NEW REGULATIONS COVERING DISTRIBUTION
AND USE OF TAX-FREE ALCOHOL
Users of tax-free alcohol
and others concerned:
Purpose. The purpose of this industry circular is to acquaint
you with proposed new regulations relating to the distribution and
use of tax-free alcohol.
Background. You will recall that, pursuant to Public Law 85-859,
you were required to file new applications for an industrial use
permit and a withdrawal permit (or permits) in order to withdraw and
use tax-free alcohol on and after July 1, 1959. The regulations
covering such requirements are contained in Subpart N of 26 CFR
Part 170. Except as provided in that subpart, you were to continue
using tax-free alcohol under the applicable provisions of 26 CFR
Part 182, Industrial Alcohol, until complete new regulations could
be issued. Such new regulations, designated as 26 CFR Part 213, are
now in process and, it is anticipated, will become effective as of
July 1, 1960. The major changes in procedures and requirements are
highlighted in the paragraphs which follow.
Qualification.
(a) Industrial use permit. It will not be
necessary that you file a new application for an industrial use
permit in order to continue present operations when the new regu-
lations become effective. Unless a permit has been issued to you
since July 1, 1959, the assistant regional commissioner (alcohol
and tobacco tax) may issue you a permit sometime between March 15
and April 30, 1961, to become effective May 1, 1961, pursuant to
the application which you filed before July 1, 1959. This permit
will then remain in effect unless suspended, or until revoked,
surrendered, or otherwise terminated. Those who have already
received an industrial use permit pursuant to an application filed
under Part 170 will continue to operate under that permit; it too,
will remain in effect. Your new permit should be posted, available
for inspection, on your premises. All industrial use permit
requirements will be found in Subpart D of the new regulations.
(b) Withdrawal permits. If you received a new withdrawal
permit since July 1, 1959, such permit will expire on April 30,
1961. You should file a renewal application on Form 1450 not later
than January 10th, together with your report on Form 1451 due on that date. Those who have not been issued a new withdrawal permit
pursuant to the application filed on or before July 1, 1959, will
receive it at the same time as the new industrial use permit.
These withdrawal permits will be effective from May 1, 1961,
through April 30, 1962. In either case, you may continue to
withdraw under your existing withdrawal permit until May 1, 1961.
From then on, withdrawal permits will be renewed each year and
will carry an April 30 expiration date. The renewal application
should always accompany the report on Form 1451. The regulations
will no longer require that expired withdrawal permits be
surrendered for cancellation. However, where the industrial use
permit is automatically terminated, revoked, or voluntarily
surrendered, the withdrawal permit should be returned immediately
to the assistant regional commissioner. Users will be permitted
to withdraw as much as one-sixth (rather than one-twelfth) of their
annual allowance, and, if one-sixth of the annual allowance is less
than one drum they may be permitted to withdraw a quantity not to
exceed one drum during any one month. Otherwise, if a user desires
to withdraw more than one-sixth of his annual allowance during any
one month, he must justify his needs for the additional quantity.
The penal sum of the bond must, of course, be sufficient to cover
all tax-free alcohol on hand, in transit, and unaccounted for at any
one time. If you are limited under your current withdrawal permit
to one-twelfth of your annual allowance during any one month and you
wish to withdraw more than that quantity during a month for the period
from July 1960 through April 1961 it will be necessary that you first
file application for, and obtain, an amended withdrawal permit.
(c) Changes after original Qualification. When there is any
change in name, trade name, or location of the permittee, or any
other change that affects the terms of the industrial use permit,
another application on Form 2600 must be filed. Where there is a
change in the information contained in an application, but which
does not affect the permit itself, you must file a written notice,
in duplicate, within 10 days of the change, giving the assistant
regional commissioner the details of the change. As at present,
where there is a change in proprietorship (by sale or transfer of
the business, reorganization, the taking in of a new partner, etc.),
the new proprietor must qualify in the same manner as any other
new permittee.
Use of tax-free alcohol. The uses of tax-free alcohol have
been somewhat liberalized. For example, a clinic operated for
charity may require patients to pay a fee or other charge, provided
such fee or charge is not made to cover medicine compounded with
tax-free alcohol. For details of authorized uses of tax-free
alcohol, by the various categories of permittees, see sections
213.101 to 213.108, inclusive.
Losses. Provisions for losses, and claims for losses, are
basically unchanged. However, the minimum quantity for which claim
is routinely required is being raised from 1 proof gallon to 5 proof
gallons, and a new form (Form 2635) is being provided for use in
filing claims. You will receive copies of Form 2635 from your
assistant regional commissioner.
Destruction, disposition, return, etc. Subpart K of the new
regulations contains provisions for the destruction, return, recon-
signment, and other disposition of tax-free alcohol, the conditions
under which such dispositions can be made, and the procedure to be
followed. Where tax-free alcohol is to be destroyed or returned,
an application must first be filed with, and approved by, your
assistant regional commissioner. Where tax-free alcohol is to be
returned to a distilled spirits plant, the proprietor of such plant
must first agree to the return.
Form 1473. Form 1473 will be used, in lieu of Form 1440, for
shipments of tax-free alcohol. You will receive the original and
one copy with the shipment of tax-free alcohol, will receipt for
any losses on both, will forward the original to the assistant
regional commissioner designated on the form, and will retain the
copy for your records. If you recover tax-free alcohol and ship
it to a distilled spirits plant for redisti1lation, you will prepare
Form 1473, to cover such shipment, in accordance with the instructions
accompanying the form. If needed, a supply of Forms 1473 for this
purpose may be obtained from your assistant regional commissioner.
Records. Records required to be maintained must be in
sufficient detail (see section 213.171) to enable verification of
each transaction and must be maintained for a period of three
years after the date of the report covering the transaction or
operation. On approval, photographic copies of records may be
retained in lieu of the original records (see section 213.176).
Reports. Form 1451 has been revised and will be required to
be filed annually instead of monthly. The annual filing will be
on a calendar year basis. The annual report submitted as of
December 31, 1960, need show monthly figures for only the months
of July to December, inclusive, since you will have submitted
monthly reports for the period from January to June, inclusive,
under existing regulations. However, since you must complete the
annual totals on the report, you may prefer to enter all monthly
totals for the year, and add them directly on the form. We will
not object if you do complete the entire form in this manner. The
assistant regional commissioner will supply you with copies of the
revised form.
Inquiries. Inquiries concerning this industry circular should
refer to its number and should be addressed to your assistant
regional commissioner (alcohol and tobacco tax).
Dwight E. Avis
Director, Alcohol and Tobacco Tax Division
GPO 894666
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