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dhdunbar last won the day on January 16

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    Eclectic - from square dancing to Miles Davis; browsing the library for books of interest - Tony Hillerman crime novels to popular books on quantum physics. Simply sitting. Cooking dinner when someone else will wash the dishes. Walking the dog. Poetry and epistemology. Writing.

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  1. The TTB advice above is somewhat dated, even if they did give it only a year ago. If you filed online originally, then you amend the permit on line as well. You do not use, and TTB will not accept, paper forms. You will also need a diagram, which is not listed in the TTB info. The bond situation is changing, of course, and if you have a bond, you will have to get consent of surety, but it you can get permission to terminate your bond prior to the move, then you would not need the consent of surety - the reason is simple, there would be no surety to give consent. As a rough guideline, if you pay taxes on 2,000 cases of 80 proof 12/750 bottles, you need a bond; if you pay on less you do not, unless you have some industrial alcohol or, strangely, you pay no taxes at all. Yup, if you don not pay taxes you need a bond to cover the taxes you do not pay (the withdrawal portion of the unit bond) , plus the potential liability on any bulk spirits you have (the operating portion of the unit bond). This is not TTB's doing; it is the way that congress wrote the law. The issue of moving the cased goods remains because you can't move bottled spirits from one DSP to another, bond or no bond. So the letter is actually a request for a variance from that requirement, which TTB will grant on a one time basis. How long? Who knows how long TTB will take with anything these days. Allow five months. That is a long time to pay two rents. But do not bank on someone else's experience. Last year's experience is not this year's experience and someone else's experience this year may not be yours. I just wrote a client who asked the how long question, giving the same answer and an apology that I cannot give a better one.
  2. You are correct. Quickly, because I'm drowning in paper today, if you change class or type, you do not do that in storage. Adding flavoring, which changes class and type, takes place, as you summize, in the processing account. So you would transfer the whiskey as whiskey out of the storage account and into the processing account, where you would add the flavorings, according to an approved formula, of course. If the flavorings have an alcohol content, then you need to record the number of proof gallons dumped into the product (line 4). Ditto if the flavoring is wine. You do not report any additions of flavoring that has no alcohol content (it does not change proof gallons, but you do need records of what you added to show that the product is properly labeled.). Note that you do not account for products on the front of processing report by class and type. That is done on the reverse, part IV, where, in your example, you would enter whiskey into the account (column b of the appropriate row) and bottle it as a flavored product, which I would include at line 66, since they do not give a space for that. No, I do not know why. Note that the bottling entry is in wine gallons. Again, why is because they say it is. That's all. That is the general answer. For more specific info on specific products, write me and I'll get back to you to discuss how I can help.
  3. Well, I'm over 60 and had to climb a damned fence to catch my dog, a Shih Tzu, who are notorious wanders and so, like TTB, required a fence. The issue with TTB is not keeping people from scaling. It is establishing a demarcation between an area where a resident has a reasonable expectation of privacy and an area where the resident does not. If an area is within the domain where the resident has a reasonable expectation of privacy, then warrantless entry could be restricted under the 4th Amendment's prohibition against unreasonable search. TTB does not want to have to get warrants to enter, and although the IRC gives them unfettered right of entry at any time of the day or night [see Section 19.11 and 26 USC 5203(b)], they do not want to cloud that authority with constitutional issues. Or, at least, that is my reading of the situation, absent any statement from TTB on the matter. I doubt the TTB specialist will, or maybe even can, articulate that position, and I can't justify it by reference to the legislative history of Section 5178, since the law dates back to the mid 1800's, but it makes complete sense within the regulatory scheme. That, of course, doesn't make my reading right!
