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dhdunbar last won the day on January 15

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About dhdunbar

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    Ellensburg, WA
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    Retired from ATF and began consulting for DSP's in 2012. When I'm not working, I like to head outdoors. That can mean simply sitting on the deck reading. Regulation bores me. Helping others deal with it does not.

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  1. dhdunbar

    COLA for Products in Individual Boxes

    Try this for a definitive answer. It is a matter of knowing that the key word for which to search is "carton." §5.41 Bottle cartons, booklets and leaflets. (a) General. An individual covering, carton, or other container of the bottle used for sale at retail (other than a shipping container), or any written, printed, graphic, or other matter accompanying the bottle to the consumer buyer shall not contain any statement, design, device, or graphic, pictorial, or emblematic representation that is prohibited by §§5.31 through 5.42 on labels. (b) Sealed opaque cartons. If bottles are enclosed in sealed opaque coverings, cartons, or other containers used for sale at retail (other than shipping containers), such coverings, cartons, or other containers must bear all mandatory label information. (c) Other cartons. (1) If an individual covering, carton, or other container of the bottle used for sale at retail (other than a shipping container) is so designed that the bottle is readily removable, it may display any information which is not in conflict with the label on the bottle contained therein. (2) Cartons displaying brand names and/or designations must display such names and designations in their entirety—brand names required to be modified, e.g. by “Brand” or “Product of U.S.A.”, must also display such modification. (3) Specialty products for which a truthful and adequate statement of composition is required must display such statement.
  2. dhdunbar

