Rev. Rul. 54-290

Advice is requested whether the tax should be collected on distilled spirits destroyed after the expiration of the 8-year storage period where the application for destruction was filed by the warehouseman prior to such expiration date.

Section 2879(b) of the Internal Revenue Code provides, in part, that the tax on distilled spirits shall be due and payable before and at the time they are withdrawn from the bonded warehouse and within 8 years from the date of the original entry for deposit therein. This section is interpreted as requiring the payment of the tax upon the expiration of the 8-year period of storage unless application for other disposition has been filed within such 8-year period of storage.

In the instant case, application for destruction of the spirits was made by the proprietor prior to the expiration of the 8-year storage period. The packages were regauged on the 8-year expiration date as required by the regulations, but the gauge report was held pending a decision as to whether the spirits could be destroyed without payment of the tax or whether the tax should be assessed thereon. An analysis of a sample of the distilled spirits in question, made subsequent to the expiration date, showed that the spirits were unsuitable for consumption.

Pursuant to the above interpretation of section 2879(b) of the Code, where application for other disposition has been timely filed, the spirits may continue to remain in the warehouse pending action on the application. Where an application for other disposition of the spirits is not timely filed, assessment and collection of the tax is mandatory. Since the application in the instant case for destruction of the spirits was timely filed and the spirits were found upon analysis to be unfit for beverage use, they may be destroyed, free of tax, under the immediate supervision of a storekeeper-gauger, pursuant to the provisions of section 185.510 to section 185.514 of Regulations 10.