  4. There is something in the regulations and there is also something in the law. Sec. 19.52 Restrictions on location of plants. A person who intends to establish a distilled spirits plant may not locate it in any of the following places: (a) In any residence, shed, yard, or enclosure connected to a residence ... 26 USC 5178 (b) - No distilled spirits plant for the production of distilled spirits shall be located in any dwelling house, in any shed, yard, or inclosure connected with any dwelling house, or on board any vessel or boat, or on premises where beer or wine is made or produced, or liquors of any description are retailed, or on premises where any other business is carried on (except when authorized under subsection (b)). There are some not so subtle differences between the regulation and law, but TTB gets to interpret the law - it's their job to do that - and its interpretation is the regulation. Once upon a time, TTB visited the premises before approval, but no longer, and could see with human eyes the residence sitting next to the DSP. They no longer do and there is no question in the application that requires you to disclose the fact that the DSP you propose is located in yard that contains a residence. That is a flaw in TTB's regulatory scheme. So I suspect that some DSP's get approved without consideration of the location because TTB does not know. Others get approved after full disclosure. Those rest on safe grounds. The "connected to" phrase is the key to approval. At one time TTB preached that locating on the same tract of land created the connection, per se, case closed. As recently as a year ago there was a specialist at the NRC who proclaimed that approval was not allowed. I had fought that battle already and gotten approvals, so he's wrong. I don't know if others did too, but TTB will now approve DSP premises on the same tract of land, provided you establish that it is not connected to the residence within the meaning of Section 5178. TTB does not have rules, at least any that they make public. They say they will determine this on a case by case basis and as much as I hate case by case, that seems proper here. They state distance is one consideration, but it is only one. If you build a DSP on the same tract of land, you roll the dice, unless you get TTB's approval first. I think the odds in the dice roll are becoming more and more in your favor as we push the envelope on what it means to be "connected to a residence," but there are limits. Attachment is at one end of the scale and location five miles away is at the other. Somewhere between them is an undefined line, which is a lot closer to attached than to five miles, but nevertheless will exist in the case by case world, but where that line falls will vary by the habitual use and other considerations. If you want to approach TTB about this, embrace the term "curtilage." It is the passage from no to yes. "Yard" is the wand we wave. "Yard" has legal meaning. A fence can, but need not, provide a division that sets the "yard" off from the rest of the property. Establishing a clear division between the portion of the property that is within the curtilage of the residence, which includes, but may not be limited to the "yard," and the portion that is not within the curtilage, then establishing that the proposed DSP is located on the right side of that line, is the hurdle you must clear. Beyond these general comments, everything becomes cases specific.
  5. A second bond article in the recent ADI newsletter is in need of comment. It was written by an attorney, and who am I to challenge that - well, I did serve as a hearing office who listened to attorneys squabble and had to decide which, if either, made sense, but here are my comments. You can read the article for yourself. It's entitled "Dropping your bond: thrifty or risky. I'll not quote it here. Here is how I responded to the article after I first read it in Artisans Spirits Magazine: All applications for bonds with which I am familiar carry indemnification clauses. At least two persons must individually indemnify the surety against loss, if there is more than one person who is a principal, as must the entity in whose name the bond is issued, before the surety will issue the bond. I can assure you that the sureties do not see themselves as the deep pockets that will ultimately get stuck with the bill if you can’t pay. Their attorneys will protect them against that. Default on tax payments and if you have any assets, you will likely find yourself in front of a judge in a civil asset discovery hearing. Further, before TTB will go against the surety, it is likely that it will provide the proprietor of the DSP with an opportunity to submit an offer in compromise to compromise all or portion of the tax liability in the proprietor is for some reason unable to pay what is owed. You can see examples of such offers on TTB’s website. I think TTB seldom pursues payment from a surety, but I have no data to substantiate that claim. The advice given in the article is given by an attorney. I am not an attorney and my advice is not legal advice, but neither is his in this context. If you are concerned about risk-reward calculations, consult your personal attorney. Reply ↓
