DISTILLED SPIRITS FOR FUEL USE
Proprietors of Distilled Spirits Plants and Others
Concerned:
Purpose. The Bureau issues this circular in
order to inform proprietors of distilled spirits
plants of changes in the qualification requirements
prescribed in Subchapter B of Chapter 51 of the
Internal Revenue Code of 1954.
Background. The Crude Oil Windfall Profit Tax
Act of 1980 (Public Law 96-223) was signed by
President Carter on April 2, 1980. The new law
amends the Internal Revenue Code of 1954 by adding a
new Section 5181 relating to distilled spirits for
fuel use. The portion of the law which pertains to
distilled spirits plants becomes effective on July 1,
1980. There are provisions in the new law which are
of particular interest to proprietors of distilled
spirits plants and experimental distilled spirits
plants qualified for the production of ethyl alcohol
for fuel use.
New 26 U.S.C. 5181 authorizes the Secretary of
the Treasury to provide by regulation for the waiver
of the requirements prescribed in Subchapter B of
Chapter 51 of the Code. This section authorizes the
establishment of a distilled spirits plant solely for
the purpose of producing, processing, and storing,
and using or distributing, distilled spirits to be
used exclusively for fuel use. Temporary regulations
to implement this section of the law have been
drafted and are being prepared for publication in
June. The temporary regulations will become
effective on July 1, 1980. Final regulations will
be issued after consideration of comments received
during a public comment period.
Section 5181 contains special rules which apply
to small volume alcohol fuel producers, i.e., dis-
tillers who produce a total of not more than 10,000
proof gallons of ethyl alcohol per calendar year.
Production also includes receipts from other plants.
The proprietor of a small alcohol fuel plant is not
required to file a bond.
The new law requires that the Bureau of Alcohol,
Tobacco and Firearms process expeditiously all appli-
cations for permits for alcohol fuel plants, large,
medium and small alike. For the small plants,
however, the law specifies that within 15 days of
receipt of an application, the Bureau must notify
the applicant whether the application is acceptable,
i.e., that the application is submitted in the form
and manner and contains the information required by
regulations. Within 45 days of sending notification
to the applicant that a completed application has
been received, the Bureau must either approve or
deny approval of the application. The law provides
for automatic approval of the application if the
Bureau fails to act on the application within the
specified time period. In any instance where the
Bureau fails to act timely, it is incumbent upon the
applicant to furnish documentation of receipt, e.g.,
a certified or registered mail return receipt of the
application by the Bureau.
The temporary regulations will provide a further
breakdown between classes of alcohol fuel producers
by distinguishing between medium plants, i.e.,
plants producing more than 10,000 but not more than
500,000 proof gallons of ethyl alcohol per year, and
large plants, those producing more than 500,000
proof gallons annually. These regulations also will
require bonding sums, more detailed information for
qualifying documents, and more frequent reporting of
operations for medium and large alcohol fuel
producers.
All alcohol fuel plants are required to render
the ethyl alcohol unfit for beverage use before
removal from the premises. Once rendered unfit,
such spirits may be withdrawn free of tax for fuel
use. However, spirits transferred in bond between
plants and spirits used for fuel on the plant prem-
ises need not be rendered unfit. The law provides
that for purposes of transfer-in-bond, the premises
of small, nonbonded plants are to be treated as
bonded premises.
Effect of the new law on existing experimental
distilled spirits plants. The new law simplifies
the regulations for alcohol fuel producers. Con-
sequently, the continued operation of an alcohol
fuel plant as an experimental distilled spirits
plant (XDSP) would not be advantageous to the
proprietor. The Bureau expects that a proprietor
presently holding an experimental distilled spirits
plant authorization for alcohol fuel use will take
advantage of the opportunity afforded by the statu-
tory changes to obtain an alcohol fuel producer's
(AFP) permit.
Effective July 1, 1980, any person who presently
holds an experimental distilled spirits plant permit
issued under the provisions of 26 U.S.C. 5312 for
alcohol fuel production will be automatically con-
sidered to have an approved application to operate an
alcohol fuel plant under the provisions of 26 U.S.C.
5181. The Bureau will issue a notice to advise such
proprietors of the changes in law and regulations
and the change in the statutory authority for the
permits. The notice will be issued prior to July 1,
1980, and will advise any proprietor who desires to
continue operations under an experimental distilled
spirits plant authorization that a letterhead request
may be filed for continuation of such status under
26 U.S.C. 5312. Present restrictions will continue
in force for any XDSP proprietor who elects to retain
such status. Unless a permittee notifies the Bureau
that he intends to continue to operate under the
experimental authorization, the Bureau will automat-
ically change the status of the permit from an
experimental distilled spirits plant (XDSP) to an
alcohol fuel producer's (AFP) permit.
A bond will not be required for a proprietor of
an alcohol fuel plant which produces not more than
10,000 proof gallons of ethyl alcohol per calendar
year (including all receipts from other plants).
Proprietors of small plants who have posted bonds
may obtain refunds of cash bonds or may cancel
surety bonds. Proprietors of larger plants may be
eligible to reduce their bond coverages substan-
tially. Regional regulatory administrators will
notify proprietors of the procedures to be followed.
