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dhdunbar last won the day on November 28 2017

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About dhdunbar

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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. Nothing precludes additional information on the barrels. Wineries have used barcodes and computer programs to track the way in which they have used their barrels for a long time - at least back into the 1990's.
  2. There has been some speculation about the new ability to transfer bottled spirits in bond. Yes, it is now allowed. But I want to give a warning; do not be too hasty in making business plans. Wait until TTB issues some regulations. While you will certainly be able to ship and receive bottled spirits in bond, it appears that bottled spirits that you receive in bond will not be eligible for the reduced tax rate unless you either produced or processed the spirits prior to their bottling. That is my reading of the change. I may be reading it wrong, but I think I am right. Yes, TTB does allow a winery that receives bottled wine in bond to remove it at the tax rate (after the small producers credit) that would have applied if the shipping winery had removed it on tax determination for its winery. But the law specifically provides for that. I don't see any such provision in the language attached to the new reduced rates on spirits. For spirits, congress specifically says the rate only applies to spirits produced or processed by the person making the removal. So, if you want to send spirits you have produced or processed to another DSP for bottling, say in 50 ml container or cans, you could do so, and if they returned the packages to you, you could remove them at the rate to which you are eligible at the time of removal. That would appear to be the intent behind the recent changes. It does not appear that congress intends to let a small distilled spirits plant buy spirits in bottles from a large distiller, receive them by transfer in bond, and then remove them at the small distillers rate. I suspect that most of the craft advocates among you will be glad for that. So, my advice is reign-in any enthusiasm you may have for transfering bottled spirits in bond until TTB has its say on the matter. Reply ↓
  3. How to get a response from TTB?

    Call and leave a message in response to their first announcement that they are busy helping other people. They usually return the calls. Things can get messed up, but they try.
  4. Forms Question

    I'm surprise no one answered this, but it is stuck in general discussion. You do not need a "form." The local brew will be hard pressed to find this in his copy of the beer regulations. Part 25 provides only for the removal of beer withoutr payment of tax, from the brewery, by pipeline,m to a contiguous DSP. Tell the brewer not to fret. The brewer regulations were never amended to reflect changes made by a 1997 amendment of the Internal Revenue Code. Yea, I know that is 20 years, but it is true. The DSP regulations were amended and we rely on them. Sec. 19.296 , headed "Fermented materials" provides that a DSP may receive, as fermenting material, "beer received from a brewery without payment of tax, or beer that was removed from a brewery upon determination of tax." This can be from any brewery. It does not need to be contiguous. Note that there is no reference to "in bond." For wonks, that is because (1) the tax on beer does not attach until it is removed for consumption or sale, so (2) beer on a brewery premises is not "in bond," as are spirits on a DSP premises, where the tax attaches to the spirits at the time they come into existence. DSP's need an operating bond and a withdrawal bond. Brewers need only the withdrawal bond. Yes, in common use of the language, the removal of beer for delivery to a DSP would be a removal for sale, seemingly triggering a tax liability, but definitions matter. The term {"removed for consumption or sale is defined in part 25." As used in part 25 it means, "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." Since beer sent to a DSP as fermenting material (not for consumption in the DSP's tasting room :-)) is withdrawn free of tax, it is not a removal for consumption or sale. The tax does not attach. The beer is not in bond. The brewery just ships it. It does not enter your bond (but is received on your bonded premises). The regulations require records of the beer you receive and use. You (the DSP)DSP must record the receipt and use in your daily production records (19.584). You will need to keep commercial documents, like the brewers invoice or bill of lading, to substantiate the receipt. And, although the regulations are silent on this, you will need to have records that substantiate label claims. Because the beer comes from a brewery, it will be a 100% grain product, suitable for whiskey production as well as NSG, but if you want to claim that the resulting distillate meets the standard of rye whiskey, for example, the brew must provide a statement that the beer it ships you was made from a grain bill of at least 51% rye.