  6. The most recent issue of the ADI newsletter has two - count them - articles on bonds that are at misleading. The first, "How the Government is Saving Craft Alcohol, argues that dropping the bond requirement ... well, here are my comments. First, the Tax and Trade Bureau (TTB), the federal office that governs the alcohol industry, eliminated bond requirements for small breweries, wineries, and distilleries. This is true, but anyone who sells more than 2,000 cases, of 80 proof 1/750ml bottles, a year will still have to have a bond. In essence, a bond is a pre-paid amount of tax that the government holds as collateral to make sure booze producers pay their other taxes and generally play by the government’s rules. It is nothing of the sort. It is a guarntee of payment. If you have $20,000 in deferred taxes, i.e., excise taxes due but not yet paid on spirits removed, the bond would be in the amount of $20,000, but the bond would probably cost about $150 a year, including processing fees. That is a whale of a difference from its being, in essence, a prepayment of the $20,000. But applying for bonds is time consuming, technical (they require submitting elaborate architectural plans of any production space), and requires a large capital outlay up front, a serious strain for businesses that have no cash flow. This is once again false. You do not apply to the government for a bond. You apply to the surety. It does not invlove architectural plans. It involves your indemnifying the surety against loss and swearing that you've never been bankrupt, etc. The plans - which can be hand drawn - are submitted with the application to register the plant. Aside from no longer requiring that you submit a bond when you apply to register, NOTHING, I hate screamoing capitals but sometimes they are necessary - NOTHING else changes. By eliminating the bond requirement, this amendment removed a major hurdle for new producers, making it significantly cheaper and easier for newbies to start out as a small brand. No, unless you figure that a bond costing $10 per $1,000 in principal is a significant cost vs, the cost of rent, the still, etc.. It is neither significantly cheaper or easier for anyone to start out as a small brand. Now, they can apply to receive a refund of their original bond payment and operate under the small-producer permit instead. And they can use their capital to make more drinks! Refund? Well, yes, but most sureties are only going to refund a prorated amount, and a prorated refund on $130 - which is the cost to most small wineries per year and since it is the minimum will not be refunded - to, I don't know, chose your poison, $500, for example, is not going to be a cornucopia from which flows capital to make more drinks. Next - while direct to consumer sales of wine are becoming more and more common and are certainly a boon to both wine and spirits, you are not about to be able to ship spirits around the country for mail order or internet sales. It won't happen and do not - I refrained from screaming capitals - try and factor that into your spirits business plan. I'll respond later to the attorney who counsels that you might want to keep your bond.
  7. I don't have time to go long here, James, but ... The quote: "Craft distilleries in this state are essentially business start-ups, so allowing them to operate a restaurant on the premises will help them get off the ground by exposing more potential customers to their products and also attracting new clientele who might not necessarily be drawn to distilled spirits,” said Assemblyman Reed Gusciora (D-Mercer/Middlesex) in a statement. “This business model has proved a boon to the brewpub industry, and would do much the same for the long-term health of craft distilleries." The TTB issue. It is illegal to have a distilled spirits plant anywhere where liquors of any sort (wine, beer, spirits) are sold at retail. That is a matter of law, not regulation, so TTB can't make exceptions, grant variances, etc. The DSP must have bonded premises and may have general premises as well. Since general premises are part of the DSP, you can't locate the retail sales area on the general premise either. I don't care that you know someone who ... What TTB approved in the past is irrelevant and in many cases wrong under their rules. But don't despair or abandon all hope. The solution is simple enough; you put a suitable partition between the DSP and retail area and describe the DSP, on your application, in a way that does not include the retail area. Bingo, the DSP is not located where liquors are sold at retail. You then register, with TTB, as a retail liquor dealer at the location. Note, nothing says that the boundaries of the state defined distillery premises must coincide with the federally defined distillery premises. Don't fall into the trap of thinking that consistency is required. It is not. There are lots of examples of inconsistencies between federal and state law. You must obey both. The trick is finding a way to do that. Here it is not hard. This answer breaks my rule about providing citations, but the answer is sound, nonetheless. Particular circumstances? PM me and we can discuss how I might be able to help. That's as close to an advertisement as you will find me including in my forum comments, but I can only give general answers here. Particulars would make for a very long decision tree sort of presentation of the issues, most of which would be irrelevant to most other situations. One final comment. TTB allows taverns on brewery premises. That is why it is not safe to compare breweries (apples) to distilleries (oranges). It isn' that TTB wants to be inconsistent across commodities. The law is inconsistent that way. Gotta run.
