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Industry Circular

Number: 79-12

Date: October 10, 1979

Department of the Treasury

Bureau of Alcohol, Tobacco and Firearms

Washington, DC 20226

Seal

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DISTILLED SPIRITS TAX REVISION ACT OF 1979

Proprietors of Distilled Spirits Plants; Bonded Wine Cellars; and Others Concerned:

Purpose. The Distilled Spirits Tax Revision Act of 1979, Subtitle A of Title VIII of the Trade Agreements Act of 1979 (Public Law 96-39), was signed by President Carter on July 26, 1979. The Distilled Spirits Tax Revision Act of 1979 will become effec- tive on January 1, 1980.

Since the effective date of the new law is January 1, 1980, the Bureau wishes to advise the regulated industry via this circular of certain actions which will have to be taken by industry in order to effect the transition to the new law on the effective date. These actions will involve the filing of new bonds and applications. Since previous editions of forms may not be used for this purpose, the regional regulatory administrators will initially distribute the new or revised forms to the industry.

Following are matters which the industry should consider between now and January 1, 1980:

1. NEW DEFINITIONS. Section 5002 of the Internal Revenue Code of 1954, as amended, redefines the term "bonded premises" when used with respect to distilled spirits, to mean the premises of a distilled spirits plant, or part thereof, on which distilled spirits operations are authorized to be conducted.

A new term "processor" is defined as any person who manufactures, mixes, or otherwise processes distilled spirits, or manufactures any article. The term "processor" includes but is not limited to a rectifier, bottler, or denaturer. Certain operations are not treated as processing, such as operations as a distiller, mixing of taxpaid spirits for immediate consumption, and any process performed by an apothecary with respect to distilled spirits which such apothecary uses exclusively in preparation or making up of medicines unfit for use for beverage purposes.

The term "warehouseman" means any person who stores bulk distilled spirits.

The term "bulk distilled spirits" means distilled spirits in a container having a capacity in excess of one wine gallon.

2. BONDS. Section 5173 of the Code as amended will require that proprietors of distilled spirits plants furnish new bonds covering operations at and withdrawals of spirits before payment of the tax from such plants.

No person intending to establish a distilled spirits plant may commence operations at such plant unless such person has furnished bond covering operations at the plant. The three types of operations bonds are (1) "one plant bond", covering operations at a single distilled spirits plant; (2) "adjacent wine cellar bond", covering operations at a distilled spirits plant and at an adjacent bonded wine cellar; and (3) "area bond", covering operations at two or more distilled spirits plants and adjacent bonded wine cellars which are located in the same geographical area and are operated by the same person (or in the case of a corporation, by such corporation and its controlled subsidiaries).

The "withdrawal bond" covers withdrawals from the bonded premises of one or more distilled spirits plants for deferred payment of tax where the operations on these multiple premises could be covered by the same operations bond.

A "unit bond" covering operations at and withdrawals from one or more bonded premises which could be covered by the same operations bond is also provided for under the amended Code.

A single bond form, ATF F 5110.56, will be utilized for operations, withdrawal and unit bonds. Bond forms 2601, 2613, 2614, and 2615 will be obsoleted. (Bond form 700 for bonded winery operations remains unchanged.)

In general, a bond furnished under Section 5173 shall be conditioned that the person furnishing the bond "will faithfully comply with all provi- sions of law and regulations relating to the activities covered by such bond and will pay all taxes imposed by this chapter, and all penalties incurred by, or fines imposed on, such person for violation of any such provision". Any bond furnished under this section shall contain such other terms and conditions as may be required by regulations. The penal sum of any bond shall be determined under regulations prescribed by the Secretary of the Treasury. Specific requirements for a bond covering withdrawals but not operations are that "such bond shall be in addition to the operations bond, and if distilled spirits are withdrawn under such bond, the operations bond shall no longer cover liability for payment of the tax on the spirits withdrawn". No bonded wine cellar shall be considered to be "adjacent" to a distilled spirits plant unless "such distilled spirits plant is qualified under this subchapter for the production of distilled spirits, and such wine cellar and the distilled spirits plant are operated by the same person". The bond furnished under this section covering operations on such adjacent wine cellar shall be in lieu of any bond which would otherwise be required under Section 5354 with respect to such wine cellar (other than supplemental bonds required for deferral of wine tax).

A bond form 2601 which presently covers a distilled spirits plant qualified for production and an adjacent bonded wine cellar will automa- tically terminate at the close of business December 31, 1979. Accordingly, the proprietor will file a new bond on ATF F 5110.56 covering operations on both premises.