  5. There is no requirement that you mark small containers used for fermenting with serial numbers. In fact, in most cases, even barrels that contain spirits do not have serial numbers. Packages that contain spirits filled during production or stoage operations must be marked with a lot identification number (19.485). A package is "a cask or barrel or similar wooden container, or a drum or similar metal container (19.1). Although the definition does not include plastic or glass containers that function as barrels - no, I do not know why it does not, but would guess it was simply an oversight when the regulations were rewritten in 2011) - I assume it applies to those sorts of containers. As used in part 19, the term lot identification number is synonymous with the term package identification numbers (19.1). The requirement is more easily understood in terms of lots. As the term "lot number" implies, different packages may bear the same lot number (see 19.485 for details on this). The lot identification number is coded to show, , among other things, the year and month and day on which the package was filled. It does not include a unique identifying number for each of the individual packages into which a lot of spirits is filled. TTB can require a separate serial number on a package, at the time of filling or withdrawal from bond, but this is not required unless "the appropriate TTB officer" explicitly requires it. Unless TTB tells you, put a serial number on packages, you need not do so. However, TTB does require a "temporary" serial number, "for control purposes," on spirits that are transferred in bond in an unsecured conveyance or gauged after tampering within the storage account (19.485). For the curious, TTB explains securing devices, for use on conveyances, in 19.441. To round things out, with information not germain to your question, you need to make a separate, package gauge record (19.619) when you fill packages on the production gauge (19.289). Further, when packages are held in the storage account, you must keep package summary records that show the date of deposit to and transfer from the storage account, along with the quantity remaining in the account (19.591). Although that section does not specifically mention the lot identification number, it seems a handy way to approach things. I explain all of the above only to show how TTB uses the terms and why none of it applies to packages used for fermentation. Finally, the fact that TTB does not require a serial number on packages used for fermentation does not preclude you from assigning a temporary number for your own record keeping purposes. If it helps you track and evaluate the samples, use serial numbers, temporary or permanent, with whatever form of coded identification you might chose to use. Write it with marker, crayon, whatever you chose if you chose.
  6. New tax reform

    My reading of the amendment, which is the only way to answer these questions until TTB rules, is that you must pay for December removals at the rate in effect at the time of the removal, not the time of deferred payment. I see no doubt in this case. To be eligible for the reduced rate, the spirits must be removed during the calendar years to which the rate applies. The language of the amended section is clear: SEC. 13807. REDUCED RATE OF EXCISE TAX ON CERTAIN DISTILLED SPIRITS. (a) In General.—Section 5001 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Reduced Rate For 2018 And 2019.— “(1) IN GENERAL.—In the case of a distilled spirits operation, the otherwise applicable tax rate under subsection (a)(1) shall be— “(A) $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, and “(B) $13.34 per proof gallon on the first 22,130,000 of proof gallons of distilled spirits to which subparagraph (A) does not apply, which have been distilled or processed by such operation and removed during the calendar year for consumption or sale, or which have been imported by the importer into the United States during the calendar year. The emphasis is mine. Note that it appears that if a DSP receives bottled spirits that it neither bottled nor processed, the tax rate is $13.34. I had not caught that before. Such omissions, by amateur like me, are the reason we have to wait for TTB to issue the rules. They should have a number of persons reading the amendments and arriving at the official interpretation of what they mean.
  7. Get your Federal Permit? How long did it take?

    Jessica, your experience describes why one can't rely on the times people list here. As to "bothering" TTB, I've got some sympathy for their position on that. The rule about not calling until the average time has elapsed is intended to isolate the specialist from repeated distractions that contribute to increase processing times. I also have sympathy for the specialists who are buried in virtual paper. And, I have sympathy for management which is told, repeatedly, by congress, that it must do more with less. At some point that is not possible. However, I have less sympathy for management's failure to devise a way of triaging applications, like yours, that only require a couple of tweaks from those that require, shall I call it, major surgical repair. I also have less sympathy - perhaps little sympathy - for a managerial style that puts specialists in fear of minor errors, yet does not put a stop to the systemic inconsistency of one specialist demanding what another prohibits in responses to the information required for the application. The NRC is badly in need of a (1) a sense of materiality and (2) reasonable internal controls, which only management can impose, that require information that is consistent with the regulatory scheme in parts 1 and 19. It appears that this is now left to the imagination of specialists, who, even with the best of intentions, lack both (1) the perspective and (2) the time to develop the perspective, that is needed to determine whether the information provided in an application is material to approval. And yes, if asked, I can certainly give specific examples of the NRC's fundamental misunderstanding of the scheme of regulation that is in place. Finally, the physicist Richard Feynman once said, " If the professors of English will complain to me that the students who come to the universities, after all those years of study, still cannot spell "friend," I say to them that something's the matter with the way you spell friend." TTB's annual report says that 75% of the applications they receive require correction. I'd apply the Feynman rule to that. We'll see if the new and purportedly improved and now delayed permits online system corrects the situation. I suspect it will not.