  8. Two disclaimers: State law matters, a lot. What people do is not my forte. Here are some answers from federal regulation: You may not withdraw consumer samples or samples for market analysis free of tax. That's in the info above, I think. Pay the tax due on the samples on the next return you submit. Bottle size. As long as you fill into an authorized size, you are okay. But you have to have a label that shows the size unless it is blown into the bottle. 5.38 (c) Net contents marked in bottles. The net contents need not be marked on any label if they are legibly blown, etched, sandblasted, marked by underglaze coloring, or otherwise permanently marked by any method approved by the appropriate TTB officer on the side, front, or back of the container in an unobscured location. containers of 200 ml or greater capacity shall bear letters and figures of not less than one-quarter inch height. You do not need a separate label approval for different bottle sizes, but the label has to be approved as formatted for at least one size. See https://www.ttb.gov/labeling/allowable_revisions.shtml, where ou will find: YOU MAY... REVISION APPLIES TO COMMENTS WINE DISTILED SPIRITS MALT BEVERAGE 10. Change the net contents statement. YES YES YES Revisions must comply with all applicable regulations governing net content statements and standards of fill. Please ensure that all applicable type size requirements are met for each container size. Others can advise you better about the marketing advantage you may receive from furnishing a 375 or 750 vs. a 100 ml.
  9. Everyone: We are adrift in a sea of ignorance. As others have pointed out, what you think about the codes does not matter. Neither does what I think about it. So, I won't comment on the substance of any of this, because I'm totally ignorant of the subject matter. I don't know squat about it. But some people with credentials on which you can rely do. Some of you must have dealt with an expert who consults on matters like this. If so, in the interest of the general good, perhaps you could convince them to post to this thread so that someone can pin it at the very top, where everyone from here forward has access to the basic information. From the tales my clients tell, some jurisdictions take the rules seriously and some don't give a hoot, but if someone who is an expert on the Model Fire and Building Codes could explain: 1. What each requires for: a. The production and storage of alcohol. b.. For tasting rooms and similar public spaces within or adjacent to the building housing the DSP. 2. How the two codes differ and how the differences are reconciled in practice. 3. In practice, how the local codes are apt to differ from the model codes. 4. In practice, how the enforcement of the codes differs from jurisdiction to jurisdiction. 5. The potential consequences of being out of code in an area where the code is not well enforced. 6. How efforts to enforce code provisions in the future might affect an ongoing operation which was allowed to operate outside of the code requirements, if that is discovered. 7. And finally, because I am by no means conversant with any of this, what questions you should be asking but are not asking. That question is very important. Always ask it of persons from whom you are seeking information. For instance, if you ask about the fire code only and get your answers to that, if you then ask what other questions you should be asking, you may learn that you ought to be asking about they building code as well, as some who have posted here have found out.
  10. On 1/4/2017 TTB published the regulations, along with a lengthy explanation of what they mean, which really helps if you know how TTB uses words, etc. The English is pretty plain, but I'd like to call your attention to a couple of points. First, I'd be derelict in my duties as a consultant if I didn't underline the fact that you can't just drop your bond. You have to apply for a waiver and when TTB approves the waiver, you get to drop the bond. Given TTB's published statistics, I'd estimate that 20,000 or so persons who hold permits (wineries, breweries, and DSP's) are going to be eligible for the bond exemption. TTB was already short handed and the administration has put a freeze on hiring, so, someone has to wade through all of those applications, to determine if you are eligible, which includes, TTB says, determining if you are "current" with your reports and returns. TTB has not said, as far as I know, what it means by"current." Does it mean you filed when last required, or that you have filed all of them for the past year, or two years, or ... Do not expect miracles to happen. Budget limits severely restrain what any agency can do to take the actions that congress mandates. States complain about congress' federally unfunded mandates, but the federal government is bursting with them too. Federal agencies cannot complain about congress, or in the case of hiring freezes, the administration, but that is where the fault lies. Okay, end of politics. Next, if you engage in operations in industrial alcohol, or plan to do so, you are going to have to have both withdrawal and operating bonds in place to engage in those operations. The exemption applies only to beverage alcohol. The principal will be determined by the quantities of industrial alcohol, for which you must