Jump to content
ADI Forums


  • Content count

  • Joined

  • Last visited

  • Days Won


dhdunbar last won the day on November 28 2017

dhdunbar had the most liked content!

Community Reputation

38 Good


About dhdunbar

  • Rank
    Active Contributor

Contact Methods

  • MSN

Profile Information

  • Gender
  • Location
    Ellensburg, WA
  • Interests
    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.

Recent Profile Visitors

2,148 profile views
  1. Inventory Requirements - barrels

    This is getting a bit specific, but ... Tank vs. package is not account dependent. Further, there is nothing in the regulations that definitively differentiates a tank from a package. One part of the reg (19.75 maybe) says something don't need to list portable bulk containers of less than 101 gallons unless they meet the criteria for a tank under 19.182, but 19.182 only says, if you have a tank, then you must equip it with ... and totes have none of what is required by 19.182. Nor do barrels or drums. That does not say that a metal container of some size, say a million gallons, noit so equipped, would qualify as a drum. It would certainly be a tank, and if it didn't have what 19.182 required, it would be in violation of that section. But beyond that we have anomalies that TTB has not chosen to address, as far as I know. Webster - Tank - a large receptacle or storage chamber, especially for liquid or gas. Large? TTB may intend that anything larger than 101 gallons be equipped as required for tanks. They have not said so. Their de facto acceptance of 275 gallon and larger plastic totes may be taken as an answer not otherwise given. The same question could apply to how large an oak barrel can you have to store whiskey? At what point does an oak tank not serve as a container fit for aging? That is a question I will not ask until I have to answer a question for a client. Finally, a metal drum is a package and need not be inventoried. The section for processing inventories is Sec. 19.371 "A proprietor must take a physical inventory of all wines and bulk spirits (except packages) held in the processing account at the close of each calendar quarter." Holler by PM if you want me to go still further into this on your behalf :-).
  2. Inventory Requirements - barrels

    You found the section that has your answer, but getting the answer requires that you know that a barrel is a package. If the regulation uses a word, like "package", and you are not sure of what it means, look to definitions section (19.1) for answers . In this case, package means "A cask or barrel or similar wooden container, or a drum or similar metal container." So you need not inventory the spirits you have in barrels. Note, this would not exclude, as I read it, larger plastic totes, which are an anomaly. They are not tanks, they are not packages, unless we take "drum" to be inclusive, which i think is not intended. So totes, I suppose, are portable bulk containers with a capacity of over 101 gallons. The regulations do not address how to handle that kind of container. Container is also a defined term, by the way. It means "A receptacle, vessel, or form of bottle, can, package,tank or pipeline (where specifically included) used or capable of being used to contain, store, transfer, convey, remove, or withdraw spirits and denatured spirits." TTB fixes anomalies when they present problems. Since they have not dealt with the tote issue, they apparently do not perceive a problem that is worthy of the time necessary to give an answer. I've treated the totes question like a sleeping dog. I chose not to kick it.
  3. Canned Cocktails?

    Here's something from from 5.47 a(2) that causes me to question screw caps - "For metal containers which have the general shape and design of a can, which have a closure which is an integral part of the container, and which cannot be readily reclosed after opening"— leads to conclude that TTB may hold that cans with a screw cap are considered to be containers that must meet the standards of fill for bottles. There is no reason, in law, that that should be the case, but they obviously went to the trouble of adding the extra language integral and reclosing language for some perceived reason. Would TTB even take note of this? Who knows? But I'd hate to see someone invest in screw tops only to find that TTB puts the kibosh on such a container. I suggest asking first.
  4. Vodka Spritzer - standard of identity?

    This is an rather complicated question. 1. You cannot remove a product like vodka and carbonated water from the DSP premises in bulk (1.80). 2. You can do so in cans (see another post I made today on the issue of cans). 3. Removed in a can, it is not vodka, because it is not 80 proof (5.22). It would be a specialty item (5.35). 4. A fanciful name is required. So is a statement of composition unless it is a recognized cocktail, which I doubt. 5. If you remove the vodka (80 proof or more) , to the tasting room, in one gallon containers, and dump it into a barrel, then mix it with seltzer, and you have rectified it. 6. But premixing cocktails is deemed exempt rectification if you comply with some rules that TTB published years ago about premixing batches of margaritas. As I recall, that ruling is not easily found. My recollection is that it must be mixed for immediate consumption, which is defined to be consumption within 24 hours. I can't give the site right now because do not know it. 7. Similarly, the premixing doesn't violate rules that prohibit a retail form serving from other than the original container in which bottled. 8. Again, I would have to search for that ruling. It is going to say whether the premixing is possible. 9. But remember, if it is possible to premix, in a bulk container, under the rules I've not cited, you must do so on the tavern on the brewery premises (yes, you can serve spirits and wine there, as I assume you know) using spirits that were in containers of one gallon or less, that were properly labeled when you withdrew them from the DSP on tax determination an d received them on the tavern premises. 10. Neutral spirits are spirits distilled at more than 190 from any substance. It does not matter that the distilling material was derived from beer or wine. In whatever dilustions, it is a spirit and subject to spirits standards of identity (unless it is a mixture that is more than 50% wine on a proof gallon basis (5.11), which seems not to be what you have in mind at at.
  5. Canned Cocktails?

