CRHAAG

R&D Removals and Inventory

16 posts in this topic

I have some Lemoncello that was made several months ago that did not meet our quality standards. It is currently bottled in warehouse and we have no plans for it at the moment. In doing some inventory reconciliation, I came across it and am trying to figure out what the proper designation for it is. It was originally written off as a total production loss, although I feel that it should have gone into the R&D category. Still having some left however, I am wondering where it fits into things. Does it need to go back into storage?

Thanks,

Chris Haag

Share this post


Link to post
Share on other sites

I think it stays in your processing bottled inventory as long as it is in bottles, unless you remove some to actually do some measurement with it. Otherwise, if you are going to put it into storage, you would be emptying out of the bottles. Is that what you mean to do?

Share this post


Link to post
Share on other sites

It was not a loss because you have it. Losses occur only when you actual lose some product.

If you bottled it, you should have done so in the processing account, not the product

Share this post


Link to post
Share on other sites

Posted the previous with a flying fickled finger, if you are old enough to remember Laugh-In.

You bottle in the processing account. I assume that you use an NSG base to make the product, with which I'm not familiar, but am led to believe that you macerate lemon peel, etc.

The flow of the spirits through the records goes like this - production gauge (if you are the person who distilled the NSG), probably for entry into the processes account, but it could be storage. If you buy the NSG, or enter your distillation into storage, the NSG then flows from the storage account to the processing account on what TTB calls a dump record.

Within the processing account, you use a batch record to record the "production" of the liqueur by maceration according to a formula you have on file with TTB.

The processing operations are reported in the bulk section of the processing report that you submit to TTB. When the product is finished and you from bulk to bottle, you prepare the appropriate bottling records (that is, you subtract it from the bulk and add it to the bottled inventory in the processing account).

It stays in the bottled account within the processing account until such time as you do something with it. It is not R&D.

You may dispose of it either by destroying it - preparing the required record of destruction signed under penalties of perjury - or returning it to the production account for redistillation into NSG (having once been distilled at 190 or more, it must always be redistilled to 190 or more). Again, you have a record of the transfer between processing and production.

Blustar is correct. You do not transfer bottled goods to the storage account. Storage is alwaus bulk. Bulk means containers of greater than one gallon.. Beverage alcohol cannot be bottled in containers of more than one gallon.

If you have any problem with any of the terminology I'm using here, contact me. There are too many citations required to point you in the direction that will allow you to confirm what I'm saying.

To keep the proper records and file the proper reports, you must understand how TTB uses words and what it requires. It is a bit of a learning curve, but it all starts with a basic understanding of the difference between production, storage, and processing and which operations take place in which account.

Share this post


Link to post
Share on other sites

Thanks for the responses everybody. Makes sense. Essentially, if it is currently sitting in bottles then it is bottled and in the processing account, regardless of what the intentions are for it. Once we destroy it, etc then the appropriate entry must be made.

Out of curiosity, how does something end up as R&D then?

Share this post


Link to post
Share on other sites

The "rollover" forms at http://ttb.gov/forms_tutorials/f511011/f511011_tutorial.html, (this one for the storage report, which means spirits takeb fropm containers holdoing one gallon or more) provide some basic infromation on this. For example, in the storage account, the rollover says the cell is for spirits removed for research or testing of your plant's "quality and product development."

Note - "removed." This entry is spirits that leave bond.

The regulations make a distinction between laboratory samples and products withdrawn for research or development, but the rollover instructions lump both lab samples and products withdrawn for research and development into the same category IF THEY ARE REMOVED FROM THE BONDED PREMISES FOR TESTING, ETC. Further, there is no other place on the report to put samples removed from bond for testing purposes. How did this come about? I don't know and it doesn't really matter. Sometimes it is important to understand how things came to be; sometimes it is not. I'd lump this into the latter category.

Here is what the regulations say:

Sec. 19.434 Spirits withdrawn from bonded premises.- (a) Laboratory samples. A proprietor may withdraw spirits without payment of tax, or may withdraw wine spirits or brandy free of tax, to the proprietor's laboratory, to the laboratory of an affiliated or subsidiary corporation, or, if approved by the appropriate TTB officer, to a recognized commercial laboratory. The samples must be used only for testing or analysis to determine the quality or character of the finished product and must be withdrawn in the minimum amounts necessary for the purpose.

(B) Customer samples. If a bona fide purchase agreement exists that is contingent upon quality approval, a proprietor may furnish to a prospective customer a sample of spirits not exceeding 1 liter for quality testing. A proprietor may furnish a sample not to exceed 1 liter to a prospective customer for quality testing in anticipation of a purchase agreement if the customer is authorized to receive bulk spirits

for industrial use.

© Research or development. A proprietor may withdraw spirits without payment of tax for research or development testing, for testing of processes, systems, or materials, or for the testing of equipment relating to distilled spirits or distilled spirits plant operations. The amount withdrawn must be limited to the amount reasonably necessary to conduct the test. If the test is to be conducted by someone other than the proprietor, the proprietor must obtain a written statement, executed by the consignee, agreeing to maintain records of the receipt, use, and disposition of all spirits received for purposes of the test. The statement must specify that records of operations will be available during regular business hours for inspection by TTB officers.