account. Further, you have to designate the alcohol as beverage (TTB uses the term nonindustrial) or industrial at the time you make your production gauge. Apparently, you can't just decide that 43 cases of organic vodka you hold in the processing account is going to convert to industrial alcohol for use by the business down the street in making vanilla extract. Next, the exemption applies only to those who have taxable removals. I repeat, you are not eligible for the exemption from the operational bond unless you pay some tax on removals during the calendar year. This may catch a few of you who have established warehouses for barrel storage, if you did so under a separate DSP registration and permit. If you do not pay some tax, however small, for withdrawals from the storage warehouse location, you do not qualify for the exemption at that location. I know this reads like a Catch-22, but it follows directly from the way in which congress worded the exemption in the law. Unfortunately, the catch seems to have eluded those who built the permits on line database, since to claim eligibility for the withdrawal, you simple state that you are "not required to furnish a bond because my tax liability will not exceed $50,00 this calendar year and/or I will not be removing spirits for industrial use." That statement is misleading because: 1. The "I don't need a bond" option does not include the conditon," This year I will pay some excise tax on distilled spirits withdrawn taxdetermined." 2. The "and/or" construction seems to say that you are not required to have a bond for tax liabilities over $50,000 if you are not removing spirits for industrial purposes. 3. The statement links the bond to your tax liability. The law does not mention tax liability. You are not required to have a bond if the taxes you "pay" during the year exceed $50,000. 4. And to be very picky about the sloppiness of the statement, you are actual liable for the tax on all of the spirits that you have in your possession on which someone has not paid taxes. See Sec. 19.222, "Under 26 U.S.C. 5005, the distiller of spirits is liable for the tax and each proprietor or possessor of, and person in any manner interested in the use of, any still, distilling apparatus, or distillery, shall be jointly and severally liable for the tax on distilled spirits produced. Moving along, you do not lose the exemption if you have no removals for a quarter; you do lose it if you have no removals for the year. How TTB will handle this in practice remains to be seen. The obvious instance in which this could become a problem is when someone who qualifies as a DSP, does not get a bond, but does not begin operations right away, or elects to produce whiskey, which the person then ages for two years without making a removal. The solution, in theory, is simple - withdraw, on determination of tax, as little as one proof gallon from the DSP. You could, for example, bottle one case of spirits from a barrel that has aged less then two years and withdraw that single case tax determined. But you have to know how to play the game before you find you have lost the exemption. I know from experience with wineries that neglected to produce any wine during the year, thereby losing the right to claim the small producers' credit, that backdating has not been allowed. I've not seen changes to the records requirements, but I will assume that eventually someone is going to say you have to track the industrial and beverage alcohol separately. I plan to write TTB to confirm what I have said. I consistently advise that you take with a grain of salt any advice that does not provide a source where you can verify what is said. The source for my statements here is the Treasury Decision announcing the change to the regulations, which you can read for yourselves at https://www.gpo.gov/fdsys/pkg/FR-2017-01-04/pdf/2016-31417.pdf.
  11. So, you had brass knuckles lying around?
  12. The above is good advice. I'm a bit late, but will offer a couple comments. On the issue of discrepancies. If I were auditing your accounts and did not find discrepancies between the book and physical inventory I would become very suspicious that you are not making the required gauges. Stuff disappears in lines, evaporates, errors get made on gauges, etc. so that everything coming out spot on is very unlikely. That said, you have to determine what your tolerance is for losses. Do pursue those that are too large. I'll underline the fact that you do not inventory spirits in barrels. You take your losses there only when you empty the barrel and record and report the angels share on the monthly reports of storage and processing operations. Any spirits in the production account are spirits that have not been recorded as produced, i.e., tanks holding heads or tails and any hearts from the stripping run. They are reported as spirits in process, line 17b, if I recall, of the operating report. You only make an entry there quarterly. Any finished spirits must be entered into storage or dumped into processing, not held in the production account. Finally, remember that you must pay taxes on any shortages in the cased goods account. Cased goods do not experience losses due to evaporation, etc. Since you record accidental losses, TTB presumes that any shortages on inventory result from unreported removals and are taxable.