    Growlers in the tasting room are not allowed for at least two reasons. 1. The tasting room is not on bonded premises. If it is, TTB erred in approving it (19.52 ). All DSP operations, which include bottling, must take place on bonded premises. So no bottling on other than bonded premises (see definitions of distilled spirits operations and bonded premises in 19.1). 2. You cannot remove spirits in bulk (containers of more than one gallon) from the DSP to anyone not qualified to receive bulk spirits . The proprietor of a tasting room, retail area, is not among those qualified to receive spirits in bulk at any place other than the bonded premises (27 CFR 1.80 and following). Bottling is a processing operation. The bottling line must be on bonded premises when you conduct the bottling operations (19.1 again). You could alternate an adjacent brewery line from brewery to DSP, but it must be adjacent (19.143). You could probably qualify an outside area to DSP premises (you can have outside tanks - 19.74 -, so ...), but I'd want to frame that proposal carefully. Ditto from alternating an outside area that is designated as general premises to use as bonded premises (19.143 again). TTB talks about containers. Containers for sale to consumers can be either approved liquor bottles or cans. 5.11 - "Bottle. Any container, irrespective of the material from which made, used for the sale of distilled spirits at retail." The standards of fill for cans is found in 5.47a(2) For metal containers which have the general shape and design of a can, which have a closure which is an integral part of the container, and which cannot be readily reclosed after opening— 355 milliliters - 200 milliliters 100 milliliters 50 milliliters
  6. TTB forms for change in ownership?

    If you originally filed online, then forget the notices, etc. You make amendments using Permits Online. TTB will then do whatever is needed. Just do it within 30 days and sit back and wait. If they want an OOI application, they will ask for it, etc. The ball lands in TTB's court. If you submitted the original application on paper, then you will have to submit on notices, etc, as described in 19.114, referenced above, on paper. Write TTB, following the guidelines of 19.114 for changes in those who hold an equity interest, and 19.115 for changes in persons who exercise control in the manner of an officer or director in a corporation or a manager in a manager managed LLC. The important point - do follow the 30-day rule here too. Make sure that you are aware of the provisions of Section 1.42, which I will quote here: In the event of any change in the ownership, management, or control of any business operated pursuant to a basic permit (if the permittee is a corporation, if any change occurs in the officers, directors, or persons owning or controlling more than 10 percent of the voting stock of said corporation) the permittee shall immediately notify the appropriate TTB officer of such change, giving the names and addresses of all new persons participating in the ownership, management, or control of such business, or in the case of a corporation, the names and addresses of such new officers, directors, or persons owning or controlling more than 10 percent of the voting stock. Notice to the appropriate TTB officer of any such change shall be accompanied or supplemented by such data in reference to the personal or business history of such persons as the appropriate TTB officer may require. Reference, above, to the operating permit under part 19 is probably misleading. If you are engaged in the business of producing or processing beverage alcohol, and if TTB determines, after you give notice, that there has been a change in legal or actual control, it will require that you obtain a new basic permit under the FAA Act. That is not the operating permit described above, which is a permit you have if you are engaging in operations in industrial, not beverage, alcohol. Beverage alcohol is covered by the FAA basic permit, unless all you do is store, in which case an operating permit is required because of quirks in the way the law is worded. So, the approach is different depending on whether you originally filed online or on paper. But tell TTB within 30 days and ask that they respond appropriately within the allotted time. Call them and email them and establish a record that you have tried to comply. I try to answer general questions here in a general way. Details matter, and anything more than general answers can be misleading or misunderstood.
  7. Silk City says it well. Section 19.147 describes what you must do when you go out of business. One of the things you have to do is provide a written statement affirming that you have lawfully disposed of all spirits, denatured spirits, articles, wines, liquor bottles, and other pertinent items. Transfer in bond to another DSP for beverage use is a lawful disposition. That can be either in bulk, or as Silk City points out, in bottles, but remember you must have an approved application from the receiving DSP before you can do that (19.403). The restrictions on bulk sales are in 27 CFR 1.80. Note that they allow sales not only to DSP's, but to anyone qualified to receive spirits in bulk, but that is not generally feasible. Other than exotic sales to persons who operate customs manufacturing bonded warehouses, the other uses are all for industrial alcohol. Most DSP's are not qualified to produce or handle industrial alcohol. It requires an operating permit under the Internal Revenue Code (See section 19.92 and following), and if you have no bond, you had to declare that you would not be conducting such operations. If you do conduct them, you would have to buy a bond. Finally, since you designated the spirits as beverage alcohol at the time of the production gauge (even if you did not know you did this, you did so by default under the provisions of certain sections of the regulation I will not bore you with here) so would have to make application to redesignate them (19.487) before removing them to, say, someone who makes rum cake, which would trigger the operating permit and bonding requirements and ... So, even if you could declare the alcohol to be industrial rather than nonindustrial (the law's word for what we call "beverage'), you''d have more hurdles than you probably want. Note, if you do destroy the alcohol, recognize that, while, under 19.459, TTB does not access taxes on spirits voluntarily destroyed in the manner described in that section, you must follow the rules in 19.459, , which require that you gauge the spirits. Further, gauges of spirits destroyed are required by 19.283 and that requires that you prepare a gauge record (19.618) and record of destruction (19.617). Because you may be destroying a significant quantity of spirits, and will be attesting to their lawful disposition, make sure you dot the "i's" and cross the "t's" to protect against having to file a claim (19.462) and the possibility of denial, however remote that may be.
  8. Fermentation Open tank or Closed?

