ATF Ruling 75-23
The Bureau of Alcohol, Tobacco and Firearms has been asked to state its position with respect to recordkeeping requirements for samples of distilled spirits issued to salesmen.
The Bureau has found several instances where the recordkeeping and reporting practices of certain suppliers, wholesalers, retail liquor dealers, and salesmen did not conform to the requirements of regulations pertaining to salesman samples. In some instances, liquors accounted for as samples were given to retail dealers as "free goods" (sometimes called bonuses) with quantity purchases of distilled spirits without having been invoiced to the retailers or recorded by the retailer as having been received.
The regulations in 27 CFR 201.625 provide in part that where a proprietor, in connection with his plant, conducts wholesale liquor dealer operations, or operates a taxpaid storeroom or storage premises at another location from which distilled spirits are not sold at wholesale, he shall maintain daily records of the receipt and disposition of all distilled spirits at such premises. Section 201.634(b) provides for the filing of semiannual reports. Similar provisions for wholesale liquor dealers appear in 27 CFR 194.221 and 194.231. Section 194.239 provides that a retailer shall keep records of all liquors received by him, showing the quantities thereof, from whom received, and the receiving dates. These regulations implement sections 5114 and 5124 of the Internal Revenue Code. Section 5603 of the Code provides certain specific penalties with respect to refusing or neglecting to keep the records or to render the summaries of such records required by the foregoing sections of law. The penal and forfeiture provisions of sections 5686 and 7302 of the Code are also applicable to any violations of these provisions.
Section 6.29 of Title 27 of the Code of Federal Regulations states, in part, that no more than one pint of any brand of distilled spirits may be furnished or given as a sample to a retailer who has not previously purchased that particular product.
The records required of a liquor dealer are an integral part of the control 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 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, ore received, as "bonuses" or "free goods" 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 subject to penalties.
Where a supplier's sales representative procures from a wholesale dealer 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 as "free goods" or inducement to purchase, such quantities must be reported as received and set 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 by the supplier's sales representative, occupations tax and permit liability, as well as recordkeeping liability, will be involved.
Any noncompliance with the regulations, as described herein, renders the wholesaler, the sales representative's principal, or each of them, as the case may be, liable to the penalty provisions of section 5603 of the Code for the failure to keep proper records and may, in addition, jeopardize their basic permits under the Federal Alcohol Administration Act.
In Revenue Ruling 58-429, C.B. 1958-2, 986 (Internal Revenue), the Bureau prescribed an abbreviated records requirement for samples distributed under 27 CFR 6.29. The ruling not only recognized that 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; but also, 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. In addition, the ruling held that a wholesaler is considered in substantial compliance with the requirements of the regulations if he reports distilled spirits so distributed as disposed of as "salesman'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.
Neither the regulations nor Revenue Ruling 58-429 have placed a limitation on the size of the bottle from which bona fide samples may be distributed. The regulations limit only the quantity of the sample and not the bottle size.
Held, a wholesaler is considered in substantial compliance with the requirements of the regulations if he reports distilled spirits distributed by him or his salesmen in bottles of one pint capacity or less to retailers, under the provisions of 27 CFR 6.29, as "salesman'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 within the limits of 27 CFR 6.29. Similarly, where a supplier's sales representative procures small quantities of distilled spirits, not to exceed one pint in size, from his principal's customers or other wholesale or retail dealers for use, within the limits of 27 CFR 6.29, 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 or to render reports of such distilled spirits so used. However, 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.
Held further, samples of distilled spirits may be dispensed to retailers or to customs on the retailer's premises from a bottle larger than a pint as long as the limitations prescribed in 27 CFR 6.29 are followed and as long as the sample is a product not previously purchased by the retailer. However, where a wholesaler's salesman or a supplier's representative dispenses samples from such a bottle, the abbreviated records procedure set forth above for bottles of one pint capacity or less is not considered adequate. Accordingly, where a wholesaler's salesman or a supplier's representative dispenses samples of distilled spirits to retailers from bottles larger than one pint, he must keep a record of the quantity dispensed to the retailer (including any quantity dispensed to customers on the premises), name and address of the retailer, date of disposition, brand name, kind of spirits, and size of bottle from which the spirits were dispensed. The salesman's record or the record of the supplier's representative must be retained by the wholesaler or the supplier, as the case may be, as a supporting document under the requirements of 27 CFR 194.242.
Rev. Rul. 58-429, C.B. 1958-2, 986 (Internal Revenue) is superseded.
27 CFR 194.221, 27 CFR 201.625, 27 CFR 6.29.