Rev. Proc. 61-23

SECTION 1. PURPOSE.

This Revenue Procedure outlines procedures to be followed by proprietors of distilled spirits plants (a) in recording and reporting warehouse transactions respecting spirits of 190 degrees or more of proof which are reduced below 190 degrees, and spirits of less than 190 degrees of proof which are increased to 190 degrees or more through mingling in bonded storage, and (b) in making adjusting entries necessitated by the provisions of Revenue Ruling 61-166, page 267, this Bulletin, in warehouse records and reports.

SEC. 2. BACKGROUND.

.01 Revenue Ruling 60-381, C.B. 1960-2, 509, held that the bonding period limitation in section 5006(a)(2) of the Internal Revenue Code of 1954 did not apply to spirits entered into bonded storage at 190 degrees or more of proof even though such spirits were subsequently 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) of the Code. Accordingly, the Service revoked Revenue Ruling 60-381 by issuing Revenue Ruling 61-166 which holds that the exemption in section 5006(a)(2)(B)(i) of the Code from the bonding period limitation applies only to spirits which are, in fact, `of 190 degrees or more of proof.' See page 267 of this Bulletin. Therefore, if spirits entered into storage at 190 degrees or more of proof are reduced, in bonded storage, below 190 degrees of proof, they immediately become subject to the bonding period limitation.

.02 On the basis of the revoked ruling, spirits entered into bonded storage at a proof of 190 degrees or more and subsequently reduced below 190 degrees were recorded in the summary accounts on Form 1621, Summary of Deposits and Withdrawals at Bonded Warehouses, as though they were 190 degrees or more of proof and exempt from the bonding period limitations. Now, on the basis of Revenue Ruling 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 section 201.629 of the Distilled Spirits Plants Regulations.

SEC. 3. RECORD REQUIREMENTS.

.01 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, the proprietor shall make appropriate entries in his 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, the proprietor shall, as provided in Revenue Ruling 61-166, consider the date of reduction as the date of original entry.

.02 If any spirits of less than 190 degrees of proof are currently carried in the proprietor's summary records as though they are 190 degrees or more of proof and not subject to the bonding period limitation, the proprietor shall transfer such spirits from the account in which they are now erroneously carried to the appropriate producer's and season's accounts required by section 201.629 of the regulations. The proprietor shall notify the assigned officer, in writing, of the quanitities of spirits transferred between accounts as provided in this subsection.

SEC. 4. REPORT REQUIREMENT.

.01 The proprietor shall continue to 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. Transactions in alcohol and spirits which are, in fact, of less than 190 degrees of proof shall be reported in column (h) of the form.

.02 Whenever any adjusting entries prescribed by subsection 3.01 above are required in the summary accounts, the proprietor shall also make appropriate credit and debit entries at lines 5 and 19 in columns (g) and (h) of Form 2731, with descriptive entries in column (a).

.03 Similarly, appropriate credit and debit entries shall be made on Form 2731 to record the transfer of spirits of less than 190 degrees of proof to the proper account as provided in subsection 3.02 above.

SEC. 5. EFFECT ON OTHER DOCUMENTS.

Revenue Procedure 61-2, C.B. 1961-1, 887, is hereby modified to remove therefrom those procedures which related to Form 2731.

SEC. 6. INQUIRIES.

Inquiries regarding this Revenue Procedure should refer to its number and be addressed to the office of the appropriate Assistant Regional Commissioner, Alcohol and Tobacco Tax.