Rev. Rul. 74-428

Advice has been requested whether the product described below is "filled cheese" within the meaning of section 4846(2) of the Internal Revenue Code of 1954.

A company manufactures a product consisting of cheddar cheese to which various flavorings, a preservative, and other ingredients including vegetable oil have been added. The product is recommended and sold for use as a cheese or a substitute for cheese. The question presented is whether this product is "filled cheese" within the meaning of section 4846(2) of the Code even though its principal ingredient is "cheese."

Section 4831(a) of the Code imposes on all filled cheese which shall be manufactured within the United States a tax of 1 cent per pound payable by the manufacturer thereof. A corresponding tax at the rate of 8 cents per pound is imposed by section 4831(b) on filled cheese imported into the United States.

Section 4841(a) of the Code imposes a special tax of $400 a year for each factory payable by manufacturers of filled cheese.

Section 4846(1) of the Code provides that, for purposes of the various excise taxes relating to filled cheese, the word "cheese" shall be understood to mean the food product known as cheese, and made from milk or cream and without the addition of butter, or any animal, vegetable, or other oils or fats foreign to such milk or cream, with or without additional coloring matter.

Section 4846(2) of the Code defines "filled cheese" as all substances made of milk or skimmed milk, with the admixture of butter, animal oils or fats, vegetable or any other oils, or compounds foreign to such milk, and made in imitation or semblance of cheese. Substances and compounds, consisting principally of cheese with added edible oils, which are not sold as cheese or as substitutes for cheese but are primarily useful for imparting a natural cheese flavor to other foods shall not be considered "filled cheese."

The definition of "filled cheese" set forth in section 4846(2) of the Code contains no exception for a product that is made principally from "cheese" (as that term is defined in section 4846(1)), and that is sold as cheese or as a substitute for cheese. It is immaterial that milk has been made into cheese before vegetable oil (or another compound foreign to milk) is added. What is material is the composition of the end product itself, and not the particular process by which it was manufactured. In the instant case the end product includes milk (made into cheese) and vegetable oil.

Although the product in question contains cheese and retains the appearance of cheese, it no longer falls within the definition of "cheese" provided by section 4846(1) of the Code once the vegetable oil has been added. It becomes instead a product made "in imitation or semblance of cheese." Since the product described above contains ingredients that bring it within the definition of "filled cheese," and since it is made in imitation or semblance of cheese, it is "filled cheese" within the meaning of section 4846(2).