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Industry Circular

Number: 60-48

Date: December 28, 1960

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


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Brewers and others concerned:

Purpose. The purpose of this circular is to provide brewers and others concerned with a further explanation relating to the proposed amendments concerning the processes of concentration and reconstitution of beer which were the subject of notices of hearings and proposed rule making appearing in the Federal Register of December 28, 1960. Approx- imately ninety days have been provided to enable brewers to evaluate the practicability and feasibility of such proposals and to prepare their views in respect thereto for presentation in writing or at the hearing provided for in the notices. Such a presentation by those concerned will ensure that the hearing may serve as a forum at which the proposals may be explored and the Service fully advised with respect thereto prior to its consideration of the action to be taken.

Background. The notices of proposed rule making to amend 26 CFR Part 245, Beer, and 26 CFR Part 252, Exportation of Liquors, providing for the concentration of beer and exportation of the concentrate, respectively, and the notice of hearing with respect to amendment of 27 CFR Part 7, Labeling and Advertising of Beer, providing for the labeling of reconstituted beer, were published pursuant to a petition for the issuance of regulations dealing with the subject of the propos- als by the Union Carbide Corporation, New York, New York.

Although the proposals were published pursuant to a petition by Union Carbide Corporation the proposed amendments as drafted would cover any concentration process meeting the regulatory standards.

There is attached for your information a statement furnished by Union Carbide Corporation explaining its process and the application thereof to the brewing industry. It is emphasized that the representa- tions in the attachment are those of Union Carbide Corporation and not those of the Internal Revenue Service. Regulatory provisions.

26 CFR Part 245

The proposed amendments would permit a brewer to produce a concentrate from beer by the removal of water therefrom, reconstitute the beer in the brewery, transfer such concentrate from the brewery to another brewery of the same ownership, there to be reconstituted, and to remove such concentrate from the brewery without payment of tax for exportation, or for transfer to, and deposit in, foreign trade zones for exportation or for storage pending exportation. Concentrate as such may not be removed for consumption or sale from the brewery where produced or from any brewery of the same ownership to which it has been transferred.

The processes of concentration and reconstitution would be recognized as authorized processes in the production of beer. Plants where beer is to be reconstituted would be deemed to be breweries by reason of the production of beer from concentrate, and would have to be qualified as such. Therefore, plants at which beer is to be recon- stituted and bottled or packaged, but at which no beer is actually brewed, would be qualified as breweries.

Reconstituted beer would be treated for all purposes, including payment of tax, the same as beer which has not been concentrated; however, it should be noted that the matter of labeling reconstituted beer will be the subject of a hearing to be held to consider amendment Regulations No. 7 (27 CFR Part 7) relating to the Labeling and Advertising of Malt Beverages under the Federal Alcohol Administration Act.

Brewers who intend to concentrate beer and whose bonds are, or would be, less than the maximum penal sum presently provided for would be required to give new or strengthening bonds with a total penal sum equal to the amount computed under section 245.46 of present regula- tions, plus the amount of tax on the maximum quantity of beer to be used in the concentration of beer by him during any one month, but not in excess of the maximum penal sum provided in section 245.46.

Provision is made for applications to be filed by brewers who intend to produce a concentrate and/or reconstitute beer for prior approval of the process. Concentrate would have to be reconstituted to a volume not less than, and an alcoholic content not greater than, that of the beer used to produce the concentrate.

A Consent of Surety would be required on the bond of a brewer concentrating or reconstituting beer to extend the terms and condi- tions of his bond to cover such processes.

Operations incident to the concentration and reconstitution of beer would be required to be conducted in the brewery and would not be permitted in the brewery bottling house. Concentrate would not be permitted to be mingled with unconcentrated beer. Since reconstituted beer would be treated the same as beer which had not been concentrated and reconstituted, it would be required to be metered for packaging or bottling.

Transfers of the concentrate between breweries of the same owner- ship would be permitted in substantially the same manner as beer.

Provision is made for the keeping of records and the filing of reports with respect to the concentration and reconstitution of beer, and to the transfer and exportation of concentrate.

26 CFR Part 252

The proposed amendments provide procedures to be followed in exportation of the concentrate. These are similar to those contained in this regulation for the exportation, without payment of tax, of beer.

27 CFR Part 7

The proposed amendments to this regulation are in the alternative. Under the first alternative, malt beverages which have been concentrated by the removal of water therefrom, and reconstituted by the addition of water and carbon dioxide, would be permitted to be labeled in the same manner as malt beverages which have not been concentrated and recon- stituted. Under the second alternative, the designation of such reconstituted malt beverages would be required to be qualified by the word "reconstituted" in substantially the same size and kind of type, e.g., "reconstituted beer", "reconstituted ale", "reconstituted stout", etc. The statutory standards for determining this question are in section 5(e) of the Federal Alcohol Administration Act (27 U.S.C. 205).

Hearings and opportunity for written comments. The notices provide for concurrent public hearings with respect to the proposals, to be held on Tuesday, March 21, 1961, at 10:00 A.M., E.S.T., in Room 3313, Internal Revenue Building, Twelfth Street and Constitution Ave- nue, N.W., Washington, D. C., at which time and place all interested persons will be afforded an opportunity to be heard, in person or by authorized representative, with reference to the proposals. Before final adoption of the regulations, consideration will also be given to comments and arguments pertaining thereto which are submitted in writing, in duplicate, to the Director, Alcohol and Tobacco Tax Division, Internal Revenue Service, Washington 25, D. C., within 90 days from the date of publication of the notices in the Federal Register, or before the termination of the above mentioned public hear- ing, whichever is the later date. Persons who plan to attend the hearing are requested to so notify the Commissioner of Internal Revenue, Attention: O:AT, Washington 25, D. C., by March 13, 1961.

Inquiries. Inquiries regarding this circular should refer to its number and be addressed to: Director, Alcohol and Tobacco Tax Division, Internal Revenue Service, Washington 25, D. C.

Dwight Avis

Dwight E. Avis

Director Alcohol and Tobacco Tax Division

Attachment (2,262 KB)

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