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Transfer Spirits FROM BW -to- DSP?

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Anyone have experience with / is it possible to transfer spirits FROM a bonded winery TO a DSP?

We're a winery with unused grape spirits that were acquired for wine fortification FROM a DSP. 

We've added a DSP, and would like to transfer the brandy to our DSP for further rectification, blending, etc. 

Can't find a pathway/paperwork for this, was told at one point it was possible. Can anyone guide me through the required steps/docs? Thanks in advance.

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I don't see a way on the winery 5120.17 monthly report to do that transfer. Assuming the alcohol inventory has been kept track of in Part III on page 2 of that form, I would be tempted to record the transfer on line 7 and make a note in part X. A quick call to the TTB should clarify the issue.

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20 hours ago, kkbodine said:

I don't see a way on the winery 5120.17 monthly report to do that transfer. Assuming the alcohol inventory has been kept track of in Part III on page 2 of that form, I would be tempted to record the transfer on line 7 and make a note in part X. A quick call to the TTB should clarify the issue.

Thanks - you're exactly correct. Spoke with TTB this morning, and they confirmed that because there's no way to submit an application for it, we need to go by BW regs and submit it on line 7. She said there was no need to make remarks, but advised that to cover my butt in case of an audit I should note on the DSP TIB records that I called the NRC and they advised that this was the only way to do it (and that the regs require a BW to get rid of any spirits which are no longer going to be used for intended purpose on original TIB/reception). 

Thanks for the help!

-AD

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We aways use any spirits transferred into our winery right away so I don't even carry over inventory; I figured there would be a solution as it must have been an issue at some point. Glad I could help and was actually right.

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I wonder if this covers wineries aging brandy on their premises and sending aged spirits to a DSP or rectifier for bottling?

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14 hours ago, Classick said:

I wonder if this covers wineries aging brandy on their premises and sending aged spirits to a DSP or rectifier for bottling?

I can't imagine that TTB would really like that arrangement as the winery would be acting as a distillery. There really isn't a line on the form for the transfer other than the blank line 7 so it would seem to be an operation that is meant to be uncommon. Or maybe they just didn't think of it.

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CFR states that any spirits not used for the intended purpose (a winery's only legally allowable intended purpose for receiving of spirits is for wine fortification) must be "removed or destroyed". IRC agent agreed that there's no prescribed means/method for a winery to "remove or destroy" spirits to begin with, so the code needs work (there's no "pathway" prescribed for wineries to get rid of spirits, even as discussed above, sending to a DSP). So it's a big gray area. 

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On 4/25/2017 at 7:00 AM, Allan said:

Thanks - you're exactly correct. Spoke with TTB this morning, and they confirmed that because there's no way to submit an application for it, we need to go by BW regs and submit it on line 7. She said there was no need to make remarks, but advised that to cover my butt in case of an audit I should note on the DSP TIB records that I called the NRC and they advised that this was the only way to do it (and that the regs require a BW to get rid of any spirits which are no longer going to be used for intended purpose on original TIB/reception). 

 

A winery may return, to a DSP, wine spirits that it obtained, from a DSP, for use in wine production.  The DSP may receive them for any lawful use. 

To understand who, what, where, and how, forget analysis and guesses from operating report forms.  To understand the rules, you must look to the regulations.   TTB employees who give answers without consulting the regulations can lead you astray.

 In this case, working through the regulations is not an easy chore.  Let’s do it anyway, because it is chock full of learning points:

When the distillery ships the spirits to the winery, the spirits remain in bond.  “In bond” is defined to include “spirits withdrawn without payment of tax under 26 U.S.C. 5214, and with respect to which relief from liability has not occurred under 26 U.S.C. 5005(e)(2) [§19.1].”  Shipping spirits to a winery for the winery to use in wine production is a withdrawal under §5214.

Take note of the term “withdraw without payment of tax.”  For accounting purposes, a withdrawal without payment of tax is not a “transfer in bond.”  The rules distinguish between the two.  The withdrawal to a winery is treated as a withdrawal without payment of tax tax for use in wine production [§19.418(a)(6)].  You should report the transaction as a “withdrawal without payment of tax for use in wine production” on the account from which you withdrew them.   The forms have a line for this.  Do not report it as a transfer in bond.

