Rev. Rul. 55-114

Advice has been requested whether alcohol transferred from an industrial alcohol plant or an industrial alcohol bonded warehouse to an internal revenue bonded warehouse and redesignated as neutral spirits, pursuant to the provisions of Treasury Decision 5864, C.B. 1951-2, 248, may be transferred to a registered distillery for the manufacture of vodka.

For the purpose of assuring availability of adequate supplies of alcohol at 160%A1 of proof or more for Government use in case of a national emergency, section 3183 of the Internal Revenue Code of 1939 and Treasury Decision 5864, issued pursuant thereto, authorize, among other things, the transfer of alcohol from an industrial alcohol plant or an industrial alcohol bonded warehouse to a distillery or internal revenue bonded warehouse for redistillation or storage or any other purpose deemed necessary for the national defense, with the privilege of withdrawal therefrom, if of a proof of 160%A1 or more , for any taxfree purpose authorized by sections 3100 to 3126, inclusive, of the Internal Revenue Code of 1939 (sections 5301 through 5320 of the Internal Revenue Code of 1954) or for any purpose authorized for like spirits produced at a distillery. These provisions were incorporated in section 5217 of the Internal Revenue Code of 1954.

Section 220.554 of the Distilled Spirits Regulations (formerly section 183.533 of Regulations 4) provides in part that neutral spirits which are reduced to not more than 110%A1 of proof and after such reduction in proof are so treated by one of the methods set forth in the regulations so as to be without distinctive character, aroma, or taste shall be branded `Vodka.' This provision is based on section 21(a) of of the Federal Alcohol Administration Regulations No. 5, relating to the labeling and advertising of distilled spirits, which prescribes a standard of identify for `Vodka' in like language. Thus, although `Vodka' may be produced at a registered distillery, the regulations above cited require withdrawal at not more than 110%A1 of proof and so conflict with the requirement that alcohol if transferred to a registered distillery or an internal revenue bonded warehouse and removed for beverage purposes be withdrawn at a proof of 160%A1 or more.

Therefore, there is no authority for transferring alcohol from an industrial alcohol plant or industrial alcohol bonded warehouse to an internal revenue bonded warehouse for later transfer to a registered distillery for redistillation and ultimate removal from bond as `Vodka' even though the alcohol is redesignated as ` neutral spirits' in the internal revenue bonded warehouse under section 171.233 of Treasury Decision 5864.

However, alcohol or neutral spirits transferred to internal revenue bonded warehouses from industrial alcohol plants and industrial alcohol bonded warehouses pursuant to Treasury Decision 5864 may be withdrawn, if 160%A1 of proof or more, taxpaid and then transferred to a rectifying plant for the production of `Vodka.' See Rev. Rul. 54-336, C.B. 1954-2, 557