RECORDS AND REPORTS COVERING SPIRITS IN BONDED STORAGE
Proprietors of distilled spirits plants,
and others concerned:
Purpose. The purpose of this circular is to apprise you of the issuance
of (1) an important revenue ruling which expresses the Service's modified
position regarding the applicability of the 20-year bonding period to
certain high proof spirits, and (2) a revenue procedure which explains
the adjustments which the new ruling makes necessary in records and
Background. Revenue Ruling No. 60-381 (C.B. 1960-2, 509) held that the
bonding period limitation in section 5006(a)(2), I.R.C., did not apply to
spirits entered into bonded storage at 190 degrees or more of proof even
though such spirits were later reduced below 190 degrees of proof. The
Internal Revenue Service has found this ruling untenable in light of the
specific language of section 5006(a)(2), I.R.C. Accordingly, the Service
revoked Revenue Ruling No. 60-381 by issuing Revenue Ruling No. 61-166
which now holds that the exemption in section 5006(a)(2)(B)(i), I.R.C.,
from the bonding period limitation applies only to spirits which are, in
fact, "of 190 degrees or more of proof." Therefore, if spirits entered
into storage at 190 degrees or more of proof are reduced, in bonded stor-
age, below 190 degrees of proof, they immediately become subject to the
bonding period limitation.
On the basis of the revoked ruling, spirits which were entered into bonded
storage at a proof of 190 degrees or more and later reduced below 190 degrees
were recorded in the summary accounts on Form 1621 as though they were 190
degrees or more of proof and exempt from the bonding period limitations.
Now, on the basis of Revenue Ruling No. 61-166, all spirits which are, in
fact, of less than 190 degrees of proof must be recorded as such in the
summary accounts according to producer, and year and season of production
(see 26 CFR 201.629).
Procedures. Revenue Procedure No. 61-23 prescribes the following procedures
for making adjusting entries, necessitated by Revenue Ruling No. 61-166, in
your warehouse records and reports:
1. When spirits having a proof of 190 degrees or more are reduced in
bonded storage below 190 degrees, or spirits having a proof of less than
190 degrees are increased through mingling in bonded storage to 190 degrees
or more, you should make appropriate entries in your summary accounts on
Form 1621 to reflect such transactions. Where spirits not subject to the
bonding period limitation become subject thereto through reduction in proof,
you should, as provided in Revenue Ruling No. 61-166, consider the date of
reduction as the date of original entry.
2. If any spirits of less than 190 degrees of proof are currently
carried in your summary records as though they are 190 degrees or more of
proof and not subject to the bonding period limitation, you should transfer
such spirits from the account in which they are now erroneously carried to
the appropriate producer's and season's accounts required by 26 CFR 201.629.
Also, you should notify the assigned officer, in writing, of the quantities
of spirits transferred between accounts as provided in this item.
3. You should report in column (g) of Form 2731, Monthly Report of
Bonded Storage Operations, transactions in alcohol and spirits which are,
in fact, of 190 degrees or more of proof, and report in column (h) of the
form all transactions in alcohol and spirits which are, in fact, of less
than 190 degrees of proof.
4. Whenever any adjusting entries outlined in item 1 above are required
in the summary accounts, you should also make appropriate credit and debit
entries at lines 5 and 19 in columns (g) and (h) of Form 2731, with descrip-
tive entries in column (a).
5. Similarly, appropriate credit and debit entries should be made on
Form 2731 to reflect the transfer of spirits of less than 190 degrees of
proof to the proper account, as outlined in item 2 above.
6. Those procedures in Revenue Procedure No. 61-2 (I.R.B. 1961-2, 53)
which relate to Form 2731 are removed therefrom by Revenue Procedure No.
Inquiries. Inquiries regarding this circular should refer to its number
and be addressed to your assistant regional commissioner, alcohol
and tobacco tax.
Dwight E. Avis
Director, Alcohol and Tobacco Tax Division