    COLA Help for Blended Whiskey Products

    I consult on TTB matters and a consultant I avoid both labels and formulas. My reason is simple. I want to keep my hair! I can tell you what the regulations require, but I can't tell you what a specialist may say is required (and I can be wrong too, but ...). Next, I could never estimate how much time I would need to spend to get things straight and you would not want to pay me what I would charge to do that if we ran into the sorts of problems that can often arise. It is best if you can fight the fights yourself. Conisder what the following would cost, and which I offer here because I hope it is of general interest. You state that you want to blend a bourbon and a rye whiskey. I would prefer that you say mix the bourbon and rye. It avoids confusion with standards. "Blend" is a rabbit hole. Blended whiskeys are standard of identity products. Although the standards are ostensible a way of informing the consumer, they confound even the experts. Too many bottlers have too many problems too many times when seeking a COLA. Okay, so get out the Excedrin. As you may know, there are two standards that use the word blend. They are: A blend of straight whiskies (blended straight whiskies) is a mixture of: Straight whiskies which does not conform to the standard of identify for “straight whisky.” Now, if the bourbon and the rye both qualify as straight whiskeys, but the mixture does not - that is how I read the curious straight whiskeys that don't confrontation to the straight whiskey standard language, because anything else is nonsensical, then you have a blend of straight whiskeys. That is the answer to your question. But if they don't, then what you mix is not a blend of straight whiskeys. Next, stripping out some embedded phrases that complicate, blended whiskey is a mixture which: Contains straight whisky or A blend of straight whiskies at not less than 20 percent on a proof gallon basis ... and, separately, or in combination: whisky or neutral spirits. Blended whiskey must have straight whiskey and also must have either whiskey or neutral spirits, or both whiskey and neutral spirits. So if the bourbon is straight and the rye is not, then you have a blended whiskey, which to some means it has NSG, but it doesn't necessarily mean that.. Next - , this is not clear, but TTB's new regulations want to make it clear - if a spirit conforms to a standard, then you must use that as the standard on the label. So, if it meets the standards for either a blend of straight whiskey or blended whiskey, you so designate it. But if it doesn't? Look, it is obviously whiskey. So we start to eliminate. It is not bourbon or rye (unless the 51% requirement for corn and rye respectively is somehow realized in the blend - and then I'm not sure, if we could say that there has been no change of class and type in the spirit that comes in at 51% or more - it is not whiskey distilled from either mash, it is not light, or spirit whiskey and it sure as hell isn't Scotch or Irish or Canadian, so guess what, if it isn't entitled to one of blended designations, then it is just plain whiskey - what else is left? It is an alcoholic distillate from a fermented mash of grain produced at less than 190° proof in such manner that the distillate possesses the taste, aroma, and characteristics generally attributed to whisky, stored in oak containers (except that corn whisky need not be so stored), and bottled at not less than 80° proof. And you tell the story of your mixture in the text that you add. I don't have the energy to fight that fight with AFLD. But I think I am correct. TTB may not agree. And I can guarantee, they don't care what I think!
  3. Please remember that I am neither a tax attorney or someone who specializes in the rudiments of business acquisition, etc... I'm just someone whose been around for awhile and seen a few things. That does not make me immune form being blind to a lot of others. 1. The company may have existing, undisclosed liabilities. These may be either to other businesses,e.g., unpaid bills, or to a government, e.g. unpaid taxes, or to employees, e.g. unpaid taxes; or might be involved in litigation or potential litigation. 2. An attorney should be able to advise you how to protect yourself, and whether you can protect yourself against such contingencies. 3. In fact, you should look to the attorney for guidance on what contingencies you need to anticipate. When I conduct interviews, I would often end it with, "Is there anything I should have asked you that I have not?" With your attorney, the primary question should be, "What should I ask you?" 4. Speaking about things of which I do have knowledge: A business which is being sold is being sold for a reason. One of the reasons can be that it is that it is not profitable. even if you think you can turn it around, one of the result of loses or not much profit, etc, can be a "delay" in paying excise taxes. Have they been paid; were all taxable events reported, etc... Eight year old bourbon has one value, three year old another, and a one year old generic whiskey still another. Can the seller demonstrate, by the records it has kept, that the eight year old bourbon is entitled to that designation and does not need to be labeled as whiskey not more than three days old. You want to pay only for what you get and you get only what the seller can prove by its records. Does the seller have records that support the entries on the operating reports, i.e, do the records reflect all of the changes in proof gallons that appear on the operating reports, which give rise to the book inventory shown on the operating reports. Next, does the book inventory exist? You need to make an inventory prior to sale. You should do this, with the proprietor, and if bulk spirits are involved, with someone, other than the proprietor, who can use a hydrometer and knows how to determine volume. Does that agree with what the last TTB operating reports show, reconciled for transactions that have occurred since that report was prepared? You should also take another inventory at the time of sale to make sure there have not been any last minute, unreported removals :-). Remember, the LLC is responsible for the taxes for any spirits for which it cannot account, and the LLC is going to be you and any other investors. Does the seller have label approvals for all of the labels it is using and has used? I'm sure that that list is not exhaustive, but it should give you and others who might be considering a purchase, a place to start. If you decide to buy the assets and so not assume the liabilities, ask your attorney about sales taxes in Washington. I sent you a link on that, I think. Finally, don't rely on what I'm saying being accurate. Get more than one opinion. That is general advise I offer to everyone here for free. For more specific advice about TTB matters, contact me by PM and we can discuss how I might be able to help you.
  4. dhdunbar