  8. Get your Federal Permit? How long did it take?

    I've occasionally warned against taking seriously times given in this thread. TTB publishes average times. The most recent was 88 days for a DSP, which is certainly an improvement over the time it was taking a year ago, but I don't put much stock in averages. The mean means little, pun intended I guess, unless you can also describe the distribution around it, i.e., the range, mode, and median. Averages are subject to statistic trick - you know, liars and damn liars. If TTB wants to lower average times, each month it can deliberately process one or two to completion quickly. Presto, the average gets lowered with no real improvement in service. I'm not saying, and do not mean to imply, that TTB does this; I'm saying averages don't mean much. The same applies to times people report here. They are isolated instances; a fews dots on a graph. They can create unreasonable expectations and fears. So, I don't advertise times because it can be misleading. Yes, most applications are getting reviewed more quickly these days. But that does not mean they all are, and the date that a specialist first picks up an application is crucial. TTB deals them, to the specialists, like cards. Get a specialist who is quick and you can get a request for correction, sometimes, but not often, within two weeks, as I did a couple of times in the last two months. So what happened? In one of those two instances, TTB's secure email system failed to make delivery of a response to a request for correction and there went my chance for glory :-). I say that in jest. To to be very clear about the responses within two weeks, - that was not due to my competence as a consultant. It had only to do with the luck of the draw. I could have submitted a half complete application and got a response in the same time. So could you. If either of us gets a different specialist, it may be two months, and if we draw one who is retiring soon, all bets are off. Jessica describes a horror situation. No application should take as long as hers did. Hers was the outlier. As a consultant I get some outliers too. Hopefully not that long, but can't I claim it will not happen. I can't. I'll add, not only do I not advertise times, I don't advertise period, unless these responses on the forum are advertising, which I guess they are, but I make them as a return to an industry that makes my business possible. When I retire again, which, as I promise myself, I will do someday, I will probably keep on answering questions on these threads. You guys have been good to me the last few years. I appreciate that.
  9. New tax reform

    Thanks Joe - I think we are all bound to misread/interpret some of what others say here. Two things: On the Need to Consult an Attorney I'm not advocating getting a lawyer, or a consultant :-), where the law and regulation are easily understood. But, when visions of legally avoiding a tax begin to dance in one's head after receiving what is touted as a universal Christmas gift of tax reform, remember that the government writes rules that are dizzyingly complex to plug any clever loopholes one thinks one might be able to find in those rules. Big players with big money attorneys already have tried all the angles around controlled group legislation that might pop up in your dreams. That is why the amendment that provides for a reduced tax rate includes controlled group provisions and references an already existing section of the Internal Revenue Code that was devised, over time and from experience, to plug any loopholes, of which persons, with acronyms like MBA after their names, have tried to take advantage. I wrote what I did to say whoa, don't go to fast. For most of the people using this forum, controlled groups will never be an issue. On Transfers of Bottled Spirits in Bond The provision allowing transfers of bottled spirits in bond is illustrative of the task that TTB faces. Those familiar with the structure of the regulations know that they contain rules that describe what must, must not and may, but need be done. When I teach it, I say it's like driving, you must have a license; you must not speed; and you may, but need not, make a left hand turn at the next corner, but, if you do make that turn, you must do it from the proper land and only after the proper signal. Transfers of bottled spirits in bond