LOSSES ALLOWABLE UNDER SECTION 5008(c)(1)(A)(ii),
INTERNAL REVENUE CODE
Proprietors of Distilled Spirits
Plants and Others Concerned:
Revenue Ruling 70-366, concerning losses allowable under section 5008
(c)(1)(A)(ii), Internal Revenue Code, will be published in the Internal
Revenue Bulletin on July 13, 1970. The ruling will read substantially as
follows:
The Internal Revenue Service has been asked to discuss the
conditions under which credit or refund of the distilled spirits tax
maybe allowed under section 5008(c)(1)(A)(ii) of the Internal Revenue
Code of 1954.
The cited subsection of the statute establishes three basic
conditions which must exist before credit or refund may be allowed.
These are:
(1) the spirits for which claim is to be filed must not
have been removed from the distilled spirits plant to which they were
withdrawn from bond on payment or determination of tax,
(2) such spirits
must, in fact, have been lost, and
(3) the loss of the spirits must
have been caused by "flood, fire, or other disaster."
The Service does not expect any problems in making determinations
as to the first of the aforementioned conditions. It recognizes, however, that determinations to be made on the other two points can be
affected by a wide variety of circumstances, many of which could result
in difficult questions of interpretation. To minimize the need for
consideration of questionable cases, therefore, the following general
rules are held to apply:
On Questions of Loss
1. To be considered lost under section 5008(c)(1)(A)(ii)
of the Code, distilled spirits must have been physically
lost, by absolute destruction or disappearance thereof;
or
2. They must have been condemned by public health authorities
(as a result of a "flood, fire or other disaster") and
destroyed; or
3. The Assistant Regional Commissioner (Alcohol, Tobacco and
Firearms) must have found, on the basis of chemical analysis
and other physical considerations, that the spirits themselves
(and not just the containers in which they repose) have been
so badly damaged or contaminated by the applicable "flood,
fire, or other disaster" that no procedure available at the
distilled spirits plant involved can restore them to a condition which would make them suitable for use in beverage
products.
On Questions as to Whether a
Particular Incident is a Flood,
Fire, or Other Disaster
1. In general, whenever water escapes from the banks of any
natural or man-made, open body of either flowing or quiescent
water and encroaches on adjacent land areas, the resulting:
inundation of such adjacent land areas would be considered
to be a flood. For the purpose of applying the provisions
of section 5008(c)(1)(A)(ii) of the Code, there could be
other circumstances which the Service might consider to be
a flood. However, encroachment of water caused by such
things as burst water mains, use of fire hoses or other firefighting equipment, or sprinkler leakage would not be so
considered.
2. Any incidence of whole or partial destruction or consumption
of structures or material by flame would, of course, be a
fire, and the Service anticipates no particular problems
in making determinations as to this question. Here, however, it should be noted that although encroachment of
water from fire hoses or sprinklers (as discussed in 1,
above) would not be considered to be a flood, losses
resulting from such encroachment might, under certain
circumstances, be considered as having occurred "by reason
of" fire.
3. In general, a disaster would be an incident (of much
greater scope and severity than mere accident) involving
extensive loss and damage to property, or injury or death
to persons, within a given community or geographic area.
It would include such things as earthquakes and tornadoes,
but would not include riots or other civil disorders,
vandalism, or acts of war.
This ruling will be effective on July 13, 1970, the date of its
publication in the Internal Revenue Bulletin, and will not be effective
as to claims on which final action has been taken before that date.
Inquiries regarding this circular should refer to its number and be
addressed to your Assistant Regional Commissioner, Alcohol, Tobacco and
Firearms.
Harold A. Serr,
Director
Alcohol, Tobacco and Firearms Division |
