Rev. Rul. 59-320

Advice has been requested whether it is permissible to reduce the proof of spirits with water in a gauging tank on the bonded premises of a distilled spirits plant after a tax determination and then to transfer the spirits to a bottling premises where they would be subjected to a chilling process immediately prior to bottling.

Section 5006(a) of the Internal Revenue Code of 1954, as re-enacted by the Excise Tax Technical Changes Act of 1958, C.B. 1958-3, 92, at 137, provides as follows:

(1) GENERAL.-Except as otherwise provided in this section, the internal revenue tax on distilled spirits shall be determined when the spirits are withdrawn from bond. Such tax shall be determined by such means as the Secretary or his delegate shall be regulations prescribe, and with the use of such devices and apparatus (including but not limited to storage, gauging, and bottling tanks and pipelines) as the Secretary or his delegate may require. The tax on distilled spirits withdrawn from the bonded premises of a distilled spirits plant shall be determined upon completion of the gauge for determination of tax and before withdrawal from bonded premises, under such regulations as the Secretary or his delegate shall prescribe.

Section 201.26 of the Distilled Spirits Plants Regulations provides in part that the tax on spirits in bond shall be determined when the spirits are withdrawn therefrom, and in the case of spirits withdrawn from bonded premises, upon completion of the gauge for determination of tax and before withdrawal from such premises.

In view of the above, the reduction in proof of spirits with water in a gauging tank on the bonded premises of a distilled spirits plant after tax determination is held to be permissible. When so reduced the spirits must be gauged again by an internal revenue officer before removal and the officer must note the wine gallons, proof, and proof gallons after reduction on the report of gauge covering tax determination.