1513-0073 Laws and Regs.

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1513-0073

26 U.S.C.

Sec. 5131. Eligibility and rate of tax

(a) Eligibility for drawback

Any person using distilled spirits on which the tax has been determined, in the manufacture or production of medicines, medicinal preparations, food products, flavors, flavoring extracts, or perfume, which are unfit for beverage purposes, on payment of a special tax per annum, shall be eligible for drawback at the time when such distilled spirits are used in the manufacture of such products as provided for in this subpart.

(b) Rate of tax

The special tax imposed by subsection (a) shall be $500 per year.

(Added Pub. L. 85-859, title II, Sec. 201, Sept. 2, 1958, 72 Stat. 1345; amended Pub. L. 94-455, title XIX, Sec. 1905(a)(11), Oct. 4, 1976, 90 Stat. 1819; Pub. L. 100-203, title X, Sec. 10512(d), Dec. 22, 1987, 101 Stat. 1330-448; Pub. L. 103-465, title I, Sec. 136(b), Dec. 8, 1994, 108 Stat. 4841.)

Sec. 5132. Registration and regulation

Every person claiming drawback under this subpart shall register annually with the Secretary; keep such books and records as may be necessary to establish the fact that distilled spirits received by him and on which the tax has been determined were used in the manufacture or

production of medicines, medicinal preparations, food products, flavors, flavoring extracts, or perfume, which were unfit for use for beverage purposes; and be subject to such rules and regulations in relation thereto as the Secretary shall prescribe to secure the Treasury against

frauds.

(Added Pub. L. 85-859, title II, Sec. 201, Sept. 2, 1958, 72 Stat. 1345; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 103-465, title I, Sec. 136(b), Dec. 8, 1994, 108 Stat. 4841.)

Sec. 5133. Investigation of claims

For the purpose of ascertaining the correctness of any claim filed under this subpart, the Secretary is authorized to examine any books, papers, records, or memoranda bearing upon the matters required to be alleged in the claim, to require the attendance of the person filing the

claim or of any officer or employee of such person or the attendance of any other person having knowledge in the premises, to take testimony with reference to any matter covered by the claim, and to administer oaths to any person giving such testimony.

(Added Pub. L. 85-859, title II, Sec. 201, Sept. 2, 1958, 72 Stat. 1346; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)

Sec. 5134. Drawback

(a) Rate of drawback

In the case of distilled spirits on which the tax has been paid or determined, and which have been used as provided in this subpart, a drawback shall be allowed on each proof gallon at a rate of $1 less than the rate at which the distilled spirits tax has been paid or determined.

(b) Claims

Such drawback shall be due and payable quarterly upon filing of a proper claim with the Secretary; except that, where any person entitled to such drawback shall elect in writing to file monthly claims therefor, such drawback shall be due and payable monthly upon filing of a proper

claim with the Secretary. The Secretary may require persons electing to file monthly drawback claims to file with him a bond or other security in such amount and with such conditions as he shall by regulations prescribe. Any such election may be revoked on filing of notice thereof

with the Secretary. No claim under this subpart shall be allowed unless filed with the Secretary within the 6 months next succeeding the quarter in which the distilled spirits covered by the claim were used as provided in this subpart.

(c) Allowance of drawback even where certain requirements not met

(1) In general

No claim for drawback under this section shall be denied in the case of a failure to comply with any requirement imposed under this subpart or any rule or regulation issued thereunder upon the claimant's establishing to the satisfaction of the Secretary that distilled spirits on which the tax has been paid or determined were in fact used in the manufacture or production of medicines, medicinal preparations, food products, flavors, flavoring extracts, or perfume, which were unfit for beverage purposes.

(2) Penalty

(A) In general

In the case of a failure to comply with any requirement imposed under this subpart or any rule or regulation issued thereunder, the claimant shall be liable for a penalty of $1,000 for each failure to comply unless it is shown that the failure to comply was due to reasonable cause.