3. ALTERNATION OF PREMISES BETWEEN DISTILLED SPIRITS PLANT AND BONDED WINERY. A proprietor who presently alternates a portion of bonded wine cellar premises for use as a distilled spirits plant for rectification and bottling of certain wines will have to file a new bond on ATF F 5110.56 covering the distilled spirits operations conducted on the distilled spirits plant premises. The bond, form 700, covering operations on the bonded winery premises may remain unchanged.

4. NEW REGISTRATION OF DISTILLED SPIRITS PLANTS. Section 5171 of the Code is amended to require that the operations of a "processor" as well as the operations of a distiller or a warehouseman must be conducted only on the bonded premises of a distilled spirits plant by a person qualified under this subchapter. A distilled spirits plant may be established only by a person who intends to conduct at such a plant the operations of a distiller or warehouseman or both. Before a new proprietor of a distilled spirits plant (DSP) can commence operations on or after January 1, 1980, such person must make application for, and receive notice of, the registration of such plant. An existing DSP proprietor must file a new applica- tion for registration but final approval of the application is not required in order to continue operations after December 31, 1979.

5. APPLICATION TO RECEIVE SPIRITS IN BOND. An approved application covering the transfer of spirits and/or denatured spirits in bond from another distilled spirits plant or from customs custody will not be valid for transfers after close of business December 31, 1979. Accordingly, proprietors should prepare applications on ATF Form 5100.16 (formerly ATF F 2609), Application for Transfer of Spirits and/or Denatured Spirits in Bond, for filing with their new bond(s) in order that the new applications may be processed, approved and returned by January 1, 1980.

6. APPLICATION FOR OPERATING PERMIT. Each person required to file an application for registration whose distilled spirits plant operations are not required to be covered by a basic permit under the Federal Alcohol Administration Act shall, before commencing the operations, apply for and obtain an operating permit to engage in such operations. Proprietors of distilled spirits plants are reminded that new applications for operating per- mits must be filed with the appropriate regional regulatory administrator prior to January 1, 1980. Operations may be continued under current permits pending action on the new applications.

7. SUPERVISION OF OPERATIONS. Current law requires that an ATF officer be assigned before a pro- prietor may conduct bonded operations. Amended Section 5202 states that "All operations on the premises of a distilled spirits plant shall be conducted under such supervision and controls (including the use of Government locks or seals) as the Secretary shall by regulations prescribe". With repeal of the statutory obligation to assign ATF officers to distilled spirits plants under the present "joint custody" system of supervision and control, the Bureau anticipates the gradual removal of ATF officers assigned to such plants to be accomplished on a plant-by-plant basis. This will provide the Government with the opportunity to evaluate the degree of Government supervision needed at each plant and will provide proprietors the opportunity to adjust to their new responsi- bilities. ATF officers may be assigned to and removed from plants at the discretion of regional regulatory administrators.

8. USE OF PROPRIETORS' LOCKS. With the gradual phasing out of Government supervision, Government locks will be removed and proprietors will supply their own approved locks to replace Government locks which are presently being used to secure bonded production facilities and the exteriors of bonded storage areas. Each proprietor will have to coordinate this activity with the regional regulatory administrator in whose region the distilled spirits plant is located. Government locks will not be available for purchase by industry members.

Under consideration for forthcoming regulations are the following specifications for approval of locks:

1) Case-hardened shackle, minimum 5/16 of an inch in diameter with "heel and toe" locking feature;

2) Metal body having minimum width of 2 inches;

3) Minimum 5-pin tumbler with "captured key" feature whereby the key cannot be removed from the lock when the shackle is in the opened position;

4) Corresponding serial numbers on key and on lock; and

5) No markings on key or on lock which refer to the bitting.

Locks may be stamped or otherwise marked with a proprietor's name or registry number. Also, a proprietor may utilize a master key locking system.

Locks meeting the specifications required by regulations, when affixed by proprietors to the exteriors of production and storage areas, will be approved locks under the provisions of 26 U.S.C. 5682 and any person who destroys, breaks, injures, or tampers with such a lock will be subject to the penalty provisions of that section of the Code.

The Bureau anticipates that, prior to the replace- ment of Government locks with proprietors' locks, each proprietor may be required by regulations to file with and receive approval of a statement of security by the regional regulatory administrator. The statement of security probably will include a description of the type(s) of locks used to replace Government locks as well as a certifica- tion signed by the proprietor that such locks meet the specifications which will be prescribed in the forthcoming regulations.

