Rev. Rul. 54-605

Advice has been requested whether the requirements of section 190.050 of Regulations 15, with respect to the tax payment of cordials and liqueurs made in part with taxpaid vermouth, will be applicable after January 1, 1955, when the Internal Revenue Code of 1954 becomes generally effective with respect to alcohol taxes.

Section 190.505 of Regulations 15 provides in part that where taxpaid vermouth is mixed with distilled spirits or other liquors in the manufacture of a cordial, liqueur, or similar compound, such cordial, liqueur, or similar compound will be subject to the rectification tax of 30 cents per proof gallon, but will not be taxable at the wine tax rate unless it contains fortified wine in addition to that used in he manufacture of the taxpaid vermouth.

Section 5022 of the Internal Revenue Code of 1954 provides as follows:

On all liqueurs, cordials, or similar compounds produced in the United States and not sold as wine, which contain more than 2 1/2 percent by volume of wine of an alcoholic content in excess of 14 percent by volume (other than bottled cocktails), there shall be paid, in lieu of the tax imposed by section 5021, a tax at the rate of $1.92 per wine gallon and a proportionate tax at a like rate on all fractional parts of such wine gallon until April 1, 1955, and on or after April 1, 1955, at the rate of $1.60 per wine gallon and a proportionate tax at a like rate on all fractional parts of such wine gallon. All other provisions of law applicable to rectification shall apply to the products subject to tax under this section.

Effective January 1, 1955, the rate of tax applicable to cordials, liqueurs, and similar compounds, other than those classified and sold as wine or bottled cocktails, which contain more than 2 1/2 percent of any type of wine of an alcoholic content in excess of 14 percent by volume will be subject to tax at the rate of $1.92 per wine gallon. Products subject to the cordial rate will not be subject to the rectification tax of 30 cents per proof gallon.

The provisions of section 190.505 of Regulations 15 will be revoked by the regulations to be issued under the Internal Revenue Code of 1954.

New formulae for cordials, liqueurs, and similar compounds containing wines (including vermouth) of an alcoholic content in excess of 14 percent by volume must be submitted for approval to the appropriate Assistant Regional Commissioner, Alcohol and Tobacco Tax, before January 1, 1955, since existing formulae will not reflect the correct tax rate for such products on and after January 1, 1955.