are an example of a "may rule ." Therefore, TTB makes rules that describe what you must do if you make such transfers. Part 19 contains sections that give the rules and sections that describe the records that are required. TTB now faces the task of making rules for the transfer of bottled spirits and the records which persons who make such transfers must keep. So, they must go through the regulations in a rigorous way - I'd say with the proverbial fine-toothed comb - to find all provisions that must be amended to establish the rules and recordkeeping requirements to accommodate the transfer of bottled spirits. That will take awhile. Here are the sort of questions they will have to ask. Since it is a transfer in bond, does the language of the bond form need to be changed? Yes, most of you will no longer need a bond, so that will be moot in your cases, but TTB still must answer it because if some of your dreams come true, you will someday need a bond. Does the language of the Application to transfer spirits in bond need to be changed? What changes must be made to the rules covering making the shipment? For example, do they want to require that the transfer record include the serial numbers of the cases transferred? What changes must be made to the rules imposed o the person receiving the shipment? For example, do they want to include specific provisions that apply to the discovery and reporting of in-transit breakage? What changes must be made to the rules for claims on spirits that are lost due to in-transit breakage? How should the receiving DSP record and report shortages that they discover at the time of receipt? Remember, the spirits travel in the bond of the consignee, which means the consignee is responsible for the taxes. Remember, also, that TTB takes a position that any shortages in bottled spirits held in the processing account are taxable. But what happens in the case of a dispute, over the number of cases in the shipment, between the shipping DSP and the receiving DSP? What rules should cover the security (seals, locks, etc) required for shipments of bottle spirits? Into which account would you receive bottled spirits? Should TTB now make provisions to allow storage of bottled spirits in the storage account? Remember, a person may not establish a DSP qualified only as a processor, so unless changes are made, a person could not establish a warehouse for the storage of packaged goods only. Can TTB changes those rules, or are they set in law. That is a list of questions that I've generated as I write, off the top of my head. Some may not be a problem, others will be. And TTB has until when to decide what it must do, what it may want to do, and what it is going to require? And as I type this, other questions occur. For example, "How do the label approval requirements fit into this new scheme?" would seem to be a major one. Just for kicks, I'll quote one potentially problematic regulation; 5.55 Certificates of label approval. (a) Requirement. Distilled spirits shall not be bottled or removed from a plant, except as provided in paragraph (b) of this section, unless the proprietor possesses a certificate of label approval, TTB Form 5100.31, covering the labels on the bottle, issued by the appropriate TTB officer pursuant to application on such form. A It seems like some sort of amendment probably is in order. Perhaps a statement to the effect, for purposes of Sec. 5.55, a distilled spirits plant that has received bottled spirits, in bond, must possess a copy of the COLA issued to the bottler, covering the labels on the bottled spirits in has received in bond, before it can remove the spirits form its plant, in bond, or withdraw them on payment of tax. Sigh. And how do you assign responsibility for the tax liability on overfilled and/or overproofed product withdrawn on determination of tax by someone other than the bottler. As the King of Siam said to Anna, "Etcetera, etcetera, etcetera." Now, I for one, am going to sit back and wait for TTB to answer those sorts of questions. You guys can decide on the proper business strategy and the necessary tactics after TTB has done its thing.
  10. New tax reform

    Yes, the quantities are correct. But, remember, to qualify not to have a bond, you must pay some tax. If you pay nothing, you have to have a bond. Don't blame TTB for that. It is how congress wrote the law :_).
