Rev. Rul. 60-95

Advice has been requested (1) whether the production facilities of a distilled spirits plant, qualified under the Production of Distilled Spirits Regulations, may be operated on a seven-day week basis, and, (2) if so, the manner in which the products produced during the hours restricted by section 220.778 of the regulations should be designated and (3) the type of records which are to be kept on such production.

Section 5201(c) of the Internal Revenue Code of 1954 provides in part that the Secretary of the Treasury or his delegate may within prescribed limits prescribe regulations relating to hours for distillery operations.

Section 220.778 of the Production of Distilled Spirits Regulations provides in part that stills may not be used by distillers at any time between 11:00 p.m. of any Saturday and 1:00 a.m. of the next succeeding Monday.

Section 170.371 of subpart Q, Interim Miscellaneous Regulations Relating to Liquor, issued under section 210 of the Excise Tax Technical Changes Act of 1958, C.B. 1958-3, 92, at 252, provides as follows:

Existing regulations prescribed as interim regulations. All regulations (including all Treasury decisions) prescribed by, or under authority duly delegated by, the Secretary of the Treasury, or jointly by the Secretary and the Commissioner of Internal Revenue, or by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury, or jointly by the Commissioner of Internal Revenue and the Commissioner of Customs with the approval of the Secretary of the Treasury, applicable under any provision of law in effect on June 30, 1959, to the extent such provision of law is repealed by section 201 of the act, are, insofar as any such regulation is not inconsistent with the Code as amended by section 201 of the Act, hereby prescribed under and made applicable to the provisions of the Code, as amended by the act, corresponding to the provision of law so repealed. Such regulations shall, on July 1, 1959, become effective as regulations under the various provisions of the Code as amended by section 201 of the act, until superseded by regulations issued pursuant to chapter 51 of the Code as amended by such act.

Section 220.778 of the Production of Distilled Spirits Regulations, as it applies to spirits distilled and withdrawn at 190 degrees or more of proof by the proprietor of a distilled spirits plant qualified to produce spirits for industrial purposes, is not applicable under subpart Q of the Interim Miscellaneous Regulations Relating to Liquor, since it is inconsistent with the purpose and intent of the Excise Tax Technical Changes Act of 1958, supra . Such inapplicability extends only to spirits distilled at 190 degrees or more of proof and does not apply to the production of any other spirits which could not have been produced during the restricted hours under section 220.778 of these regulations and the law in effect on June 30, 1959. The Excise Tax Technical Changes Act of 1958, supra , eliminates artificial statutory distinctions between `alcohol' and `neutral spirits' where such spirits were produced at 190 degrees or more of proof.

In view of the above, the production facilities of a distilled spirits plant may be operated seven days a week for the production of neutral spirits, distilled at 190 degrees or more of proof, where the proprieotr of such facilities holds an Operating Permit, Distilling for Industrial Use, as provided for in section 201.136(a) of the Distilled Spirits Plants Regulations, and the necessary basic permit under the Federal Alcohol Administration Act. No spirits other than spirits of 190 degrees or more of proof may be produced during the period restricted by section 220.778 of the Production of Distilled Spirits Regulations.

Where the production facilities are to be operated alternately under the Industrial Alcohol Regulations and the Production of Distilled Spirits Regulations, proprietors must file Form 2607, Registration of Distilled Spirits Plant, with the Assistant Regional Commissioner, Alcohol and Tobacco Tax, giving notice of intent to operate alternately under those regulations. After approval of the Form 2607, actual alternations will be made pursuant to Form 1696, Notice of Alternate Operations, filed with and approved by the internal revenue officer at the distilled spirits plant.

Proprietors, while operating under the Industrial Alcohol Regulations, should make reports of gauge on Form 1440, Report of Alcohol Gauged. Records should be kept and monthly reports submitted on Form 1442, Proprietor's Report of Operation at Industrial Alcohol Plant. Spirits finished and deposited in receiving tanks during such periods must be designated as alcohol.

Proprietors, while operating the plant under the Production of Distilled Spirits Regulations, should make reports of gauge on Form 1520, Report of Spirits Gauged. Records must be kept as provided in sections 220.755 and 220.756 of these regulations and monthly reports should be submitted on Form 1958, Proprietor's Report of Operations at Registered Distillery. Spirits finished during such periods must be designated as provided in sections 220.548 through 220.555 of the same regulations.

The proprietor of the distilled spirits plant must determine the quantities of distilling materials and unfinished spirits on hand at the time of alternation in order that such quantities may be reported on Forms 1442 and 1598.

If spirits of 190 degrees or more of proof, designated as alcohol or neutral spirits, under the respective parts of the Industrial Alcohol Regulations or the Production of Distilled Spirits Regulations, are to be mingled under section 201.656 of the latter regulations, the procedure prescribed in Revenue Ruling 59-268, C.B. 1959-2, 577, must be followed. While no specified quantities are prescribed for such mingling, there must be under the statute an actual mingling of such spirits and token mingling is not permitted under this procedure. Mingled spirits may be further mingled under the same procedure. Where alcohol and neutral spirits are to be mingled, the proprietor should make application to the internal revenue officer at the distillery plant on Form 2323, Mingling of Distilled Spirits, modified as necessary. On completion of the mingling the warehouse records should be adjusted by debiting and crediting the appropriate accounts.