the full amount of tax which at any one time is chargeable against such bond but has not been credited. The minimum penal sum shall be $1,000, and the maximum shall be $1,000,000. (Note: The block in the upper right corner of Form 2614 indicating the form may be filed as a blanket bond is in error as Form 2614 may not be used as a blanket bond. See the paragraph discussing the Form 2615 bond, which has been devised for this purpose.)

Bond on Form 2615 may be given by proprietors of distilled spirits plants who would otherwise need to give more than one bond on Form 2613 and/or Form 2614 in the same region. The penal sum of bond on Form 2615 should be equal to the totals of the penal sums which would have been required if separate bonds on Forms 2613 and/or Forms 2614 had been given.

RETURNS

Form 2521 Prepayment Return Distilled Spirits Tax

Form 2522 Deferred Payment Return Distilled Spirits Tax

Form 2523 Rectifier's Return Prepayment of Taxes

Form 2527 Rectifier's Return Deferred Taxes

General. All taxes on distilled spirits withdrawn from internal revenue bond will be paid by a semimonthly return (Form 2522) or by a prepayment return (Form 2521), and all taxes on rectified products will be paid by a semimonthly return (Form 2527) or by a prepayment return (Form 2523). During the period June 24 through June 30, 1959, the application for withdrawal of distilled spirits from bonded premises (and payment of the tax by return) may be made only by the proprietor of a registered distillery, fruit distillery, internal revenue bonded warehouse, industrial alcohol plant, or industrial alcohol bonded warehouse. On and after July 1, 1959, withdrawal of distilled spirits from bonded premises (and payment of the tax by semimonthly return) may be made either by the proprietor of bonded premises or by the proprietor of bottling premises.

Period of return. The basic semimonthly periods for the returns run from the 9th through the 23rd of one month and from the 24th of one month through the 8th of the next month. Because of the change in law effective July 1, 1959, the regulations will provide a special rule for the period June 24 through July 8, 1959, which will require separate returns to cover the period June 24 through June 30 and the period July 1 through July 8. Thus, a proprietor who defers both the tax on distilled spirits withdrawn from bond and the tax on rectified products during the period June 24 through July 8, 1959, must file two returns on Form 2522 and two returns on Form 2527. Although two separate returns for each tax will be made for this basic return period, both will be filed within three business days after July 8, and a single remittance may be given to cover the two returns for each tax.

Time for filing return. The semimonthly returns (Forms 2522 and 2527) mast be filed not later than three business days after the close of the return period. Note that the regulations will define a "business day" as any day other than a Saturday, Sunday, or legal holiday. Thus, for example, returns for the first period (June 24 through July 8) need not be filed until July 13, as Saturday, July 11, and Sunday, July 12, are not "business days."' The prepayment returns (Forms 2521 and 2523) must, as the term implies, be filled with remittance, before the spirits are released.

Where to file returns. The regulations will require the returns to be filed with either an internal revenue officer or the district director, as instructed by your assistant regional commissioner. Where the assistant regional commissioner instructs you to file your returns with the office of the district director, you should file them with the same office from which You have been obtaining tax stamps. Where the returns are filed with an internal revenue officer, that officer will transmit them to the office of the district director from which you have been obtaining tax stamps.

Form of remittance. The regulations will provide for the types of remittances which may be submitted with returns. Personal checks will ordinarily be acceptable; however, a proprietor in default will be required to pay in cash, or by a certified, cashier's or treasurer's check, or by a money order. Note that in all cases where the remittance is in cash, the regulations will require the return and the remittance to be filed directly with the office of the district director.

Reporting of deferred tax. (a) Distilled spirits. Where the payment of tax on distilled spirits is postponed under a bond, such tax will, except as noted below for proprietors of bottling premises, be included for payment on the return, Form 2522, for the period in which falls the date the spirits were released for withdrawal on determination of tax. An exception to this may be found where payment of the tax is postponed under a withdrawal bond given by a proprietor of bottling premises. Under most circumstances, where the bottling premises to which the spirits are withdrawn are near the bonded premises from which withdrawal is made, the spirits will be received by the bottler on the date of withdrawal. He will, in such cases, include the spirits on his return, Form 2522, for the period which covers that date. Where the bonded premises are remote from the bottling premises, the spirits may not be received until several days after withdrawal. In that case, the bottler will include the spirits on his return, Form 2522, for the period which covers the date of receipt; however, if the time of transportation is 21 days or more, he must include the spirits on his return which covers the 21st day after the spirits were released for withdrawal on determination of tax.

(b) Rectified products. Where the time for payment of tax on rectified products is postponed, such tax will be included for payment on the return (Form 2527) for the period in which falls the date the tax on the rectified product was determined.