    Okay, I'm not a distiller, but I recall some real C02 problems around large, open top fermenters for wine. Perhaps the size mitigates. I'll leave it as a question about whether someone should take care to vent properly. I sure don't know.
  9. Storage Account

    I have never thought about that. I don't know why they put the PS identifier into the mix. I can't see that it is going to affect class and type. First, part 5 does not contain the word "steamed" nor "soaked." It makes no exception of the sort, "which has been stored in new charred oak that was not steamed or water soaked prior to use." You can't bury such an important requirement in an obscure section addressing cooperage identification, and that is the only place the issue appears in either part 5 or part 19. Second, the "PS" designation is stated in addition to one of the other required identifiers, not in lieu of, so the record would still show the CH or R designations necessary to establish, for example, whether a whiskey otherwise made in accordance with the standards of bourbon, 51% or more corn, etc, should be designated, based on the type of cooperate in which it was stored, as "bourbon" or as "whiskey distilled from bourbon mash." The container does not lose its CH designation because it was soaked. Therefore, I've got to believe it would be new charred for purposes of part 5 standards of identity and aging requirements. While TTB, or some predecessor agency, must have had some reason for requiring the PS designation, figuring that out would be a research project for which I do not have the time. Since it would require a research project, I conclude it is not something that has ever been an issue. Since it has never been an issue, I think it comes under things listed beneath the heading, don't kick a sleeping dog.
  10. Storage Account

    When you made your production gauge, you should have reported that you made whiskey, which you designate as "whiskey designate" (see 19.305 Identification of spirits. "Upon completion of the production gauge, the proprietor must identify containers of spirits as provided in subpart S of this part. When the proprietor intends to enter spirits into bonded storage for later packaging in wooden packages, the proprietor may identify the spirits with the designation to which they would be entitled if drawn into wooden packages, followed by the word ``Designate,'' for example, ``Bourbon Whisky Designate.'' You report it as whiskey (over 160 or 160 and under, depending on the proof of distillation" in part 1. You report it as whiskey entered into tanks in part III of the form. You apparently reported it correctly on your production report. There is no entry on the storage account where you show the type of storage. You are correct about that. You are also correct that it is information found in the distillery records. Your records must establish that the product is eligible for the designation stated on the label. When the spirits are in tanks, you must keep the tank record required by 19.592. When you transfer them to oak, you must keep the record required by 19.590(b)(5) and create the package record required by 19.591. The transfer is also recorded on the gauge record (19.618), which you must prepare when you package spirits from a tank in the storage account. The gauge record must include "Cooperage identification (``C'' for charred, ``REC'' for recharred, ``P'' for plain, ``PAR'' for paraffined, ``G'' for glued, or ``R'' for reused, and ``PS'' if a barrel has been steamed or water soaked before filling). That requirement is buried pretty deeply in the regulations, but it is essential if you want to be able to prove your bourbon, rye, wheat or malt whiskey was aged in new charred oak, or that your whiskey distilled from malt mash was aged, Scotch style, in used oak, etc. It is also what justifies age claims. Hope this helps. ;
  11. Hi Everyone from NC