  11. New tax reform

    There are parallel discussion going on. On the other thread someone has posted the section of the law that applies to controlled groups. So, fools rush in where .... Here is the section on controlled groups ‘‘(2) CONTROLLED GROUPS.— ‘‘(A) IN GENERAL.—In the case of a controlled group, the proof gallon quantities specified under subparagraphs (A) and (B) of paragraph (1) shall be applied to such group and apportioned among the members of such group in such manner as the Secretary or their delegate shall by regulations prescribe. [This is standard - for beer, the brewer has to file a notice (Sec, 25.167) which includes, among other things, "If the brewer operates more than one brewery, a statement of the locations of all the breweries and a statement of how the 60,000 barrel limitation for the reduced rate of tax will be apportioned among the breweries. If the brewer is a member of a controlled group of brewers, a statement of the names and locations of all other brewers in the group and a statement of how the 60,000 barrels limitation will be apportioned among the brewers in the group." For beer, that is, it is flexible and up to the taxpayer.] ‘‘(B) DEFINITION.—For purposes of subparagraph (A), the term ‘controlled group’ shall have the meaning given such term by subsection (a) of section 1563, except that ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears in such sub section. [ Here is where the Philadelphia lawyer comes into play,. It appears that this section 1563 was not amended, so the old language remains. The section defines three types of controlled groups, parent-subsidiary, brother-sister, and combination. Here is how it defines a parent-subsidiary controlled group, but keep in mind that where that section says 80%, we substitute 50%. _____________________________ (1)Parent-subsidiary controlled group - One or more chains of corporations connected through stock ownership with a common parent corporation if— (A) stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of stock of each of the corporations, except the common parent corporation, is owned (within the meaning of subsection (d)(1)) by one or more of the other corporations; and (B) the common parent corporation owns (within the meaning of subsection (d)(1)) stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of stock of at least one of the other corporations, excluding, in computing such voting power or value, stock owned directly by such other corporations. ____________________________ The lesson here is don't even think about trying to understand it unless you must. I'll spare you the other definitions and a trip into subsection(d)(1) etc .... ‘‘(C) RULES FOR NON-CORPORATIONS.—Under regulations prescribed by the Secretary, principles similar to the principles of subparagraphs (A) and (B) shall be applied to a group under common control where one or more of the persons is not a corporation. Most of you are LLC's. This says that the rules apply to you too. Again, don't go here unless you must and most importantly: Do not follow the advice of any who is not an attorney familiar with tax law AND controlled groups. It is just too damned hard to follow. Errors can be expensive.
  12. New tax reform

    First, let me say stupid things - for which I don't need permission, because there is no stupid filter that will stop me, as I soon may demonstrate - then get out that grain of salt, and I'll comment. But I ask in advance for forgiveness of things that will be proven wrong. There are a number of issues being discussed here that deserve comment. Congress has thrown everyone who collects taxes, or advices on taxes, or has accounting software in place, a knuckleball, in the form of the January 1 implementation date. I can’t call it a curveball. A curveball breaks, but it is a curve. It follows the regular rules of motion, just as writing law, for good reason, is supposed to follow the regular order regular this act did not. A mathematician can create an equation to describe a curve ball's motion and a batter’s brain can adjust the swing, at the lightning speed of a Google search, to make contact. A knuckleball, on the other hand, is chaotically unpredictable. There is no equation that can predict its motion. this is a knuckleball, if for no other reason than we don't know what we don't know and aren't likely to know soon what itis we don't know, let alone the unanticipated consequences that exist even with the due deliberation this Act lacks. Add to the "rightnow" implementation date, the temporary nature of the decrease in the excise tax on spirits. When will people have it figured out? Not yet, that is certain. Today TTB writes in today's newsletter, "Congress has passed the Tax Cuts and Jobs Act of 2017, which makes extensive changes to the Internal Revenue Code of 1986, including provisions related to alcohol that are administered by TTB. The Tax Cuts and Jobs Act will become law when the President signs it. We are currently assessing the impact of these changes on TTB forms, regulations, and systems and will issue guidance and information in the coming weeks. Please visit our webpage for updates." Forms, regulations, and systems, with no time to consider the changes that are needed now, not later, in all of them. TTB's advice to follow the announcements it will be making on its webpage is sound. Giving everyone six months or more to to figure things out would have been sound too. But that did not happen. Accepting that this is a knuckleball - I'm not passing judgement on its merits, I'm talking about trying