Rev. Rul. 54-354

Advice is requested whether alcohol may be received at a registered distillery from an industrial alcohol bonded warehouse under the provisions of Treasury Decision 5864, subsequently reduced in proof and percolated or treated with oak chips.

Section 171.231 of Treasury Decision 5864 provides that distilled spirits of any proof may be transferred in bond to any distillery from any other distillery, or from an internal revenue bonded warehouse, industrial alcohol plant, or industrial alcohol bonded warehouse, for redistillation only , except (a) for gauging in a weighing tank prior to deposit in a warehouse tank where a weighing tank is not available in the warehouse, or ( b ) for temporary storage in locked tanks pending transfer to warehouse tanks or, if 160 degrees or more of proof, for removal for any tax-free purpose authorized by part II of subchapter C of the Internal Revenue Code or for any purpose authorized in the case of like spirits produced at a distillery.

The receipt of spirits at a registered distillery from an industrial alcohol bonded warehouse under the provisions of section 171.231 of Treasury Decision 5864 for the purpose of reduction in proof and percolation through oak chips is not authorized. Spirits so transferred to a registered distillery must be redistilled unless received under exceptions (a) and (b) of section 171.231. Therefore, spirits may not be received at a registered distillery for any other purpose nor may spirits be redistilled and withdrawn at less than 160 degrees of proof. Furthermore, spirits so redistilled and withdrawn at a registered distillery may not be treated with oak chips since such treatment is not a part of the approved, recognized process of the production of the high proof spirits.