(B) Penalty may not exceed amount of claim

The aggregate amount of the penalties imposed under subparagraph (A) for failures described in paragraph (1) in respect of any claim shall not exceed the amount of such claim (determined without regard to subparagraph (A)).

(3) Penalty treated as tax

The penalty imposed by paragraph (2) shall be assessed, collected, and paid in the same manner as taxes, as provided in section 6665(a).

(Added Pub. L. 85-859, title II, Sec. 201, Sept. 2, 1958, 72 Stat. 1346;

amended Pub. L. 90-615, Sec. 2(a), Oct. 21, 1968, 82 Stat. 1210; Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369, div. A, title IV, Sec. 452, July 18, 1984, 98 Stat. 819; Pub. L. 103-465, title I, Sec. 136(b), Dec. 8, 1994, 108 Stat. 4841; Pub. L. 104-188, title I, Sec. 1704(t)(12), Aug. 20, 1996, 110 Stat. 1888.)

27 CFR

Sec. 17.161 General.

Each person claiming drawback on taxpaid distilled spirits used in

the manufacture of nonbeverage products shall maintain records showing

the information required in this subpart. No particular form is

prescribed for these records, but the data required to be shown shall be

clearly recorded and organized to enable appropriate TTB officers to

trace each operation or transaction, monitor compliance with law and

regulations, and verify the accuracy of each claim. Ordinary business

records, including invoices and cost accounting records, are acceptable

if they show the required information or are annotated to show any such

information that is lacking. The records shall be kept complete and

current at all times, and shall be retained by the manufacturer at the

place covered by the special tax stamp for the period prescribed in

Sec. 17.170.

Sec. 17.162 Receipt of distilled spirits.

(a) Distilled spirits received in tank cars, tank trucks, barrels,

or drums. For distilled spirits received in tank cars, tank trucks,

barrels, or drums, the manufacturer shall record, with respect to each

shipment received--

(1) The date of receipt;

(2) The name and address of the person from whom received;

(3) The serial number or other identification mark (if any) of each

tank car, tank truck, barrel, or drum;

(4) The name of the producer or warehouseman who paid or determined

the tax;

(5) The effective tax rate (if other than the rate prescribed by 26

U.S.C. 5001); and

(6) The kind, quantity, and proof (or alcohol percentage by volume)

of the spirits.

(b) Distilled spirits received in bottles. For distilled spirits

received in bottles, the manufacturer shall record--

(1) The date of receipt;

(2) The name and address of the seller;

(3) The serial number of each case, if the bottles are received in

cases;

(4) The name of the bottler;

(5) The effective tax rate (if other than the rate prescribed by 26

U.S.C. 5001); and

(6) The kind, quantity, and proof (or alcohol percentage by volume)

of the spirits.

(c) Distilled spirits received by pipeline. For distilled spirits

received by pipeline, the manufacturer shall record--

(1) The date of receipt;

(2) The name of the producer or warehouseman who paid or determined

the tax;

(3) The effective tax rate (if other than the rate prescribed by 26

U.S.C. 5001); and

(4) The kind, quantity, and proof (or alcohol percentage by volume)

of the spirits.

(d) Determination of quantity. At the time of receipt, each

manufacturer shall determine (preferably by weight) and record the exact number of proof gallons of distilled spirits received. The amount

received in bottles may be determined by the required statements on the

labels. The amount received in sealed drums with no evidence of leakage

may be determined from the record of shipment, which is required by

Sec. 19.780 of this chapter to accompany spirits received from a

distilled spirits plant. If spirits are received in a tank car or tank

truck, and the result of the manufacturer's gauge of the spirits is

within 0.2 percent of the number of proof gallons reported on the record of shipment required by Sec. 19.780, then the number of proof gallons reported on that record may be recorded as the quantity received. Nevertheless, the receiving gauge shall be noted on the record of receipt. If, for any shipment, the amount recorded in the manufacturer's records as the quantity received is greater than the amount shown as taxpaid on the record required by Sec. 19.780, a deduction equivalent to the excess shall be made from the amount of drawback claimed in the manufacturer's claim covering that period. If no claim is filed for that period, then the deduction shall be made in the manufacturer's next claim. Losses in transit that exceed the 0.2 percent limitation provided in this paragraph shall be determined and noted on the record of receipt. Such losses shall not be recorded as distilled spirits received.

