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dhdunbar

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dhdunbar last won the day on November 6 2019

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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. This is a swamp full of alligators. First there is the issue of premixing cocktails. Mixing spirits is rectification. That is a word that has been dropped from part 19, which now calls it processing, but it still occurs in part 1, which requires that persons who recitify and bottle spirits haved a basic permit, and in part 31, the liq
  2. You are dealing with several sections of regulation. Three appear in the consignment sales provisions of the FAA trade practice regulations. §11.37 allows you exchange "A trade buyer's (retailer or wholesaler's) inventory of a product which has been changed in formula, proof, label or container (subject to §11.46) for equal quantities of the new version of that product. §11.32 allows you exchange products which are unmarketable because of product deterioration, leaking containers, damaged labels or missing or mutilated tamper evident closures may be exchanged for an equal quantity of identical products, or to them for cash or credit against outstanding indebtedness. §11.46 prohibits the return of seasonal products under the guise of a change in label. Several sections of part 19 apply. For relabeling: §19.453 allows you to return spirits to the bonded premises for relabeling. If you do that, you do not return them to bond, must relabel them as quickly as possible, and remove them immediately and comply with §19.363. It you relabel, you must make the record required by §19./604(b). For reconditioning; §19.452 allows you to return spirits to bond - bring them into the bonded premises, dump them to bulk, and record the receipt as an increase the quantity of spirits you hold in bond. Once returned, you treat them as if they had not been removed, with the following exception You may then claim a refund of taxes paid on those spirits (see §19.264 for details about what the claim must contain, etc). If you do not file a claim, you still need to pay taxes when the reconditioned spirits are removed on tax determination. That is, if you do not file a claim, you pay taxes twice. If you don't pay taxes on removal, then they are subject to penalty and interest if YYB audits and finds you didn't pay.
  3. Because this is turning into a sort of overview of TTB's regulation of distilled spirits plants, I''ll offer a few more comments. The division into production, storage and processing comes straight from the law. A person may qualify to do any or all in any combination except process only. So, production, storage, and processing operations,, collectively, encompass all the distilled spirits operations you may conduct. The division into three was not arbitrary. It reflected what people actually did a the time the law was passed and which they still do, to this day. TTB is charged, by law, with protecting the revenue and protecting the consumer. To do that, it makes rules. These rules also derive from practice. For example, bourbon is the free invention of the human mind. It is not, like gold, an element found in nature. It is something someone made and to which people applied a label, which was later formalized by definition, in a set of regulations designed to ensure that people who bought something labeled bourbon got what they thought they were purchasing. First the thing, then the word for it, then the definition. Or, because the government invented a unit, the proof gallon, as measure of the tax liability for spirits, the rules require that you account for spirits in proof gallons. "Account" is a term of consequence. You conduct all of the operations on your bonded premises. Your bonded premises is not further divided into production, storage, and processing areas. For example, you may use the same tank to store spirits that you use to processes them. Or you may use your still to both produce neutral spirits by original distillation and to manufacture gin by the redistillation of the neutral spirits you produced. So, you do things not in areas, but in accounts. But what is a account? It is a n organized collection of data. Since form follows function, the way in which it is organized is a function of the purpose for which it is collected. So, if you conduct operations in production, storage, and processing accounts, you organize the data into production , storage and processing records. The records you must keep depend on the operations you conduct and the information they must contain depends on what you do. If you store spirits in tanks, you must have records of the spirits held in each tanks in the storage account. Having said that, I am reminded that I should be careful not to use bad examples, because if you store spirits of 190 proof or more in tanks, you can keep a single record of all such tanks. there is a reason for that. All such spirits are of a single class, neutral and so form dutifully follow function! The form follows function rule leads to a different sort of record in the processing account. If you process spirits in tanks, you do not have a "tank record." Instead, you have a "dump and batch record" that shows both the tank in which the processing operations took place and the details of the processing operations that took place in that tank. But when you bottle, you have a "bottling tank" record. Form and function. Form and function. But what is the ultimate function of records? The records that you keep are the only evidence you have that you complied with the rules governing the operations you conducted in the account. And since the rules are designed to protect the revenue and the consumer, they are the only evidence you have that what you sold as bourbon was bourbon and that you paid all the