    Reporting distilled spirit specialty

    Yes, report it as alcohol under 190 unless it meets the standard of identity for some other product. I could give a better answer if I knew how you were producing a specialty by original distillation. Perhaps maceration of the distilling material or distillation over substances that don't qualify the distillate for designation as gin. TTB's formulation people answer questions like this. And if they give the wrong answer, you've got cover.
  5. If you purchase the assets, the federal permit (and I'll wager dollars to donuts the state licenses and permits too) cannot be transferred legally. If the federal permit is transferred , itd is terminated by terminated by operation of law, which means without TTB having to take any action, the permit is invalid immediately upon the transfer (or your starting to operate the business) . So, the sellers permits have no value, because you cannot use them (See §1.44). You first must qualify on your own to distill before you can start using the assets you purchased to do so., Further, the seller cannot sell or deliver, to you, the bulk spirits (spirits in containers of more than one gallon) because you are not eligible to receive them (see §1.80 and following). Additionally, if you purchase the packaged spirits in containers of one gallon or less, for the purpose of reselling them, and you do not have a basic permit as a distiller, you will first have to have a basic permit as a wholesaler. See §1.22. If you purchase a majority interest in a limited liability entity (corporation or LLC), which then continues to operate the DSP, you have a change in control and the permit terminates, but if you apply for a permit within 39 days of the date of the change, the LLC can continue to operate on the existing permit until TTB takes action on the new application (see §1.42 and 1.44). Remember, if you buy an interest in an existing entity, then you also inherit the entities liabilities. I would not make such a purchase without contacting an attorney and seeing what precautions you might be able to take to ensure that the seller has disclosed all existing obligations. See, for example, https://dor.wa.gov/get-form-or-publication/publications-subject/tax-topics/buying-assets-business. Get competent legal advice. I can point out questions you should ask; I cannot provide answers to those question. Where your proposed transaction falls under the provisions of parts 1 and 19 is going to be case specific. I've just described the general rules. I do not know the WSLCB rules. If you elect to operate in the same space,. you should have some assurance that the local authorities do not object to the location and construction and that you meet fire codes, etc., but nothing is ever assured just because it was approved once. Listen to what those who are in the business say; they know more about those issues than I ever will or want to. Then do your own due diligence. Don't buy blue sky that is overcast and grey :-). And keeping with that metaphor, don't drive in a fog so thick that you can't see where you are going.
  6. dhdunbar

    Thoughts on Quinoa

    My son owns goats. They love everything. The cartoon tin can is apropos. As a side comment, if any of my clients want to try quinoa, I'll refer them to this. As usual, James, you've written something interesting, even to someone who doesn't know squat about distilling. "-)
  7. dhdunbar