(e) Receipt of imported rum, or spirits from Puerto Rico or the

Virgin Islands. If spirits are received which contain at least 92% rum,

and which originate from Puerto Rico or the U.S. Virgin Islands, the

record of receipt shall indicate the place of origin. If rum is

received, the record shall indicate whether it is from Puerto Rico, from the U.S. Virgin Islands, imported from other countries, or domestic.

(f) Shipments from distilled spirits plants. If spirits are received directly from the distilled spirits plant that paid or determined the tax, the manufacturer shall retain the record of shipment required by Sec. 19.780 of this chapter. To the extent that the information on that record duplicates the requirements of this section, retention of that record shall satisfy those requirements. If there are differences between the information on the record of shipment and the information required to be recorded by this section, the requirements of this section may be met by appropriate annotations on the record of shipment.

Sec. 17.163 Evidence of taxpayment of distilled spirits.

(a) Shipments from distilled spirits plants. For each shipment of

taxpaid spirits from the bonded premises of a distilled spirits plant,

the manufacturer shall obtain the record of shipment prepared by the

supplier under Sec. 19.780 of this chapter. This record shall be

retained with the commercial invoice (if the latter is a separate

document) as evidence of taxpayment of the spirits. The record shall

show the effective tax rate(s) (if other than the rate prescribed by 26

U.S.C. 5001) applicable to the shipment.

(b) Purchases from wholesale and retail liquor dealers.

Manufacturers shall obtain commercial invoices or other documentation

pertaining to purchases of distilled spirits from wholesale and retail

liquor dealers (including such dealership operations when conducted in

conjunction with a distilled spirits plant). For spirits other than

alcohol, grain spirits, neutral spirits, distilled gin, or straight

whisky (as defined in the standards of identity prescribed by Sec. 5.22 of this chapter), the manufacturer of nonbeverage products shall obtain evidence, from the producer or bottler of the spirits, as to the

effective tax rate paid thereon.

(c) Imported spirits. For imported spirits that were taxpaid through Customs, evidence of such taxpayment (such as Customs Forms 7501 and 7505, receipted to indicate payment of tax, and the certificate of effective tax rate computation, if applicable) shall be secured from the importer and retained by the manufacturer.

(d) Evidence of effective tax rate. If the evidence of effective tax rate, required by this section for distilled spirits products that may contain wine or flavors, is not obtained, drawback shall only be allowed based on the lowest effective tax rate possible for the kind of distilled spirits product used.

Sec. 17.164 Production record.

(a) General. Each manufacturer shall keep a production record for

each batch of intermediate product and for each batch of nonbeverage

product. The production record shall be an original record made at the

time of production by a person (or persons) having actual knowledge

thereof. If any product is produced by a continuous process rather than

by batches, the production record shall pertain to the total quantity of that product produced during each claim period.

(b) Information to be shown. The record shall show the name and

formula number of the product, the actual quantities of all ingredients

used in the manufacture of the batch (including the proof or alcohol

percentage by volume of all spirits), the date when eligible spirits

were considered used (see Sec. 17.152), the effective tax rate

applicable to those spirits (if other than the rate prescribed by 26

U.S.C. 5001), and the quantity of product produced. The alcohol content

of the product shall be shown if a test of alcohol content was made (see paragraph (e) of this section). Usage of eligible and ineligible spirits shall be shown separately. If spirits from Puerto Rico or the U.S. Virgin Islands, containing at least 92% rum, were used, the record shall indicate their place of origin. If rum was used, the record shall

indicate whether it was from Puerto Rico, from the U.S. Virgin Islands,

imported from other countries, or domestic. If spirits were recovered,

the production record shall so indicate, and the record required by

Sec. 17.168 shall be kept. If drawback is claimed on spirits consumed

as an essential part of the manufacture of a nonbeverage product, which

were not contained in that product at its completion, then the

production record shall show the quantity of spirits so consumed in the

manufacture of each batch.