taxes you owed on the bourbon you removed. . In summary, the law and regulations impose the three part shell - production, storage and processing - over the two part purpose - protection of the revenue and protection of the consumer . What you do determines the accounts that you must keep; what the records show depends on the operations conducted; and what the records demonstrate is compliance with the rules governing tax payment and designation of products. TTB wants you to organize your records in the way the regulations require because it allows them to audit without having to learn a different record system for each establishment they visit. If you are a small producer who produces and processes a single batch from fermenting material through bottling, if you keep a batch record captures all the data required, TTB is not likely to complain about the form of your record, because it functions to allow them to effectively verify that you paid the taxes owed, complied with formulas, did not mislabel, and did not add ingredients that were not GRAS, etc. However, that form of record may function to aggregate entries you need to prepare your operating reports, so you will have to deal with that. And, if you have more complicated operations, if TTB audits, which is a very big "if," they will want to find records that are organized in the form required by regulation,, because that organization functions to allow an effective audit. If they do not find such organization, they might cite violations for the format of your records. But they will not cite tax violations or labeling violations if your records demonstrate, regardless of format, that you paid the correct taxes and correctly labeled the products you removed. Which brings me back to operational reports. Loops do sometimes close. The principal problem with the one size fits all operating report is designing one that meshes with the required records and doesn't confuse operations. People can point to the single forms prepared by breweries and wineries, but that is done simple by including the entries for each account on the single form. It does not significantly reduce the reporting burden. In the end, they make things s things no simpler. TTB can make it simpler only by reducing the information that you required to report. Can TTB reduce what you are required to report? Yes, it can. But what it can do and what it should do are different questions. Consider your financial accounts. Are they useful by themselves? Yes, but ... The "but" follows closely on the heels of the the "yes" because the records are far more useful to you when you use them to generate financial statements that allow you to see the "big picture." TTB's operating reports are the functional equivalent of financial accounting statements. The summary accounts have value, not just to the government, but to you. When you examine them, you see anomalies you miss looking only at raw data. You look at an operating report and say, "That can't be correct.," and you go looking to find out why. You catch errors as they occur. If the error happens to result in a $500 underpayment of taxes, you can root out the cause, so that it does not become, in three years an $18,000 tax bill with interest and penalties added to boot.
  4. Sometime around 2012 TTB proposed a new, single form. They had a notice of proposed rulemaking out (see https://www.govinfo.gov/content/pkg/FR-2011-12-05/pdf/2011-31142.pdf). You can view the proposed form atg https://www.regulations.gov/docket?rpp=10&po=0&D=TTB-2011-0010. There were 22 comments, which you can also view at the last link. There were many objections. See, for example, the comments submitted by the Presidents Forum. There was a lot of fuss and flack. TTB just dropped it., probably wisely, because the forms did not mesh with the records. TTB is now talking about doing it again, but I do not see it on the regulatory agenda yet. I suspect line 17 of the current op form is also an example of something that doesn't mesh with regulation.. Your observation that no one from TTB has complained sums things up. They don't have time to look. They can't possibly audit them for irregularities. If you are not doing it correctly, it is unlikely to have a consequence. Further, the reports are not evidence of compliance. Everyone is concerned about them, because they, tax returns, formulas, and labels are likely the only contact most of you will ever have with TTB. My business is not exactly drowning in requests for help in responding to TTB's allegations of violations :-). Because the reports prove nothing, I'd not be nearly as concerned, from a compliance standpoint, with them, as with the records from which you gather the information. How many persons who are making gin by redistillation in the processing account are keeping the redistillation record required by §19.602. How many have the package records? Who is keeping serially number gauge records? Those are the records that demonstrate compliance. But who is looking at them? So, when someone asks a question, I give a by the book answer, to the best of my ability. That what you are doing doesn't comport to what I think you should be doing, based on the regulations, which I usually try to cite by number, is likely never to become an issue, even if my reading of them is spot on, or even if you have no records, because TTB is not likely to knock on your door and if it does, it is more likely than not gong to take punitive action unless it finds you have not paid the taxes that are due or are bottling far more rye than your records can support.. . In fact, I think most TTB employees do not know what the regulations require. That sounds harsh, but it s not unusual. I should know that better than most TTB employee, amnd so should you, because we deal with it every day, whereas they might see one or two distilleries a year, if that.
