GAO reviewed the administration of excise taxes on distilled spirits.

GAO found that Government-issued strip stamps which are placed on containers of distilled spirits no longer serve their intended purpose. The Federal Government could avoid the possibility of public misinterpretation of the strip stamps' significance and save at least $1.7 million annually by eliminating the stamps. The Internal Revenue Code provides for the use of strip stamps which are printed at the annual cost of $1.7 million and are distributed to distillers and bottlers at no charge. Although the code authorizes the use of alternative closure devices, the stamps are the most frequently used devices. Recent legislation significantly changed the Federal regulation and taxation of distilled spirits. It eliminated the need for control over certain operations at distilling plants by Federal employees and provided for the determination of taxes on distilled spirits before bottling. The strip stamp no longer signifies that the tax on the spirits has been paid or that the spirits have been lawfully bottled. Consequently, the public may be misled into thinking of the strip stamps as the Government's stamp of approval of the product. Quality assurance can be provided equally well by alternative sealing devices provided by the distiller. However, distillers have not adopted the alternative devices because the Government provides strip stamps free of charge. Trade association officials are opposed to the elimination of the Government-supplied strip stamps because of the potential of increased costs, danger to tax revenue, and the requirement of State stamps.

Status Legend:

Review Pending-GAO has not yet assessed implementation status.

Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.

Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.

Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.

• Review Pending
• Open
• Closed - implemented
• Closed - not implemented

Recommendation for Executive Action

Recommendation: The Secretary of the Treasury should revise the regulations to eliminate Government-supplied strip stamps while retaining a requirement that bottlers and distributors provide and use approved closure devices. If it is decided that approved closure devices are unnecessary, the Secretary of the Treasury should request legislation to repeal section 5205 and related provisions of the Internal Revenue Code.

Agency Affected: Department of the Treasury

Status: Closed - Implemented

Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.