To be clear, the sprits are “in bond,” but the transfer is not a “transfer in bond,” it is a “withdrawal without payment of tax.” 

There is no natural law at work here; these are arbitrary rules, but they are important because they make for consistent recording and allow TTB to make different rules for returns and relief from the tax liability.  For accounting purposes, they are no more arbitrary than the distinctions accountants make between, say, long-term and short-term liabilities.  For rules, they are no more arbitrary than the different speed limits one sees for cars and trucks. To handle the accounting correctly, and to follow the rules, you must know what the terms mean and how to classify the transactions.

With definition out of the way, Section 19.454(i) applies to returns of spirits from a winery to a DSP.  It provides, “Wine spirits withdrawn without payment of tax for use in wine production can be returned to any DSP [note, not just the DSP from which they were withdrawn] for any lawful purpose, subject to two conditions. 

·        The DSP proprietor must obtain approval as provided in §19.403.  That is the section that requires an application to TTB to receive a transfer in bond.  Here TTB allows the return of spirits withdrawn without payment of tax to piggyback on the transfer in bond application, even though the transfer is not treated as a transfer in bond for accounting purposes.

·        The winery must follow the wine regulation.  Section 24.226 provides, in pertinent part, “If spirits are to be transferred to a distilled spirits plant or to bonded wine premises, the proprietor shall use the transfer record and procedures prescribed by §19.405.” That section describes the transfer document for transfers in bond.  Again, although it is not a transfer in bond, TTB piggybacks, presumably as a matter of convenience, on the transfer in bond provisions.

 

Mixing the documentation for returns of spirits withdrawn for use in wine production with the documentation required for transfers in bond can lead to confusion.  But be clear.  Neither the shipment to the winery nor the return from the winery are treated as transfers in bond.  With that in mind, here are the rules: 

The shipping winery prepares the transfer record required by §19.405.  Yes, this is a transfer in bond record.  The receiving DSP must follow the rules in §19.407.  These are lengthy and I will not repeat them here.  Receipt involves, among other things, gauging the spirits received, entering certain information to the transfer record, reporting unusual loses, and, of course, making entries to the appropriate DSP record.

The regulations make specific provision returning the spirits to the production account and the processing account.  They do not make specific provision for returning them to the storage account, but I see no harm in doing so, since they may be returned for any lawful purpose, which would include storage. 

Section Sec. 19.315(a)(3) provides the rules for redistillation in the production account.  It provides, “A proprietor may receive and redistill spirits have been withdrawn without payment of tax and returned to bond under subpart T of this part (Subpart T is an error, it should be subpart Q).  Note, that if, for any reason, you want to redistill the spirits, you must first have an approved formula.  That requirement is well hidden in the §19.77(b), which requires statements of production procedure, and is easily overlooked.  It provides, “If the applicant intends to redistill spirits in the production account, the applicant must submit and receive approval for such redistillation on form TTB F 5110.38, Formula for Distilled Spirits under the Federal Alcohol Administration Act.)

Sec. 19.342 (c) provides that a DSP may “receive spirits into the processing account that are returned to bond under the provisions of 26 U.S.C. 5215. 

The rules for receiving spirits into the storage account do not include any provision that specifically states that you can receive, in the storage account, spirits withdrawn without payment of tax.  Here, I must break my “read the regulations rule.”   I think the omission is a glitch, to use a nontechnical word. 

Line 4 of the monthly report of storage operations captures returns of bulk spirits into the storage account.  In a roll-over form that explains the entries to be made in on each line, TTB gives an example.  You would use line 4, they say, to record the return of bulk spirits that were shipped to, but refused by, the consignee.  Since you may return, to your DSP, for any lawful purpose, spirits withdrawn, without payment of tax, to a winery, for use in wine production, returning such spirits for storage is appropriate.  That is a long string of prepositional phrases for which I apologize.  Line 4 is a convenient place to record the transfer.  That is short and to the point, even if I cannot find a direct reference to this in the regulations.

 

 

 

 

 

 

 

 

 

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@dhdunbar ... far more info than I wanted to read, but very glad you took the time to offer it. Many thanks. 

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