Rev. Rul. 56-340

The Internal Revenue Service has been informed that extract manufacturers, in some instances, ship one container of alcoholic flavoring to the rectifier, claim drawback on a portion of the contents, and supply an affidavit of full taxpayment on the remainder of the contents.

Section 235.64 of the Regulations relating to the Rectification of Spirits and Wines imposes a limitation of two and one-half percent on the use in rectified products of flavoring material containing distilled spirits upon which drawback has been or will be claimed, based on the quantity of alcohol (proof gallons) contained in the finished product. Section 235.65 of the regulations authorizes the use of flavoring materials in excess of the two and one-half percent limitation provided drawback of tax has not been and will not be claimed on such excess. In the event nondrawback flavoring material is used, it must be purchased directly from the manufacturer and the rectifier must have available for examination by the storekeeper-gauger an affidavit of the manufacturer describing each lot of materials purchased and stating that drawback has not been and will not be claimed on any distilled spirits contained therein.

In order to avoid confusion with respect to the drawback and nondrawback flavoring extracts received by rectifiers from the same manufacturer, the extract manufacturer should use separate shipping containers to differentiate between the extracts indicated.