Flavored Spirits and Monthly Storage

[Palmetto Coast]

Just out of curiosity, if you make, say, a flavored whiskey and log it into the monthly storage report, what column do you log it?  I have been told a couple different things and wanted to see how much cleanup I might need to do to my records.😧

Thanks!

[Jedd Haas]

How is the whiskey being flavored? For the sake of discussion, let's say some flavoring is being added, either directly or by infusion. In that case, the flavoring operating would be a processing operation. So the whiskey would be transferred from storage to the processing account, flavored, then remain in the processing account until it was bottled and sold.

That's my understanding, but you probably want to check 27 CFR to be sure.

[Rum]

That is my understanding as well. We have spiced rum in barrels. We had to move it to processing to do the spicing. Once in processing it cannot be moved back to the storage account.

[JNorris]

As one of my distillers said "Processing is the account of no return."  Movements out of processing can only be done via a redistillation otherwise spirits will stay there until they are bottled and sold.  All adding of ingredients must be done in processing.  See below two CFRs regarding flavorings, batch records and accounts.  I am no dhdunbar so maybe he can chime in.

https://www.law.cornell.edu/cfr/text/27/19.342

§ 19.342 Receipt of spirits, wines, and alcoholic flavoring materials for processing.
(a)Receipt of bulk spirits. A proprietor may receive bulk spirits into the processing account:

(1) From the production or storage account at the same plant;

(2) By transfer in bond from another distilled spirits plant; or

(3) By withdrawal from customs custody under 26 U.S.C. 5232.

(b)Receipt of wines. A proprietor may receive wines into the processing account:

(1) From the storage account at the same plant; or

(2) By transfer in bond from a bonded wine cellar or another distilled spirits plant.

(c)Receipt of spirits returned to bond. A proprietor may receive spirits into the processing account that are returned to bond under the provisions of 26 U.S.C. 5215.

(d)Receipt of alcoholic flavoring materials. A proprietor may receive alcoholic flavoring materials into the processing account.

(e)Dumping of spirits, wines, and alcoholic flavoring materials. As provided in §§ 19.343 and 19.598, the proprietor must prepare a dump/batch record when spirits, wines, and alcoholic flavoring materials are dumped for use in the processing account. Spirits, wines, and alcoholic flavoring materials that are dumped into the processing account are subject to the following rules:

(1) Spirits and wines received in bulk containers or conveyances may be retained in the containers or conveyances in which received until used, but must be recorded as dumped upon receipt;

(2) Spirits and wines received by pipeline must be deposited in tanks and recorded as dumped on receipt; and

(3)Alcoholic flavoring materials may be retained in the containers in which received or may be transferred to another container if the proprietor marks or otherwise indicates thereon, the full identification of the original container, the date of receipt, and the quantity deposited. Alcoholic flavoring materials and nonalcoholic ingredients will be considered dumped when mixed with spirits or wines.

(f)Gauging. A proprietor must determine the proof gallon content of spirits, wines, and alcoholic flavoring materials at the time of dumping. Additional information regarding the gauging of spirits, wines, and alcoholic flavoring materials is found in subpart K of this part.

https://www.law.cornell.edu/cfr/text/27/19.343

 

§ 19.343 Use of spirits, wines, and alcoholic flavoring materials.

A proprietor must prepare a dump/batch record in accordance with § 19.598 for spirits, wines, alcoholic flavoring materials, and nonalcoholic ingredients used in the manufacture of a distilled spirits product according to the following rules.

(a)Dump record. A proprietor must prepare a dump record when spirits, wines, or alcoholic flavoring materials are dumped for use in the manufacture of a distilled spirits product, and when spirits are dumped for redistillation in the processing account.

(b)Batch record. A proprietor must prepare a batch record to report:

(1) The dumping of spirits that are to be used immediately and in their entirety in preparing a batch of a product manufactured under an approved formula;

(2) The use of spirits or wines previously dumped, reported on dump records and retained in tanks or receptacles; or

(3) The use of any combination of ingredients under paragraph (b)(1) or paragraph (b)(2) of this section in preparing a batch of product manufactured under an approved formula.

[dhdunbar]

J Norris and others have it right.  The  direct statement of the prohibition is Sec. 19.351(c), which is headed removals from processing.  It states, "Except as provided in paragraph (b)(2) and (3) of this section, spirits may not be transferred from the processing account to the storage account." 

