Thursday, February 7, 2013

Tax Break for Beer and Liquor Used by Foreign Embassies

The Internal Revenue Code imposes significant excise taxes on beer ($17 per barrel of 31 gallons), wine ($1 to $3 per gallon), and distilled spirits ($13.50 per proof gallon of 50% alcohol) made in the United States. 
The taxes also apply to alcohol imported into the United States.

Fortunately for hard-partying United Nations officials, the excise taxes do not apply to any American-made alcohol consumed by foreign governments, public international organizations, and their representatives, for their official and family use. (sections 5053(g), 5066, and 5362(e)).

A public international organization would be an entity like the World Bank, the World Health Organization, or INTERPOL.

This rule was introduced gradually, in 1971 for distilled spirits, in 1980 for wine, and in 1993 for beer, perhaps revealing the alcohol preferences of foreign officials. 
The stated rationale for the tax-free rule was that foreign embassies and organizations were able to import beer and other alcohol for use in the United States without having to pay any US excise taxes.  American-made beer and other alcohol, on the other hand, were subject to the US excise taxes and were suffering a competitive disadvantage in the lucrative Foreign Embassies market segment.

Congress recognized a serious problem when it saw one, but it chose not to solve it by taxing embassy-imported beer.  Maybe Congress was concerned that ambassadors would simply smuggle bootleg alcohol inside their diplomatic pouches.

Section 5053(g) Removals for use of foreign embassies, legations, etc.  
(1) In general.

Subject to such regulations as the Secretary may prescribe—
(A) beer may be withdrawn from the brewery without payment of tax for transfer to any customs bonded warehouse for entry pending withdrawal therefrom as provided in subparagraph (B), and
(B) beer entered into any customs bonded warehouse under subparagraph (A) may be withdrawn for consumption in the United States by, and for the official and family use of, such foreign governments, organizations, and individuals as are entitled to withdraw imported beer from such warehouses free of tax. 
Beer transferred to any customs bonded warehouse under subparagraph (A) shall be entered, stored, and accounted for in such warehouse under such regulations and bonds as the Secretary may prescribe, and may be withdrawn therefrom by such governments, organizations, and individuals free of tax under the same conditions and procedures as imported beer.


  1. I don't get this, how would the Foreign Embassies get their liquor free of the excise tax? Is this for their own bathtub gin, or would they somehow apply for a rebate on the tax on the booze they bought from the corner store?

  2. The embassies can buy alcohol from special stores and warehouses, similar to duty-free stores. Breweries, distilleries, and wineries don't have to pay the excise taxes for the alcohol they sell to those stores and warehouses, which have ways to ensure that only certain people can buy from them.