(d) Conditions. The following conditions apply to the withdrawal and testing of samples under this section:

(1) The spirits may not be used for consumer testing or other market analysis;

(2) The proprietor must maintain the records specified in Sec. 19.616; and

(3) Remnants or residues of spirits not used during testing must be destroyed or returned to the bonded premises of the proprietor.

(e) Liability for tax. The proprietor must pay the tax on any samples of spirits withdrawn, used, or disposed of in a manner not authorized by this section.

(f) Losses. When spirits are lost before use for a purpose authorized under this section, the proprietor must pay the tax or must file a claim for remission of tax liability in accordance with Sec. 19.263.

Remember that you have to keep records of the transaction as well. TTB gets a little inconsistent, refrerring to everyting removed under 19.434 as samples:

Sec. 19.616 Records of samples.

(a) Required records. A proprietor must maintain records of all samples taken under Sec. Sec. 19.434 and 19.435. The sample record must show the:

(1) The date that the samples were taken;

(2) The account from which taken;

(3) The purpose for which taken;

(4) The size and number of samples taken;

(5) The kind of spirits;

(6) The disposition of each sample (for example, destroyed, returned to containers or the distilling system, retained for library purposes); and

(7) The name and address of the recipient of the sample if a sample is to be analyzed or tested elsewhere than at the distilled spirits plant where taken.

(8) Sample schedule. When a proprietor takes samples pursuant to an established schedule, the proprietor may maintain the schedule as the required record if it contains the information required by paragraphs

(a)(2) through (a)(7).

One final point. When I go through this process, I'm trying to demonstrate how I think about a question and how I go about getting the answer. The answers run long because I not only say, This is how it is," I also cite the regulation, or source and try to show what it actually says. When the regulations create a trail, from one section to the next, I follow it to show how I do that as well. It is neither fun nor an attempt to demonstrate knowledge. It's payback to an industry that makes my consulting possible. But I have to go through all of this because I don't know the answer when I start. The idea is to show you how to go about getting it so you can become independent of the need for consultants like me.

Hint - putting the regulations into a word document and using the search function shortcuts a lot of aimless wandering. I'll leave it to you to check out the reference to 19.435.

Share this post


Link to post
Share on other sites

I see that "...spirits may not be used for consumer testing or other market analysis...", but what do people generally do if they want to put together small samples to be sent to bloggers/reviewers?

Share this post


Link to post
Share on other sites

 

1 hour ago, ryankf said:

I see that "...spirits may not be used for consumer testing or other market analysis...", but what do people generally do if they want to put together small samples to be sent to bloggers/reviewers?

Keep in mind you have to pay attention to the shipping laws for both your state and the state you are mailing the sample too.

Share this post


Link to post
Share on other sites

Thanks for the reminder Tom. It's a good point. We are only in one state right now, but it's something I'm sure we'll be dealing with soon. As for the samples themselves, do most people just send whole bottles? Or make a separate bottling size for samples? And can it be withdrawn non-tax paid?

Share this post


Link to post
Share on other sites

Two disclaimers:

  1. State law matters, a lot.
  2. 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.  

 

 

Share this post


Link to post
Share on other sites

Thanks DH, the consensus here and elsewhere seems to be it has to be tax paid. That was my big question, and I guess it was alluded to in the CFR. Honestly, that makes it easier anyway. I wasn't looking forward to trying to track the samples during a bottling run or from the Processing account anyway. Thanks again.

Share this post


Link to post
Share on other sites
On 3/3/2015 at 2:43 PM, bluestar said:

I think it stays in your processing bottled inventory as long as it is in bottles, unless you remove some to actually do some measurement with it. Otherwise, if you are going to put it into storage, you would be emptying out of the bottles. Is that what you mean to do?

I thought that production -> storage -> processing was a one way street? Is there actually a way to move backwards without redistilling?

Share this post


Link to post
Share on other sites
On 3/14/2017 at 4:18 PM, RobertS said:

I thought that production -> storage -> processing was a one way street? Is there actually a way to move backwards without redistilling?

Removal from packaging makes that happen, such as for redistillation, which is specifically called out on the processing form 5110.28. But there are some blank lines available to allow withdrawal for other reasons on the form, so other forms of reuse other than distillation might apply (flavoring, adjusting proof, etc.). Of course repackaging could all be done within processing, but if you were going unbottle product, and then move into an area of the DSP for storage that is not used for processing, and keep it there for extended periods without clear plan of what it is to be used for, that might also qualify for withdrawal from processing.

Share this post


Link to post
Share on other sites

That is very good to know. Would "removed for further aging" or "remnants from bottling returned to bulk storage" be valid fill-in-the-blanks, then?

Share this post


Link to post
Share on other sites
2 hours ago, RobertS said:

That is very good to know. Would "removed for further aging" or "remnants from bottling returned to bulk storage" be valid fill-in-the-blanks, then?

Shoot that as a question to your local field rep.

Share this post


Link to post
Share on other sites

Good call.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now