(c) Specificity of information. The production record shall refer to ingredients by the same names as are used for them in the product's

formula. This includes formulas submitted to TTB and formulas contained

in the publications listed in Sec. 17.132. Other names for the

ingredients may be added in the production record, if necessary for the

manufacturer's operations. Usage of ingredients (including spirits) may

be shown in units of weight or volume.

(d) Determining quantity of distilled spirits used. Each

manufacturer shall accurately determine, by weight or volume, and record in the production records the quantity of all distilled spirits used. When the quantity used is determined by volume, adjustments shall be made if the temperature of the spirits is above or below 60 degrees

Fahrenheit. A table for correction of volume of spirituous liquors to 60 degrees Fahrenheit, Table 7 of the ``Gauging Manual,'' is available. See subpart E of part 30 of this chapter and Sec. 30.67. Losses after

receipt due to leakage, spillage, evaporation, or other causes not

essential to the manufacturing process shall be accurately recorded in

the manufacturer's permanent records at the time such losses are

determined.

(e) Tests of alcohol content. At representative intervals, the

manufacturer shall verify the alcohol content of nonbeverage products.

The results of such tests shall be recorded.

Sec. 17.165 Receipt of raw ingredients.

For raw ingredients destined to be used in nonbeverage or

intermediate products, the manufacturer shall record, for each shipment

received--

(a) The date of receipt;

(b) The quantity received; and

(c) The identity of the supplier.

Sec. 17.166 Disposition of nonbeverage products.

(a) Shipments. For each shipment of nonbeverage products, the

manufacturer shall record--

(1) The formula number of the product;

(2) The date of shipment;

(3) The quantity shipped; and

(4) The identity of the consignee.

(b) Other disposition. For other dispositions of nonbeverage

products, the manufacturer shall record--

(1) The type of disposition;

(2) The date of disposition; and

(3) The quantity of each product so disposed of.

(c) Exception. The manufacturer need not keep the records required

by paragraphs (a) and (b) of this section for any nonbeverage product

which either contains less than 3 percent of distilled spirits by

volume, or is sold by the producer directly to the consumer in retail

quantities. However, when needed for protection of the revenue, the

appropriate TTB officer may at any time require the keeping of these

records upon giving at least five days' notice to the manufacturer.

Sec. 17.167 Inventories.

(a) Distilled spirits. The ``on hand'' figures reported in Part II

of TTB Form 5154.2 shall be verified by physical inventories taken as of the end of each quarter in which nonbeverage products were manufactured for purposes of drawback. Spirits taxpaid at different effective tax rates shall be inventoried separately. The inventory record shall show the date inventory was taken, the person(s) by whom it was taken, subtotals for each product inventoried, and any gains or losses disclosed; and shall be retained with the manufacturer's records. The manufacturer shall explain in Part IV of the supporting data (Form 5154.2) any discrepancy between the amounts on hand as disclosed by physical inventory and the amounts indicated by the manufacturer's records. Any gain in eligible spirits disclosed by inventory requires an equivalent deduction from the claim with which the inventory is reported. Gains shall not be offset by known losses. If no claim is filed for a quarter (nor for any monthly period therein), then no physical inventory is required for that quarter.