  5. Let me think about that. The problem with using line 20 is that an entry there removes the spirits from the bulk processing account. If they are removed, they have to be in one of the other accounts, either production or storage. Storage makes no sense, because you don't redistill in storage. So, they would have to be in the production account. But spirits returned to the production account for redistillation are captured in line 17. Entering them into both line 20 and line 17 would double the quantity removed. That can't be correct. Next, line 20 does not say "transferred," it says "used." You use them within the account. You transfer them out of the account. how do you get them back in? You could use line 2, received, but you are not receiving them into the account. They have not left it. §19.602 etc makes that clear. Risking hubris, my gut response is that whoever created line 20 did not know what the hell they were doing., For example, line 20 implies that you could use wine for redistillation - the cell is not blocked out as other forbidden accounting are. But you only record wine into the account when you dump it (mix it with spirits) at line 5. So, he said with a sigh, it is never in the account as wine that can be redistilled, and (sigh again) it would not be a redistillation anyway, since that would be production. That is why line 17 blacks out transferring wine for redistillation. If they knew what they were doing, they would have blackened it. Again, my gut response is that "used for redistillation" is an entry that should exist on the report. The report only captures transactions that move the spirits from one account to another. Every entry either receives the spirits into either the bull processioning or finished goods processing account or removes them from those account, or transfers them between those accounts. Every entry, save one - "used for redistillaton." It is as an aberration, but it exists So how are you suppose to deal with it? Like I said, let me think about it. If I'm correct, and TTB messed up, then they can hardly take exception to our doing the same :-). Yea, sure. .
  6. Jailbreak has it almost right, sorta. You can receive spirits by transfer in bond into either the storage account (§19.322(a)(2)) or the processing account (§19.342(a)(2)). Generally, you would receive spirits into the storage account if you do not plan on "dumping" and using them as a single lot in the processing account. For example, if you bring in GNS in a 275 gallon tote and then withdraw it 50 gallons at a time, over a period of a month, say, you would enter it into the storage account and then treat it like any other spirit in that account. If you bring n another 275 gallon tote and intend to immediately add flavor to all 275, then you can receive it as bulk spirits into the processing account and treat them as you would any other spirits to which you add flavors. Now, whether you receive them into the storage account or the processing account, if you resdistill them to make vodka (NSG is a class, vodka is a type within the class, so a change from GNS to vodka is a change of class and type under TTB's rules) or make gin or some other product that you flavor by evaporation in redistillation, you do that in the processing account (§19.602), not the production account. The only reason you would return spirits to the production account for redistillation is your desire to salvage alcohol which you have somehow screwed up. That redistillation is done under §19.314 and following.
  7. You do not use a form. When a winery ships wines to you, they do so on a transfer record required by §24.309 and you record the receipt as required by §19.621. When you ship spirits to a winery, you make the transfer record required by §19.620 and the winery completes it as required by part 24. See also §§ 19.405, 19.407 and 19.419 for provisions re allowed transfers and the requirements placed on the consignee and consignor.
  8. It's on a couple of threads.. Just search "hops" and you will find it. Basically, you can use, as an ingredient in spirits, any ingredient that is GRAS, that is, that the FDA recognizes as safe in food products (alcoholic beverages are food for the purpose of FDA standards and FDA has the authority to regulate them, but TTB and the FDA have a memorandum of understanding that TTB will regulate the labeling g, etc., as long as it enforces the GRAS standards. Hops are allowed in foods.. There is no problem with that your you'd never have Budweiser or IPA. The issue is what do you have? Under 5.35 you must label products with the standard of identity if they comport to one, or as a specialty item if there is no standard. I think bluestar summed it up best - i'll paraphrase - it isn't whiskey because it does not meet the whiskey standard, so unless it has enough other flavorings to meet some other standard. He didn't elaborate, but I'd guess you conceivably could make a gin (predominantly juniper flavor) or a liqueur. But it would not be a flavored product, for example, flavored whiskey, because you didn't have whiskey to start with. So generally, it's a specialty item and TTB has approved a variety of different labels. As one person, who had submitted labels for hopped products put it, , he was amazed by seeing some of the labels TTB had approved. As in investing, "Past returns are not necessarily indicative of future results." If they were, we'd all be rich! And there would be no WTF label rejections either.
