Rev. Rul. 54-348

Advice is requested whether nontaxpaid cigarettes and other tobacco products may be shipped to hospitals and institutions operated by the several States, Territories, and the District of Columbia, for gratuitous distribution to present and former members of the armed forces who are patients in such hospitals.

Section 3331 of the Internal Revenue Code provides that articles of domestic production which are subject to tax under the Code may be withdrawn free of tax for the use of the United States. Section 140.212 of Regulations 8, as added by Treasury Decision 6052, C.B. 1953-2, 346, provides as follows:

Manufacturers of tobacco, snuff, cigars, cigarettes, and cigarette papers and tubes, may ship such articles tax-free from their factories, in accordance with this subpart, to Federal agencies and institutions for gratuitous distribution. Shipments of such articles for sale by Federal agencies or institutions are not within the meaning of the law authorizing the purchase of articles tax-free for use of the United States. Institutions owned or controlled by the Governments of the several States, Territories, or the District of Columbia, are not entitled to receive such articles tax-free.

It is held that, under the above provisions of law and regulations, manufacturers of tobacco, snuff, cigars, cigarettes, and cigarette papers and tubes, may ship such articles, tax-free for the use of the United States, to representatives of the U.S. Veterans Administration in hospitals and institutions operated by the Governments of the several States, Territories, and the District of Columbia. However, such shipments may be made only when authorized and approved by the U.S. Veterans Administration and solely for gratuitous distribution to present and former members of the armed forces of the United States who are patients such hospitals and institutions. Also, the procurement, storage, and distribution of the tax-free tobacco products must be accomplished under the supervision of the Veterans Administration.