Records Covering Receipt and Use of TaxFree Alcohol
Users of taxfree alcohol and other concerned:
Purpose The purpose of this industry circular is to supply
you with instructions and aide to assist you in maintaining your
records on taxfree alcohol in such a way that they will fulfill
requirements of 26 CFR Part 213 and simplify your task in the pre
paration of future annual reports on Form 1451.
Background. The regulations, 26 CFR Part 213, require that
records be kept in sufficient detail to enable any internal revenue
officer to verify all transactions and to ascertain that you have
complied with the law and regulations. These regulations also
require that the records be such as to enable you to prepare your
annual report, Form 1451. Since figures reported on Form 1451 are
to be in proof gallons, you are required to identify, on your records,
the proof of all alcohol together with the actual quantities for each
transaction. Regulations also require that you take an inventory at
the close of each month and keep such inventory as a part of your
records.
Basic Records.
(a) Alcohol Received. The copy of the Form
1473 which you receive covering each shipment of taxfree alcohol
will serve as your basic record of alcohol received. Be sure that
you have made proper notation on this copy (and on the original which
you forward to your assistant regional commissioner) of any losses in
transit. The quantity reported on the Form 1473, minus any loss or
deficiency in transit, is the quantity which you must report on your
Form 1451 as "received."
(b) Use of Alcohol. Each time alcohol is withdrawn from your
supply for any use, an entry should be made on your record., showing
the quantity (liquid measure), the proof, and the purpose of removal.
You need not convert each separate quantity so removed to proof gallons
unless you so desire. Instead, you may total the quantity of alcohol
of the same proof removed during the period of one calendar month, and
then convert the figure representing the month's removals to total
proof gallons removed. The resulting total, or combined total if you
have alcohol of more than one proof, will be shown in column (g) of
Form 1451 for that month.
(c) Monthly Inventory. At the close of each month, an
inventory must be taken of all alcohol remaining in stock. First,
determine the quantity remaining in each package or tank. If all
of the alcohol is of the same proof, add these figures and convert
the resulting figure to proof gallons. If you have in stock alcohol
of different proofs, add the quantity for each proof separately,
convert the total quantity for each proof to proof gallons and then
total the proof gallons thus obtained. This is the total quantity,
in proof gallons, on hand at the end of the month.
(d) Losses or Gains. You now have records showing all
alcohol received and used during the month and on hand at the
end of the month. (This latter, of course, also becomes the
quantity on hand at the beginning of the following month to be re
ported in column (b) for that month.) From these figures you can
determine any gains or losses during the month, as follows:
Add the quantity received during the month to the quantity on
hand at the beginning of the month, and subtract therefrom the
quantity used during the month. If the resulting figure is less
than the quantity determined from your inventory as on hand at the
end of the month, the difference between the two figures represents
a gain (Example A). If it is more then the quantity revealed by your
inventory, it represents a loss (Example B).
Example A: 
On hand March 1, 1961
 
195 p.g. 
Received during month 

110 p.g. 

Total 
305 p.g. 
Used during month 

200 p.g. 
Resulting figure 

105 p.g. 
Quantity on hand, March 31 as
shown by inventory 

106 p.g. 
Gain during month 

1 p.g. 
Example B: 
On hand April 1, 1961 

106 p.g 

Received during month 

110 p.g. 


Total 
216 p.g. 

Used during month 

100 p.g. 

Losses by casualty or theft 

2 p.g.* 

Resulting figure 

114 p.g. 

Inventory, April 30, 1961 

112 p.g. 

Additional losses during month 

2 p.g. 
* The regulations require that you show in your records
all losses by theft or casualty or other unusual losses
and that entries covering these losses be made in your
records at the time of such losses or when they are
discovered. Therefore, these known losses must be takeninto account in order to determine any additional loss
at the end of the month. However, all losses must be
totaled and the combined figure (in the example 
4 p.g.) entered in column (h) of Form 1451.
(e) Recovered Alcohol or Alcohol Received from General Services
Administration. If you receive alcohol from General Services Adminis
tration or if you recover taxfree alcohol, you must account for such
alcohol separately in your records and inventory and make separate
entries on Form 1451, appropriately identified. If recovered alcohol
is shipped to a distilled spirits plant for restoration, the approxi
mate quantity thereof, in proof gallons, should be entered in column
(g), followed by an asterisk, and an explanation of the entry should be
shown elsewhere on the form, identifying the distilled spirits plant
to which shipment was made.
While the above procedures do not cover every transaction, they
demonstrate the type of records which can be kept to meet regulatory
requirements. The records must be in sufficient detail to show each
transaction and to enable you to prepare Form 1451. Also, a record of
the inventory taken at the close of each month, along with all other
records, must be maintained, for a period of three years from the date
of the report on Form 1451 covering the transactions. Observe the
instructions on the back of Form 1451 when making entries from your
records to the form.
Conversion Table. Use of the table below may prove helpful to
you in converting volume measures to proof gallons for alcohol of
190 or 200 degrees of proof.
Fluid
Ounces

Volume
Measures

Wine
gallons

Proof Gallons
199 Proof

Proof Gallons
200 Proof

4
8
16
32
64
96
128

1/4 pint
1/2 pint
1 pint
1 quart
1/2 gallon
3 quarts
1 gallon
2 gallons
3 gallons
4 gallons
5 gallons
10 gallons
25 gallons
55 gallons 
.031
.063
.125
.250
.500
.750
1.000
2.000
3.000
4.000
5.000
10.000
25.000
55.000 
.059
.119
.238
.475
.950
1.425
1.900
3.800
5.700
7.600
9.500
19.000
47.500
104.500 
.062
.125
.250
.500
1.000
1.500
2.000
4.000
6.000
8.000
10,000
20.000
50.000
110.000 
In computing proof gallons to the nearest tenth for entry
to Form 1451, all fractional parts of fivehundredths or more
shall be increased to the next tenth; for example, 4.275 proof
gallons will be reported as 4.3 proof gallons. Fractional parts
of less than fivehundredths shall be dropped; for example,
4.126 proof gallons will be reported as 4.1 proof gallons.
Inquiries. Inquiries concerning this industry circular
should refer to its number and should be addressed to your assistant regional commissioner (alcohol and tobacco tax).
Dwight E. Avis
Director, Alcohol and Tobacco Tax Division