  9. If you want the brewery to ferment a whiskey wash for, which is probably ot thge case, but if so, then you must have information that shows that the fermenting materials the brewer used meet the standard of identity of the product you bottle. You must always be able to support label claims with records. For example, if the beer was fermented only from grain and the mash bill wasn't 51% or more corn, you can't call it bourbon, so you need a record from the brewer that shows the mashed bill used. If the beer is a malt beverage, you also need to deal with the hopped issue. See the citations below. A statement of general application - quoting the law is not always the best approach. TTB interprets the law in its regulations. Rely on them. If you think that the regulations don't comport to the law, remember that courts are loath to rule on that unless the regulations are clearly outside of congressional intent and the agency does not have some reasonable basis for its rule. It's called administrative deference. In most cases, a section of the law will make reference, as this §5050 does,l to "under such regulations as the Secret may prescribe. But in this case, AnthonyM is spot on citing the law,m at least from the brewers side, because the beer regulation has not been amended to reflect the 1998, or thereabouts, change in §5053, which let a DSP receive beer from any brewery, not just from an "adjacent brewery," as the regulations still provides after all these years As an aside, why isn't this a transfer in bond? The reason is simple enough, but not usually understood. The tax does not attach to beer when it is produced. It is never, as wine and beer are, held in bond. Tax attaches when it is removed for consumption or sale. What is not in bond may not be transferred in bond. The term "removed for consumption or sale is defined in part 25. It means, "Removed for consumption or sale. Except when used with respect to beer removed without payment of tax as authorized by law, (a) the sale and transfer of possession of beer for consumption at the brewery, or (b) any removal of beer from the brewery.' So under §5053, the removal of beer to a DSP for use as DM is a removal without payment of tax, therefore by syllogistic logic it is not a removal for consumption or sale, therefore the tax has not attached, therefore it is not in bond, therefore it is not transferred in bond. . From a practical, less wonky angle, here are the principal rules that apply when a DSP receives beer from a brewery. See §19.297 Use of materials in production of spirits - A proprietor may produce spirits from any suitable material in accordance with the proprietor's statements of production procedure in the notice of registration. T §19.584(d) Materials for the production of distilled spirits . A proprietor must maintain daily records of materials produced or received for, or used in, the production of distilled spirits. This includes records coveringr eceipt of beer from brewery premises without payment of tax, and receipt of beer removed from brewery premises upon determination of tax as authorized by 26 U.S.C. 5222(b); §19.585(a)(3) Production and withdrawal records. A proprietor must maintain production account records in a manner that will ensure the tracing of spirits through the distilling system to the mash or other material from which the spirits were produced and that will clearly establish the identity of the spirits. There's probably something more. There always seems to be.
  10. I might as well chime in here. I don't often openly advertise my services, but if you have any questions about the consequences of different ways in which you can acquire interest in an existing operation I can help to explain that.
  11. Bluerstar is correct about the 51-49 requirement. I'll add that you must watch how you "play" with bourbon. It' isn't rye or other grain designated whiskey. Mess with bourbon much and you end up with a specialty. See TTB Ruling 2016-3, "General Use Formulas for Certain Distilled Spirits Produced Using Harmless Coloring, Flavoring, or Blending Materials," which first state a general rule for straight whiskey (overt two years old, etc): Section 5.23 also provides that any whisky designated as “straight” may not contain any added coloring, flavoring, or blending materials. This includes “straight bourbon whisky,” “straight corn whisky,” “straight malt whisky,” “straight rye malt whisky,” “straight rye whisky,” “straight wheat whisky,” and “straight whisky.” It then talks about bourbon, straight or not: Furthermore, Chapter 7 of the Distilled Spirits Beverage Alcohol Manual (BAM) (TTB P 5110.7 (04/2007)) provides that bourbon whisky may not contain any amount of added coloring, flavoring or blending materials [my emphasis]. This reflects the determination by our predecessor agency, the Bureau of Alcohol, Tobacco and Firearms (ATF), that added coloring, flavoring, or blending materials are not customarily employed in the production of bourbon whisky in accordance with established trade usage. It goes on to hold: Held further, TTB approves a general-use formula under §§ 5.26 and 19.348 for the following types of whisky, if they contain no harmless coloring, flavoring or blending materials other than sugar, caramel, or wine, singly or in combination, in a quantity that does not exceed a total of 2½ percent by volume of the finished whisky: • Whisky made in accordance with § 5.22(b) that is designated as “whisky” without any type designation; • Rye whisky, wheat whisky, malt whisky, or rye malt whisky made in accordance with § 5.22(b)(1)(i); • Corn whisky made in accordance with § 5.22(b)(1)(ii); • Whisky distilled from bourbon mash, rye mash, wheat mash, malt mash, or rye malt mash in accordance with § 5.22(b)(2); and • Light whisky made in accordance with § 5.22(b)(3). Held further, no coloring, flavoring, or blending materials may be used in the production of spirits designated as “bourbon whisky” in accordance with § 5.22(b)(1)(i) or “straight” whisky in accordance with § 5.22(b)(1)(iii). TTB's now pending proposed rules include a provision on bourbon taken from TTB Ruling 2016-3. In TTB's words, as found in the Notice of Proposed Rule Making, "Among other things, the proposed rule will codify in the regulations for the first time TTB’s current policy, as set forth in the Distilled Spirits Beverage Alcohol Manual (TTB P 5110.7), that coloring, flavoring, or blending materials may not be added to products designated as ‘‘bourbon whisky.’’ I think that would rule out hopped bourbon whiskey. Because there it meets no other standard, it would become a specialty item and would need to be labeled with a fanciful name and truthful and adequate statement of composition. There are clever ways around this. For example, go into the public COLA registry and compare the Angels Envy labels for "bourbon" and "rye" whiskey. The "bourbon" isn't classified as bourbon, but who would know that from the label? It's a silly game, from my standpoint as a consumer. Do I care?