Any lock which is presently approved for use under an authorized pilot operation and which does not meet the specifications which will be prescribed in the forthcoming regulations may continue to be used until the proprietor is notified otherwise by the regional regulatory administrator.

9. CONVERSION OF CONTROLLED STOCK AND BULK WINES TO BONDED STOCK. The Bureau is issuing an ATF Pro- cedure and Industry Circular 79-13 which will address this topic. However, proprietors should note that they are entitled to refund or credit only for distilled spirits, wine or rectification taxes paid or determined on the distilled spirits or wines actually contained in products in con- trolled stock. Such taxes should not be confused with the "tax value" of the controlled stock inventory as shown in Schedule B of ATF Form 4077.

10. RETURN OF TAXPAID SPIRITS TO BOND. Amended Section 5215 of the Code provides that distilled spirits on which tax has been paid or determined may be returned to the bonded premises of a dis- tilled spirits plant on or after January 1, 1980, solely for destruction, denaturation, redistilla- tion, reconditioning, or rebottling. Additionally, bottled distilled spirits withdrawn from bonded premises may be returned to bonded premises for relabeling or restamping.

Section 808(e) of the Trade Agreements Act of 1979 provides that distilled spirits products which contain alcoholic ingredients other than distilled spirits and which have been withdrawn from a distilled spirits plant prior to January 1, 1980, may be returned under Section 5215(a) for destruc- tion, denaturation, redistillation, reconditioning, or rebottling only to the plant from which withdrawn.

11. STATUS OF TAXPAID STOCK REMAINING ON BONDED PREMISES DURING THE YEAR 1980. Section 808(c) of the Trade Agreements Act of 1979 provides that taxpaid stock on premises which become bonded premises on January 1, 1980, may remain on such premises during the year 1980. However, such distilled spirits and/or wine must be physically separated from other distilled spirits and wine.

Any taxpaid goods which are on the bonded premises on December 31, 1980, must be removed to a taxpaid room or wholesale liquor dealer premises or must be dumped for destruction, denaturation, distilla- tion, etc., prior to January 1, 1981.

12. AMENDMENT OF BASIC PERMITS ISSUED UNDER THE FEDERAL ALCOHOL ADMINISTRATION ACT. A proprietor who is currently qualified under an FAA Act basic permit as engaged in the business of rectifying, blending, or bottling distilled spirits, should file application to amend the permit to include the operations of a warehouseman.

13. STRIP STAMPS. The blue export strip stamp for bottled-in-bond spirits and the white strip stamp for alcohol will be eliminated and replaced with the red strip stamp. The green strip stamp will be retained for bottling-in-bond. Forthcoming regulations will implement the changes announced in the Notice of Proposed Rulemaking No. 312.

14. BOTTLING-IN-BOND. The repeal of the existing bottling-in-bond provisions of the law eliminates the distinct status of "bottled-in-bond" products for tax purposes since all spirits will literally be bottled in bond. However, "bottled-in-bond" will continue as a distinctive product designa- tion under the labeling regulations of the Federal Alcohol Administration Act.

15. INDUSTRY ORIENTATION MEETINGS. Presently, each ATF regional office is planning orientation meetings for industry members. The regional regulatory administrators will notify industry members of the time and place for each meeting.

16. ATF FORMS REVISIONS. Following is a preliminary listing of changes in ATF forms. The forms are listed in numerical order under the subject classification system.

 

3A Indemnity Bond Obsoleted

IRS F 11 Special Tax Return Revised to eliminate rectifier's special tax

          Form
          Number       Title                    Status

 

          3A           Indemnity Bond           Obsoleted

          IRS F 11     Special Tax Return       Revised to
                                                eliminate
                                                rectifier's
                                                special tax

           1602      Consent                   Obsoleted

           1617      Indemnity Bond-           Obsoleted
                     Removal of Property
                     Subject to Lien

           2602      Consent to Addi-          Obsoleted; bond
                     tional Conditions         requirement
                     on Indemnity Bond,        eliminated
                     Form 3A

           2613      Bond Covering             Obsoleted; to be
                     Deferred Payment          replaced by DSP
                     of Tax on Spirits         bond ATF F 5110.56
                     Withdrawn by
                     Proprietor of Bonded
                     Premises

           2614      Bond Covering             Same as above
                     Deferred Payment
                     of Tax on Spirits
                     Withdrawn by
                     Proprietor of
                     Bottling Premises