(b) Raw ingredients and nonbeverage products. When necessary for

ensuring compliance with regulations and protection of the revenue, the

appropriate TTB officer may require a manufacturer to take physical

inventories of finished nonbeverage products, and/or raw ingredients

intended for use in the manufacture of nonbeverage or intermediate

products. The results of such inventories shall be recorded in the

manufacturer's records. Any discrepancy between the amounts on hand as

disclosed by physical inventory and such amounts as indicated by the

manufacturer's records shall also be recorded with an explanation of its cause.

Sec. 17.168 Recovered spirits.

(a) Each manufacturer intending to recover distilled spirits under

the provisions of this part shall first notify the appropriate TTB

officer. Any apparatus used to separate alcohol is subject to the

registration requirements of 26 U.S.C. 5179 and subpart C of part 29 of

this chapter. Recovery operations shall only be conducted on the

premises covered by the manufacturer's special tax stamp.

(b) The manufacturer shall keep a record of the distilled spirits

recovered and the subsequent use to which such spirits are put. The

record shall show--

(1) The date of recovery;

(2) The commodity or process from which the spirits were recovered;

(3) The amount in proof gallons, or by weight and proof (or alcohol

percentage by volume) of distilled spirits recovered;

(4) The amount in proof gallons, or by weight and proof (or alcohol

percentage by volume) of recovered distilled spirits reused;

(5) The commodity in which the recovered distilled spirits were

reused; and

(6) The date of reuse.

(c) Whenever recovered spirits are destroyed (see Sec. 17.183), the record shall further show--

(1) The reason for the destruction;

(2) The date, time, location, and manner of destruction;

(3) The number of proof gallons destroyed; and

(4) The name of the individual who accomplished or supervised the

destruction.

[T.D. ATF-379, 61 FR 31412, June 20, 1996, as amended by T.D. ATF-462,

66 FR 42736, Aug. 15, 2001]

Sec. 17.169 Transfer of intermediate products.

When intermediate products are transferred as permitted by Sec.

17.185(b), supporting records of such transfers shall be kept at the shipping and receiving plants, showing the date and quantity of each product transferred.

Sec. 17.170 Retention of records.

Each manufacturer shall retain for a period of not less than 3 years all records required by this part, a copy of all claims and supporting data filed in support thereof, all commercial invoices or other documents evidencing taxpayment or tax-determination of domestic

spirits, all documents evidencing taxpayment of imported spirits, and

all bills of lading received which pertain to shipments of spirits. In

addition, a copy of each formula submitted on TTB Form 5154.1 shall be

retained at each factory where the formula is used, for not less than 3

years from the date of filing of the last claim for drawback under the

formula. A copy of an approval to use an alternate method or procedure

shall be retained as long as the manufacturer employs the method or

procedure, and for 3 years thereafter. Further, the appropriate TTB

officer may require these records, forms, and documents to be retained

for an additional period of not more than 3 years in any case where he

or she deems such retention to be necessary or advisable for protection

of the revenue.

Sec. 17.171 Inspection of records.

All of the records, forms, and documents required to be retained by

Sec. 17.170 shall be kept at the place covered by the special tax stamp and shall be readily available during the manufacturer's regular

business hours for examination and copying by appropriate TTB officers.

At the same time, any other books, papers, records or memoranda in the

possession of the manufacturer, which have a bearing upon the matters

required to be alleged in a claim for drawback, shall be available for

inspection by appropriate TTB officers.

(Sec. 5133, 68A Stat. 623 (26 U.S.C. 5133); sec. 201, Pub. L. 85-859, 72 Stat. 1348 (26 U.S.C. 5146)).

Sec. 17.186 Transfer of distilled spirits to other containers.

A manufacturer may transfer taxpaid distilled spirits from the

original package to other containers at any time for the purpose of

facilitating the manufacture of products unfit for beverage use.

Containers into which distilled spirits have been transferred under this section shall bear a label identifying their contents as taxpaid

distilled spirits, and shall be marked with the serial number of the

original package from which the spirits were withdrawn.