    Shhh>! Don't openly advertise that you are distilling prior to getting TTB's permission.
  12. Bond termination

    For this reason, it may be beneficial to keep your bond in place. There are many other mitigating circumstances as to why you may want to keep your bond in place that I will address in a separate post. I disagree about keeping the bond in place. Yes, whether you are required to have a bond is determined solely by the amount of tax you paid last year or reasonably expect to pay this year. So it would be possible to have a million dollar tax liability for operations (you are storing a lot of bourbon for future removal) and have no bond coverage because you are exempt from all bonding based on your withdrawals of less than $50K. So, the question, "So, do I need a bond?" is legitimate. Let's look at that. The prospect of having TTB chasing you for money is scary, but as I see it, the question is whether you should fear that less because you have a bond. First, it is unlikely that you will have losses by theft, fire or disaster and you generally are not responsible for paying the taxes on such losses. You are liable for taxes on theft if the theft involved collusion by you or an employee or agent (provided you keep your doors locked or have locks on outside tanks or conveyances). Losses by fire or disaster require a claim, but they are infrequent, at best, and the claim process is not odious. Further, you'd be a damned fool not to file the claim, because it you don't someone is going to come looking for the money. The regulations require payment of tax unless you file a claim. They do not say, well, if the claim seems to burdensome, just don't pay it and let the bonding company suffer the consequences of your failure. Do you think the surety will pay when you did not file the claim required to get out of the liability? No? I agree. So you are going to need to file the claim bond or no bond. If you just say screw it, the surety will come looking for its pound of flesh. That is, the bond is not a get out of it free card. If InsuranceMan knows differently, I'll bow to his experience, but I've never seen a bond application on which the proprietor and at least some of the principals, individually, did not indemnify the surety against loss in the event that the surety has to pay because the proprietor would not. The proprietor and its named principals jointly and severally liable to make the surety whole. The process goes like this, in the unlikely event that TTB determines that you are liable for taxes on product lost, etc, they will assess the taxes against you, not the bonding company. In most cases, they will entertain an offer in compromise for a part of the liability. If they demand payment, either of the entire amount or a portion of it, you must make it. You do not go to your bonding company, get money, and pay it. You dig into your own pocket. If your pocket is not deep enough, and if TTB will not accept a compromise you propose, they then collect from the bonding company Guess what happens next. :-) The bonding company comes after the proprietor and any persons who personally indemnified it against loss. Don't want to pay the surety? Be prepared to appear in court at a hearing where they seek to discover your assets and then try to grab them for the debt you owe as an indemnifier. In short, you are going to pay one way or the other. Now, if I'm wrong about this, I'll gladly tip my hat in the direction of the person who can show me the error of my analysis. In the meantime, for those who like to read regulations, look at: Sec. 19.254 discuss circumstances under which TTB will assess taxes. Sec. 19.461 discusses losses and shortages in general. It provides, in part, Except as otherwise provided in paragraph (b) of this section, TTB will not collect tax on spirits,denatured spirits, or wines that are lost, destroyed, or otherwise unaccounted for while in bond, and if the tax has already been paid, TTB will refund the tax. [The emphasis is mine]. It then explains the circumstances when it will collect tax. Read this section. Then, there are a lot of sections related to claims, some of which will probably have you scratching your head. But I return to the point - you are going to have to file the claim or suffer the consequences of not doing so. Please, if I am wrong about any of this, yell loudly. I've got the notify me of replies button turned on.
  13. Shipping

    Yes, I made the comment only because when someone tells you something, you should not take their word for it. Okay, sometimes you should, because you don't need a source if a TTB officer tells you you are required to put serial numbers on your cases or your gauge records must be serially numbered - everyone knows that, right :-). But when we get to talking about things that can result in material violations, getting them to cite a source avoids off-the-cuff and perhaps ill considered answers that can either (1) prevent you from doing something you may do, or (2) convince you to do something that you may not do. My advice to clients is always, don't trust any answer, even mine, without a citation of the source on which I am relying. I expect clients to challenge me with the question, "How did you reach that conclusion?" I don't take it as an insult. I take it as an exercise of due diligence :-).
  14. Shipping