  12. I'll try to be brief because I too am up to my "whatever" in alligators. The section to which you refer, 19.462(e), is headed "Excessive losses" and it only addresses losses from tanks (not packages) and bulk conveyances (not losses in transit - see 19.462(d) for that - but loses from conveyances you bring onto your DSP and hold the spirits in storage, as in , "It probably ain't gonna happen."). The tank losses are determined when you empty the tank or find when you take your required quarterly inventory and must be entered into the tank records (19.592 and .593). So the total quantity lost for the period is the sum of all of those losses in your tank records for the quarter. If the losses from tanks exceed 1.5% of the quantity you had on hand, in tanks, at the start of the quarter, plus the quantity that you deposited into tanks during the quarter, then you must file a claim or pay the tax on the excess loss, which appears to be only the quantity that exceeds 1.5% of the total you had to account for in tanks during the quarter. If you have a lot of tanks, making the calculations could be a chore, since the monthly reports include all receipts into, removals from, and losses of spirits held in the storage account. If you have only a few tanks it should not be too hard. However, nothing says you must make the calculations. If you do not make them, and TTB does an an on premises audit, and looks 19.462 compliance, and TTB makes the calculations, and you have not filed a claim, and more than six months has passed since the end of the period, and it is within the three year statute of limitations on assessment, and the amount is material, then TTB can access the taxes. If they assess, failure to pay penalty and interest apply. That string of and and conditions describes the risks of not making the calculations to determine if you need to file a claim. Finally, don't ask, "How does this applies to the ubiquitous plastic totes?" I've never asked and as far as I know, TTB has never stated a position. The plastic IBC's are, I think, a missing horse, that has escaped from the barn, but no one wants to talk about. Still, to be safe, for purposes of losses in 19.462, I'd treat such totes as if they were tanks.
  13. As someone who submits a lot of applications, and who has been known to make a typo error in entries that create the $#@%ing templates - you may correctly surmise that I hate the things - I can tell you what TTB told me once - there is no way to remove them from the system. You can't even create a "collection" in which you can store them so that you are not constantly reminded, as I tell myself, that if you are not making errors you are not doing anything. You may also correctly surmise that I think they need to do some long overdue redesign work,. But for now, with all expletives deleted, they linger until TTB decides it will do something. Ignore them. TTB does.
  14. When you submit the application using Permits Online, you simply check the box saying "I certify I don't need a bond." Submitting that way can be a lot easier. TTB is pushing for you to do that. I've never submitted on paper, but if I did, I would include a letterhead statement certifying that you don't need a bond because you will pay less than $50,000 in excise taxes during a calendar year.
  15. Still-Holler - TTB's requirement sounds like an answer that is correct by the book , but in the instant question they'd have to add sugar - spirits distilled from gain and sugar and distilled wit h hops." If you add a flavor, you get an even more convoluted statement, which makes for an even longer , more awkward, and uglier statement of composition. It almost makes you want to suggest that, for specialty items, TTB should adopt ingredient labeling in the format of the FDA. Maybe someone should suggest that? But if someone does, they they best think through the possible unintended consequences. Cowdery used to post on the forum. One piece of good advice he gave was "Writing regulations isn't for amateurs." I count myself among those we are amateurs.
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