Rev. Rul. 58-173

Advice has been requested concerning the applicability of the additional tax imposed by section 4511(b) of the Internal Revenue Code of 1954 to coconut oil fatty acids (of non-Philippine origin) imported after October 1, 1957.

Coconut oil fatty acids result from the refining of crude coconut oil. These fatty acids, if not eliminated, would impart an objectionable odor and flavor to the refined coconut oil. They are therefore removed by alkali refining. These separated fatty acids are then shipped to soap makers or to fatty acid manufacturers for refining and fractionation.

Section 4511(a) of the Code imposes a tax on the first domestic processing of coconut oil, fatty acids derived from the oil, salts of such oil, or any combination or mixture containing a substantial quantity of such oil, fatty acids, or salts. The Act of August 30, 1957, Public Law 85-235, 68A Stat. 536, C.B. 1957-2, 1061, suspends for the period from October 1, 1957, to June 30, 1960, the provisions of section 4511(a) which apply to coconut oil, fatty acids, and salts derived therefrom.

Section 4511(b) of the Code imposes an additional tax on the first domestic processing of coconut oil or of any combination or mixture containing a substantial quantity of coconut oil with respect to which oil there has been no previous domestic processing.

Section 4513(b) of the Code provides that the additional tax imposed by section 4511(b) shall not apply when it is established, in accordance with regulations prescribed by the Secretary of the Treasury or his delegate, that the coconut oil (whether or not contained in a combination or mixture)-

(1) is wholly the production of the Philippine Islands, any possession of the United States, or the Territory of the Pacific Islands (referred to as the Trust Territory), or (2) was produced wholly from materials the growth or production of the Philippine Islands, any possessions of the United States, or the Trust Territory.

The applicability of the processing tax relating to coconut oil fatty acids is determined under the provisions of section 4511(a) of the Code. Since application of that section is suspended for the period from October 1, 1957, to June 30, 1960, by Public Law 85-235, supra , no tax is incurred with respect to the first domestic processing of such fatty acids during that period.

Since coconut oil fatty acids are neither `coconut oil' nor a `combination or mixture containing a substantial quantity of coconut oil' within the meaning of section 4511(b) of the Code, it is held that the additional tax imposed by that section does not apply to the processing of such fatty acids, regardless of the origin of the oil from which they are derived.