to take a swing that makes sound contact with the provisions - let's take a look at what I've been told the new provisions say. "What I've beenb told" is code words for "I have not read the Act and so am relying on what others say, just like most of those who voted on it. Let's start with the temporary nature of the cut. From the link adamOVD provided: “However, the tax breaks for the spirits industry will also expire in two years unless Congress acts to extend them or make them permanent in the future. The two-year period was set in order to make the estimated overall $1.5 trillion cost of the package work within Senate rules and allow it to pass with a simple majority vote instead of requiring support from 60 Senators to end debate and move to a final vote. Gorman indicated that the industry’s lobbyists will continue to push Congress to make the changes permanent.” From what I read, the $1.5 trillion is a pipedream. Yes , statistics, liars, and damn liars all inhabit the same den, but the national debt tripled after Reagan's tax cuts. That is not a politically motivated statement. I am saying, I can't put much faith in ideologically driven prognostications of greatly increased revenues offsetting the decreases in rates. Answers float like a butterfly, but can sting like a bee. The changes would have been better as a standalone amendment granting a permanent tax cut ; one that was not tied to artificial and perhaps unjustified assumptions that were needed to sneak it in under senatorial rules. As others have said, it probably is the kind of cut that congress is likely to extend. But if the deficit hawks start circling, and the choice comes down to cuts in Medicaid and Social Security that will cause congressmen real problems with their constituency, even in heavily gerrymandered districts, who knows what congress may do? "Likely to extend" and "unlikely to repeal" are different. Think automatic renewal of subscriptions. You can't rule out non action. It is often an easy course. Next, the thread contains a reference to moving everything into non bonded storage if the reduced rate expires. The easy answer is, "If the sun does set on the reduction, which I think is doubtful, then a friendly banker would be a good friend to have, because the cost of borrowing the money needed to prepay the taxes would probably be a hell of a lot cheaper than paying them at the increased rate, but …." But moving "everything" will not work. Let's go there next. Huffy2k posts - "Joe Dehner said in another thread on this topic, just move all of your product out of your bonded facility into a non-bonded storage area at the end of 2019." But moving all of the product into a non-bonded storage area will not work. For spirits that you can reasonably anticipate soon selling, and which you could bottle and withdraw taxpaid before the sunset, prepayment makes sense. The loan would be short-term. But, because there are no provisions under which you can bottle taxpaid spirits, you could not prepay the taxes on anything not removed from bond, in a bottle, your newly rented non bonded warehouse, at the time the sunsets. What can you do with barrels of taxpaid spirits? That is a serious and rhetorical question. There are provisions for qualifying to bottle taxpaid wine, but similar provisions do not exist for spirits. That would require changes to the law, not just regulation. I think such changes are unlikely. Do I need to say that impossible is probably a better guess? The "remove them from bond strategy" would then require that you hire an actuary and determine where the savings/sales curves intersect and take a flier on bottling x-years., worth of anticipated sales of spirits that don't have to age and removing them in anticipation of the sales you project. Aged spirits would require a completely different calculation. If you held a two year old spirit in a bottle for two additional years before you sell it, how much more would it have been worth if you kept it in the barrel for two years and then bottled it, paying the higher tax rate? Plus, you might have to grant the bank, that is extending the additional funds need to bloat your inventory, a security interest in the extra spirits you produce to get the x-year's supply into the bottle. If you have existing loans, the existing lenders are likely to have default first position on any spirits you produce, in addition to everything else you own, so the new lender might be, let's say, a little reluctant to bet on your ability to sell the product fast enough to repay the loan. Good luck with those sorts of calculations. Next, Roger posts, "On the negative side it may very well cause a flood on the market of new Fakeilleries (big and small) who will all be MGP "ish" type drones, dumping Fake Craft on the market at even lower prices than before, therein causing even greater harm to actual Craft Distillers." Here, things really complicated. The first rule is easy to anticipate. It will follow the EFT rules. All of a company's locations will be lumped together to determine if, and when, they exceed the 100,000 ceiling. The second set of rules will bend your minds, because TTB is going to write rules that prevent a large distiller from creating a number of small distillers, or acquiring an interest in existing smaller distillers, from allocating production between the locations, in an attempt to multiply the number of 100,000 proof gallon thresholders, as a way of avoiding taxes. Welcome to controlled groups. The IRS and TTB have both been all over this in the past and because of the possible