Rev. Rul. 59-351

Sections 5025 and 5083 of the Internal Revenue Code of 1954, as re-enacted by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, provide, in part, that a nonbeverage manufacturer need not pay the rectification tax or the special tax imposed on rectifiers, by reason of the recovery of distilled spirits, on which the tax has been paid or determined, from dregs or marc of percolation or extraction, or from medicines, medicinal preparations, food products, flavors, or flavoring extracts, which do not meet the manufacturer's standards if such recovered distilled spirits are used by the manufacturer in the manufacture of medicines, medicinal preparations, food products, flavors, or flavoring extracts, which are unfit for use for beverage purposes. Held, a manufacturer of nonbeverage products recovering distilled spirits under the above conditions need not qualify as a rectifier but must maintain adequate commercial records and supporting data which accurately reflect the type of product, the quantity dumped, the quantity of distilled spirits recovered, and the use made of such recovered distilled spirits. Whenever a claim for drawback is made, such records must be available for inspection by internal revenue officers. Subparts G and H of the Regulations relating to Drawback on Distilled Spirits Used in Manufacturing Nonbeverage Products require detailed subsidiary records which must be verified by physical inventories at the time a field inspection is made of the drawback claims. Supplemental inspections may be made in any situation deemed essential to establish proper use of the recovered spirits.