RECORDKEEPING REQUIREMENTS FOR NONBEVERAGE
DOMESTIC DRAWBACK CLAIMANTS
Manufacturers of nonbeverage products
and others concerned:
Purpose. Manufacturers who file claims for
drawback of tax on distilled spirits used in the
manufacture of nonbeverage products are referred to
in the Internal Revenue Code of 1954 as nonbeverage
domestic drawback claimants (26 U.S.C. 5131-5134).
This circular is issued to remind such claimants that
they are required to maintain records which comply
not only with the specific recordkeeping requirements
of subpart H of 27 CFR Part 197, but also with the
more general requirements of 26 U.S.C. 5132.
Background. During a number of recent investiga-
tions conducted by ATF for the purpose of ascertain-
ing the correctness of nonbeverage drawback claims,
some doubt arose over whether the claimants, at the
time of manufacture, possessed sufficient raw
materials to produce the quantities of nonbeverage
products reported produced. ATF inspectors, seeking
to establish that such manufacture did occur,
requested the claimants to present all available
records which might be used to verify that sufficient
quantities of raw materials were in the possession of
the manufacturer. It was anticipated that the
sufficiency of raw materials could be established by
examination of records reflecting the purchase, use,
loss, and inventory of such materials.
The claimants were reluctant to provide the
requested records, expressing the view that the only
records which ATF has the authority to examine are
those records specifically prescribed in 27 CFR
Part 197, subpart H. None of the regulations in that
Subpart require that records be maintained pertaining
to raw materials (other than for distilled spirits).
Recordkeepinq Requirements. It is clear from an
examination of statutory provisions that records of
all raw materials must be maintained, based on the
following:
1. 26 U.S.C. 5132 provides, in part, that a claimant
must "keep such books and records as may be
necessary to establish" that he has used distilled
spirits in the manufacture of products which are
eligible for drawback; i.e., medicines, medicinal
preparations, food products, flavors, or flavoring
extracts, which are unfit for use for beverage
purposes.
The words "as may be necessary" encompass the
requirement that the claimant maintain records of
all raw materials, since sufficiency of raw
materials is directly related to the use of
distilled spirits in manufacturing products which
are eligible for drawback.
2. 26 U.S.C. 5133 provides, in part, that ATF has
the right to examine any books, papers, records,
or memoranda having to do with statements or
figures required to be stated in the claim. It
is clear that Congress intended that a claimant
of nonbeverage domestic drawback would maintain
such papers. Otherwise, establishing the right
to examine them would be without substantive
effect.
In summary, claimants must maintain records "as
may be necessary" to establish that they used
distilled spirits to manufacture products which are
eligible for drawback. Some of the kinds of records
which are deemed necessary for the manufacturer to
maintain are records of raw materials purchased,
used, lost, etc. The record of materials purchased
might consist simply of copies of invoices, or some
other form of record would also be acceptable if it
showed the amounts of materials purchased, the dates
of purchase, from whom purchased, etc. Examination
of such records represents a legitimate claim
investigation procedure which cannot be denied to ATF
if the Government is to be protected against fraud in
matters pertaining to nonbeverage drawback claims.
Inquiries. Inquiries concerning this circular
should refer to its number and be addressed to the
Assistant Director (Regulatory Enforcement), Bureau
of Alcohol, Tobacco and Firearms, 1200 Pennsylvania
Avenue, NW., Washington, DC 20226.
Director
GPO 943-007 |