consequences of TTB adopting an awkward position, for the IRS, in other areas, TTB has always clung closely to the IRS's lead. Whatever TTB does,m the rules are going to require that any distiller that is part of a controlled group aggregate its removals with the removals from all locations which are a part of the same controlled group. I can guarantee that, because it is a principal built into the tax code for all sorts of taxes, including beer and wine excuse taxes, which both have reduced rates for small producers. TTB will write rules that lump, for tax purposes, the members of controlled groups, as defined in those rules, into a single entity, the controlled group. Look at the provisions for wineries (Sec. 25.152) to see what the entails. I'd quote the definition of controlled group found there, but it would send you to Philadelphia in search of a lawyer. I know, I've been down that road with a client in the past. TTB also must address the difference between contact bottling and alteration of proprietors, as it has done already with breweries and wineries. I've been on both sides of that issue and I assure you getting the wrong legal advice on how to structure alternation can be a very expensive experience. Note that the word "very" occurs once and only once in this long discussion. Very means very. So TTB will have to provide some rules that prevent contract bottling under the guise of alternating proprietors. Again, look to the wine and beer provisions - you will find them in industry circulares available on TTB's website - for an idea of how that is going to go. I'll add this, it is possible that you could see large distillers taking positions in craft distilleries, but I think the impetus to gobble both shelf space and distributor attention drives such scenarios more than the reduced rate ever will. That sort of competition is a reality with which you all must live, with or without the reduced rate legislation. Further, I think those limitations are likely to slap a lid on growth, no matter how much capital is available from the reduced taxes you will be paying. It is one thing to be able to produce 5,000 cases a year; it is another thing to be able to sell them. Brentondouglas comments on a sliding scale. Now that the law is passed, that will not happen, but it is certainly manageable if it does - see wine law and regulation - and would have returned a more immediate benefit to the smaller producers, since the larger producers would have had to set a price point based on higher mean excise tax rate. Finally, and then I will shut up, the provision that allows removal of bottled spirits to another bonded premises is going to allow some "downstreaming" of taxes. That will be less possible in bailment states, and the cost of the distribution system might well dvour any savings made by the delay of taxation. But the in bond transfer of bottled spirits will facilitate bonded warehouses to which bottled spirits are shipped for consolidation with others' products for shipments to more distant markets. Again, this is going to lead to additional regulation, since the consolidator who pays the tax is going to have to justify the rate paid. The consolidator is going to be on the hook if a distillery withdraws from two or more different locations and doesn't bother to tell the consolidator that the aggregate amount removed has exceeded the 100,000 ceiling. There is a provision in the law and regulation (Sec. 19.56), that provides, "As a general rule, if a person intends to establish a bonded warehouse, other than one established on the bonded premises of a distilled spirits plant qualified for the production of spirits or contiguous to such premises, the proposed warehouse must have a minimum capacity of 250,000 wine gallons of bulk spirits and the need for such a warehouse must be clearly shown. TTB may consider an application to establish a bonded warehouse with less capacity provided a need is clearly shown." TTB regularly approves such applications, and I generally advise clients not to worry about it, just apply for discontinuous premises. But a consolidation warehouse is going to raise different issues. TTB may not be willing to waive, so willingly, the 250,000 requirement. I'm sure there will be more to discuss. This is just a start.
  13. How do you measure the spirits quantity ?

    Regarding sticks. It seems we used to use a long wooden stick at a vinegar plant to measure the volume of alcohol in a large tank. We also used a stick - wood again, and again as I recall - when measuring the depth of the alcohol in tank trucks. I don't recall making any adjustments for the absorption factor of the wood, but we did have to watch how it would seep up the stick by a process for which Silk City probably has a name. As I recall, the measurements were not critical to anything. But all tax determination gauges were made by weight. Period. That is still the requirement. See 19.284. Because cutting to proof is essentially a tax determination gauge, although it is not called that, since the tax determination gauge for packaged spirits is made based on the label claims and number of bottles per case, I would conjecture that TTB would like the gauge in the bottling tank made by weight. However, the regulations allow all other required gauges to be made by volume (19.284 (c)), so the reduction to proof before bottling, which is a required gauge (19.283(g)) may be done by volume. That said, Silk City's reference to bakers would seem to apply. You run the real risk of missing the cut, if you measure your spirits by volume.
