Rev. Ruling 56-394
Claims for Drawback
Advice has been requested concerning the timely filing of claims for drawback covering products manufactured during a certain period but carried as "in process" until assayed in a following period, when, in some instances, no additional distilled spirits were needed.
Section 5131 of the Internal Revenue Code of 1954 provides, in part, that persons using domestic distilled spirits in the manufacture or production of certain nonbeverage products, on payment of the prescribed special tax, are eligible for drawback "at the time when such distilled spirits are used in the manufacture of such products ***."
Section 197.16 of the Regulations relating to Drawback on Distilled Spirits Used in Manufacturing Nonbeverage Products provides that the time when the distilled spirits shall be deemed to have been used is when the product contains the ingredients called for by its formula (either formulas approved under section 197.95, or one prescribed by the United States Pharmacopoeia, the National Formulary, or the Homeopathic Pharmacopoeia of the United States).
Section 197.19 provides, in part, that distilled spirits are deemed to have been used when such distilled spirits are either consumed in such manufacture or are incorporated in the product.
Sections 197.105 and 197.106 provide, in part, the drawback will be allowed upon the filing of a proper claim of nonbeverage products during the prescribed claim period. Section 197.116 requires that the claim be accompanied by a statement showing, among other things, the quantity, in proof gallons, of all distilled spirits "in process" at the beginning and end of the claim period. It provides that distilled spirits in process will include distilled spirits represented in unfinished nonbeverage products, mixtures, menstruums, etc.
A drawback claim may be filed covering all distilled spirits which, during the drawback period, are consumed in the manufacture of, or are incorporated in, products which, at the close of the period, contain all the ingredients called for by the formula. The fact that the nonbeverage product is in a receptacle or other bulk container at the close of the period and requires further manipulation such as aging, filtering, etc., does not preclude the filing of a drawback claim if the distilled spirits have been used as above stated. Such products should not be reported as being "in process" at the end of the period even though there has been no final determination of alcoholic content by assay. If, however, it is later found necessary to add more distilled spirits to standardize the product, such added spirits should be included in the claim for the period during which they were added.
The statement of distilled spirits in process required under section 197.116 of the regulations should be itemized to reflect the formula number, the name of the product, and the quantity of the product in wine gallons and the quantity of alcohol contained therein in proof gallons. Separate entries should be made in the supporting data listing the proof gallons of distilled spirits used in the manufacture of products completed from "in process." Such products should be appropriately designated by symbol and identified in such manner as to readily distinguish them from the products which were stated and completed during the same period.
26 U.S.C. 5131; 27 CFR 197.16