DETERMINATION AND PAYMENT OF TAX ON DISTILLED SPIRITS

Procedures for taxpayment. The procedures for withdrawing spirits from bond subject to tax will be generally the same as they now are except that, instead of canceling and surrendering distilled spirits excise tax stamps or procuring a certificate of taxpayment (Form 1595) after the internal revenue officer has computed the tax on the spirits, the proprietor of the bonded premises will either:

(1) execute on the withdrawal form (Form 1440, 179, or 1519) an agreement to pay the tax found due; or (2) attach to the withdrawal form a Form 2608 on which the bottler has executed his agreement to pay the tax found due; or (3) file a prepayment return (Form 2521), with remittance, (Note that the procedure in (2) for use of Form 2608 will not be possible until July 1.)

When the internal revenue officer has received the required agreement to pay, or the tax has been prepaid, he will issue wholesale liquor dealer's stamps, where needed.

Wording of proprietor's statement and of internal revenue officer's certificate. The regulations will provide that the proprietor's statement agreeing to pay the tax and the internal revenue officer's certificate shall be stamped by the proprietor on the reverse of the withdrawal form (Form 179, 1440, or 1519). The wording of the proprietor's statement is given in § 170.554 of the attached draft. The wording of the internal revenue officer's statement varies, depending on whether (1) the proprietor of bonded premises has executed the agreement to pay on the withdrawal form, or (2) the proprietor of bottling premises has executed the agreement to pay on Form 2608, or (3) the tax has been prepaid. The wording of these three certificates is given in § 170.556 of the attached draft.

Methods of paying tax. Under the return system there will be several methods of paying the tax on distilled spirits.

(a) Tax may be deferred and paid by semimonthly return -

(1) filed by a proprietor of bonded premises, in his capacity as such, who has given a bond, Form 2520 (for the period before July 1) or Form 2613 or 2615 (for the period starting July 1), or

(2) filed by a proprietor of bottling premises, in his capacity as such, who has given a withdrawal bond, Form 2614 or 2615, and who has made application on Form 2608 for withdrawal of the spirits from bond.

(Note that the method in (2) will not be possible until July 1.)

(b) Tax may be prepaid by the proprietor of the bonded premises from which the spirits are withdrawn.

Proprietors of bottling premises may not, in their capacities as such, prepay the tax on spirits withdrawn from bond. These proprietors may, however, withdraw spirits on which the tax is prepaid, but in such a case the proprietor of the bonded premises must file the prepayment return. Proprietors of bottling premises should not have payment of the tax on spirits removed to their premises deferred under a bond given by a principal in his capacity as a proprietor of bonded premises, as spirits so removed will not be eligible for bottling losses under section 5008(c), I.R.C. Note also that, on and after July 1, a proprietor of a distilled spirits plant having both bonded premises and bottling premises might be required to file two separate returns on Form 2522 one in his capacity as proprietor of bonded premises to cover tax on spirits which are not shipped to his bottling premises, and the second in his capacity as proprietor of bottling premises to cover tax on spirits withdrawn to his bottling premises.

DETERMINATION AND PAYMENT OF TAX ON RECTIFIED PRODUCTS

Procedures for taxpayment. The procedures for determining the tax on rectified products will be generally the same as they now are except that, instead of canceling rectification tax sheet stamps or obtaining class B rectified spirits package stamps, the proprietor of the rectifying premises will either, (1) execute on Form 237 an agreement to pay the tax found due, or (2) file a prepayment return, Form 2523, with remittance, before the rectified products are bottled, or packaged, or otherwise removed from the tank in which gauged for determination of tax. Where rectified products are to be removed in packages or other containers which are required to bear a stamp, the internal revenue officer will, after the agreement to pay has been executed or the tax has been prepaid, issue wholesale liquor dealer's stamps as needed.

Wording of proprietor's statement and of internal revenue officer's certificate. The regulations will provide that the proprietor's statement agreeing to pay the tax and the internal revenue officer's certificate shall be stamped by the proprietor in an unused space on Form 237. The wording of the proprietor's statement is given in § 170.562 of the attached draft. The wording of the internal revenue officer's certificate is given in § 170.563 of the attached draft.

Methods of paying tax. Under the return system the tax on rectified products will be paid either by semimonthly return, Form 2527, or by prepayment return, Form 2523.

Miscellaneous

Prepayment of tax. Where a proprietor has not filed the required bonds or consents of surety, or where his withdrawal bond is in an insufficient penal sum, or where he is in default in any payment of tax on distilled spirits or rectified products, no distilled spirits may be removed from bond subject to tax, or no rectified products may be bottled, packaged or removed, until the tax found due has been prepaid.

Redemption of stamps. On and after June 24, 1959, distilled spirits excise tax stamps and rectification tax sheet stamps can not be used to pay the tax on distilled spirits and rectified products. The regulations will contain provisions for the redemption of these stamps.

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

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Dwight E. Avis
Director, Alcohol and Tobacco Tax Division

Attachment (1,797 KB)

 
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