  14. How do you measure the spirits quantity ?

    There is a simple bottom line here. Silk City said it. Once you have determined the proof to whatever degree of accuracy your vision, your instruments, and the five decimal conversion factors of TTB's tables will allow, just apply the factors in Table 4 and enter the result, properly rounded, into your records. That is what TTB tells you to do and it is also what makes sense. Meerkat's variance is illustrative. I've not checked his calculations, I'll just accept them. His variance is 0.1 proof gallons on a total of 1882 proof gallons, or 0.0053%. But the "actual" corrected volume of the liquid does not change with temperature. I'm forced to use quotation marks around actual because we have no way of determining the "actual" quantity. All of our measurements are estimates. The he calculated, 0.1 pg difference arises from the accuracy of the five decimal place, more than likely irrational, conversion factors in the table. With each decimal place added to the conversion factors, to the limits of our ability to calculate them, the variance shrinks. Meerkat's variance says, by its election to use five decimal conversion factors, TTB expresses the intrinsic difference it is willing to accept when the variables, volume and proof, are held to be spot on accurate. In practice, of course, TTB is willing to accept a lot greater variance than that, since we cannot measure apparent proof to anything like PeteB's 1:1000 as we stare at the meniscus of the spirits in the flask or at the apparent temperature reading on the thermometer. Nor is any instrument certified to such accuracy.
  15. How do you measure the spirits quantity ?

    Silk City and the others are correct. The density matters not unless you have high solids (600 milligrams per 100 milliliters. I'll quote the regulations, which you find in part 30. I've parsed into bullet items it to keep the issues separated. The emphasis is mine.: §30.41 Bulk spirits. When spirits (including denatured spirits) are to be gauged by weight in bulk quantities, the weight shall be determined by means of weighing tanks, mounted on accurate scales. Before each use, the scales shall be balanced at zero load; thereupon the spirits shall be run into the weighing tank and proofed as prescribed in §30.31. However, if the spirits are to be reduced in proof, the spirits shall be so reduced before final determination of the proof. The scales shall then be brought to a balanced condition and the weight of the spirits determined by reading the beam to the nearest graduation mark. From the weight and the proof thus ascertained, the quantity of the spirits in proof gallons shall be determined by reference to Table 4. However, in the case of spirits which contain solids in excess of 600 milligrams per 100 milliliters, the quantity in proof gallons shall be determined by first ascertaining the wine gallons per pound of the spirits and multiplying the wine gallons per pound by the weight, in pounds, of the spirits being gauged and by the true proof (determined as prescribed in §30.31) and dividing the result by 100. The wine gallons per pound of spirits containing solids in excess of 600 milligrams per 100 milliliters shall be ascertained by [one of two methods I will not quote here]. The instructions for the use of Table 4 are straightforward. §30.64 Table 4, showing the fractional part of a gallon per pound at each percent and each tenth percent of proof of spirituous liquor. This table provides a method for use in ascertaining the wine gallon (at 60 degrees Fahrenheit) and/or proof gallon contents of containers of spirits by multiplying the net weight of the spirits by the fractional part of a gallon per pound shown in the table for spirits of the same proof. Fractional gallons beyond the first decimal will be dropped if less than 0.05 or will be added as 0.1 if 0.05 or more. Example. It is desired to ascertain the wine gallons and proof gallons of a tank of 190 proof spirits weighing 81,000 pounds. 81,000 × 0.14718 = 11,921.58 = 11,921.6 wine gallons. 81,000 × 0.27964 = 22,650.84 = 22,650.8 proof gallons. The science of the issue is also straight forward. Heat changes volume, but it does not create mass. Heat does not change the weight, since weight is a measure of gravitational mass. Gravitational mass is equivalent to inertial mass. Thus, you can ignore temperature. I'll add I'm not a physicist. I'm just regurgitating what I've read.