           428       Requisition for           Revised to delete
           (5100.7)  Stamps                    white & blue strip
                                               stamps

           2260      Quarterly Report of       Revised to delete
           (5100.8)  Bottle Strip Stamps       white & blue strip
                                               stamps; renumbered
                                               to 5100.8; semi-
                                               annual submission;
                                               alternate devices
                                               added

           206       Withdrawal of             Revised; entry for
           (5100.11) Spirits, Specially        deposit and bonded
                     Denatured Spirits,        export references
                     or Wines For              deleted; renumbered
                     Exportation               to 5100.11
                    
         3039         Application             Revised to delete
          (5100.13)    for Distilled           references to
                       Spirits Stamps          rectification tax
                       (Puerto Rico)

          2609         Application for         Revised; assigned
          (5100.16)    Transfer of Spirits     officer references
                       and/or Denatured        deleted; renumbered
                       Spirits in Bond         to 5100.16

          2637         Bottling Tank Report    Obsoleted
          (5100.20)

          2731         Monthly Report of       Revised; renumbered
          (5110.11)    Bonded Storage          to 5110.11;
                       Operations              quarterly
                                               submission

          2611         Statement of            Obsoleted
          (5110.13)    Losses at Bottling
                       Premises

          1467         Details of Packages     Discontinued for
          (5110.15)    Filled With Dena-       use by proprietors
                       tured Spirits           of distilled
                                               spirits plants

          5110.17      Tax Paid Spirits        Revised; approval
                       Returned to Bonded      of ATF officer
                       Premises                eliminated;
                                               references to
                                               obsoleted forms
                                               eliminated

          4738         Notice and Gauge of     Obsoleted
          (5110.18)    Spirits Returned to
                       Bottling Premises

          1577         Destruction of          Obsoleted
          (5110.19)    Spirits

          2634         Denaturation of         Obsoleted
          (5110.20)    Spirits
         
           179         Withdrawal of          Obsoleted
           (5110.21)   Spirits Tax
                       Determined

 

           5110.21     Daily Report of Tax    New form will be
                       Determinations         prepared daily to
                                              record tax deter-
                                              minations

           4077        Distilled Spirits      Obsoleted;to be
           (5110.22)   Tax Return-Deferred    replaced by
                       Payment-Bottling       ATF F 5110.35
                       Premises

           2604        Operating Permit       Retitled and
           (5110.23)   Under 26 U.S.C.        renumbered to
                       5171(b)                5110.23

           2603        Application for        Revised to show
           (5110.25)   Operating Permit       types of distilled
                       Under 26 U.S.C.        spirits operations:
                       5171(b)                distilling, ware-
                                              housing, and
                                              denaturing;
                                              retitled and
                                              renumbered to
                                              5110.25

           2629        Gauge Report           Revised to elimi-
           (5110.26)                          nate verification
                                              by assigned
                                              officer; renumbered
                                              to 5110.26

           236         Transfer of Spirits    Revised; renumbered
           (5110.27)   or Denatured Spirits   to 5110.27; changed
                       in Bond                to include wine
                                              transfers

           2733        Monthly Report of      Revised; renumbered
           (5110.28)   Bottling Premises      to 5110.28;
                       Operations             quarterly
                                              submission
                                              
             2323        Deposit, Transfer     Obsoleted
             (5110.29)   Between Tanks or
                         Mingling of
                         Distilled Spirits
                         in Bond

             5110.29     Tank Record of        New form; will
                         Spirits in Storage    serve as storage
                                               tank record

             1582        Drawback on           Revised to delete
             (5110.30)   Distilled Spirits     references to
                         Exported              rectification and
                                               obsolete ATF Forms;
                                               renumbered to
                                               5110.30

             4776        Application and       Revised to delete
             (5110.31)   Permit to Ship        references to
                         Puerto Rican Spirits  rectification
                         to the United States  tax; renumbered
                         Under 26 U.S.C. 5232  to 5110.31

             2521        Prepayment Return -   Revised; renumbered
             (5110.32)   Distilled Spirits     to 5110.32; to be
                         Tax                   based on record of
                                               tax determination

             4737        Indemnity Bond-       Obsoleted
             (5110.33)   Judgment or Other
                         Involuntary Lien

             2610        Change in Status      Revised; to include
             (5110.34)   of Plant              bonded wine cellar
                                               and taxpaid wine
                                               bottling house;
                                               changed to notice;
                                               renumbered to
                                               5110.34

