Rev. Rul. 61-74

Advice has been requested (1) whether whisky designate may be transferred from the production facilities of a distilled spirits plant to the storage facilities for packaging, and (2) whether such transfer may be made without the reduction of the whisky designate to not more than 110 degrees of proof and not less than 80 degrees of proof prior to transfer from production facilities.

The proprietor of a distilled spirits plant produces spirits at such plant, deposits them in receiving tanks on bonded premises, makes the production gauge, transfers the spirits at production proof in bond in tank trucks, tank cars, or barges to a second distilled spirits plant. There the second proprietor deposits the spirits in storage tanks on bonded premises, reduces the spirits to packaging proof conforming to the standard of identity, packages, and stores them for maturing in the bonded warehouse portion of his plant.

Section 5206(c) of the Internal Revenue Code of 1954 provides that containers of distilled spirits (and cases containing bottles or other containers of such spirits) shall be marked, branded, or identified in such manner as the Secretary of the Treasury or his delegate shall by regulations prescribe.

Section 201.270 of the Distilled Spirits Plants Regulations provides, in part, that when the proprietor desires to enter spirits into bonded storage for subsequent packaging in wooden packages, he may identify such spirits with the specific designation to which they would have been entitled if drawn into wooden packages, followed by the word `Designate,' for example `Bourbon Whisky Designate.'

Section 201.517 of the regulations provides, in part, that the designation as to the kind of spirits to be marked on packages shall be in accordance with the classes and types of spirits set out in the Distilled Spirits Labeling and Advertising Regulations issued under the Federal Alcohol Administration Act.

Section 5.21(b) of the Distilled Spirits Labeling and Advertising Regulations specifies, among other conditions, that, to be designated whisky or any type thereof, spirits must have been withdrawn from the cistern room of the distillery at a proof of not more than 110 degrees and not less than 80 degrees.

The above cited provision of section 5.21(b) of the regulations requiring whisky to be withdrawn from the cistern room of the distillery at not more than 110 degrees of proof nor less than 80 degrees of proof was based on section 3287 of the Revised Statutes, which required whisky to be drawn from the receiving cisterns into casks or packages, and on those provisions of Internal Revenue Regulations No. 7, `Concerning the Tax on Distilled Spirits' (under the Revised Statutes), which limited the use of the designation `whisky' to grain distillates withdrawn from the cistern at or below 110 degrees of proof.

These provisions of the Revised Statutes and related regulations, and their successor provisions of the Internal Revenue Code and regulations, have been changed by the enactment of the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, and the issuance of the Distilled Spirits Plants Regulations under the 1954 Code, which do not contain the former requirements that whisky be drawn from receiving cisterns into casks and packages.

The term `cistern room' as used in section 5.21(b) of the Distilled Spirits Lebeling and Advertising Regulations is therefore construed to mean its equivalent under the Distilled Spirits Plants Regulations, i.e., the production facilities of a distilled spirits plant. See section 201.11 of the Distilled Spirits Plants Regulations.

Accordingly, distilled spirits, otherwise eligible to be bottled and labeled as whisky or any type thereof, is not precluded from being so bottled and labeled by reason of the fact that it was reduced in proof and barrelled in the production facilities of a distilled spirits plant.

Furthermore, the Distilled Spirits Plants Regulations, as now in effect, permit the bulk transfer of whisky designate from production facilities to storage facilities of the same distilled spirits plant, or any other distilled spirits plant, for packaging, and permit such transfer without reduction of the whisky designate to not more than 110 degrees of proof and not less than 80 degrees of proof prior to the removal from production facilities.

When whisky designate so removed from production facilities is reduced in proof in the storage facilities and there barrelled, it would be proper to brand or mark the barrels with the designation to which the spirits would have been entitled under the Distilled Spirits Labeling and Advertising Regulations if they had been reduced, to not more than 110 degrees of proof and not less than 80 degrees of proof, and barrelled in the production facilities.