ATF Ruling 73-20

The Bureau of Alcohol, Tobacco and Firearms has been requested to determine whether the fermentation of molasses on other than distilled spirits plant premises would come within the purview of the statutes imposing tax on distilled spirits and requiring qualification under notice, permit, and bond. The question arose in view of a need for fermented molasses in the manufacture of certain products such as soil stabilizers of animal feed; and in view of the circumstances that, while the fermented molasses would contain ethyl alcohol, there would be no intent to subject such molasses to a distillation process to separate the alcohol.

Title 26 U.S.C. 5001 imposes a tax on all distilled spirits produced in the United States and attaches the tax as soon as this substance comes into existence as such whether it be separated as pure or impure spirits or transferred into any other substance. The term distilled spirits as defined in 27 U.S.C. 5002 includes alcoholic spirits and spirits, and means that substance known as ethyl alcohol, ethanol, and spirits of wines, including all dilutions and mixtures thereof, from whatever source or by whatever process produced.

From the foregoing, it may be see that (1) alcohol contained in fermented molasses is considered "distilled spirits". This construction has been upheld in Wood v. United States, 250 F. Supp. 995 (D.C.S.C. 1966) wherein the court held that the term distilled spirits as used in 26 U.S.C. 5002 is used in its generic sense and includes within its definition all alcohol produced as a result of fermentation regardless of whether it is or is not subsequently run through any separation of distillation process; and (2) persons producing distilled spirits come under the application and permit requirements of 26 U.S.C. 5171 and 5172, and the qualification bonds provisions of 26 U.S.C. 5173.

The production of fermented molasses would also come within the provisions of 26 U.S.C. 5222 which states "no mash, wort, or wash fit for distillation . . . shall be made or fermented in any building or on any premises other than on bonded premises of a distilled spirits plant. . . , and no mash, wort, or wash shall be removed from such premises before distilled, except as authorized by the Secretary or his delegate. . . "

Severe penalties are set out in 26 U.S.C. 5601 for unlawful production, removal, or use of material fit for production of distilled spirits or for failure to file application for and receive notice of registration and to give bond.

In view of the foregoing, it is held that in order to comply with the statutes and to prevent application of the penalties set out therein, manufacturers wishing to ferment molasses or to otherwise produce alcoholic mashes for removal without distillation for use in other products such as soil stabilizers, cattle feed, etc., should establish distilled spirits plants for such purposes under simplified qualification procedures by filing applications to do so under provisions of 26 CFR 201.62 regarding alternate methods of procedures. The application should be filed, for transmittal to the Director, with the Regional Director, Bureau of Alcohol, Tobacco and Firearms, of the region in which such production will take place. While consideration will be given to the non-potability of the product and to the fact that there would be no intent to recover spirits from the fermented molasses, it will be necessary to post bond to cover tax liability on the spirits contained in such molasses. The minimum amount of the bond will not be less than $5000.00. While the necessary action to be taken in registering such plants will be held to the minimum necessary to protect the revenue and to satisfy the requirements of applicable statutes, it will be necessary for manufacturers to make the plant premises available to inspection by ATF officers during normal working hours.

Registration of the plant may be accomplished on a Form 2607, signed by an officer of the company (authorized to sign on behalf of the corporation or partnership). Only that part of the plant and equipment utilized for production of fermented molasses need be described in the application for registration. The bond may be filed on the underwriter's bond form (in an amount set by the Regional Director).

26 CFR 201.62, 201.66 and 201.131.