             2522        Distilled Spirits     Revised; renumbered
             (5110.35)   Tax Return -          to 5110.35; will be
                         Deferred Payment -    based on daily
                         Bonded Premises       report of tax
                                               determinations
                                              
            1515         Distilled Spirits    Obsoleted
            (5110.36)    Bottled in Bond

            1621         Summary of Deposits  Revised; renumbered
            (5110.37)    and Withdrawals at   to 5110.37;
                         Bonded Warehouses    retitled "Storage
                                              Summary Account"

            27B Supple-  Formula and Process  Revised; renumbered
            mental       for Rectified        to 5110.38; recti-
            (5110.38)    Products             fication references
                                              deleted; retitled;
                                              process statement
                                              modified

 

            2527         Rectifier's Return - Obsoleted;
            (5110.39)    Deferred Taxes       rectification tax
                                              eliminated

            2730         Monthly Report of    Revised; renumbered
            (5110.40)    Production           to 5110.40;
                         Operations           quarterly
                                              submission

            2607         Registration of      Revised to show
            (5110.41)    Distilled Spirits    types of distilled
                         Plant                spirits operations:
                                              distilling,
                                              warehousing, and
                                              denaturing;
                                              renumbered to
                                              5110.41

            2732         Monthly Report of    Revised; quarterly
            (5110.43)    Denaturing Opera-    submission;
                         tion                 renumbered to
                                              5110.43

            2633         Withdrawal of        Obsoleted
            (5110.44)    Spirits Free of Tax
           
           2630        Package Gauge Report   Revised to delete
           (5110.45)                          gauge by assigned
                                              officer; renumbered
                                              to 5110.45

           257         Withdrawal of Wine     Revised;
           (5110.46)   Spirits to Bonded      assigned
                       Wine Cellar            officer references
                                              deleted;
                                              renumbered to
                                              5120.38

           332         Statement by Kinds,    Obsoleted
           (5110.49)   Seasons and Years
                       of Production of
                       Spirits in Bonded
                       Warehouses

           2896        Tax Deferral Bond -    Revised;
           (5110.50)   Distilled Spirits      renumbered
                       and Rectified          to 5110.50;
                       Products               bond language
                       (Puerto Rico)          changed

           2899        Application, Permit    Revised;
           (5110.51)   and Report -           renumbered
                       Distilled Spirits      to 5110.51;
                       (Puerto Rico)          references to wine
                                              gallons deleted

           2901        Deferred Tax           Revised;
           (5110.52)   Return - Distilled     renumbered
                       Spirits and            to 5110.52;
                       Rectified Products     references
                       (Puerto Rico)          to rectification
                                              tax deleted

           2925        Prepayment Tax         Revised;
           (5110.53)   Return - Distilled     renumbered
                       Spirits and            to 5110.53;
                       Rectified Products     references
                       (Puerto Rico)          to rectification
                                              tax deleted

             2926        Statement of            Obsoleted;
             (5110.54)   Liability for           rectification
                         Rectification Taxes     tax elimi-
                         (Puerto Rico)           nated

             2601        Distilled Spirits       Obsoleted
             (5110.56)   Bond

             5110.56     Distilled Spirits       New form showing
                         Bond                    bond categories

 

             1685        Blending of Rums and    Obsoleted
             (5110.57)   Brandies in Bond

             2615        Blanket Withdrawal      Obsoleted;
             (5110.59)   Bond                    replaced
                                                 by Bond
                                                 F 5110.56

             2523        Rectifier's Return -    Obsoleted
             (5110.60)   Prepayment of Taxes

             275         Application for         Reference to
             (5120.28)   Release of Wine         assigned
                         Spirits and             officer
                         Report of               deleted;
                         Addition of             renumbered to
                         Wine                    5120.28

             487-B       Application and         Revised;
             (5170.7)    Permit to Ship          reference
                         Liquors and             to rectifica-
                         Articles of Puerto      tion tax
                         Rican Manufacture       eliminated
                         to the United States

             2635        Claim-Alcohol and        Revised;
             (5620.8)    Tobacco Taxes           minor changes
                                                 to eliminate
                                                 references to Part
                                                 201

INQUIRIES. Inquiries concerning this circular should refer to its number and be addressed to the Assistant Director (Regulatory Enforcement), Bureau of Alcohol, Tobacco and Firearms, 1200 Pennsylvania Avenue, NW., Washington, DC 20226.

Q.R. Dickerson

Director

 
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