    The TTB agent provided correct information. The agent should have given a source, and you should ask for one when you receive advice like this. Then you can verify and see for yourself what lies behind it. TTB explains its position in Revenue ruling 2001-1. You can read the whole of it at: https://ttb.gov/rulings/2000-1.ht Here is what it held. Held: The Webb-Kenyon Act is a law relating to the enforcement of the Twenty-first Amendment and is a condition of the basic permit under 27 U.S.C. § 204(d) for violations of which ATF may suspend or revoke the basic permit. Held Further: Under these provisions of law, ATF could under appropriate circumstances take administrative action against a basic permit where a basic permittee ships alcoholic beverages into a State in violation of the laws of that State. ATF will intervene when it is determined that there is a continuing, material, adverse impact upon a State through the actions of a basic permittee located outside the boundaries of the affected State. However, while ATF is vested with authority to regulate interstate commerce in alcoholic beverages pursuant to the FAA Act, the extent of this authority does not extend to situations where an out-of-State retailer is making the shipment into the State of the consumer. Note that TTB does not have jurisdiction to action against a retailer. States can. And against carriers as well. FedEx and other carriers do not need that grief. Neither do you. Wineries fought long and hard to get reciprocity agreements in place. The state wine associations and others pushed. It was not something that happened overnight.
  15. Tax on Spirits Transferred in Bond in Bottles

    You can establish non-contiguous premises as a part of the existing DSP and use it for storage of spirits. When the two locations are part of the same DSP, you can ship bottled goods from one to the other, and remove them from either location. The thing is, you could do that before the change. The problem, to which DISCUS has objected in the past, is the proximity TTB requires. DISCUS lobbies for 200 miles; TTB allows 10. So, the intent has to be to allow a transfer of bottled goods between two separate DSP's. I was not a fly on the wall to the discussions and so have no knowledge of what was discussed. I suspect that the intent is to allow someone who either produces or processes a product to ship that product to a different DSP for bottling and receive the bottled goods back on its DSP premises. That would allow someone to get spirits canned by another DSP, or get spirits bottled in a size for which they have no facility, and then accept the return of those spirits in bond prior to the time of removal. Removing bottled spirits, at the reduced rate, from a DSP which did not produce, process, or bottle the spirits, is the issue. I don't see that the law allows that, but TTB may be able to read intent in a way that permits it. That may also be a problem, because normally, when a change is made to the law, there is some record of meetings and hearings, etc, what is called legislative history, wherein the intent is expressed, but I doubt that it exists here. All of this is reading T-leaves. We shall see what TTB thinks about what the law allows when TTB expresses its opinion. That is not likely to be soon if the people who write the regulations are not working. To see what TTB has to say about things, as they decide, visit https://www.ttb.gov/alcohol/craft-beverage-modernization-and-tax-reform.shtml. Here is all that it has had to say to date. reduced tax rates on distilled spirits distilled or processed and removed during the calendar year or imported by the importer into the United States during the calendar year. These rates are equal to $2.70 per proof gallon on the first 100,000 proof gallons removed or imported, and $13.34 per proof gallon on the next 22.13 million proof gallons removed or imported. The tax rate for distilled spirits not subject to the reduced rates is $13.50 per proof gallon. The reduced tax rates or tax credits became effective January 1, 2018, and they apply to products removed in calendar years 2018 or 2019 regardless of when the products were produced. (See the Act for the specific quantities of products eligible for the reduced tax rates or tax credits and any other limitations.) Foreign Manufacturer Election: In the case of distilled spirits produced outside the United States and imported, the Act provides for foreign distilled spirits manufacturers to assign the reduced tax rates to importers who elect to receive them. Amendment of Section 7652(f)(2): The Act amends section 7652(f)(2) of the IRC to provide that the reduced rates of tax for distilled spirits are not taken into account when determining the amounts covered into the treasuries of Puerto Rico and the U.S. Virgin Islands. Transfer in Bond of Non-Bulk Distilled Spirits: The Act authorizes the transfer in bond of distilled spirits between distilled spirits plants irrespective of whether the distilled spirits are transferred in bulk or non-bulk containers. Controlled Group: The Act provides that the quantities to which the credits and reduced rates apply shall be applied to the controlled group. The Act also provides that an importer electing to receive an assignment of a credit or reduced tax rate from a foreign manufacturer shall be deemed a member of the controlled group of the foreign manufacturer. Single Taxpayer: The Act provides that two or more entities (whether or not under common control) that produce products marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the credits and reduced rates. Taxpayers continue to file taxes using TTB Form 5000.24 or TTB Form 5000.24sm, either on paper or through pay.gov. No new tax return forms are required to pay taxes under the new tax provisions. Stay tuned.