Why they bury such a basic tenant so deeply in the text is a mystery to me, but they do.  The two exceptions mentioned relate to deposits into the production account, not the storage account, but I'd read (c) as saying you can pass them through the storage account on the way to production.  I think someone must have had a need for that and petitioned for it.  It otherwise makes no sense, but then I can't think of a rationale for the one way gate into processing rule either.  The regulation sites nine sections of law on which it is based and none have a one way rule.

The operations you may conduct in the storage account are limited. There are rules that allow filling packages, changing packages, mingling and blending, and adding oak chips to spirits and caramel to rum or brandy, all subject to restrictions, etc.  That's it.

Under §19.325 you can change packages  and barrels are packages.  However, and I can't find any direct provision affirming this, if the repackaging results in a change in the class and type, it must be done in the processing account.  That suggests a detour into the way repackaging bourbon is different than repackaging rye, but I'll not go there now.

I can't find any direct requirement that all operations that change class and type, must be done in processing, but there is an indirect path to that conclusion.

The indirect  is through the requirement  you must designate spirits by kind when you put them into a package (barrel) and that you may not change the designation you have given them without the written permission of TTB (§§19.487(a) and (b) respectively]. 

An approved formula constitutes such written permission.

Section §19.348, which is a processing account rule, requires that you must have an approved formula before you "Blend, mix, purify, refine, compound, or treat spirits in any manner which results in a change of character, composition, class, or type of the spirits, including redistillation as provided in Sec.19.314; or produce gin or vodka by other than original and continuous distillation.  

Section 19.343, which also a processing account rule, provides that you must make a dump record when you dump spirits for use in the manufacturing of a distilled spirits product and when when spirits are dumped for redistillation in the processing account.  It also provides that you must prepare a batch record to record the dumping of spirits that are to be used in their entirety in preparing a batch of product manufactured under an approved formula and the use of such spirits in preparing a batch of product manufactured under an approved formula.   

The dump/batch record is a processing account record (§19.598).

Finally, all "manufacturing," which is a term defined only by the context in  which it occurs, occurs in the processing account.  But its meaning, as TTB uses it, is clear from the definition of processor. 

A processor is "any person qualified under this part who manufactures, mixes, bottles, or otherwise processes distilled spirits (§19.1)." 

Further 19.591, which is in the subpart that addresses processing operations  discusses manufacturing records. 

Thus, one an, be a string of syllogistic logic, deduce that specialty items, which are formula products, are all manufactured in the processing account, and so may not be transferred to the storage account after they are manufactured, unless you want to redistill them to neutral spirits.,any 

 It's all a tangle of rules that someone, not me, should set out by type of spirit.  A "for bourbon you may," "for American type whiskey other than bourbon you may not,"  "for whiskey designated as distilled from malt mash you may, but need not," set of rules, saying what you must, must not, and may do with that type of spirit; the criteria and rules for doing anything that you must or may do; the account in which you do it; what records you must keep of the operations and transactions; and what those records must show.

 

[jamesking]

This is really great information.  Thank you all for contributing.  I'm hoping someone can clarify some specific situations related to this topic.  I think this was hit in a more general (and regulatory) sense but I want to make sure I’m doing it correctly.

From what’s been already stated, here is how I think I would record blending of spirits currently in storage:

1.  Receive bulk spirits into Processing  - line 2 Received. 
2.  Do my blending/flavoring steps
3. If I bottle, they go OUT of bulk on Part I line 9,  IN on Part II line 28 Bottled or Packaged in Col (b)-BOTTLED
4. If I barrel them for further aging, they go OUT of Part I on line 9 and IN on Part II on line 28 Bottled or Packaged  on Col (c)-PACKAGED
5. The barreled spirits then sit “on-hand” as barreled spirits on Part II col(c) - Packaged
6. When I dump blended barrels to finish and bottle: they move out of Part II col(c) on line 40 and into Part I line 6 - Dumped for further processing.  Back to step 3 to finish/bottle.

Would Processing Part II(c)-Packaged generally only be barreled items waiting for further processing or bottling? (if you only sell bottles)

Seems kind of confusing if your barrels are in both storage and processing.

 

Can one of the experts confirm if this is correct?

[twowheels]

@jamesking

I'm bumping this up again despite the age of the last post because I have exactly the same question. Did you ever confirm this? 

To recap the processing report operations in question:

Multiple barrels move from Part 1 to Part II (Bottled or Packaged, 9c) part of this batch is bottled (28b) and part of the batch is put back in a barrel (28c). 

That blended barrel hangs out in the packaged column until it's ready and is then dumped for further processing (40c, 6c) and bottled (9c, 28c).

Any comments most welcome.

Thanks!