    Amendment Management - Transfer In Bond

    I understand that transfers in bond can be important, but ... I recommend that you not terminate any application that you have pending that involves reportable changes in principals. UisceChuck's advise on how to withdraw is sound. I just question whether you want to use it. Here's why: If you had need to report the changes, then you should not withdraw the application. That has consequences. Some changes in LLC members result in what TTB dubs a change in ownership and control. That requires a new permit. Here is the pertinent regulation, in full text, which I will parse, bullet style, for clarity: §1.44 Automatic termination of permits. No basic permit shall be leased, sold, or otherwise voluntarily transferred, and In the event of such lease, sale, or other voluntary transfer, such basic permit shall automatically terminate thereupon. If any basic permit is transferred by operation of law or If actual or legal control of the permittee is acquired, directly or indirectly whether by stock ownership or in any other manner, by any person, Then such permit shall be automatically terminated at the expiration of 30 days thereafter: Provided, That if within such 30-day period application for a new basic permit is made by the transferee or permittee, respectively, Then the outstanding basic permit shall continue in effect until such time as the application is finally acted upon. That does not mean that TTB will act on the automatic termination provision. My experience is that they often ignore it when a change is reported after the 30 day window has lapsed. I've not personally had a problem with it, when helping clients, so I don't want to be alarmist, but I do see mention of offers-in-comprise, etc, for operating without a permit, which is what happens when you continue to operate after the permit is terminated by operation of law. Someone once told me that we should make a distinction between complicated and complex. Complicated can be taken to mean "hard to understand, but if you understand it you can predict what will happen." Complex can be taken to go beyond that, to involve things like chaos or, say, ,as is consistent in the case of dealings with TTB, what a human will do in reaction to the situation presented. Therefore, I can not predict the consequences of missing the 30-day window. Generally, there are none. Potentially, there are. So, my advice to clients is to report changes within the window,. When they have not, i recommend that they submit the application, truthfully state the date of the change, and see what happens. Important - Report changes before TTB finds them on its own. That is when it seems most likely to apply the automatic termination provision. I have to attach here, a statement that I am not an attorney and this should not be construed as legal advice. You should contact your attorney with any concerns you may have.
  8. Barley, if this message was for me, I tried to P:M. The system tells me that you can't receive messages. I'm inept at things like that. Email me at dhdunbAr1@gmail.com if the message was for me. Otherwise, have a nice day :-).
  9. Questions of why have no answer. But you ask how? The law dates to 1935. It replaced some codes - voluntary codes of fair competition - that had been established under the National Recovery Act, which had been deemed unconstitutional. The voluntary codes of fair competition were instituted at the end of prohibition. The FAA Act as proposed was largely modeled on those codes. Two sections of the FAA do apply to producer-distributor relationships. They are the consignment sales and commercial bribery provisions. Exclusive outlet and tied house provisions do not. The tied house provisions, as first introduced, addressed ties between industry members (wholesalers and producers) and retailers. The stated purpose was to prevent "those evils" that had led to prohibition. Industry favored them because regulation tends to legitimize activities about which the public otherwise might have some doubt. The Senate's finance committee report stated as follows: The House bill (sec. 5) prohibited two classes of trade prac- tices. The first class of these prohibited practices were those which tended to produce monopolistic control' of retail outlets, such as arrangements for exclusive outlets, creation of tied houses, commercial bribery, and sales on consignment or with the privilege of return. The reports of the National Commis- sion on Law Observance and Enforcement (Wickersham Com- mission) and of other agencies that conducted surveys of liquor enforcement problems, all indicated that control by producers and wholesalers of retail outlets through the various devices such as those prohibited by the bill has been productive not only of monopoly but also of serious social and political evils which were in large measure responsible for bringing on prohibition. The bill seeks to prevent the recurrence of these evils in the fields that cannot be reached by the States, provided the evils occur in interstate commerce or reach such an extent in the par- ticular case that they constitute a substantial restraint on inter- state commerce or deterrent to the free flow of interstate com- merce in distilled spirits and wines (S. Rept. No. 1215, Federal Alcohol Control Act, pp. 6 and 7). So that is the how of it. See what you get when you ask a wonky question of a wonk :-)! You can find this in the Legislative History of the Federal Alcohol Administration Act., which is available, online, on TTB's website. https://archive.org/stream/legislativehisto00unit/legislativehisto00unit_djvu.txt
  10. Re federal law: I should have cited chapter and verse on this because I insist that no one rely on information for which authority is not cited. I get lazy sometimes. Since the issue of trade practices is one of common interest to many, I'll address it in a bit more detail. §6.21 Application. Except as provided in subpart D, it is unlawful for any industry member to induce, directly or indirectly, any retailer to purchase any products from the industry member to the exclusion, in whole or in part, of such products sold or offered for sale by other persons in interstate or foreign commerce by any of the following means: (a) By acquiring or holding (after the expiration of any license held at the time the FAA Act was enacted) any interest in any license with respect to the premises of the retailer; The regulation goes on to elaborate on the prohibition. 6.25 General. The act by an industry member of acquiring or holding any interest in any license (State, county or municipal) with respect to the premises of a retailer constitutes a means to induce within the meaning of the Act. [T.D. ATF-364, 60 FR 20421, Apr. 26, 1995] - Tip - this citation tells you where to look for the authority for the regulation. In this case it is a treasury decision issued in 1995, which you can find by searching the internet if you are so inclined. Such citations appear at the bottom of most sections of the regulation. It is where you can go to dig deeper into the issue. §6.26 Indirect interest. Industry member interest in retail licenses includes any interest acquired by corporate officials, partners, employees or other representatives of the industry member. Any interest in a retail license acquired by a separate corporation in which the industry member or its officials, hold ownership or are otherwise affiliated, is an interest in a retail license. 