Rev. Rul. 58-560

Advice has been requested whether vodka produced exempt from the rectification tax at a rectifying plant may be reclassified as grain neutral spirits for bottling as such and for use in blended whisky.

In Revenue Ruling 55-594, C.B. 1955-2, 700, it is held, in part, that taxpaid vodka received at a rectifying plant may be reclassified as grain neutral spirits and so labeled when bottled, provided the vodka was produced from grain neutral spirits at a registered distillery in accordance with the appropriate regulations. Such ruling does not apply to vodka produced at a rectifying plant under exemption from the rectification tax and so states.

In Revenue Ruling 58-253, C.B. 1958-1, 581, it is held that Revenue Ruling 55-594, supra , and section 235.452 of the regulations relating to Rectification of Spirits and Wines, restricting the classification and use of vodka produced and bottled at a rectifying plant under exemption from the rectification tax, do not preclude the classification of the product as neutral spirits for use as such in taxable rectification.

In the light of Revenue Ruling 58-253, supra , permission is now requested to reclassify tax-exempt vodka produced at a rectifying plant as grain neutral spirits for (1) bottling as neutral spirits, and (2) use in blended whisky.

Vodka produced as a finished product in a rectifying plant under section 235.450 of the regulations is produced by a purifying and refining process which, under the law and regulations, is exempted from the rectification tax. Such product must be bottled or packaged and labeled as vodka in accordance with the approved formula under which produced. Vodka produced at a rectifying plant in any manner or by any means other than that specified in section 235.450 is subject to the rectification tax. See Section 235.454 of the regulations. Under section 235.456 through section 235.461, inclusive, of the regulations, purified or refined spirits, other than vodka, produced in a rectifying plant are subject to the rectification tax unless used immediately in a taxable rectified product. It is therefore held that vodka produced at a rectifying plant under exemption from the rectification tax may not be bottled or packaged and labeled as neutral spirits.

It is emphasized that Revenue Ruling 58-253, supra , applies only to vodka produced exempt from the rectification tax under section 235.450 of the regulations and bottled or packaged.

Under section 235.452 of the regulations, vodka produced under a tax-exempt process may not be mixed with other spirits or treated by the addition or abstraction of any substance or material other than pure water before bottling or packaging. Therefore, it is further held that, although such section does not preclude the use of tax-exempt vodka which has been bottled or packaged as such in the further production of a taxable rectified product, as provided in Revenue Ruling 58-253, supra , it does preclude the production of tax-exempt vodka under section 235.450 of the regulations for use in blended whisky or for any other purpose other than for bottling or packaging as vodka.