  13. Pints and half pints are not authorized sizes for liquor bottlers. § 5.47a Metric standards of fill (distilled spirits bottled after December 31, 1979). (a) Authorized standards of fill. The standards of fill for distilled spirits are the following: (1) For containers other than cans described in paragraph (a)(2), of this section— 1.75 liters 1.00 liter 750 milliliters 500 milliliters (Authorized for bottling until June 30, 1989) 375 milliliters 200 milliliters 100 milliliters 50 milliliters (2) For metal containers which have the general shape and design of a can, which have a closure which is an integral part of the container, and which cannot be readily reclosed after opening— 355 milliliters 200 milliliters 100 milliliters 50 milliliters
  14. Well, it is a strange language. I answered this in another way, in response, I think, to a similar question you posted before. If you don't know what the words mean, then you are obviously at a loss to complete the forms that you must file. TTB provides information about when and what you must file and has some tutorials on the report. If you are not familiar with the TTB website, you should become familiar with it. It does not answer all questions, but it will tell you when and what reports and returns you must submit, as does part 19, another source with which you should become familiar. I will offer this - briefly, you must file forms for all of the operations for which you qualified. If you said you will produce, store and processes, you have to file those operating reports, even if they are full of zero's (you can get away without doing so, but TTB may demand them at some time in the future, especially if you propose to get a waiver to the bond requirements). You also need to file a zero tax return at least quarterly, which would mean that you have to file operating reports and the tax return by January 14. Since you are not going to be doing anything for a few months, that gives you the opportunity to learn what you must know to do what you must do. That will depend on the operations you conduct and the transactions in which you engage. TTB provides a list of the due dates for all tax returns each year, taking into proper account holidays, etc. You need to obtain that and keep it and file when it says you must. Someone pointed you toward Jim McCoy's articles. Read them. They omit some things you will need to know, but they provide you with a basis for at least asking questions that are not so open ended that answering them requires a discussion of half or more of what the regulations provide. TTB puts the ball in your court and expects that you will keep it in play. TTB also thinks that your doing what the law and regulations require is every bit as important as you think producing and selling your product is. You may not agree with that, but, as someone pointed out a long time ago, TTB bats last. They expect you to make the effort required.
  15. The principal problem with completing TTB operating reports is understanding how TTB uses words and the rules for how the spirits flow through the accounts that TTB requires you to use, creating an "audit trail" of the operations you conduct, from the materials used to the products shipped out the door. You have to have a basic understanding of operations and transactions take place in each of the three accounts that you report - production, storage and processing - and also understand what TTB means by the terms it uses, like redistillation and tax determined, the differences between packages and bottles, etc, and when you take and report physical inventories as opposed to when you report book inventories. The problem with instructional sets, and any attempt at simplified pamphlet, is that any set of instructions (or records database for that matter) is going to have to include all possibilities for entries you might have to make to record any possible operation or transaction in which any DSP might engage, even though most DSPs do not engage in most transactions and small DSPs usually engage in darned few. The forms are imposing because they have all those cells in to which you might have to put information, which creates doubt and second guessing, but if you eliminate the products that you don't make and the transactions and operations in which you don't engage (few remove spirits to a customs bonded warehouse, for example, or for use by the United States), you get a whole lot fewer cells into which you might need to place information. Thus reduced, the task becomes far less daunting. The more daunting task is determining what records you must keep to capture the information, but again, ignoring what you don't need is key. Often a simple set of analog, pen and pencil records, suffices. Other times, if you engage in many activities, a database makes sense, if you can afford it. I know this does not answer your question, but I hope that it explains a way in which you can approach the problem and gain some assurance that what you are doing is what is required. I keep threatening to do a set of separate modular instructions for recording and reporting vodka, gin, whiskey, rum, brandy, and specialty items, etc, but haven't found the time or energy to do that with the rigor that would be required to make sure that all possibilities are covered for each product, or how to market the darned things to pay for the effort it would take. It's far easier to respond when a client asks, "How do I report my vodka production when I do it by redistillation of neutral spirits I buy in totes?" When I have specific info, the answers are easy, which is just a restatement of what I said above, you simplify first, then dig out the answers to the specifics.