A new permit will not be issued immediately to a
proprietor who presently produces alcohol fuel under
an experimental distilled spirits plant permit. Such
a proprietor may continue to conduct alcohol fuel
plant operations using the experimental permit.
Effective July 1, 1980, such operations will be
considered to be authorized under the provisions of
26 U.S.C. 5181 unless the proprietor specifically
requests authorization to continue operations under
the experimental distilled spirits plant provisions
of 26 U.S.C. 5312. Registry numbers for converted
experimental distilled spirits plants which produce
ethyl alcohol exclusively for fuel use will be
changed from "X-DSP-__" to "AFP-__". A new permit
entitled "Alcohol Fuel Producer" will be furnished
to each permittee approximately 60 days prior to the
expiration date shown on the previously approved
experimental permit.
Effect of law on existing commercial distilled
spirits plant operations. A proprietor holding an
operating permit issued under 26 U.S.C. 5171 and who
produces ethyl alcohol exclusively for fuel use may
wish to requalify under the provisions of 26 U.S.C.
5181. Forms for requalification will be available
at ATF regional offices.
Proprietors who process distilled spirits for
industrial use or who import distilled spirits or
denatured spirits for fuel use will have to modify
their monthly reports of operations beginning with
the reports for the month of July 1980. The modifi-
cations prescribed below will facilitate the report-
ing of receipts of imported alcohol and denatured
spirits from customs custody for fuel use as well as
the reporting of completely denatured spirits which
are withdrawn for fuel use.
(1) ATF F 5110.11, Monthly Report of Storage
Operations, will have to be modified by proprietors
to report by separate entry on line 5 the quantity
of imported alcohol for fuel use received from
customs custody. This quantity must be excluded
from that reported on line 3--Received from customs
custody.
(2) ATF F 5110.28, Monthly Report of Processing
(Bottling) Operations, will have to be modified by
proprietors to report by separate entry on either
line 6 or line 7 the quantity of imported alcohol
for fuel use received from customs custody. This
quantity must be excluded from that reported on line
2--Received.
(3) ATF F 5110.43, Monthly Report of Processing
(Denaturing) Operations, will have to be modified by
proprietors to report by separate entry on line 4 the
quantity of imported denatured spirits for fuel use
received from customs custody. This quantity must
be excluded from that reported on line 3--Received
by transfer in bond. In addition, ATF F 5110.43
must be modified to report by separate entry on line
10, column (b), the quantity of completely denatured
alcohol withdrawn for fuel use to dealers, users, and
the United States. This quantity must be excluded
from that reported in column (b) of line 6--To
dealers and users, or line 7--Removed for use of U.S.
These monthly reports of operations are currently
being revised. Upon completion of printing, the
Bureau will forward copies of these forms to proprie-
tors. Additional copies of the forms may be ordered
from the ATF Distribution Center, 3800 S. Four Mile
Run Drive, Arlington, Virginia 22206. Until receipt
of the revised printing of these forms, proprietors
will have to modify the current editions of the
monthly reports of operations in order to reflect
data related to alcohol fuel production.
Effect of law on applicants for alcohol fuel
plants. Any person who files for an experimental
distilled spirits plant permit or distilled spirits
plant operating permit prior to July 1, 1980, should
be aware of the impending changes in law in order to
take advantage of the opportunities afforded by the
provisions of new Section 5181. One important change
is that a producer of not more than 10,000 proof
gallons of ethyl alcohol per calendar year will no
longer need to file a bond. Applicants for operating
permits should also be aware of the changes in law.
Transfers-in-bond between plants. The regulations will
permit transfers between alcohol fuel plants as well as between
plants qualified under 26 U.S.C. 5171 and alcohol fuel plants.
Where a plant qualified under 26 U.S.C. 5171 is involved, pro-
cedures and forms are required as provided in Title 27, Code of
Federal Regulations, Part 19, Section 501 et seq. The spirits
transferred to a plant qualified under 26 U.S.C. 5171 are
restricted to fuel use and the proprietor must account sepa-
rately for such spirits and ensure that the spirits are used
only for fuel purposes. For transfers between two alcohol fuel
plants, the regulations will require a commercial record, e.g.,
an invoice or bill of lading, to document each transaction.
Importation of ethyl alcohol for fuel use. A permittee
qualified as an alcohol fuel producer under the provisions of
26 U.S.C. 5181 may receive shipments of imported alcohol pro-
vided the alcohol was not produced from petroleum, natural gas,
or coal. However, a person who files application to establish
a plant solely for the receipt and subsequent denaturation of
imported ethyl alcohol must be qualified as a warehouseman and
processor under the provisions of 26 U.S.C. 5171. A person so
qualified could transfer the imported ethyl alcohol directly
from customs custody into ATF bond, denature the alcohol in
accordance with the formulas prescribed in 27 CFR, Part 212,
and distribute the denatured alcohol for fuel use.
Inquiries pertaining to this matter should be addressed to
the Assistant Director (Regulatory Enforcement), ATTN: Alcohol
Fuels Coordinator, Bureau of Alcohol, Tobacco and Firearms,
Washington, DC 20226 (telephone number 202-566-7531).
![G.R. Dickerson](https://webarchive.library.unt.edu/eot2008/20080916233729im_/http://www.ttb.gov/images/q_r_dickerson.jpg)
G. R. Dickerson |