6.27 Proprietary interest. (a) Complete ownership. Outright ownership of a retail business by an industry member is not an interest which may result in a violation of section 105(b)(1) of the Act. (b) Partial ownership. Less than complete ownership of a retail business by an industry member constitutes an interest in a retail license within the meaning of the Act. Although less than complete ownership of a retail business by an industry member constitutes an interest in a retail license within the meaning of the Act, it is merely a proscribed inducement. Remember, the "if" provisions of §6.21. A violation only occurs if the jurisdictional elements, exclusion and interstate commerce are also present as a result of the proscribed inducement. Interstate commerce is usually easily proven. But exclusion is a thorny issue. It makes for court cases. §6.151 Exclusion, in general. (a) Exclusion, in whole or in part occurs: (1) When a practice by an industry member, whether direct, indirect, or through an affiliate, places (or has the potential to place) retailer independence at risk by means of a tie or link between the industry member and retailer or by any other means of industry member control over the retailer; and (2) Such practice results in the retailer purchasing less than it would have of a competitor's product. So, not only must the proscribed practice threaten independence, it must also result in the retailer the retailer purchasing less than it would have of a competitor's product. Section 6.151 goes on: (b) Section 6.152 lists practices that create a tie or link that places retailer independence at risk. Section 6.153 lists the criteria used for determining whether other practices can put retailer independence at risk. 6.152 Practices which put retailer independence at risk. The practices specified in this section put retailer independence at risk. The practices specified here are examples and do not constitute a complete list of those practices that put retailer independence at risk. (a) The act by an industry member of resetting stock on a retailer's premises (other than stock offered for sale by the industry member). (b) The act by an industry member of purchasing or renting display, shelf, storage or warehouse space (i.e.slotting allowance). (c) Ownership by an industry member of less than a 100 percent interest in a retailer, where such ownership is used to influence the purchases of the retailer. (d) The act by an industry member of requiring a retailer to purchase one alcoholic beverage product in order to be allowed to purchase another alcoholic beverage product at the same time. Because of the substantial the burden of showing that someone purchased less of a competitor's product than it would have absent the proscribed inducement, the federal government generally devotes its limited resources for trade practice enforcement to only the most egregious cases. That is why, if you look at the offers in compromise and other administrative actions that TTB has taken, for violations of the trade practice provisions, you will see that they are large beyond the ability of any small industry member to pay. Of all of the acts listed that are deemed to put retailer independence at risk, the one of most danger to small producers is the paying of a slotting fee (§6.152(b), probably indirectly, through payments made to a wholesaler, in support of the wholesalers's efforts, through payments the wholesaler makes to the retailer, to get products onto the shelves of the retailer. Because slotting fees are common in many industries, they are ingrained in the retail business model. They just happen to be prohibited in the case of alcoholic beverages. And if a large industry member is making them and you are contributing to them, you could get caught up in them. But the chances of that ...... As you can probably deduce from the above, answers about the likelihood of a practice resulting in a violation of federal trade practice provisions are very (a word I try not to use "very" often) case specific. In the case of inducement, which can only take place in the head of the person making a purchasing decision, it is impossible to for a governmental agency to predict, in advance, if the proscribed payment or service will have the desired effect. But I suspect that you would not make it if you did not have reason to believe it would get you what you are seeking from it. The burden is then on the government to prove you were right. The risk of their doing so is yours. Being small reduces that risk, but not to zero.
  11. Husband and wife are of no consequence under federal law. They may be under state law. Texas law is draconian. Re: Federal law - The federal tied house regulation prohibits holding an interest in a retail license, not a wholesale license. And it does not prohibit 100% ownership of a retailer, since the a violation only results if the ownership induces the retailer to buy products to the exclusion of products offered for sale by others in interstate commerce. The legal theory is one cannot induce oneself, so 100% ownership is not prohibited. People mistakenly think that the federal law protects the three tier system. It does not. Consider all of the wholesale operations that are owned by ABInBbev, for example, which for a time, at least also held an interest in retail outlets at places like Sea-World, in which it held an interest. I do not know how that stands now.
  12. dhdunbar

    Form 5100.16 Download Glitch

    If you submitted your application using permits online, then you must submit transfer in bond applications using permits online. You do this as an amendment to the existing registration.
  13. Of course, the employees are not getting paid, either. It isn;'t like TTB has declined to provide service. They are forbidden to provide it. That is a bit of a difference :-). I can add a smiley face, but if I were a TTB employee who needed to make a mortgage payment, it would be :-(, just as it is for those who need their services to do business.
  14. Indyspirits sums it up. No one is authorized to act contrary to law just because the government is not functioning and cannot fulfill its responsibilities. My advice - file the label approvals now, so that you are in the queue when the gates open. And do as Silk City says, let your congressman know that the impasse has an effect, but also send a comment to the White House, because whoever you hold to blame, the shutdown is not without consequences for many of us.
  15. If the friend needs so advice on federal regulation, have her contact me. I'll chip in for what it is worth.